Blumenthal v. Lynch — 25 Abb. N. Cas. 85

Majority

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BLUMENTHAL v. LYNCH.

N. Y. Supreme Court, First District, Special Term;

April, 1890.

Headnote

1. Chattel mortgage; right of holder of'unfiled mortgage to hold under subsequent pledge.] The fact that a creditor holds a chattel mortgage upon goods of his debtor, which is unfiled and therefore void as to other creditors, will not prevent his taking possession of such goods in pledge from the debtor to secure his claim; and such pledge will be effectual as against another creditor subsequently recovering a judgment.

2. The same.~\ The fact that the first creditor, on receiving the pledge at once filed his chattel mortgage and afterwards attempted to sell under it, will not make the pledge of the property void, and he may still hold under the pledge, although the attempted sale be void.

Trial by the court.

This was a creditors suit, brought by Ferdinand Blumenthal and others, as judgment creditors of Staples & Conley, against David T. Lynch and others, to set aside a chattel mortgage made by the judgment debtors to said Lynch, and to apply the mortgaged property to the payment of the plaintiff’s claim.

A. Blumensteil for plaintiff.

J. & T. H. Troy for defendants Lynch and Conley.

The defendant Lynch was the owner of certain promissory notes of the firm of Staples and Conley, which were due and secured by a chattel mortgage. The defendants Lynch and Conley testified that on the 6th or 7th of March, 1888, Conley, one of the makers of the notes, came to Lynch and said his partner had run away and that his bank account was overdrawn. Lynch then demanded payment of the notes and Conley then said he would turn over to Lynch

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certain property which was covered by the mortgage to be applied on the payment of the debt, and Lynch accepted this property, and at once took possession of it, and at once filed the chattel mortgage.

I see no reason to doubt the correctness of this testimony. It is not inconsistent with the statements of the same defendants on the former examination, that the chattel mortgage was foreclosed. There is no doubt but that Lynch claimed under the chattel mortgage, but he took possession of the property with the consent of the mortgagor and under an agreement then made that he should hold that property as security for his claims.

At this time Staples and Conley were also indebted to the plaintiff, who subsequently obtained a judgment against Staples and Conley, and who now ask to have this mortgage set aside and that the mortgaged property be applied to the payment of the note. i

Assuming that the mortgage to Lynch was void as to the mortgagor’s creditors, the position of Lynch and plaintiff was the same. They were both creditors of Staples and Conley. The debtors had the right to pledge their property to secure the payment of either debt, and thus to prefer one creditor over another; and having that right, they delivered this property to Lynch to secure the debt due to him. The equities of the plaintiff are not superior to those of Lynch, and Lynch, having obtained with the consent of the debtor the possession of this property as security for his demand, I can see no reason why the court should take the possession of the property from him and deliver it to plaintiff, standing in the same position. The fact that Lynch at once filed his chattel mortgage and afterwards attempted to sell under it, would not make the pledge of the property void.

Assuming that the sale was void, Lynch still holds the property, and is entitled to hold it as pledgee to secure the payment of the debt due to him.

The statute does not provide that because a creditor holds an unfiled chattel mortgage to secure the payment of a debt,

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that the creditor loses his debt or is deprived of the methods which the law gives him to collect or secure it. He cannot interpose the mortgage between a creditor, who has obtained a judgment and wishes to enforce it by an execution against the mortgaged property. As to such a creditor the mortgage is void, but, if he has obtained possession of the property under an agreement with the debtor, that would entitle him to hold it as against the other creditors, the fact that he also holds a void mortgage does not make such possession void. Lynch obtained possession of the property before plaintiff obtained his judgment, and it would be inequitable to take the property which he has by his superior diligence secured and give it to the plaintiff, whose claim was incurred subsequent to the indebtedness to Lynch, and who has never acquired possession of the property at all.

I think therefore that the defendants are entitled to judgment with costs.