Button v. Rathbone, Sard & Co. — 27 N.Y. St. Rep. 938

Majority

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Nelson L. Button, Resp’t, v. Rathbone, Sard & Co., App’lt^[1] .

(Court of Appeals, Second Division,

Filed December 20, 1889.)

Headnote

■Chattel mortgage—Where unrecorded, is void as against creditor TAKING STOCK-IN PAYMENT.

The rule that an unrecorded chattel mortgage is absolutely void as against subsequent purchasers in good faith, applies where a creditor, without knowledge of the mortgage, receives a part of the debtor’s stock in payment of the amount due him.

{Jones v. Graham, 77 N. Y., 628 , distinguished.)

This is an appeal from a judgment of the general term, fifth •department, affirming a judgment in favor of plaintiff: upon a verdict directed for the plaintiff with exceptions to be heard at the general term, and the order denying a motion to set the same .aside, etc.

The action was to recover the value of some personal property alleged to belong to plaintiff and to have been converted by the defendant. The property consisted mostly of stoves which one Tully, á retail dealer in stoves, hard and tin wares, etc., in the city of Rochester formerly had in his possession. The plaintiff -claimed title to the property under a. chattel mortgage executed and delivered to him by said Tully on the 20th day of March, 1884, to secure the payment of the sum of $1,200 that day loaned by plaintiff to Tully, in three months thereafter and also to secure the plaintiff for endorsements theretofore or thereafter made by him for the accommodation of said Tully within a limit of $800 as to amount at any one time and to save the plaintiff harmless from loss thereby.

The mortgage was not filed until the 23d day of June thereafter and not until after the taking of the goods by the defendant complained of in this action.

The goods continued in the possession and under the control of Tully in his store and were being sold by him in his business in the same manner after as before the chattel mortgage. The plaintiff was in the habit of being at Tully’s store frequently and conferring and advising with him about his business. The defendant claimed title to the property in suit by virtue of a bill of .sale of the same executed and delivered by said Tully to the de-'

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fendant on the 13th day of June, 1884, and the taking of possession of the goods at the same time by separating them from other goods of Tully and removing them and continuing such possession until they were removed to Albany, to defendant’s place o£ business.

The prices of the goods in detail were agreed upon between Tully and the defendant at or just before the time of the execution of the bill of sale and the removal of the goods, and it was agreed that the price should be paid by crediting the amount thereof upon the debt which Tully was owing defendant for these and other goods then past due. The credit was made according to the agreement which, with the bill of sale, was in writing and signed by Tully and defendants. These papers contained some other stipulations none of which are important here to notice except the stipulation which gave Tully time and conditions upon which he might cancel the balance of the debt remaining after the credit given for the price of the goods in the bill of sale. On the 23rd day of June plaintiff filed the chattel mortgage and within an hour or so after such- filing said Tully made a general assignment for the benefit of his creditors, in which plaintiff and any bank holding Tully’s paper endorsed by plaintiff was preferred. On or about the first of July when the defendant was engaged in removing the goods to Albany, plaintiff demanded the goods covered by the bill of sale of defendants under the chattel mortgage and this was the first knowledge defendants had of its existence.

Stedman, Thompson & Andrews, for app’lt; Horace McQuire, for resp’t.

There does not seem to be any serious controversy between the parties in relation to the facts in this case. Indeed nearly all the facts were alleged in plaintiff’s complaint and all the facts were proved by the plaintiff’s witnesses, either upon direct or cross-examination. When these proofs had been made the plaintiff rested and the defendant moved for a non-suit which was denied and defendant excepted. Thereupon the defendant was proceeding to ask some further question of Tully, the mortgagor, in relation to his possession of the mortgaged goods and his pecuniary condition, when objection to the evidence was made by plaintiff and the court stated “ that under the case of Jones v. Graham, 771ST. Y.,628; the defendant was not entitled to controvert plaintiff’s title under his chattel mortgage and the case as it now stands.” Defendant’s counsel excepted to this view of the court.

The defendant then stated that under the ruling he would offer no further evidence and again moved for a non-suit, which was denied and defendant excepted.

The defendant then asked to go to the jury, which was denied, and defendant excepted. The court then directed a verdict for the plaintiff, to which the defendant excepted.

