Quinn v. Voorhees, 43978
| Decision Date | 10 April 1965 |
| Docket Number | No. 43978,43978 |
| Citation | 400 P.2d 986,194 Kan. 574 |
| Parties | James L. QUINN, Trustee in Bankruptcy of the Estate of Galen Smith Houdyshell and Luella Taylor Houdyshell, his wife, Appellee, v. Walter VOORHEES and Georgetta M. Voorhees, his wife, Appellants. |
| Court | Kansas Supreme Court |
Syllabus by the Court
1. Where the mortgagee of a recorded chattel mortgage covering a stock of merchandise, including after-acquired property, takes possession of the property covered by the mortgage pursuant to its terms within the four-month period prescribed by the Federal Bankruptcy Act, under the terms of a mortgage between the parties executed in good faith prior to the four-month period, and there are no attaching creditors or lien creditors who acquired any right in the property covered by the mortgage prior to the time the mortgagee takes actual possession of such property, the act of taking possession does not constitute a voidable preference or transfer within the meaning of the Bankruptcy Act.
2. Where a chattel mortgage covering a stock of merchandise, including after-acquired property, has been executed and recorded, and there are no creditors of the mortgagors existing on the date of the filing of the chattel mortgage of record, and the mortgagee later takes possession of the property covered by the mortgage, the provisions of the Kansas Bulk Sales Law (G.S.1949, 58-101, now K.S.A. 58-101) are not violated.
3. Where a chattel mortgage covering a stock of merchandise, including after-acquired property, has been executed and recorded, and the mortgagors retain possession of the mortgaged property, the effective date of the disposal of the property within the meaning of the Kansas Bulk Sales Law (G.S.1949, 58-101, now K.S.A. 58-101) is the time when such chattel mortgage is placed of record.
Fred S. Jackson, Topeka, argued the cause, and Walter G. Stumbo, Robert R. Irwin, Craig Irwin and Mary Schowengerdt, Topeka, were with him on the brief, for appellants.
George D. Wagstaff, Topeka, argued the cause, and Robert D. Hecht, Topeka, was with him on the brief, for appellee.
This is a plenary action brought by a trustee in bankruptcy to recover the value of a certain stock of merchandise taken by the defendants from the bankrupts by virtue of a chattel mortgage executed between the defendants and the bankrupts on December 9, 1960. The trustee sought to set aside the transactions between the defendants and the bankrupts on the ground that they constiuted a voidable preference under the Bankruptcy Act. The trustee prevailed in the court below, and appeal has been duly perfected by the defendants.
The primary question presented by this appeal is whether the transaction in question constituted a voidable preference under the Bankruptcy Act. A secondary question is presented as to whether the transaction between the defendants and the bankrupts violated the Kansas Bulk Sales Law.
The case was submitted to the trial court for decision upon facts which were stipulated by counsel for the respective parties.
The parties stipulated, in substance, that James L. Quinn (plaintiff-appellee) was appointed trustee in bankruptcy of the estate of Galen Smith Houdyshell and Luella Taylor Houdyshell, his wife, and brings this plenary action in his official capacity as the trustee in bankruptcy to recover from Walter Voorhees and Georgetta M. Voorhees, his wife (defendants-appellants) the value of a certain stock of merchandise taken by the appellants from the possession of Houdyshells, the bankrupts. The trustee also sought to recover possession of the books, records and accounts receivable ledger now in the possession of the appellants.
On or about the 9th day of December, 1960, the bankrupts executed a document which purported to be a chattel mortgage on certain goods and chattels located at 916 Kansas Avenue, Topeka, Kansas. This document was admitted into evidence. The goods and chattels described in the mortgage were as follows:
'Such goods and chattels being the stock of merchandise and Accounts Receivable to Houdyshell.'
There was no apparent change in the operation of the business known as Houdyshell Men's Wear, and Galen Smith Houdyshell continued to operate the business in the same manner as he had been doing prior to the execution of the mortgage in question. The chattel mortgage also provided that:
The mortgage also provided that the mortgagees should have the right of possession upon the breach of any of the covenants contained therein or the default in performance of any of the terms. The chattel mortgage was recorded on February 16, 1961, at 3:23 p. m. in the office of the Register of Deeds of Shawnee County, Kansas.
