McKay v. Shotwell

1. Chattel Mortgages — Validity — After-Acquired Property— Accounting for Proceeds. A mortgage of a stock of goods and such goods as might thereafter be added to the stock ‘1 by way of replenishing ” it, is valid under section 1704, C. C.,' which provides that “an agreement may be made to create a lien upon property not yet acquired.” This replenishing provision would not render the instrument void on its face, for of itself, it would give no right to sell except to replenish. 2. Same — Trial — Question of Law. Where in such case the mortgage property had been attached, and there was no evidence of fraud in fact, or that the mortgagors, while in possession, had disposed of any of the mortgaged property for their own benefit, held, proper for the court to direct a verdict in favor of the mortgagee in an action of replevin against the parties who had taken it from his possession on the attachment. 3. Same — Evidence — Materiality. In an action of replevin by a mortgagee against attaching creditors, the issue being the validity of the mortgage, the fact of whether or not the mortgagee in foreclosing the mortgage after the attachment had been made had given the requisite notice, or the fact of the amount of the property they sold, is immaterial. So, also, the mortgagors being in possession after the execution of the mortgage and prior to the attachment, it not appearing that they had disposed of any of the property during the time.

APPEAL from the district court, Lake county; Hon. J. E. Carland, Judge. This was an action in claim and delivery by respondent Alexander McKay, against the appellants, Theodore Shotwell, A. M. Clerihew, Vm. Lothman and Wm. Lee, sheriff, to recover possession of a stock of goods upon which respondent had a mortgage. Appellants, defendants below, took the goods from- the possession of respondent, plaintiff, on an attachment against his mortgagors on the ground that the mortgage was fraudulent as against them. The value of the goods and the taking as alleged in the complaint was admitted by the answer; the only issue was the validity of the plaintiff’s mortgage, which was attacked because of certain provisions it contained. The mortgage was executed by Bergstreser Brothers, on the 5th of April, 1888, to secure twelve of their past-due promissory notes to the plaintiff. It covered their stock of general merchandise of all kinds and outstanding accounts, “together with all of the store furniture, fixtures and property in and about said store, and also any and all goods and merchandise of every name and kind that shall hereafter be placed by us in said store by way of replenishing our present stock of goods aforesaid. The true intent and meaning hereof is that we intend to mortgage all our property of every kind in and about said store to secure the payment of the debts hereinafter mentioned, the same being for the purchase-money of the property so mortgaged as security for payment to said Alexander McKay of $2,002.21, with interest thereon as expressed in twelve promissory notes.” Then follows a description of the notes; covenant of ownership and right to mortgage; provision that in the event of their default, or their “ attempting to dispose of or remove ” the property, or if the mortgagee deem himself insecure, then, in any such event, he, or his assignee, might take possession and sell the property to satisfy the debt and expenses. As will be seen, there was no provision whereby the mortgagors were given the right to possession other than its implication from the provision as to replenishing the stock, and the one giving the mortgagee the right to possession in the event of their default, or deeming himself insecure. Neither were there any of those provisions usually found in such instruments whereby sales are’permitted upon the proceeds being accounted for. The mortgage was filed for record the day of its execution; the mortgagee took possession df the property the next day and it was attached in his hands the same day by the defendants. On the trial the plaintiff offered his mortgage in evidence and the defendants objceted to it on the ground that it was void on its face in that the instrument taken together, permitted the mortgagors to remain in possession and dispose of the property in the usual course of business. This objection was overruled and the defendants excepted. The defendants inquired of the witness who foreclosed the mortgage for the plaintiff, subsequent to the attachment, if he posted notices of sale, also how much of the property plaintiff sold to pay the mortgage. The court sustained objections to these inquiries as being immaterial, also an objection to an inquiry of one of the mortgagors, if, after he gave the mortgage on the 5th, his store was not open for business “down until the closing time in the evening.” The witness afterward in answer to a question, if he sold any goods from the time he executed the mortgage till the mortgagee took possession, said: “ I don’t remember that I did. I don’t know.” There was no evidence tending to show that the mortgagors did not honestly owe the plaintiff the amount of the notes, nor was there any evidence tending to show that the mortgage was not given for the sole purpose of securing the payment of the debt evidenced by the notes. In other words, there was no fraud in fact shown. The only substantial contention of the defendants was, that the mortgage was fraudulent on its face. At the close of the evidence, the court, upon the application of the plaintiff, directed the jury to return a verdict in his favor, to which the defendants excepted. After the denial of a motion for a new trial and the entry of final judgment the defendants appealed. The clauses permitting the mortgagors to remain in possession and replenish the stock, contemplated continuing the business as before and disposing of the. proceeds of the sales as the mortgagors saw fit. This rendered the mortgage invalid, and it should not have been admitted in evidence. Griswold v. Sheldon, 4 N. Y. 581; Southard v. Benner, 72 id. 424; Bracket v. Harvey, 91 id. 214; Bobinson v. Elliott, 22 "Wall. 513, Boone, Mort., § 283. The evidence as to posting notices of sale should have been admitted. Also, that as to the mortgagors being in possession after the execution of the mortgage. The evident purpose was to show possession for the purpose of sale. If it was for that purpose, there being no-provision as to the disposition of the proceeds, the mortgage was void. Appellants should have been permitted to show the amount of property sold, as there may have been property in plaintiff’s hands subject to the attachment. The case should have been submitted to the jury. The mortgagors were in possession for a time; this, with the provision to replenish, and none to account, raised an issue of fact. Bissell v. Hopkins, 3 Cow. 165; May v. Walter, 56 N. Y. 8; Tilson v. Terwilleger, id. 213; White v. Cole, 24 Wend. 116 ; Swift v. Hart, 12 Barb. 530; Butler v. Yosburg, 1 N. Y. 196. There is no claim that the demand secured was not an honest debt. Appellants’ contention as to the mortgagors’ right to possession cannot prevail. § 1133, C. C. Their construction of the “ replenishing ” clause is unwarranted. It does not mean a right to first diminish, but rather to replenish and an extension of the mortgage over the stock as replenished. This is permissible. § 1104, C. O. If the language implied a right to sell it would not be to convert the proceeds, but to replenish. The right to sell is negatived by the provision authorizing the mortgagee to take possession in case the mortgagors attempt to dispose of the property. The mortgage should be construed in accordance with an honest intention. Gay v. Bidwell, 1 Mich. 519. This provision covering after-acquired property did not invalidate the mortgage. Bobinson v. Elliott, 22 Wall. 523; People’s Sav. Bk. v. Bales, 120 IT. S. 556, 1 Sup. Ct. Bep. 619; Hunter v. Bostwick, 43 Wis. 583; Bonnely v. Converse, 11 id. 524; Hughes v. Cory, 20 la. 399. The evidence as to posting notices was immaterial. It was after the attachment and it could make no difference whether the mortgage was foreclosed or not. The same may be said as to the mortgagors’ possession after the execution of the mortgage; if, however, there was error here, it was cured by the witnesses afterward testifying there were no sales made. The amount of property sold was immaterial, as it was after the attachment, and appellants had not paid the mortgage. § 1754, C. C. The plaintiff was entitled to all of the property. Madison Nat. Bk. v. Farmer, 5 Dak. 282, 40 N. "W. Bep. 345.