#### Robert Deeley *et al.,*Plaintiffs, *against*John Dwight *et al.,*Defendants.

(Decided June 16th, 1890.)

A mortgage of chattels, given at the time of an agreement to purchase them, to secure payment of the price, although it includes articles not in existence, hut to he afterwards manufactured and delivered by the mortgagee, is valid and operative between the parties, and its lien attaches to such articles as are delivered.

G. having agreed to procure and furnish toD., one of the defendants, certain machinery, obtained payment therefor in full from D. by representations as to the condition of the machinery. He afterwards engaged plaintiffs to manufacture a portion of it, and gave them his note and a chattel mortgage thereon to secure payment of the price. Plaintiffs made and delivered such portion of the machinery to G., who delivered it to D., and D. and the other defendants made considerable expenditures in setting it up in their factory. Plaintiffs did not file their mortgage for more than a year afterwards. It did not appear that plaintiffs knew of the arrangement and transactions between G. and D., although they knew that the machinery was to be put up at defendants’ factory. *Held,*that defendants *301were not subsequent purchasers in good faith, within the meaning of the statute making chattel mortgages void as against subsequent purchasers and mortgagees in good faith, unless filed as prescribed therein (Laws 1883 c. 279 § 1) ; and that, Gr. having made default in payment of the price, plaintiffs, having demanded the machinery from defendants, could maintain an action against them for unlawful detention thereof.

Exceptions taken at a trial term of this court and ordered to be heard in the first instance at the General Term.

The action was brought for the conversion of certain machinery which plaintiffs claimed by virtue of a chattel mortgage executed to them by one Gandolfo in February, 1884. The defendant, John Dwight, claimed the machinery as purchaser from Gandolfo, and as plaintiffs’ mortgage was not filed as required by statute, defendants insisted that it was void as against John Dwight as a purchaser in good faith, and also claimed that plaintiffs were estopped from asserting their rights under the mortgage.

*G-eorge P. ¡Totaling,*for plaintiffs.

*A. P. ITetcham*and *James A.*Seaman, for defendants.

Larremore, Ch. J.

The learned judge who tried this case evidently had grave doubt as to whether or not a correct disposition had been made of it, and therefore ordered the exceptions to be heard in the first instance at General Term. After reflection and an examination of authorities — the opportunity for which is always necessarily limited at trial term—we have concluded that such doubt was well founded. It appears that defendants, in or about September, 1883, entered into a contract with one Gandolfo to procure and sell to them certain articles of machinery to be selected by him. Gandolfo engaged plaintiffs to manufacture a portion of such machinery, and they agreed to do so, arranging to take a note and a chattel mortgage from Gandolfo upon the articles to secure the payment thereof. Such note and mortgage bear date and were delivered in February, 1884 ; *302but, previous to such time, to wit, in December, 1883, upon representations as to the nature of the proposed machinery, Gandolfo had secured payment in full therefor from the defendants to him. This fact must be deemed established for the purposes of this trial. See the admission of the defendant John Dwight, at folio 292. The articles were delivered to Gandolfo, and by him to the defendants; but Gandolfo" never paid plaintiffs for them; and the latter claim in this action- for the price thereof under their chattel mortgage. Said mortgage was not filed until Maj^, 1885.