On December 9, 1960, the same date upon which the purported chattel mortgage was executed, the appellants and the bankrupts executed a dissolution of partnership agreement and promissory note, which were received by the trial court in evidence. From December 9, 1960, until December 31, 1962, the bankrupts operated the business, sold merchandise at retail and purchased merchandise to replenish the stock, all in the usual course of a retail business. During this time the bankrupts made payments to the appellants in accordance with the terms of the dissolution of partnership agreement and chattel mortgage. These payments were stipulated by the parties to be in accordance with the terms of the documents executed by the appellants and the bankrupts, and bore no direct relation to the amount of sales which were made in the course of the operation of the business. It was further stipulated that 20 percent of the merchandise on hand at the time the appellants took possession of the stock from the bankrupts was the original merchandise which was on hand at the time of the execution of the mortgage, and that 80 percent of the stock had been acquired subsequent to the execution of the mortgage.
On or about the 31st day of December, 1962, the appellants demanded and took possession of the entire stock of merchandise, the books, records and accounts receivable ledger of the business, and, it is stipulated, at that time the appellants had reasonable cause to believe the bankrupts, doing business as Houdyshell Men's Wear, were insolvent.
Thereafter, the appellants sold the property and, in accordance with an agreement between the parties, deposited the money in the First National Bank of Topeka where it remains at this time subject to the orders of the court.
On the 7th day of January, 1963, a voluntary petition in bankruptcy was filed by the Houdyshells, doing business as Houdyshell Men's Wear, and subsequently they were adjudged bankrupt on said petition.
The trial court held the act of taking possession of the mortgaged property by the appellants constituted a voidable preference under the Bankruptcy Act, and further held, in ruling upon the motion for a new trial, that the transaction between the appellants and the bankrupts violated the Kansas Bulk Sales Law.
It has repeatedly been held by this court that a mortgage covering after-acquired property is an executory contract giving the mortgagee the right of possession upon acquisition. (Campbell v. Quinton, 4 Kan. App. 317, 45 P. 914; Cameron, Hull & Co. v. Marvin, 26 Kan. 612; and Johnson v. Interstate Securities Co., 152 Kan. 346, 103 P.2d 795.)
It has also been held if the mortgagee takes possession of the after-acquired property with the mortgagor's consent, the mortgage is effectuated. (Bank v. McIntosh & Peters Live Stock & Commission Co., 72 Kan. 603, 613, 84 P. 535; and cases cited therein.)
It has even been held where the holder of an unrecorded chattel mortgage takes actual possession of the property, with the consent of the mortgagor, the mortgage is valid as against a creditor whose execution was levied on the mortgaged property after the mortgagee took possession. (Farmers & Drovers National Bank v. Hannaman, 115 Kan. 370, 223 P. 478.)
In Jacquart v. Jennings, 118 Kan. 224, 235 P. 101, Jones on Chattel Mortgages, 5th ed., § 164a, is approvingly quoted as follows:
(118 Kan. p. 226, 235 P. p. 102.)
(See, also, Wyatt v. Duncan, 149 Kan. 244, 87 P.2d 233.)
In Gagnon v. Brown, 47 Kan. 83, 27 P. 104, it was said:
'* * * If a mortgagee takes possession of the mortgaged property before any other right or lien attaches, his title under the mortgage is good against everybody if it was previously valid between the parties. * * *' (Emphasis added.) (47 Kan. p. 85, 27 P. p. 105.)
In actions such as these by a trustee in bankruptcy appointed pursuant to federal law, the validity of the chattel mortgage is to be determined by the law of Kansas. (Etheridge v. Sperry, 139 U.S. 266, 11 S.Ct. 565, 35 L.Ed. 171 [1891]; and Bussert v. Quinlan, 267 F.2d 219 [U.S.C.A. 10th Cir. 1959].)
Under Section 70, sub. c. of the Bankruptcy Act (11 U.S.C.A. § 110, sub. c) the trustee as to all property, whether or not coming into possession or control of the court, upon which a creditor of the bankrupt could have obtained a lien by legal or equitable proceedings at the date of the bankruptcy, shall be deemed vested as of such date with all the rights, remedies and powers of a creditor then holding a lien thereon by such proceedings, whether or not such a...
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