Case Name: Boyer et al. v. The M. D. Knowlton Company et al.
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1911-11-21
Citations: 85 Ohio St. 104
Docket Number: No. 11996
Parties: Boyer et al. v. The M. D. Knowlton Company et al.
Judges: Spear, C. J., Davis, Siíauck and Johnson, JJ., concur. Donahue, J., concurs in the first branch of syllabus but not in the second or in the judgment.
Reporter: Ohio State Reports, New Service
Volume: 85
Pages: 104–119

Head Matter:
Boyer et al. v. The M. D. Knowlton Company et al.
Contracts of conditional sale of personal property — Though made in another state — Must be subject to requirements of Section' 4155-2, Revised Statutes — Rule of comity between states — Rights of vendor, mortgagee and intervening parties — In cafse of failure to renew chattel mortgage — Effect of mortgagee holding possession under neglect of renewal — Law of chattel mortgages.
1. Written contracts of conditional sale of personal property situate in Ohio, although made in another state, must be made and verified as provided in Section 4155-2, Revised Statutes, in order to preserve the title in the vendor, as against subsequent purchasers and mortgagees in good faith and creditors, even if such contracts are in accordance with the law of the state where entered into. The rule of comity between states does not supersede compliance with said section.
2. One who obtains a lien by chattel mortgage on personal property situate in this state, and files the same in the proper office as required by Section 4151, Revised Statutes, but who neglects to renew the same as required by Section 4155, Revised Statutes, may take possession of 'the mortgaged property, after the time, for such renewal has expired, where the terms of the instrument authorize the taking of possession, on the breach of its conditions, or for the better security of the mortgage claim; and taking possession before other creditors acquired a valid lien gives the mortgagee a prior claim on the property or its proceeds as against such other creditors.
(No. 11996 —
Decided November 21, 1911.)
Error to the Circuit Court of Miami county.
On the 28th day of July, 1905, John L. Boyer and the other plaintiffs in error became sureties for William Howland, a party defendant, upon a promissory note for $1,000 payable on demand to the Piqua Savings Bank,
On the 11th day of August, 1905, to secure the payment of said note and save said sureties harmless, said Howland executed to plaintiffs a chattel mortgage upon certain machinery, tools, and other personal property in the box factory in the city of Piqua, Ohio. This mortgage was duly filed. Payments of interest on the note were made by Howland at different dates, the last of which was made April 28, 1907. The mortgage was never refilled.
On the 14th day of October, 1907, the bank demanded payment of the note by the sureties, mortgagees. They paid the note and immediately took possession of the mortgaged property, closed down the plant and locked the door. This possession continued until a receiver was appointed, who took charge of the property mortgaged and perhaps other property and sold the same under order of the court making his appointment.
Certain general creditors of Howland and others who had sold him bills of goods on contracts of conditional sale, contested the priority of- the above chattel mortgage on the ground that it ceased to be a lien when the mortgagees neglected to refile the same, although they took possession of the mortgaged property before any process was levied by the general creditors. And the general creditors attacked the conditional sales contracts.
On hearing of these conflicting claims on the funds arising from the sale, the court of common pleas found in favor of the plaintiffs in error, and that the mortgage should be first satisfied, after allowance to Mrs. Howland of $500 in lieu of a homestead.
Other creditors appealed from this finding and decree to the circuit court, where the following disposition of the case was made, as shown by the judgment entry: “ * * * and the court having heard arguments of counsel, upon consideration finds that the chattel mortgage of the plaintiffs as set forth in their petition is void as against the creditors of William Howland, defendant, notwithstanding that the plaintiffs took possession of the property described in the mortgage before any other creditor obtained a lien thereon and before the appointment of the receiver herein, to all which plaintiffs except.” Mrs. Howland was allowed $500 in lieu of a homestead, as had been done in the court of common pleas.
The court then found that the conditional sale contracts were invalid as liens and ordered all parties to the controversy to be paid as general creditors merely.
The case is here on error to obtain a reversal of the finding and decree of the circuit court.
Mr. G. A. Brooks and Mr. A. F. Broomhall, for plaintiffs in error.
