Tenney Co. v. Thomas

• Decision Date: 14 July 1931
• Docket Number: No. 5926.,5926.
• Citation: 237 N.W. 710,61 N.D. 202
• Parties: TENNEY CO. v. THOMAS et al.
• Court: North Dakota Supreme Court

61 N.D. 202

237 N.W. 710

TENNEY CO.

v.THOMAS et al.

No. 5926.

Supreme Court of North Dakota.

July 14, 1931.

Syllabus by the Court.

A mortgage taken as security for a bona fide debt is not subject to attack for fraud, merely because it constitutes a preference.

Syllabus by the Court.

The filing of a chattel mortgage not witnessed or acknowledged, as required by section 6763, C. L. 1913, affords no constructive notice.

Syllabus by the Court.

The identity of the mortgagor and the fact of his acknowledgment are the essential elements in an acknowledgment of the execution of a chattel mortgage.

Syllabus by the Court.

Before a certificate of acknowledgment will be held fatally deficient, there must be an absence of some essential fact of a substantial character.

Syllabus by the Court.

A chattel mortgage is not effective as such until it is delivered with intent that it become effective.

Syllabus by the Court.

In applying the statute, section 6758, C. L. 1913, providing “A mortgage of personal property is void as against creditors of the mortgagor and subsequent purchasers and incumbrancers of the property in good faith for value unless the original or an authenticated copy thereof is filed by depositing the same in the office of the register of deeds of the county where the property mortgaged, or any part thereof, is at such time situated” the date of delivery of the mortgage affected, rather than the date of the execution thereof, controls.

Syllabus by the Court.

The fact that a chattel mortgage filed and delivered in October is antedated to June will not affect its validity under section 6758, C. L. 1913, as against a subsequent mortgage executed in December to secure a debt incurred during the period between the date of the former mortgage and the date of its filing.

Appeal from District Court, Barnes County; M. J. Englert, Judge.

Action by the Tenney Company, against John W. Thomas, a sole trader doing business under the firm name and style of Farmers' Grain & Fuel Company, and Harry L. Thomas. From a judgment for defendant last named, plaintiff appeals.

Affirmed.W. H. Stutsman, of Mandan, and Stinchfield, Mackall, Crounse, McNally & Moore, of Minneapolis, Minn., for appellant.

Ritchie & Ployhar, of Valley City, and Miller, Gorham & Wales, John J. McMahon, and Martin O. Weisbrod, all of Chicago, Ill., for respondents.

NUESSLE, J.

This action was brought to foreclose a chattel mortgage executed to the plaintiff by the defendant John W. Thomas, and to set aside a mortgage given by John to his brother Harry Thomas, covering the same property. Harry Thomas answered and interposed a cross-complaint wherein he set out his mortgage as a prior lien, and asked for a foreclosure of the same as such.

It appears that John Thomas was desirous of engaging in the grain business. In May, 1929, he procured $24,000 from his brother Harry. With this money he purchased two grain elevators and appurtenances at Valley City. The Tenney Company, hereinafter referred to as the company, is engaged in the grain commission business. In the course of its business, it makes advances to buyers who consign to and sell grain through it. Thomas needed money to carry on his grain business, so he arranged in the customary manner with the company to make advances as he might require them. He represented that he owned the elevator properties, and that the same were free from incumbrances. During the summer of 1929, the company made advances to the extent of $10,000 or $11,000, but in fact Thomas bought no grain with this money. He used it for the final payments on his elevators and to make improvements on his plants. Later on in the season, however, he began to buy grain and further advances were made so that on October 8 he was indebted to the company to the extent of more than $32,000. The company was concerned about this indebtedness, so one of its travelers called on Thomas. He found that a part of the money advanced had been used in paying for the plants and making improvements thereon, and tried to get a reduction of the indebtedness. Some arrangements were made in this behalf, and thereafter the indebtedness was reduced to about $21,000. On December 14, the company's representative again called on Thomas and took from him a contract which included a chattel mortgage on the elevator properties. When this was presented for filing at the office of the register of deeds, it was discovered that, contrary to his representations, Thomas had executed a mortgage to his brother Harry in the amount of $24,000 covering the elevator properties and appurtenances. This mortgage was dated June 24, the date when the properties were acquired by John, and acknowledged before one Sad, as of that date. It was filed for record on October 9. The contract agreement between the company and Thomas contained the provision that if at any time the former became dissatisfied it might refuse to make further advances and realize upon any security that it had. When it was discovered that John had mortgaged the properties to Harry, the company tried to get him to turn them over to it subject to Harry's mortgage. John, however, refused to do this, and this action was begun. On December 17, when it was discovered that the mortgage had been given to Harry, the company interviewed John with respect to the matter, and, from what was said and done at this interview and later, the company was justified in believing that the mortgage was executed on June 24, but was purposely not filed for record in order that John's credit might not be impaired. The company's course of action thereafter was predicated on this belief. However, on the trial of the case, it appeared that the mortgage was in fact executed on October 8 and dated back to June 24, and that the acknowledgment was dated as of the latter date purposely, and to create a false impression as to the date of the execution thereof.