It seems to me that the court below was, owing to the fault of counsel in' trying the case, under a partial misapprehension of this •case. Of course, an unfiled chattel mortgage is good between the

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parties to it, but the statute declares that such a mortgage shall be absolutely void as against the creditors of the mortgagor and as against subsequent purchasers and mortgagees in good faith. Chap. 279, Laws of 1883; p. 2508, vol. 4, 8th ed., R. S. The court seems to have entertained the idea upon the trial that the defendant was a creditor of the mortgagor, and as such he required a j adgment and execution in order to attack or defeat the plaintiff’s right under his mortgage, and in that view the' case of Jones v. Graham,, 77 N. Y., 628 , cited by the court, was entirely decisive. But it seems to me that that was not the attitude of the defendant. It was not claiming as a creditor but as a purchaser in good faith, and as such it had the clear right to question plaintiff’s right under the mortgage.

The defendant had ceased to be a creditor of the mortgagor on the 13th of June, and then, as it claims, became a purchaser of these goods in good faith from the mortgagor.

The price or consideration paid for the goods was the credit upon and the cancellation of the debt of the mortgagor, and an extension of time and reduction .of amount for the remainder of the debt. This was done between the defendant and Tully without any knowledge upon the part of the defendant of plaintiff’s mortgage, and immediately thereafter the defendant took full and complete possession of the goods, and in a few days thereafter removed them to Albany. The sale by the mortgagor was upon good consideration, viz.: the satisfaction and cancellation of his debt. E the mortgagor, Tully, had attempted or claimed the right to retake possession of the goods from the defendant, the purchase by the defendant would have been an effectual answer to the claim. If the defendant had brought an action against the mortgagor to recover his debt, this sale and credit would have afforded a perfect defense to the action.

It was never held that a debtor might not pay and discharge his debt by the transfer of property to his creditor by an agreement between them to that effect, and it has always been held that such transfer was for a goed and valuable consideration. It has often been held that a holder without notice of a note given and accepted in satisfaction of an antecedent debt, either before- or after the debt was due, is a bona fide holder for a valuable consideration, even as against an accommodation endorser. “ The-satisfaction of a precedent debt is as truly a valuable consideration for the transfer of a note as an advance in cash of its amount at the time of its transfer.” From that time the sole remedy is upon the note.” Purchase v. Mattison,, 13 Supr., 6 Duer, 587 ; Gould v. Segee, 12 N. Y. Supr., 5 Duer, 260 -269.

Applying this principle to this case shows that the defendant’s rights, from the time of the sale and purchase and the delivery of the goods and the giving of the credit in pursuance of the agreement, rested upon the title it acquired under the bill of sale. Youngs v. Lee, 12 N. Y., 551 -554; Purchase v. Mattison, 16 N. Y. Supr., 3 Bos., 310; White v. The Springfield Bank, 3 Sand., 222.

There are several cases holding that as between a pefson claiming under an unfiled or void chattel mortgage and a purchaser in

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good faith in possession of the property covered by the mortgage, the latter will prevail Weeks v. Zimmerman, 23 N. Y. State Rep., 56.

The case of Powers v. Freeman, 2 Lans., 127 , is iu harmony with these views and illustrates the leading features of this case. The question there was between the mortgagee of an unfiled mortgage, valid in any other respect, and a subsequent purchaser in good faith. The purchaser was ignorant of the existence of the mortgage, and the consideration of the purchase was the application of the price towards the payment and satisfaction of a precedent debt past due. In that case the action was brought by the purchaser against the mortgagee, who had taken possession of the property under his unfiled mortgage, and it was held the plaintiff was a purchaser in good faith and as to him the mortgage was void. The defendant in the case cited gave evidence upon the trial that plaintiff knew of the chattel mortgage, but the jury found that she had not knowledge of it, and that the purchase price was paid by application upon a precedent debt and that the plaintiff was a purchaser in good faith. In the case under consideration the proof in respect to the absence of knowledge by the defendant of the existence of plaintiff’s mortgage, and the existence of the debt and the application of the price of the goods to its payment, would seem to be uncontradicted and would have justified a non-suit or the direction of a verdict in favor of defendant. But the defendant did not make the latter motion, nevertheless, it seems to me very clear that the defendant’s title as a purchaser in good faith should have been submitted to the jury, and for that error the order and judgment should be reversed and a new trial granted, costs to abide the event.

Follett, Ch. J. The defendant having acquired title to and possession of the chattels involved in this action, without notice or knowledge of the plaintiff’s unfiled chattel mortgage, was in a position to challenge its validity.

The court erred in refusing to permit the defendant to show the mortgage was fraudulent, for which error the judgment should be reversed and a new trial granted.

Vann, Parker and Brown, JJ., concur.

Judgment reversed and new trial granted, costs to abide event.

All concur in the result, except Bradley and Haight, JJ., not sitting.