Plaintiff’s cause of action is founded on the mortgage, and defendants contend on several grounds that this instrument must be disregarded. It is claimed in the first place, that the mortgage was void, because at the time of its execution some of the articles which it then purported to, and which it did eventually, cover were not in existence. But I cannot discover any substantial force in the arguments for this view. The situation was, that Gandolfo and plaintiffs made a contract for the manufacture of the machinery, one of the terms of which was that they should retain a lien upon the articles until paid for. I can see no good reason why a purchase-money mortgage on chattels should not be equalty favored in law with a purchase money mortgage on land. There is of course the distinction that a mortgage on land is theoretically only a lien, while a mortgage on personal property effects a conditional sale. We have, therefore, a sale to the vendee and a simultaneous conditional sale back to the vendor. Still, this was practically the condition of affairs as to mortgages on real estate at common law, and is yet in man}r states of the Union; and everywhere a purchase-money mortgage is one of the securities most jealously protected by the courts. The element of futurity does not operate to take the present case out of the usual rules governing purchase money mortgages ; it rather tends to make such rules apply with greater force. A vendor contracts to manufacture certain specific articles, and also contracts for the security of resort to the articles themselves for his compensation. The only possible *303view to take under these circumstances, is that the mortgage so given, which describes the articles to be made, attaches to the same as they are successively turned out and delivered to the vendee (See *Ludwig*v. *Kipp,*20 Hun 265; *Willetts*v. Brown, 42.Hun 140, and cases there cited ; *Stevens*v. *Watson,*4 Abb. Ct. of App. Dec. 302; *McCaffrey*v. *Woodin,*65 N. Y. 459; *Wisner*v. *Ocumpaugh,*71 N. Y. 113; *Coates*v. *Donnell,*94 N. Y. 168).

Defendants, however, claim that such mortgage was void as to them, under the statute, because it was not filed until over a year after it was made. The law makes a chattel mortgage, unless filed, void as against subsequent purchasers and mortgagees in good faith ; and the question which was principally argued on this appeal is, whether defendants can be held to be “ subsequent purchasers in good faith ” within the meaning of the act. I think this question has been so decisively answered in the negative by a long line of authorities in this state that little discussion will be required on our part *(Van Heusen*v. *Radcliffe,*17 N. Y, 583; *Thompson*v. *Van Vechten,*27 N. Y. 580; *Wood*v. *Robinson,*22 N. Y. 564 ; *Weaver*v. *Barden,*49 N. Y. 286; *Barnard*v. *Campbell,*65 Barb. 286; *Same Case,*55 N. Y. 456, and 58 N. Y. 73; *Voorhis*v. *Olmstead,*66 N. Y„ 116; *Dusenbury*v. *Hurlbert,*59 N. Y. 541; *Kursheedt v. McCune,*20 Abb. New Gas. 265).

The principle is well established by these cases that a “subsequent purchaser in good faith ” is one who parts with value at the time of the transfer of title to or delivery of the identical property, and on the faith of such transfer or delivery. The term cannot be held to include one who receives the property in question either in pursuance of an executory contract of sale, or in satisfaction of an antecedent debt. It is not claimed that any transfer of title, either by constructive delivery or otherwise, was attempted to be made to defendants until the actual delivery of the machinery. On the other hand, it is proved conclusively by the aforesaid admission of one of the defendants, that the money which defendants intended for the purchase price was all paid before the execu*304tion of the mortgage, and before the greater part, if not all, of the articles were made.

Defendants did not, as has been argued here, make themselves “ subsequent purchasers in good faith ” by expending various sums in cartage of the machinery, and in setting the same up in their factory. Such expenditures, though in one sense made upon the faith of the transfer and delivery of the property, have not the least significance in determining in what character they became purchasers, or whether they became purchasers at all. These expenses would necessarily have been incurred no matter how they acquired the machinery, whether as purchasers or hirers or by gift. The determining factor is, when and upon what reliance was the purchase price paid? Here the purchase price was paid before defendants received the articles, and they relied simply upon Gandolfo’s word that he would procure such articles for them. Defendants, therefore, were not subsequent purchasers in good faith within the definition of that phrase given by the authorities above cited, and it follows that, as between the parties to this action, the mortgage was valid and is operative *(Van Heusen*v. *Radcliffe, supra ; Thompson*v. *Van*Vechten, *supra; Kennedy*v. *Union*Bank, 23 Hun 496).

We are also of the opinion that plaintiffs may maintain the present action of conversion. Their right is disputed on the alleged ground that they are not entitled to the immediate possession of the chattels. But this is error. We have decided that the mortgage is valid, as between the parties to this litigation, and consequently all the rights it purports to confer on the mortgagees are valid. One of such rights is to take possession of and dispose of the mortgaged chattels in case of default in payment of the debt. Plaintiffs are, therefore, entitled to assume immediate possession, and, a demand for such chattels having been made (fol. 83), it follows that they may bring an action to recover such damages as they-may have sustained by the unlawful detention of the same *(Jones*v. *Graham,*77 N. Y. 628).

