Weiprecht v. Ripple

• Decision Date: 18 June 1958
• Docket Number: No. 260,260
• Citation: 217 Md. 337,143 A.2d 62
• Parties: Fred J. WEIPRECHT v. Robert R. RIPPLE et al.
• Court: Maryland Court of Appeals

Page 337

217 Md. 337

143 A.2d 62

Fred J. WEIPRECHT v. Robert R. RIPPLE et al.

No. 260.

Court of Appeals of Maryland.

June 18, 1958.

Harry E. Taylor, Jr., Washington, D. C. (Taylor & Waldron, Washington, D. C., on the brief), for appellant.

H. Winship Wheatley, Jr., Hyattsville, for Guy, Curran & Co., Inc.

Anne S. Musgrave, Laurel, for U. S. Rubber Co.

No appearance for Robert R. Ripple and others.

Before BRUNE, C. J., and HENDERSON, HAMMOND, PRESCOTT and HORNEY, JJ.

HORNEY, Judge.

This is an appeal from the final ratification by the Circuit Court for Prince George's County of the audit of the proceeds of certain fixtures and stock of merchandise sold under a chattel mortgage.

On May 4, 1954, Robert R. Ripple and Betty S., his wife (the Ripples or mortgagors), executed a purchase money chattel mortgage to Fred J. Weiprecht (Weiprecht or mortgagee), for the sum of $15,000 on the haberdashery business, known as the 'Town and Country Shop, Clinton, Maryland,' sold by the latter to the former. By the chattel mortgage the Ripples 'bargained and sold' to Weiprecht the equipment and fixtures, valued at approximately $5,300 to $5,500, and the 'merchandise and stock [of the] approximate value of $26,000 to $28,000.' No specific reference was made in the mortgage to an after-acquired stock of merchandise. On the same day the parties entered into a separate agreement--not mentioned in the mortgage--providing that the mortgagors should 'maintain stock and equipment in the store sufficient to cover the balance due on the mortgage and note.' Neither the mortgage nor the separate agreement expressly provided that the stock of merchandise--presently owned or thereafter acquired--should be subject to a lien, but the mortgage did contain a clause assenting to a decree for the sale of the mortgaged property in the event of a default. The mortgage was duly recorded on May 7, 1954, but the separate agreement was never recorded.

By September of 1956, the mortgagors were in default with respect to the payments specified in the mortgage, whereupon the mortgagee filed a bill of complaint seeking an injunction prohibiting the mortgagors from continuing to conduct the business and the appointment of a trustee to sell the assets. The court granted the injunction and appointed a trustee to sell under the terms of the mortgage upon the filing of bond. Subsequently all of the assets were sold, and, by direction of the court, the proceeds of sale, after deduction of the auctioneer's charges, were divided into two accounts: one representing the proceeds of the fixtures, and the other representing the proceeds of the merchandise. Thereafter the trustee gave notice to all of the creditors of the Ripples to file their claims with the clerk of court. The mortgagee, who believed it was unnecessary for him to file another claim since a copy of his chattel mortgage and an affidavit of default had been filed with the bill which initiated the foreclosure proceeding, failed to file with the clerk the 'properly authenticated' claim contemplated by the notice to creditors.

The auditor's report and account allowed the entire net proceeds from the sale of the fixtures to the mortgagee, but disallowed his claim as a secured creditor entitled to the proceeds of the sale of the merchandise, and subordinated the mortgagee's resulting claim as a general creditor to the claims of all of the other creditors. After the deduction for administration costs and expenses, there remained for distribution the sum of $4,631.42 from the sale of the merchandise. Except for the claim of the mortgagee, all creditors were allowed payment in full of their claims aggregating $4,520.17. The mortgagee was allowed the balance of $111.25 on account of his original claim of over $10,000. Once the auditor had determined that the mortgagee's claim should be subordinated to the claims of all other creditors, it was unnecessary for him to allow any 'preferred' claims; nevertheless he allowed, as priorities, the judgment claim of the Clinton Bank for the balance due it after the foreclosure of its lien against the real estate of the Ripples, as well as the tax claims of the United States and the State of Maryland. The mortgagee filed 'objections' to the auditor's report and account--he particularly excepted to the allowance in full of the claims of the general creditors, the tax claims and the so-called 'preferred' claim of the bank--but his exceptions were overruled, and he appealed.

The mortgagee's right to the proceeds from the sale of the fixtures was conceded. ¹ The principal controversy arises from the refusal of the mortgagee to accept the subordination of his claim to the claims of all the other general creditors. His argument, however, is tripartite: (i) since he had a valid lien on the after-acquired merchandise, he was a secured creditor entitled to distribution of the net proceeds of sale ahead of the general creditors; (ii) even if his lien were not valid, he should have shared pro rata as a general creditor; and (iii) if he is entitled to share as a general creditor, the tax claims of the taxing authorities and the judgment claim of the Clinton Bank are not entitled to priorities, and the judgment claim of Guy, Curran & Company and the general creditor claims of the United States Rubber Company and other general creditors are not entitled to be paid in full.

