Knickerbocker Trust Co. v. Penn Cordage Co.

• Decision Date: 13 June 1903
• Parties: KNICKERBOCKER TRUST CO. v. PENN CORDAGE CO. et al.
• Court: New Jersey Court of Chancery

55 A. 231

65 N.J.E. 181

KNICKERBOCKER TRUST CO.

v. PENN CORDAGE CO. et al.

Court of Chancery of New Jersey.

June 13, 1903.

(Syllabus by the Court.)

Ou rehearing. Decree for defendants.

For former opinion, see 50 Atl. 459.

This cause was heretofore argued in extenso, and an opinion given on the whole case. See 50 Atl. 459. On hearing that argument, the Vice Chancellor understood from counsel then present that the complainant admitted that its mortgage had not been Tecorded as a chattel mortgage, and that it was ineffectual as a chattel mortgage against the claim of the creditors of the defendant Penn Cordage Company, mortgagor. When that opinion was pronounced, the counsel for the complainant insisted that it was not intended by him to admit the invalidity of the complainant's mortgage as a chattel mortgage; that he had supposed that he had submitted that point to the Vice Chancellor for consideration and determination. The counsel for the defendants were consulted as to this misunderstanding, and, by agreement, the testimony in the cause has been reopened on the single point, "Is the complainant's mortgage valid, under the chattel mortgage act, against the claim of the creditors of the mortgagor?" This question has been argued by counsel upon the following stipulation and admissions of facts:

"It is stipulated and agreed by and between the parties hereto as follows:

"(1) That on or about April 7, 1896, the original mortgage from the Penn Cordage Company to the Knickerbocker Trust Company, as trustee, dated February 1, 1896, which lias heretofore been put in evidence, and marked 'Exhibit C-5' herein, was sent to the clerk of Burlington county, Mt. Holly, N. J., inclosed in a letter, which was in the following terms: 'April 7th, 1896. Dear Sir: At the request of the Knickerbocker Trust Company of this city, we enclose a discharge of mortgage recorded in your office, executed by William Keen to Adolph Segal, the discharge being executed by Howard Lippincott, Segal's Assignee. Kindly satisfy this mortgage of record in your office, and simultaneously record in your office the enclosed mortgage covering the same property, executed by the Penn Cordage Company, to the Knickerbocker Trust Company, as Trustee. On receipt of a memorandum of your fees for satisfying the old mortgage and recording the new one, we will promptly remit. So soon as the old mortgage is discharged of record and the new one recorded, kindly wire the Knickerbocker Trust Company, No. 66 Broadway, this city, to that effect, at the expense of the Trust Company. Yours very truly, Davies, Stone & Auerbach. To the Clerk of Burlington County, Mount Holly, N. J.'

"(2) That the mortgage executed by William Keen to Adolph Segal, referred to in said letter, had theretofore been duly recorded as a mortgage of real property in a book set apart for the recording of real estate mortgages, and also as a chattel mortgage in a book set apart for the recording of chattel mortgages, by the clerk of Burlington county, and that the discharge of said mortgage referred to in said letter was likewise duly recorded and entered in both of said books. That said new mortgage, to wit, said mortgage from the Penn Cordage Company to the Knickerbocker Trust Company, as trustee, was thereafter, to wit, on the 10th day of April, 1896, recorded by the clerk of Burlington county, N. J., in a book kept by him, and designated 'Book A-4' of Mortgages, at page 458, etc., which book was one of the books provided by the clerk of the county for registering or recording mortgages of lands, tenements, and hereditaments, lying and being within his county.

"(3) That the original was returned to the Knickerbocker Trust Company by the clerk of Burlington county, N. J., bearing the following indorsement, subscribed by said county clerk: 'Received April 10th, 1896, recorded in the Clerk's office of Burlington County, at Mount Holly, in Book A-4 of mortgages, folio 458 etc. William W. Worrell, Clerk.'

"(4) That the said mortgage or conveyance, heretofore marked 'Exhibit C-5,' intended to operate as a chattel mortgage, was not, in fact, accompanied by an immediate delivery, nor followed by an actual or continued change of possession of the things mortgaged.

"(5) That the clerk of Burlington county, from the time chattel mortgages were required to be recorded, and prior to and upon April 10, 1896, kept two sets of books in his office, one set of which was provided for registering or recording all mortgages of lands, tenements, and hereditaments lying and being within his county, and the other of which was provided for the purpose of recording therein the instruments by the acts concerning chattel mortgages directed to be recorded; that the mortgage in question was recorded in said 'Book A-4,' which was a book of the former set, and was not recorded in a book of the latter set.

