Standard Imp. Co. v. Schultz

• Decision Date: 06 December 1890
• Citation: 25 P. 625,45 Kan. 52
• Parties: THE STANDARD IMPLEMENT CO. v. C. H. SCHULTZ et al
• Court: Kansas Supreme Court

25 P. 625

45 Kan. 52

THE STANDARD IMPLEMENT CO. v. C. H. SCHULTZ et al

Supreme Court of Kansas

December 6, 1890

Error from Saline District Court.

THE case is stated in the opinion.

Judgment reversed and case remanded.

Garver & Bond, for plaintiff in error.

Lovitt & Norris, for defendants in error.

SIMPSON C., HORTON, C. J, JOHNSTON, J., concurring. VALENTINE, J.

OPINION

SIMPSON C.:

The Standard Implement Company commenced an action in the district court of Saline county against the firm T. C. Ritter and Co., and attached their stock of hardware. Schultz &amp Hosea, who claimed to have a chattel mortgage on the stock, interpleaded, and claimed that their chattel mortgage was a first lien. A trial was had on the interplea, and the court made the following findings of fact and of law:

"FINDINGS OF FACT.

"On January 3, 1887, and for several months prior thereto, the defendants, T. C. Ritter and his wife, P. J. Ritter, were engaged in the hardware business in the name of T. C. Ritter & Co., in the city of Salina, Kansas.

"2. On said January 3, 1887, T. C. Ritter & Co., being indebted to Schultz & Hosea in the sum of $ 683.37, executed to them three notes for $ each, due in 60, 90 and 120 days respectively, and to secure the same gave a chattel mortgage on their stock of hardware and the store fixtures. The mortgage provided for possession of the mortgaged property by the mortgagors until default in payment, or until the mortgagees deemed themselves insecure. There was no special agreement between the mortgagors and mortgagees as to selling the property. The mortgagees, Schultz & Hosea, resided at St. Joseph, Mo., and were represented by Smith George, of Salina, Kansas, who had the claim against T. C. Ritter & Co. for collection, and who attended to the taking of said notes and mortgage. George retained the notes for collection, and continued to represent Schultz & Hosea in the matter of this claim continuously up to the time of plaintiffs' attachment. The mortgage was filed in the office of the register of deeds of Saline county, Kansas, on January 4, 1887.

"3. In the month of February, 1887, T. C. Ritter & Co. removed from their then business location into a room in another block of the town, taking with them their goods and the store fixtures.

"4. The business, after the giving of the mortgage, was carried on the same as before, and goods were sold in the usual way, and other goods purchased from time to time and put into the stock; no separation was made of the new goods from those on hand when the mortgage was given, and no account kept showing the proceeds of sales of either class of goods. The proceeds of sales were used by Ritter & Co. as they saw fit -- for the payment of general expenses and debts, and without special regard to this mortgage debt.

"5. Smith George was in the store of T. C. Ritter & Co. occasionally from and after January 3, 1887, knew the manner in which the business was being conducted, and never made any objection thereto. Ritter & Co. were not asked to apply the proceeds of sales of the mortgaged goods on this debt, nor to keep any account thereof.

"6. Ritter & Co. paid to Smith George on said notes the following sums: On March 5, 1887, $ 50; March 16, 1887, $ 120; May 12, 1887, $ 60; May 25, 1887, $ 113.90; June 25, 1887, $ 100 -- leaving a balance of $ 66 and interest due on the last note.

"7. T. C. Ritter & Co. continued in business until August 30, 1887, when they made a general assignment for creditors. At that time there was a general stock of hardware on hand, valued at two or three thousand dollars, but the evidence does not show what articles were in stock that were on hand when the mortgage was given, except the following: Thirteen stoves, one show-case, two counters, one scale, lot of shelving, , which were worth more than the sum yet due said mortgagees.

"8. In March, 1887, a half interest in the business of T. C. Ritter & Co. was sold to Henry Sturdevant, who continued in the firm to the end. Sturdevant paid in about $ 500 in money.

"9. The Standard Implement Company and other creditors began suits with attachments against Ritter & Co. on September, 1887, and levied on the stock of hardware. The legal and valid claims of such attaching creditors amounted to more than the total value of the stock. These goods were afterward sold by the receiver, and the proceeds are in his hands.

"10. The mortgagees, Schultz & Hosea, never had possession of any part of the mortgaged property."

"CONCLUSION OF LAW.

"The mortgage of Schultz & Hosea is a valid lien, and is entitled to preference over attachments of plaintiff."

The implement company moved for judgment on the findings of fact, and also made a motion for a new trial. Both motions were overruled. The case is here for review, the sole question being as to whether or not the mortgage is fraudulent as to creditors. Both sides cite and rely on the cases of Frankhouser v. Ellett, 22 Kan. 127, and authorities cited in that case; Howard v. Rohlfing, 36 id. 357; Whitson v. Griffis, 39 id. 211. To these may be added the case of Leser v. Glaser, 32 Kan. 546, 4 P. 1026. The true test of the validity of a chattel mortgage under such a similar circumstance is stated in the case last cited, and is as follows:

"All cases in which a power of sale of the goods by the mortgagor is provided for, are therefore to be tested by the questions, whether such sales are to be made in his own behalf and at his own discretion and with the control of the proceeds reserved to him; or whether they are to be made solely in pursuance of the trust as a real one, that is, for the benefit of the mortgagee, and with provision that the proceeds shall be applied on his debt."

The only stipulation in this chattel mortgage is that "the mortgagors shall retain possession of all of said described property, all of which they agree, in consideration of such possession, shall be kept in as good condition as it now is and taken care of at their sole expense." There is no stipulation about the manner of daily sale, or how the proceeds of daily sales shall be applied; in fact, the court states as a conclusion of fact in the second finding that there was no special agreement between the mortgagors and the mortgagees about selling the property. If the chattel mortgage gave no power to the mortgagors to sell, and if there was no express oral agreement between the mortgagors and the mortgagees about daily sales and the application of the proceeds, it is probable that the mortgage would be held good, but the findings of fact recite that "the business after the giving of the mortgage was carried on the same as before . . . ; the proceeds of sales were used by Ritter & Co. as they saw fit -- for the payment of general expenses and debts, and without special regard to this mortgage debt!" "The resident agent of the mortgagees knew the manner in which the business was being conducted and never made any objection thereto." By these findings a case is presented in which the power of sale by the mortgagors is recognized and acquiesced in, and this power of sale and the application of the proceeds of such daily sales are made by the mortgagors on their own behalf and at their own discretion, the proceeds being subject to their absolute control, and the sales are not made and the proceeds applied solely in pursuance of the object and purposes of the chattel mortgage for the benefit of the...