The first decision which seems to pass upon this proposition is found in Wilson v. Leslie, 20 Ohio, 161. See also Brown & Co. v. Webb, 20 Ohio, 389; Cass v. Rothman, 42 Ohio St., 380; Francisco v. Ryan, 54 Ohio St., 307; Kilbourne v. Fay, 29 Ohio St., 264.
The Ohio cases clearly leave the rule in Ohio that, if the mortgage for lack of change of possession or lack of filing or renewal, or for various other defenses, is void against creditors who seek to assert their rights before the mortgagee takes possession, yet the effect of taking possession of the property by the mortgagee in advance of the other creditors, places them upon a different plane.
In all the cases to which we have been cited by counsel for general creditors that hold this doctrine, we find the element of possession was wanting.
The one Ohio case we recall on this proposition is Cooper v. Koppes, 45 Ohio St., 526. On examination it will be found that the decision in that case turned entirely on the fact that the mortgagee did not obtain possession of the property before the other creditors sought to enforce their rights by legal process; so that case is not in conflict in any way with the other Ohio cases heretofore cited — in fact, it rather emphasizes the rule between the mortgagee who takes possession and the one who does not before the rights of the general creditors are sought to be enforced by law.
In the case at bar, the mortgagee took possession after the time for refiling was past, it is true, but before any creditors of any kind whatsoever had made themselves evident or secure, by levying upon the goods. We maintain, therefore, that the taking possession by the mortgagee was a substitute for refiling, as refiling is a substitute for possession, and that such “taking of possession” by the mortgagee made the mortgage valid against all other so-called creditors who had done nothing to establish their claims, nor make good their liens.
In the case of Francisco v. Ryan, 54 Ohio St., 307, objections to the mortgage were more serious than in the case at bar, but nevertheless, the court held an unfiled mortgage void only as long as in mortgagor’s possession and if mortgagee takes possession before adverse rights attach, mortgagee’s title becomes complete. This is further supported by Coe v. Columbus, etc., Co., 10 Ohio St., 404; Jones, Witter & Co. v. Stauffer, 54 Ohio St., 664.
In addition to the Ohio authorities upon this subject, we call the attention of the court to the following citations from the decisions of other states. These appear to be particularly applicable. Case v. Jewett, 80 Am. Dec., 752; Morrow v. Reed et al., 30 Wis., 81; Bank v. Oium, 44 Am. St. Rep., 533; Howard v. Bank, 10 L. R. A., 539; Ullman v. Duncan, 9 L. R. A., 683.
Mr. William Harry Gilbert, for The M. D. Knowlton Co., defendant in error.
Section 4155-2, Revised Statutes, stipulates that these contracts shall be void unless the terms of the statute are complied with, “as to subsequent purchasers and mortgagees in good faith and creditors.” Does the word “creditors” in this statute include general creditors who have no specific liens on the property, or is the statute limited to those who have fastened liens upon the property? It is as well settled in statutes relating to conditional sales as in statutes in regard to chattel mortgages, that the word “creditors” refers solely to creditors who hold some lien upon the property. The reason for this is the fact that the vendor or the mortgagee in instruments not properly filed, or with an omission of an affidavit from the same, have no less rights than formerly and such failure to record or attach affidavits does not give a mere creditor a specific right in the property conditionally sold. It merely leaves the property in such a condition that the general creditors by diligence may acquire prior liens thereon. Jones on Chattel Mortgages (4 ed.), Sec. 245; In re Chadwick, 50 W. L. B., 413; Bowen v. Wagon Works, 91 Tex., 390; Hall v. Implement Co., 33 Tex. Civ. App., 526; Stewart v. Beale, 7 Hun, 405; Stephens v. Meridian Britannica Co., 160 N. Y., 178; Sheldon v. Wickham, 161 N. Y., 500; Jones v. Graham, 77 N. Y., 628.
In Ohio a chattel mortgage is not void as against that 'class of creditors who were equally remiss with the mortgagee and took no steps, to fasten upon the property for the payment of their debts. It is void only as to such creditors of the mortgagors and subsequent purchasers and mortgagees whose rights attach before the mortgage .is filed. Wilson v. Leslie, 20 Ohio, 166.
