Meyer v. Martin

• Decision Date: 23 February 1933
• Docket Number: No. 21747.,21747.
• Citation: 351 Ill. 386,184 N.E. 617
• Parties: MEYER v. MARTIN et al.
• Court: Illinois Supreme Court

351 Ill. 386

184 N.E. 617

MEYER

v.MARTIN et al.

No. 21747.

Supreme Court of Illinois.

Feb. 23, 1933.

Proceeding by August C. Meyer, receiver, against Charles E. Martin and others. Decree for receiver was reversed by the Appellate Court for the Third District (268 Ill.App. 52), and the receiver appeals.

Judgment of Appellate Court reversed, and decree of circuit court affirmed.

Appeal from Appellate Court, Third District, on Appeal from Circuit Court, Champaign County; D. H. Wamsley, Judge.

Forrest B. Gore, of Champaign (Elmer F. Davies, of Champaign, of counsel, for appellant.

D. C. Dobbins, of Champaign, for appellees.

Fisher, Boyden, Bell, Boyd & Marshall, of Chicago (Thomas L. Marshall and Walter T. Fisher, both of Chicago, of counsel), for Reconstruction Finance Corporation, amicicuriae.

HEARD, Chief Justice.

On February 18, 1930, Alva G. Martin, a farmer, was indebted to the Fisher State Bank, in Champaign county, in the principal sum of $1,598, and executed his promissory note, payable one year after date, with interest at 7 per cent. per annum, to secure which he also executed a chattel mortgage which covered three mules, one horse, seven cattle, four hogs, one automobile, eighteen farm implements, and also eight hundred bushels of corn, fifteen tons of straw, and three tons of hay. This mortgage contained the following clause: ‘Also conditioned that the mortgagor may retain possession of the said goods and chattels and keep and use the same until he shall make default,’ etc. Subsequently, upon a bill of complaint being filed in the circuit court of Champaign county, the Fisher State Bank was found to be insolvent, and August C. Meyer was appointed receiver. When the receiver took possession, he found among the assets of the bank the note and chattel mortgage in question. On February 26, 1931, he started to foreclose this mortgage by posting notices of sale in accordance with the provisions of the statute. Upon the same day L. O. Sale obtained a judgment against Martin in the circuit court of Campaign county in the sum of $646.41, and the Fisher Farmers' Grain & Coal Company also obtained a judgment on that day against Martin for the sum of $450.13, and executions were issued, delivered to the sheriff, and served on Martin on that date. On February 27, 1931, the sheriff took possession of the property and asked Martin to act as custodian until the sale, which was to be held on March 9, 1931. No levy was made by the judgment creditors upon any of said property. A dispute between the judgment creditors and the receiver of the bank as to who was entitled to the property resulted in a stipulation among the parties whereby it was agreed that the sale might proceed and the rights of the parties be settled by the court. At the time of the foreclosure proceedings, the corn, straw, and hay had all been consumed by having been fed to stock. The other property was sold and realized a net amount of $922.70. Pursuant to the stipulation, the receiver filed his intervening petition in the bank insolvency suit, setting up the facts, and asking an adjudication upon the rights of the parties. The cause was referred to the master in chancery, who found as a matter of law that the chattel mortgage, in so far as it related to the consumable property, to wit, the corn, straw, and hay, was void as to antecedent and subsequent creditors, but was valid as to the nonconsumable property, and that the bank was entitled to the proceeds of the sale. The exceptions to the master's report filed by appellees were overruled by the chancellor, who confirmed the findings of the master and entered a decree in conformity therewith, to reverse which an appeal was prosecuted to the Appellate Court for the Third District, where the judgment of the circuit court was reversed and the cause remanded, with directions to enter a decree finding the chattel mortgage fraudulent the void as to creditors. The Appellate Court granted an appeal and made a certificate of importance. The cause is here on appeal.