"Counsel being present, it is agreed that Mr. Humphreys, counsel for complainant, will serve copies of his brief on all counsel in the case, with the exception of Mr. Archer, who has notified Mr. Humphreys that his client is not interested in this particular dispute; and that said counsel will reply to said brief within seven days thereafter, and serve a copy of their briefs upon Mr. Humphreys, who will reply thereto within seven days."

The truth of the facts contained in stipulations 1, 2, 3, 4, and 5, is admitted. Counsel for defendants object to the admission of the facts set forth in stipulations 1 and 2 as being irrelevant Counsel for the complainant object to the admissions of the facts set forth in stipulation 5 as being irrelevant.

John B. Humphreys and Davies, Stone & Auerbach, for complainant.

C. V. D. Joline, for defendant Claud S. Fries. Joseph H. Gaskill, for defendant Pennsylvania Railroad Company.

GREY, V. C. (after stating the facts).

Two objections are made against the validity of the complainant's mortgage: First. It is contended that the affidavit of consideration does not sufficiently state the consideration of the mortgage. The whole case shows that the true consideration of the mortgage was the securing the payment of the bonds described in the mortgage. The affidavit declares it to be "to secure the payment of $100,000 of the bonds described in said mortgage." The inquirer is thus referred to the mortgage itself, to which the affidavit is appended for further information as to the details of the consideration, He there finds a full statement of the scheme for the raising of money by the issue of bonds to be secured by this mortgage. It differs in no essential particular from the usual methods followed in effecting the issue of bonds upon the security of corporate property. The affidavit of consideration, taken with the statements in the mortgage itself to which it refers, sufficiently meets the requirements of the statute (Gen. St. p. 2113, § 52), as interpreted in the case of Fletcher v. Bonnet, 51 N. J. Eq. 615, 28 Atl. 601, by the Court of Appeals, where it was held that an express reference in the affidavit of consideration to the matters contained in the mortgage made the recital thus referred to a part of the affidavit. The complainant's mortgage is not invalid as a chattel mortgage for want of a proper affidavit of consideration. Secondly. The defendants insist that the complainant's mortgage was not recorded as a chattel mortgage in the manner required by the chattel mortgage act. This is the substantial ground on which the complainant's mortgage is challenged.

It is undisputed that this mortgage was not recorded as a chattel mortgage in the book provided by the county clerk for that purpose. It was, however, recorded in the book provided by the clerk for the record of real estate mortgages, and this record preceded the claims of the defendant creditors who now challenge its validity as a chattel mortgage. The complainant insists that a chattel mortgage becomes recorded, within the meaning of the chattel mortgage act, from the moment it is lodged with the clerk for record and is ostensibly received by him for that purpose; that although it may be recorded in the wrong book, or may never be recorded in fact, yet it is, from and after its deposit with the clerk, forever recorded in law, and that creditors (who, if they examined the chattel mortgage books, would, as a matter of fact, find no record of any such mortgage) must be held as matter of law to have had constructive notice of the deposited, though misrecorded or nonrecorded, mortgage. The system of constructive notice, based on the various recording acts, is purely statutory. To ascertain whether an instrument has been so recorded as to give constructive notice of its existence, the requirements of the statute which make the record of that particular instrument notice must be observed. At the common law, the fact that the possession of chattels remained with the chattel mortgagor was, as between creditors of the mortgagor and the mortgagee, of itself prima facie evidence that the mortgage was fraudulent. Pancoast v. Miller, 29 N. J. Law, 250-254; Fletcher v. Bonnet, 51 N. J. Eq. 619, 28 Atl. 601 (Court of Appeals). While this presumption attended the chattel mortgage, it was held that the chattel mortgagee might relieve himself of the presumption that his mortgage was fraudulent by proof that the leaving of the goods in the possession of the chattel mortgagor was not, in fact, fraudulent. Runyon v. Groshon, 12 N. J. Eq. 86; Pancoast v. Miller, 29 N. J. Law, 254; Roe v. Meding, 53 N. J. Eq. 350, 30 Atl. 587, affirmed on appeal 53 N. J. Eq. 365, 33 Atl. 394. The state of the law in 1858 (when Runyon v. Groshon was decided, declaring chattel mortgages to be prima facie fraudulent when unaccompanied by change of possession of the mortgaged goods) tended to prevent the use of personal property as a basis of credit, unless by way of pledge and actual delivery of possession. It placed the holder of a chattel mortgage at the...