It is averred in the amended answer and cross-petition of The M. D. Knowlton Co. that the contract was entered into at the office of the defendant in the city of Rochester, New York, by the acceptance thereof of the order of said How- land forwarded by mail, together with the conditional contract of sale, and that the contract in the form in which it is drawn, signed and acknowledged is in strict conformity to the laws of the state of New York.
Therefore, the contract became binding at the time the goods were delivered to the transportation company and the bill of lading given for the same. Under this provision of the contract, as well as the general facts, by which the order and contract were forwarded by Howland from Piqua, Ohio, by mail, to The M. D. Knowlton Co., at Rochester, New York, and there accepted by the company, makes it a New York contract. The law of the place where the contract was made, governs it so far as the validity or the obligation of the contract is concerned. Cochran v. Ward, 5 Ind. App., 89, 51 Am. St. Rep., 229; Miller v. Wilson, 146 Ill., 523, 37 Am. St. Rep., 186; Brewing Co. v. De France, 51 Am. St. Rep., 329; Wilson v. Mill Co., 150 N. Y., 333, 55 Am. St. Rep., 680; 1 Mechem on Sales, Sec. 648; Machine Works v. Lang, 67 N. H., 348, 68 Am. St. Rep., 675.
It will be observed that under the requirements of the statute of New York it is not necessary to attach an affidavit to the conditional contract of sale. In this respect, therefore, the contracts in question were executed in strict conformity to the statute of New York.
Mr. Charles M. Cist; Mr. Edgar W. Cist and Messrs. Long & Kyle, for The C. S. LaBoiteaux Co. and Kupfer Brothers, defendants in error.
The appointment of the receiver in the action and his taking possession of all the property of Howland, operated as an execution and levy upon said property for the benefit of all the creditors; and the proceeds of said property are to be distributed according to the priorities and liens existing upon said property at the time of said appointment and possession. High on Receivers, Sec. 2; Cheney v. Cycle Co., 64 Ohio St., 215.
There is no doubt, under the authority of Wilson v. Leslie, 20 Ohio, 161, and other subsequent cases, that until the mortgagee has lost the right under his mortgage, as against creditors, to take possession of the mortgaged property, the title and lien of the mortgagee may be perfected by such possession and he can hold the property or maintain his lien against the world, although the mortgage be not filed.
The filing of the mortgage is a substitute for the change of possession of the mortgaged property. Cass v. Rothman, 42 Ohio St., 380.
This is true because no specific time being provided after which the mortgage may not be filed the delayed mortgage is just as effective when filed as if it had just been given, and works no greater harm to general creditors. Jones on Mortgages, Sec. 262; Sidener v. Bible, 43 Ind., 230.
In the case of Cooper v. Koppes, 45 Ohio St., 625, this court has recognized the principle. In that case the mortgagee attempted to refile his mortgage four days after the expiration of one year. An execution was afterwards levied upon the property by general creditors. The court held, that if the mortgagee failed to refile his mortgage within thirty days preceding the end of the year as provided by law, he thereby lost the right either to refile it or to file it as an original mortgage, and that by no act on his part could he thereafter revive his lien.
The New York cases cited by this court with disapproval in the Koppes case have now been overruled by the New York courts also. The latest New York case directly in point is Stephens v. Perrine, 143 N. Y., 476.
In the case at bar there was no affidavit whatever upon the instruments. There was nothing to show the actual amounts of the claim, or how much was due. The record gave the public no information beyond the fact that such instruments had once been given by Howland to the Knowlton company. But even if they had stated the amount, the law requires the sanctity of an oath. Benedict v. Peters, 58 Ohio St., 534; Cross v. Carstens, 49 Ohio St., 575; Hanes v. Tiffany, 25 Ohio St., 549; Blandy v. Benedict, 42 Ohio St., 295; Remington & Son v. Central Press Co., 13 C. C., 542; Cash Register Co. v. Closs, Assignee, 12 C. C. N. S., 15.