The contention of appellees in that a mortgage of chattel property which includes property necessarily consumable in its use, if possession is reserved by the mortgagor with the right to use the same, is fraudulent per se as against antecedent and subsequent creditors. To sustain this contention, appellees rely largely upon the case of Talty v. Schoenholz, 323 Ill. 232, 154 N. E. 139, 143, 49 A. L. R. 1487. In that case the mortgage under consideration was similar to that in this case, in that it included both consumable and nonconsumable property and that possession was reserved in the mortgagor with the right to use the same. In that case, as in this, the right of judgment creditors to levy upon the property was involved, and much of the consumable property had been consumed. That case, however, differed from the present one in many particulars. In that case many questions were raised in the briefs as to the validity of the mortgage which we thought proper to discuss and to state the general principles of law applicable thereto. It was first contended that the mortgage was void by reason of noncompliance with the Bulk Sales Act (Smith-Hurd Rev. St. 1931, c. 121 1/2, §§ 78-80). We discussed that question in extenso and held that a chattel mortgage was not a sale or transfer within the meaning of that act, as the relation of the parties was merely that of debtor and creditor until foreclosure of the mortgage, and possession remains in the mortgagor subject to the mortgagee's lien. That case was a contest between the mortgagee and judgment creditors upon whose judgments executions had been issued at different times. It was contended by the judgment creditors that the mortgage was void as against their executions, for the reason that there was no delivery of the mortgage to the mortgagee and acceptance of it by her. We discussed the rules of law with reference to the necessity of acceptance by the mortgagee and what constituted such acceptance, and held that, as to one of the judgment creditors, it was not accepted and did not become effective until after the execution had been delivered to the sheriff and become a lien on the property, and, as to other creditors, it became effective, if at all, at the time of acceptance, which was before the executions of those creditors were delivered to the sheriff. The evidence in that case showed that at the time of the making of the mortgage the mortgagor was a resident of the town of Nachusa, Lee county, Ill., and that it was acknowledgedbefore a police magistrate of Dixon, in the town of Dixon, in Lee county. By virtue of section 2 of the Mortgage Act (Smith-Hurd Rev. St. 1931, c. 95, § 2) as it existed at the time of the making of that mortgage, a chattel mortgage, to be valid as against the rights and interests of third persons when acknowledged by the mortgagor before a justice of the peace, must be acknowledged before a justice of the peace of the town where the mortgagor resided, and we held that for that reason the mortgage there in question was void as against creditors and that the case should have been decided in their favor by the trial court. We discussed the validity of a chattel mortgage where the mortgagor was by the mortgage given permission to use the mortgaged property where the property was of such a character that it was consumable by any use thereof which might be made by the mortgagor, and laid down the general rule with reference to the mortgaging of such property, and in so doing said: ‘The chattel mortgage in question contained a provision that until default was made in the payment of the note it should be lawful for the mortgagor to retain the possession of the mortgaged property and use the same. The larger part of the property covered by the mortgage was of such a character that it was consumable by any use thereof which might be made by the mortgagor, and the evidence shows that much of it had been consumed prior to the foreclosure of the mortgage. To render a mortgage valid there must be a bona fide and certain appropriation of the property for the benefit of the creditor, and not a colorable one, in which the creditor has only a contingent interest, dependent upon the good faith of the mortgagor. Tennessee Nat. Bank v. Ebbert, 9 Heisk. (Tenn.) 153. Based upon Morgan Bros. v. Dayton Coal & Iron Co., 134 Tenn. 228, 183 S. W. 1019, Ann. Cas. 1917E, 42;Morris v. Clark (Tenn. Ch. App.) 62 S. W. 673;Merchants' & Mechanics' Savings Bank v. Lovejoy, 84 Wis. 601, 55 N. W. 108;First Nat. Bank of Chicago v. Caperton, 74 Miss. 857, 22 So. 60,60 Am. St. Rep. 540;Franzke v. Hitchon, 105 Wis. 11, 80 N. W. 931;Robbins v. Parker, 3 Metc. (Mass.) 117; Darwin v. Handley, 3 Yerg. [Tenn.] 502, and other cases, the general rule is laid down in 11 Corpus Juris, 567, that a mortgage of property which is consumable in its use is prima facie fraudulent if possession is reserved by the mortgagor, and that it is fraudulent per se if the right to use such property is also reserved.’

We did not there hold that the mortgage was invalid in its entirety by reason of its allowance of such use by the mortgagor, or even that it was in part invalid by reason thereof, but held the mortgage invalid for other reasons. We did not hold that the general rule there laid down was applicable to all cases without exception, but laid down the further general rule that to render a...