*305The exceptions-should be sustained and a new trial ordered, with costs to abide the event.

Bischoff, J.—I concur in the opinion of the Chief .Justice that the payment of the purchase money by the defendant John Dwight to Joseph Gandolfo, under the latter’s executory agreement for the sale of the machinery in question, before such machinery had come into1 existence, and before Gandolfo himself had acquired title thereto by purchase from the plaintiffs, cannot constitute Dwight a purchaser for value so as to defeat the lien of a chattel mortgage, which was not filed'in the manner provided by statute, and that the chattel mortgage given by Gandolfo to the plaintiffs at the timé of his agreement with them to purchase the machinery subsequently delivered to him, was valid and operative as between the parties thereto, the lien attaching upon the delivery of the machinery.

Nevertheless, if it had been conceded upon the trial, either expressly or by failure of the plaintiffs to contradict evidence to that effect, that the plaintiffs were aware of the arrangement between Gandolfo and the defendants for the sale of the machinery, and of Gandolfo’s representations to the defendants that he was the absolute owner of the machinery and could convey a perfect title thereto, and that, notwithstanding such knowledge, the plaintiffs had permitted defendants, in reliance upon Gandolfo’s representations, to expend large sums in alterations and improvements upon this machinery, largely in excess of its original value, the plaintiffs should now be estopped from asserting, as against the defendants, any claiih to this machinery under the chattel mortgage to them.

A careful examination of the evidence, however, fails to show that the plaintiffs knew of the arrangement between Dwight and Gandolfo, and of the latter’s reuresentations of his absolute ownership and ability to confer an unincumbered title.

In fact, Robert Deeley, one of the plaintiffs, examined as a witness in his own behalf, distinctly says (at fols. 51, 52, 53, *30654, 55), that the machinery was agreed to be sold to Gandolfo ; that it was delivered upon trucks supplied by Gandolfo ; that Gandolfo represented to him that the machinery was to be put up at Dwight’s factory for experimental purposes only, and that he was wholly ignorant of any intention on Gandolfo’s part to deliver the machinery to Dwight.

From the absence of evidence tending to charge the plaintiffs with knowledge of Gandolfo’s executory contract of sale with the defendants, and of his intention to deliver the machinery to Dwight pursuant to such contract, and that Dwight, relying upon Gandolfo’s representation of absolute ownership and ability to convey an unincumbered title, intended to expend the money which was said to have been expended in alterations and improvements ; and, further, because of Robert Deeley’s disavowal of any such knowledge, there does not appear any sufficient ground for holding the plaintiffs estopped from asserting their claim under their chattel mortgage, as against the defendants.

If the defendants were duped, it was, so far as was shown on the trial, in consequence of the misrepresentations of Gandolfo, and of his fraudulent concealment of his mortgage to plaintiffs, and not because of any act of the plaintiffs, or because of their omission to do anything, which, in view of their want of knowledge of the arrangements between Dwight and Gandolfo, could reasonably have been expected of them.

The plaintiffs’ exception to the learned trial justice’s direction of a verdict for the defendants should therefore be sustained and a new trial ordered, with costs to abide the event.

