Hollenbeck v. Louden
| Decision Date | 15 April 1915 |
| Docket Number | 3635 |
| Parties | I. O. HOLLENBECK, Plaintiff and respondent, v. WILLIAM LOUDEN, Defendant, and W. A. Hazle, Trustee in bankruptcy, Intervenor and Appellant. |
| Court | South Dakota Supreme Court |
Appeal from Circuit Court, Spink County, SD
#3635--Affirmed
L. W. Crofoot, Fred G. Huntington
Attorneys for Appellant.
Morris & Moriarty
Attorneys for Respondent.
Opinion filed April 15, 1915
This action was instituted to foreclose a chattel mortgage upon a stock of general merchandise given by defendant Louden to plaintiff. Defendant appeared and answered. W. A. Hazle, representing general creditors, as trustee in bankruptcy of defendant, Louden, by intervention, also became a party to the action. Findings and judgment were made and entered in favor of plaintiff adjudging said mortgage to be a lien upon said merchandise, and that the proceeds thereof be applied to the satisfaction of plaintiff's mortgage indebtedness. The said trustee, as intervener, has appealed, assigning among oilers, as error, that the judgment is not sustained by the findings, and insufficiency of the evidence to sustain certain findings. The effect of the findings and judgment is to make plaintiff's mortgage a prior lien upon said merchandise in preference to any of the creditors of the mortgagor. So far as the matters necessary to be considered are concerned, there is no material conflict in the evidence. The mortgage to plaintiff was executed and delivered on the 1st day of March, 1913, and withheld from record until the 26th day of July, 1913.
It is first contended by appellant that plaintiff's mortgage is inherently void by reason of the provisions thereof, in that it covers a stock of general merchandise, and there is no provision therein with reference to sales from said stock in the usual course of retail trade, and no provision for any accounting of the proceeds of sales to the mortgagee, and no provision as to after-acquired merchandise that might be added to said stock in the usual course of. said business. It appears that the mortgagor did make sales from the mortgaged property, and did pay to plaintiff the amount of about $750. We are of the view that, under such circumstances, such a mortgage is not absolutely or conclusively void, but is prime facie or presumptively void, and that the one claiming under such a mortgage has the burden of showing that it was made in good faith upon proper consideration and without intent to hinder or delay creditors. This burden was met by plaintiff by showing it to be a purchase-money mortgage securing an indebtedness of $2,465, and being a part of the purchase price of said stock of merchandise, valued at about $9,000, which was, on the 1st day of March, 1913, sold and delivered by plaintiff to defendant. There was no evidence tending to show that said mortgage was given with any intent, by either party, to defraud, hinder, or delay creditors, or that said mortgagor was insolvent at the time of the execution of said mortgage, or at the time of the filing thereof, or that said mortgagor or mortgagee, at either of said times, had any reason to believe that said mortgagor was insolvent, or that said mortgage was made in view or contemplation of bankruptcy on the part of said mortgagor, so as to make the giving thereof an unlawful preference, or void, under sections 60 and 67 of the federal Bankruptcy Act. The following authorities seem to sustain this conclusion: Black Hills Mercantile Co. v. Gardiner, 5 S.D. 246, 58 N.W. 557; First National Bank v. Calkins, 12 S.D. 411, 81 N.W. 732; Cobbey on Chattel Mortgages, §§ 219 to 312; Robinson v. Elliott, 2 Wall. 513, 22 L.Ed. 758; Jones on Chattel Mortgages, § 405b; Greeley v. Winsor, 11 S.D. 618, 48 N.W. 214; Lane v. Starr, 1 S.D. 107, 45 N.W. 212; 1 Fed. Stat. Ann. § 60, pp. 672 to 677 ,and section 67, pp. 688 to 696; Asbury Park Association v. Shepherd (N. J. Ch.) 50 Atl. 65; Miller v. Shriver, 197 Pa. 191, 46 Atl. 926; Grant v. Powers Dry Goods Co., 23 S.D. 195, 121 N.W. 95.
