Tahoma Finance Co. v. Shannon

• Decision Date: 18 March 1926
• Docket Number: 19755.
• Citation: 244 P. 271,138 Wash. 90
• Parties: TAHOMA FINANCE CO. v. SHANNON et al.
• Court: Washington Supreme Court

244 P. 271

138 Wash. 90

TAHOMA FINANCE CO. v. SHANNON et al.

No. 19755.

Supreme Court of Washington

March 18, 1926

Department 1.

Appeal from Superior Court, King County; Gilliam, Judge.

Action by the Tahoma Finance Company against L. F. Shannon and another, individually and as copartners as the Metropolitan Stationery, in which the Seattle Merchants' Association assignee of defendants, intervened. Judgment for plaintiff and intervener appeals. Reversed, with directions.

S. G. Climenson and Roberts & Skeel, all of Seattle, for appellant.

Dan Earle, of Seattle, for nonappealing defendants.

Ev. Victoria Wiley and Alex Wiley, both of Seattle, for respondent.

HOLCOMB J.

In this action upon a promissory note and for the foreclosure of an alleged chattel mortgage, appellant intervened by permission of the court and set up by answer two affirmative defenses to the amended complaint of respondent. The first affirmative defense, briefly summarized, is as follows:

That defendants Shannon and Basher, as copartners under the name of Metropolitan Stationery, operated a store at 508 Union street, Seattle, in the business of buying and selling stationery and similar merchandise at retail. On June 15 1923, they gave respondent their note for $1,600, and at the same time executed and delivered a chattel mortgage, purporting to mortgage all the merchandise and fixtures located at 508 Union street, Seattle, Wash., designated and known as 'Metropolitan Stationery.' It was the mutual intention of the parties that the mortgagors should remain in possession of the stock of merchandise and sell the same in the ordinary course of business. This was done, and all of the merchandise located in the store at the time of the execution of the alleged mortgage had been sold and delivered to various purchasers prior to the commencement of this action. The mortgage contained no provision whatsoever for an accounting or as to the application of the proceeds of sale of the merchandise to the payment of the mortgage debt. Shannon subsequently sold out to Basher, who assumed all the liabilities of the business and moved the business to 420 Union street. In May, 1924, Basher contemplated making a common-law assignment to the Seattle Merchants' Association, appellant, for the benefit of his creditors, and on May 5 he did so. On the same afternoon, shortly before the execution of the assignment to appellant, respondent commenced this action, 40 days prior to the maturity of the $1,155 note sued upon. Respondent also attempted to attach the fixtures and merchandise at Basher's store, and the sheriff posted a 'notice of attachment' therein, but no affidavit of attachment or attachment bond was ever given, and no writ of attachment ever issued.

The facts alleged in the second affirmative defense are briefly these: That the mortgage was given to secure the $1,600 note mentioned in the first affirmative defense; that on December 20, 1923, and $1,600 note was fully paid and discharged by Basher giving respondent his check for $555, and his note for $1,155; that that was the intention of the parties; that the secretary of respondent wrote on the $1,600 note, 'Paid December 20, 1923. Tahoma Finance Co., by E. J. Fenton, Secy.'; that the $1,600 note was then delivered to Basher as a satisfied instrument.

No question was ever raised as to the mortgaged fixtures, respondent having received the proceeds thereof. It was stipulated that appellant, as assignee, should sell the merchandise involved, and hold the proceeds in trust for the creditors, subject to the lien of respondent's mortgage, if any.

Obviously the purported chattel mortgage was upon a shifting stock of merchandise. There was no provision in it for an accounting. Respondent, however, contends that, after possession was taken by the mortgagee, it was good as to creditors who had not previously obtained any specific lien on the goods, since the mortgage would be good as between the parties to it. We have repeatedly held that, as to chattel mortgages on shifting stocks of goods which remain in the possession of mortgagors, to be disposed of in the usual course of trade, to be valid, the mortgage in itself should provide the manner of maintaining and handling the stock, with provisions for accounting, and payment of the mortgage debt from the proceeds of the sales, after allowing for the expenses of the business and of the keeping up or building up thereof, to the end that creditors can, by an examination of the records, discover the real terms and obligations of the mortgage. Miller v. Scarbrought, 185 P. 625, 108 Wash. 646; State Bank of Connell v. John Deere Plow Co., 212 P. 148, 123 Wash. 167; General Mercantile Co. v. Waters, 221 P. 299, 127 Wash. 481; Spokane Merchants' Association v. Mussellman, 234 P. 1033, 134 Wash. 116.

Respondent asserts, however, that all our cases involved stocks of goods where the mortgagee had not taken...