J. F. Daly, J.—It is substantially shown by the evidence that, about September, 1883, one Gandolfo agreed to furnish the defendant, John Dwight, certain specified machinery at the estimated cost of $5,660. This machinery was intended for Dwight’s factory, and was to be put up and started running in connection with other machinery at an additional expense which ultimately approached $7,000. Between October 23rd and December 12th, Dwight paid Gandol*307fo in full for the specified machinery, although it had not then been delivered, Gandolfo representing at first that it was in process of manufacture, and afterwards that it was stored waiting for the completion of alterations in Dwight’s factory where it was to be placed. In February, 1884, Gandolfo ordered the machinery in question in this action from the plaintiffs at a cost of $4,700, giving them then his note and a chattel mortgage to secure the purchase price. The plaintiffs did not file their, mortgage, and Gandolfo went on and delivered the machinery, as he received it from plaintiffs, to Dwight, pursuant to the original contract made in September, 1883; Dwight expending in the erection and fitting of it in his factory, and the purchase of necessary machinery for that purpose, about the sum of $7,000. The delivery was made between February and April, 1884. The chattel mortgage was not filed until May, 1885.

It is claimed by the plaintiffs that their mortgage, notwithstanding their failure to file it, was good as against Dwight, because at the time of the delivery of the machinery to him he did not part with anything of value to Gandolfo, having paid in full for it in advance by the payments made in the previous year. It is undisputed that such advance payments included payment for the machinery in question, and the right of defendant, John Dwight, to claim the position of a purchaser for value at the timé of delivery was open to question upon the authorities *(Kursheedt*v. *Mc*Cune, 20 Abb. New Cas. 265; *Dusenbery*v. *Hurlbert,*59 N. Y. 541; *Barnard*v. *Campbell,*65 Barb. 286; affirmed, 55 N.Y. 456, and 58 N. Y. 79; *Voorhis*v. *Olmstead,*66 N. Y. 113).

But under the circumstances it would seem that the plaintiffs should be estopped from asserting their mortgage against the defendants. They sold and delivered their goods to Gandolfo, conferring upon him the apparent unencumbered title, witholding their mortgage from the files, and permitting him to impose upon the defendants to the latters’ damage in the large outlay needed to set up the machinery and make it available. They knew that the machinery was to be set up *308in the factory of defendants,, and must have known that large expenses would be incurred for that purpose. The act of withholding their mortgage from the files was evidently intended to induce the" defendants to go on and deal with Gandolfo as one having an-unencumbered .title, and it did have that effect.. The advantages-to the plaintiffs by this course are conspicuous *•„*had they filed their mortgage or asserted their rights in any way at the time of delivery,'the result would have been that the defendants could have refused to receive the machinery from Gandolfo, and the plaintiffs would have had It back upon their hands.

By the plaintiffs taking the course they did, the defendants were induced to make such outlays as would practically force them. to. pay the purchase price over again " to plaintiffs, or lose the benefit of their subsequent expenditures. They were therefore induced by plaintiffs’ act to alter their position, and are brought within the exception noted in one of the cases above cited and relied upon by the plaintiffs *(Barnard*v. *Campbell,*58 N. Y. pp. 73-76). The court there lays stress upon the fact that the purchasers parted with no value, incurred no liability, and in no respect changed their situation in the interval between the delivery of the merchandise by the plaintiffs to Jeffries and their disaffirmance’of the contract and reclaiming the goods. In other words, they did nothing in consequence of such delivery. So in *Weaver*v. *Barden*(49 N. Y. 286), it is said that the purchaser must have parted with something of value upon the faith of his purchase before he had notice of the prior right. In this case the expenditures in-setting up the machinery, the purchase of shafting, belting, pulleys, etc., and for work and labor, amounting to nearly $7,000, largely exceed the value of the machinery itself, ($4,700). This large expense was incurred in good faith in reliance upon Gandolfo’s apparent absolute ownership and unencumbered title, for which the plaintiffs are directly responsible. The case is within the principle stated in the opinion of Danforth, J., in *Dows*v. Kidder (84 N. Y. 128), and the cases generally on the law of estoppel. The: knowl*309edge by the plaintiffs that Gaudolfo was to set up the ma.chiuery in defendant’s premises, the delivery of possession to him, and the suppression of their mortgage, taken together, show an intent to induce the third parties with whom Gandolfo might deal, to treat his title as unencumbered.

The defendants should have judgment upon their verdict, and the motion for a new trial should be denied, with costs.

Exceptions sustained and ne w trial ordered, with costs to abide event.