It is also contended by appellant that, under section 2085, Civil Code, providing that mortgages of personal property are void as against creditors unless filed, plaintiff's said mortgage void as against any and all the creditors of said mortgagor, Louden. It appears that said mortgagor has two classes of creditors: (1) Those whose debts against Louden were curred prior to the execution of plaintiff's mortgage; and (2) those whose debts were incurred between the time of the execution and filing of said mortgage. In one sense a mortgage, where the same is withheld from record, as in this case, is void as to all the creditors of the mortgagor, but those creditors of the first class, who became such before the existence of the mortgage, are not in a position to avoid such mortgage, unless, before the filing thereof, they have acquired a lien thereon by way of execution or attachment levy, or otherwise; while creditors of the second class, who became such while such mortgage was being withheld from record, are in a position to avoid such mortgage at any subsequent time either before or after the filing thereof, without having acquired a lien thereon prior to such filing. As to creditors of the first class such a mortgage is conditionally void; the condition being that the creditor must acquire some lien on the mortgaged property prior to the filing of the mortgage. Noyes v. Brace, 8 S.D. 190, 65 N.W. 1071; Jones on Chattel Mortgages, § 245; Harrison v. South Carthage , Mining Co., 106 Mo. App. 32, 79 S.W. 1160. As to creditors of the second class such mortgage is absolutely void, and it makes no difference whether the creditor was deceived or misled, for the statute makes no such condition, and neither does it make any difference whether or not the mortgage was withheld from record with fraudulent intent or by agreement. It is the fact of withholding the same from record which makes void the mortgage. A creditor extending credit during the period the mortgage was withheld is as much harmed by the good-natured well-intended indolence and carelessness of the mortgagee as he would be by a fraudulent agreement not to file the same for record. Such a creditor at any subsequent time may avoid such a mortgage in any proper proceeding without having acquired a lien on the mortgaged property prior to the filling thereof. Ephraim v. Kelleher, 4 Wash. 243, 29 Pac. 385, 18 L.R.A. 604. The same construction is given to similar statutes in the states of Missouri, New York, New Jersey, Michigan, North Dakota, and California. Harrison v. South Carthage Mining Co., 95 Mo. 80, 68 S.W. 963; Id., 106 Mo. App. 32, 79 S.W. 1160; Karts v. Gane, 136 N.Y. 316, 32 N.E. 1073; Button Co. v. Speilmann, 50 N.J. Eq. 120, 24 Atl. 571; Cutler v. Steele, 85 Mich: 627, 48 N.W. 631; Hilliard v. Cagle, 46 Miss. 336; Bank v. Oium, 3 N.D. 193, 54 N.W. 1034, 44 Am.St.Rep. 533; Ruggles v. Cannedy, 127 Cal. 290, 53 Pac. 911, 59 Pac.. 827, 46 L.R.A. 371; Jones on Chattel Mortgages, § 245. This is sometimes spoken of as the "New York" rule, which rule has been heretofore approved by this court. Kimball v. Kirby, 4 S.D. 152, 55 N.W. 1110; Jewett v. Sundback, 5 S.D. 111, 58 N.W. 20; Noyes v. Brace, 8 S.D. 190, 65 N.W. 1071; Pierson v. Hickey, 16 S.D. 46, 91 N.W. 339. It will be noted, however, that the courts of New York and New Jersey go further, and hold that antecedent creditors may avoid such a mortgage, although they acquired no lien until after the filing of such mortgage. We are of the view, however, that the weight of authority is otherwise in this particular. It is contended that the former decision of this court in Bank v. North, 2 S.D. 480, 51 N.W. 96, establishes a different rule; but we are of the view that that decision was controlled by the facts and issues peculiar to that case, and is not applicable to the facts of this case. The case of Noyes v. Brace, in principle, is the same as the case at bar, and this court pointed out the distinguishing differences of Bank v. North in the Noyes case. Applying the rule to this case, it necessarily follows that all those creditors of Louden, who became such before the 1st day of March, 1913, but who had not obtained a lien of some character upon the mortgaged property before the filing of said mortgage, have no rights prior or superior to plaintiff's mortgage, while all the debts and claims of those creditors incurred during the time said mortgage was being withheld...
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