Opinion:
Price, J.
The M. D. Knowlton Company, a creditor residing in Rochester, New York, who holds contracts of conditional sales to Howland as the basis of its several claims, and others who may be termed general creditors, joined in an attack on the validity of the chattel mortgage held by the plaintiffs in error. The said New York company claims superiority over plaintiffs in error, because their mortgage had expired, and over the general creditors, because it held title to the property or goods sold to Howland by virtue of the contracts of conditional sale, and this company is in this court on a cross-petition in error.
It lost recognition of its title in each of the lower courts, for a very substantial reason. The vendor failed to comply with Section 4155-2, Revised Statutes, which prescribes what shall be done where conditional sales are made. The contract must be in writing, signed by the purchaser, with a statement thereon under oath containing the amount of the claim, which contract, or copy thereof, with proper affidavit shall be deposited with the recorder of the county where the party signing the instrument resides, etc., etc. It is entirely clear, if not conceded, that the contracts under consideration were not in compliance with the statute, and by its terms are void as to subsequent purchasers and mortgagees in good faith, and creditors.
It is argued that these contracts were good under the laws of New York and that rules of comity between the states should make them good in Ohio. We think rules of comity can not be recognized to overthrow an express statute of our state. It prescribes a rule of conduct to govern our own citizens, and we do not think that residents of another state should be more favored, unless the statute so permits.
Therefore we affirm the judgment of the lower court on this branch of the case, and which is represented by the cross-petition in error.
We have remaining the one important issue left. What is the standing of the chattel mortgage under which plaintiffs in error claim? It had been duly executed and filed, and contained the affidavit required by Section 4154, Revised Statutes. This mortgage had been executed to plaintiffs in error to indemnify them for becoming sureties for the maker, Howland, on the demand note to the bank for $1,000, and the affidavit properly describes the nature of their liability for him to the bank. The note was executed July 28, 1905, and the affidavit was sworn to on an early day of August the same year.
The statute as to renewal of chattel mortgage, Section 4155, Revised Statutes, provides: "Every mortgage (chattel) shall be void, as against the creditors of the person making the same, or against subsequent purchasers or mortgagees in good faith, after the expiration of one year from the filing thereof, unless within thirty days next preceding the expiration of the said term of one year, a true copy of such mortgage, together with a statement verified as provided in the last section, together with a statement exhibiting the interest of the mortgagee in the property at the time last aforesaid, claimed by virtue of such mortgage, is again filed in the office where the original was filed."
As already stated, this mortgage was never renewed, but it remained on file, and the next incident connected with it happened on October 14, 1907. The evidence shows that on that day the bank demanded of the sureties-mortgagees the payment of this note, and that in compliance with the demand they paid it, and at once resorted to their rights under the unrenewed mortgage by obtaining the key to the plant, closing it and taking possession of the mortgaged property. There is no dispute about the taking possession as alleged, but it is urged that as the Knowlton Company, who sold on condition, .and the other creditors, gave Howland credit at various times after the expiration of the year and before the taking of possession, the latter should confer no right superior to their claims.
This chattel mortgage contained a stipulation not uncommon to such instruments that if "default be made in the above conditions — (one of which was to save the sureties harmless) — or if any secreting or removal from the location, any abuse, or misuse, any sale, any seizure whatever by any process of law, of said goods or chattels, or any part of them, be either made or attempted, by said mortgagor, or by any person or persons claiming under him or in behalf of either or by or in behalf of any creditor or creditors of said mortgagor, or if from any other cause the security shall become inadequate, then said mortgagee or successors may take immediate possession of said property, or any part of it wherever found, and sell the same at public or private sale for the highest price they can obtain and pay indebtedness and expenses. " It is plainly the law that this instrument was good as between the parties if never filed, and so if filed but not renewed. See Francisco et al. v. Ryan, 54 Ohio St., 307. So we are brought directly to the question, what was the efficacy of taking possession before any other valid lien attached?