In this Court, the only appearances made in opposition to Weiprecht were by Guy, Curran & Company and the United States Rubber Company. It is their contention that (i) Weiprecht did not have a valid lien on the after-acquired merchandise, and (ii) he is not entitled to share as a general creditor because he failed to file his claim as a general creditor pursuant to the notice to creditors.

(i). After-Acquired Merchandise.

The mortgagee contends that, even though the mortgage did not specifically refer to after-required merchandise, a person dealing with the mortgagors would know or--since the chattel mortgage was recorded--should have known that the stock would continually have to be replaced with new merchandise, and therefore the mortgage impliedly covered the after-acquired merchandise. Apparently there is a lay belief that mortgages of stock-in-trade necessarily include after-acquired merchandise, but the courts have universally rejected this theory.

This Court has held repeatedly that a chattel mortgage which provides that afteracquired merchandise shall be substituted for the original stock of merchandise, although not void as fraudulent, is a nullity at law. Hamilton v. Rogers, 1955, 8 Md. 301; Rose v. Bevan, 1857, 10 Md. 466; Wilson v. Wilson, 1872, 37 Md. 1; Crocker v. Hopps, 1893, 78 Md. 260, 28 A. 99; First National Bank v. Lindenstruth, 1894, 79 Md. 136, 28 A. 807. ² But it has also been held that a similar provision in a mortgage is valid and enforceable in equity under some circumstances. Butler v. Rahm, 1877, 46 Md. 541; First National Bank v. Lindenstruth, supra. Thus it appears that the law on this question is not as clear and settled in Maryland as might be desired. But apparently other jurisdictions have had difficulty with the same problem. ³

As stated, the mortgagee earnestly contends--in fact, he devoted nearly the whole of his brief and oral argument to the question--that he had an equitable lien on the after-acquired merchandise. However, it is clear that we do not reach the question he has stressed for the simple reason that there is no mention whatever in the chattel mortgage of after-acquired property to which a lien of any sort could have attached. Generally, if the mortgage fails to specify an intention to create a lien on after-acquired merchandise, no lien will arise. Or, stated conversely, if there is an intention that after-acquired merchandise shall 'feed the lien' of the mortgage, a specific provision to that effect must be included in the mortgage. See Cohen and Gerber, 'Mortgages of Merchandise,' 39 Colum.L.Rev. 1338, 1350-51(1939). Cases in other jurisdictions stating this rule include: Snow v. Cody, 1923, 96 Okl. 81, 220 P. 578; In re Thompson, 1914, 164 Iowa 20, 145 N.W. 76; Ryan v. Rogers, 1908, 14 Idaho 309, 94 P. 427; Godfrey & Sons Co. v. Citizens' Nat. Bank, 1902, 64 Neb. 477, 90 N.W. 239; Bergman v. Jones, 1901, 10 N.D. 520, 88 N.W. 284; Kane v. Lodor, 1897, 56 N.J.Eq. 268, 38 A. 966; Pinkstaff v. Cochran, 1894, 58 Ill. App. 72; Wilcox v. Jackson, 1884, 7 Colo. 521, 4 P. 966; People to Use of Farrington v. Bristol, 1876, 35 Mich. 28; Partridge v. White, 1871, 59 Me. 564; and see additional cases cited in 1 Jones, Chattel Mortgages and Conditional Sales (6th ed. 1933), § 173a.

In the pleadings, the mortgagors stated that all of the original stock of merchandise had been sold by them, 'except for a very few items.' Since the mortgagee did not offer any proof to the contrary or otherwise rebut this fact, it must be presumed that he waived whatever rights he may have had as a secured creditor to the proceeds of the sale of such part of the original stock of merchandise as remained unsold by the mortgagors.

(ii). Mortgagee as a General Creditor.

There was no excuse for the mortgagee not filing with the clerk of court a statement of his claim, properly authenticated, showing the balance due him under the chattel mortgage, which was required of all creditors by the preceding notice to creditors. But, under the circumstances in this case, there was no reason why the auditor should not have allowed the mortgagee, as a general creditor, his pro rata share of the amount due him under his mortgage from the net proceeds of the sale of the merchandise. See Rogers, Brown & Co. v. Citizens' National Bank, infra. The auditor must have known that the mortgagee had filed his mortgage and an affidavit of default with the bill of complaint when this proceeding was originally instituted. He also knew, or could easily have ascertained, that the net proceeds from...