Receiver of Graham Button Co. v. Spielmann

• Decision Date: 24 June 1893
• Citation: 50 N.J.E. 120,24 A. 571
• Parties: RECEIVER OF GRAHAM BUTTON CO. v. SPIELMANN et al.
• Court: New Jersey Court of Chancery

24 A. 571

50 N.J.E. 120

RECEIVER OF GRAHAM BUTTON CO.

v. SPIELMANN et al.

Court of Chancery of New Jersey.

June 24, 1893.

(Syllabus by the Court.)

Suit by the receiver of the Graham Button Company against Charles Spielmann and others to set aside a certain mortgage given by the insolvent.

W. B. Smith, for

C. B. Rushmore, for defendants.

VAN FLEET, V. C. The Graham Button Company, a domestic corporation, executed a chattel mortgage to the defendants on the 30th day of September, 1891, for $1,500, payable on demand. The execution of the mortgage was proved on the day of its date, an affidavit respecting its consideration was made by one of the mortgagees on the 10th day of November following, and the mortgage was recorded in the proper office on the succeeding 28th day of December. On the 5th day of January following the corporation was Edjudged to be insolvent, and the complainant was appointed its receiver. He has brought this suit in his capacity as receiver for the purpose of obtaining a decree adjudging that the mortgage just mentioned is void as against the creditors of the corporation, to the end that the chattels covered by it may be sold, and their proceeds distributed among the creditors of the corporation. On the argument but a single fault was imputed to the mortgage, and that was that its consideration, when it was recorded, was not stated under oath, in the manner required by the statute, in order to make it a valid instrument as against the creditors of the mortgagor. In all other respects it was conceded that it is a perfectly valid paper, and, even in its faulty condition, it was admitted that, as between the parties to it, it is entitled to full force. The statute regulating the execution and registry of chattel mortgages, in force when the mortgage in question was executed, declares, in substance, that "every chattel mortgage which shall not be accompanied by an immediate delivery, and followed by an actual and continued change of possession of the things mortgaged, shall be absolutely void as against the creditors of the mortgagor, * * * unless the mortgage, having annexed thereto an affidavit, * * * stating the consideration of said mortgage, and as nearly as possible the amount due and to grow due there on, be recorded in the proper office. "Supp. Revision, p. 491, § 11. The possession of the things mortgaged remained unchanged. They were in the possession of the mortgagor when the mortgage was executed, and remained there until the complainant was appointed receiver, when he took possession of them. They have never been in the possession of the mortgagees. When the mortgage was recorded there was an affidavit annexed to it, made by one of the mortgagees, which stated, "that the consideration for said mortgage is the indebtedness of the mortgagor to the mortgagees, consisting of a present indebtedness of $1,500, and of money hereafter to be advanced by said mortgagees to the said mortgagor, during the pendency of this mortgage, not exceeding in all $1,500." This affidavit is radically defective. It conforms neither to the letter nor the spirit of the statute. A prior statute, containing a provision identical in purpose, and expressed in precisely the same words, has been construed. With regard to that statute, it was said that it was intended as a guard against dishonesty, and, to make it effectual to that end, it required the mortgagee to state the consideration of his mortgage under oath; that is, not merely to state the sum for which his mortgage was given, but to state how the debt on which his mortgage was founded arose,—what was the cause of his debt, and how the relation of creditor and debtor between himself and his mortgagor was created. The legislative purpose in the enactment of that statute was held to be to compel the mortgagee to commit himself to a statement or disclosure of his debt or claim, under oath, when he made his mortgage a matter of public record, sufficiently precise and explicit to afford the creditors of the mortgagor, in case fraud was suspected, a fair opportunity to ascertain, by judicial investigation or otherwise, whether the mortgage was an honest security or a mere fraudulent cover. Ehler v. Turner, 35 N. J. Eq. 68, 63. Nothing, as it seems to me, can be more certain than that simply saying, under oath, that the consideration of a mortgage is the indebtedness of the mortgagor to the mortgagee, consisting of a present indebtedness of $1,500,—and that is all that is said here,— without disclosing how the debt on which the mortgage is founded arose,—whether it arose out of a sale, a loan, or how otherwise,—is not a compliance with the statute. On the contrary, a statement of consideration, expressed in language so general and indefinite, so plainly contravenes the fundamental purpose of the legislation that, if it were adjudged to be a compliance with the law, such judgment would unquestionably defeat the most salutary provision of the statute. The command of the statute is imperative. Unless the mortgage, when recorded, is accompanied by an affidavit, which states fully and plainly the consideration on which it is founded, the statute says that the courts shall treat the mortgage as absolutely void as against the creditors of the mortgagor.

But this right to have a mortgage thus defective adjudged to be a nullity does not inhere in all the creditors of the mortgagor. A creditor without judgment or other legal process, and without a right by law to have his debtor's property seized and sold for his benefit, has no such right. To be in a position to assert this right, he must have his debt fastened on his debtor's property by law, judicial process, or in some other way; for, until his debt is so fastened, he has no right to or interest in his debtor's property, and cannot ask the court to control its disposition; nor can he prevent his debtor from exercising full and complete dominion over it. The. doctrine is entirely settled, that it is only creditors whose debts are fastened on their debtors' property that have the right to call in question the validity of a mortgage which this statute makes void as against the creditors of the mortgagor. Currie v. Knight, 34 N. J. Eq. 485,486; Jones, Chat. Mortg. § 245; Thompson v. Van Vechten, 27 N. Y. 568, 582; Jones v. Graham, 77 N. Y. 628. The statute makes a wide distinction between creditors and subsequent purchasers and mortgagees. A subsequent purchaser or mortgagee, to be in a position where he may take advantage of the failure on the part of a prior mortgagee to comply with the terms of the statute, must have made his purchase or taken his mortgage in good faith; that is, without notice of such prior mortgage; but not so with a creditor. He may know when his debt accrues that his debtor's property is already subject to a mortgage; yet, if such mortgage has not been executed and recorded in accordance with the requirements of the statute, he may, as soon as his debt becomes fastened on his debtor's property, successfully insist that the mortgage, as to his debt, is, by force of the statute, absolutely void. Williamson v. Railroad Co., 28 N. J. Eq. 277, 285, on appeal, 29 N. J. Eq. 311, 336.

Under the law, as above stated, the first question to be decided is, were the debts of this corporation fastened on its property when the bill in this case was filed? The entire assets of the corporation, including the chattels covered by the defendant's mortgage, have been converted into money. The amount realized, from all sources, is about $3,700. Preferred debts to the amount of $927, and unsecured debts or debts without a preference to the amount of $7,530, have been proved before the receiver. These figures make it plain that the unsecured creditors will receive less than 35 cents on the dollar of their debts. The receiver of an insolvent corporation becomes, as soon as he qualifies, invested, by force of the statute, with full power to demand, sue for, and take into his possession all of the property, of every description, belonging to the corporation, and to convert the. Same into money. The statute then ordains that all moneys which he shall receive by virtue of the authority invested in him shall be disposed of by him, under the order of the court, among the creditors of the corporation. Revision, p. 189, § 72. And, in prescribing the rule which shall regulate the distribution of the moneys, the statute says that, in payment of the creditors and distribution of the funds of any insolvent corporation, the creditors shall be paid proportionally to the...