It is well enough, at this point, to examine the lang-uage of our statute regulating the filing of chattel mortgages, Section 4150, Revised Statute. It reads: "A mortgage, or conveyance, intended to operate as a mortgage, of goods and chattels, which is not accompanied by an immediate delivery, and followed by an' actual and continued change of possession of the things mortgaged, shall be absolutely void as against the creditors of the mortgagor, subsequent purchasers, and mortgagees in good faith, unless the mortgage, or a true copy thereof, be forthwith deposited as directed in the next section."
The words "accompanied by an immediate delivery and followed by an actual and continued change of possession of the thing mortgaged," refer to things necessary to be done if possession or immediate delivery is not made and possession continued without change, and yet it was decided in Wilson v. Leslie, 20 Ohio Report, 161, that a temporary withdrawal of the mortgage from the files is not fatal to the same. The head-note of the case is that "such a mortgage is not void in toto by reason of an omission to make the deposit 'forthwith' but becomes effective whenever it is deposited. And in case of a temporary withdrawal of the paper from the recorder's office, the mortgagee will not be prejudiced by a levy made at the instance of another creditor." So we are not to so strictly construe this language as to. render the statute practically inoperative. The great purpose of the law is to prevent secret contracts for liens, and to protect creditors who act in good faith in selling to the mortgagor. The spirit of this decision is that, if the mortgagee should not file his mortgage for ten months, and during that time the mortgagor obtains credit, and the mortgagee then files his mortgage duly verified as required by statute, his lien thus obtained will prevail over the claim of the creditors who obtain no lien, but who sold before the mortgage was filed.
In Brown v. Webb, 20 Ohio Rep., 389, we have a case giving another angle from which the law of that day was viewed. The second paragraph of the syllabus is: "A mortgage of personal property, where the mortgagor retains possession by virtue of the mortgage, with a power of sale, is void, as against subsequent purchasers and execution creditors. But when possession is taken by the mortgagee the mortgage becomes valid so as to protect the mortgaged property from execution creditors not having made a levy, and against subsequent purchasers from the mortgagor."
The changes made in the statute since that decision have not affected the rule so stated, as we may judge from later decisions of this court. In Francisco et al. v. Ryan, 54 Ohio St., 307, it is said that, "a mortgage on a stock of merchandise, though made in good faith to secure a bona fide debt of the mortgagor, when it allows him to retain possession with a power of sale in the course of his business, is ineffectual to create a lien as against creditors of the mortgagor who assert their rights against the property while it remains under his control, but it is valid as between the parties; and when the mortgagee takes possession, either with the consent of the mortgagor given at the time, or under authority conferred by the mortgage, his title becomes complete and the property is no longer subject to legal process issued against the mortgagor, nor liable for his debts except to the extent of any surplus that may remain after the satisfaction of the mortgage debt and proper charges for enforcing the same."
It would seem that our present question is solved by that decision, and but little need be added now.
Another case recognizing the same principle is Huber Manufacturing Co. v. Sweny et al., 57 Ohio St., 169. Our present views are in harmony with that case also.
These considerations and these cases are not in conflict with Cooper v. Koppes, 45 Ohio St., 625, for there the court was dealing with the results of not verifying and refiling. The fact that the mortgagee took absolute possession under his mortgage, before other creditors obtain any lien, was not involved or decided.
We need not discuss all the Ohio cases. They are cited in the briefs. The mortgage in this case, though not renewed and refiled as directed by law, was still good as between the parties and furnished a strong arm with which the mortgagee took possession, and that too before any other creditor asserted any valid lien.
It is urged that the neglect to renew acted as a fraud on creditors who sold goods after time to renew expired and before possession was taken; but it must be remembered that this was an indemnity mortgage for the protection of sureties on a demand note. Demand may have been made of the maker of the note, but the evidence is, that these sureties paid when demand was made on them and that they promptly took possession. There is no evidence to sustain the charge of fraud.
We think the circuit court erred in its judgment, and it is reversed, and judgment is given here for plaintiffs in error.
Judgment reversed.
Spear, C. J., Davis, Siíauck and Johnson, JJ., concur. Donahue, J., concurs in the first branch of syllabus but not in the second or in the judgment.