On this state of facts, the company contended that the mortgage executed to Harry Thomas was fraudulent and therefore void as against it and other creditors of John. It further contended that, if the mortgage was in fact executed on October 8, the acknowledgment was designedly false, and therefore amounted to no proper and legal acknowledgment, accordingly the mortgage was not entitled to be filed, and so the filing thereof afforded no constructive notice; that the mortgage must be considered as having been executed on June 24, and under the provisions of section 6758, C. L. 1913, it was void as against the company which had given credit and made advances to John Thomas on his representations that the properties were clear; that, in any event, Harry Thomas was estopped to establish that the mortgage was delivered on October 8 or thereafter, or was executed on that date, for the reason that the company had been misled by the false date and acknowledgment of the mortgage into believing that it was in fact executed and delivered on June 24, and, so believing, it acted to its prejudice in not forcing John into bankruptcy, and having the instrument declared void as constituting a preference.

The trial court held contrary to the company's contentions. It found that the Harry Thomas mortgage was in fact executed on October 8 and refused to set it aside, held it prior to the mortgage of the plaintiff, and ordered a foreclosure thereof. Thereupon, the company perfected this appeal.

[1] It is undisputed that John Thomas procured $24,000 from his brother Harry in May. This money constituted the greater part of the consideration paid for the elevator properties. Both John and Harry insist that the arrangement between them, whereby the money was provided, was one of loan. The company insists that the transaction was one of gift. We think the record justifies the conclusion that though the arrangement was one between brothers, and, at the time it was made and the money was provided, nothing was said as to whether it was a loan or a gift or as to whether and when it should be paid, nevertheless, it amounted to a loan. The company knew whence the money came, but made no inquiry as to the nature of the transaction. The arrangement between John and the company was that the latter should make advances wherewith he might buy grain and coal, which he sold incidentally to the grain business. John broke faith and used large sums for the final payments on the properties, and in making improvements thereon. He was required by the company to make statements showing his financial condition. He intentionally falsified these with respect to his financial worth, and thereby deceived the company which relied upon them. When pressed for payment, he sought to prefer his brother Harry and so, on October 8, he executed the mortgage to Harry over which this controversy arose. He consulted his attorney, Sad, who drew this mortgage for him and acknowledged John's execution thereof. The mortgage was intentionally antedated, and the acknowledgment was intentionally certified as of the false date of the mortgage. This was done for the advantage of Harry. Harry, however, was not a party to the arrangement. The testimony of both John and Harry is that Harry, who lived in Chicago, called up John the latter part of September, 1929, said that he needed money, and, when John told him he could not give him any, asked John to send him a note and mortgage for the amount of the advance he had made so he might use it in procuring money. Harry had no knowledge of the arrangements that John had made with the company, or that John was indebted to the company. After the mortgage was executed, Sad filed the original in the office of the register of deeds on October 9, gave a copy to John, and John then sent it, together with the note which it secured, to Harry at Chicago. Harry was in Europe when the note and mortgage were finally sent forward to him. When he returned some time later, he noted that the mortgage was dated June 24, and knew it...