Case Name: In re Assignment of Cutler & Horgen
Court: Iowa Supreme Court
Jurisdiction: Iowa
Decision Date: 1927-03-15
Citations: 204 Iowa 739
Docket Number: 
Parties: In re Assignment of Cutler & Horgen.
Judges: Evans, C. J., and De Graff and Morling, JJ., concur.
Reporter: Iowa Reports
Volume: 204
Pages: 739–746

Head Matter:
In re Assignment of Cutler & Horgen.
March 15, 1927.
Rehearing Denied November 15, 1927.
F. W. Lohr, for appellants.
Kugler <& Ba/rtleit, F. G. Bush, G. E. Marsh, and A. E. Brown, for appellees.

Opinion:
Albert, J.
I. f Prior to the 24th day of June, 1921, F. S. Lohr and E. V. Cutler constituted a partnership engaged in conducting a furniture and undertaking business in the town of Osage, Iowa, in a building owned by Lohr. On the date above named, Lohr sold and transferred his undivided one-half interest in the business to P. M. Horgen, for the sum of $9,500, on which purchase price Horgen paid $5,000 cash, and executed to Lohr a note and chattel mortgage covering the property for the balance of $4,500. The same was duly filed with the county recorder of Mitchell County on that date. This chattel mortgage covered ' ' an undivided one-half interest in the undertaking stock and equipment, and the furniture stock, belonging to the firm of Cutler & Horgen in Osage, Iowa, also an undivided one half of any and all additions made thereto from time to time," and set out a proper description of the location of said stock of goods. Accompanying this mortgage were nine promissory notes, of $500 each, due every six months, only the first of which has been paid. Cutler & Horgen continued to carry on this business until the 29th day of April, 1924, when they joined in a deed of assignment for the benefit of creditors. In the progress of the settlement of this suit, F. S. Lohr filed claim based on a chattel mortgage, also a claim for landlord's lien for rent, and another claim for $50. Objections were made to these claims originally by the firm of Cutler & Horgen, but later their objections were withdrawn. Other creditors also made objections to these claims, and it was on the objections made by the creditors that the matter was tried in the lower court.
Some question is raised as to the timeliness of the filing of these objections, but in the conclusion we reach, this objection becomes immaterial.
The first question urged is that the' district court erred in holding that the chattel mortgage was junior and inferior to the rights of the creditors of the firm of Cutler & Horgen. As stated above, the transfer of Lohr's interest in the stock to Horgen and the taking back of the chattel mortgage for part of the purchase price thereof constituted one transaction. At the time this sale occurred, the original firm of Lohr & Cutler had no outstanding indebtedness. In one of the filings in the case, signed "Cutler & Horgen, by E. V. Cutler," is the following:
"E. Y. Cutler further states that such chattel mortgage [referring to the F. S. Lohr chattel mortgage] was made and executed by said P. M. Horgen with notice to said E. Y. Cutler and with his knowledge and consent thereto."
The question, therefore, is whether or not a chattel mortgage given under the circumstances related in this case is inferior or superior to the rights of parties who became creditors of the new firm after the chattel mortgage was given.
The rule as generally stated is that a mortgage given by one partner on his interest in the partnership property to secure his individual indebtedness is subject to all partnership debts and liens. Fargo & Co. v. Ames, 45 Iowa 491; Mayer & Loewenstein v. Garber, 53 Iowa 689; Hubenthal v. Kennedy, 76 Iowa 707; Johnston & Son v. Robuck, 104 Iowa 523; Hirsch, Wickwire Co. v. Denison Cloth. Co., 158 Iowa 117; Clapp v. Adams, 143 Iowa 697. A reading of each and all of these cases, together with all of the other cases cited in the brief of appellee, shows that in each instance the chattel mortgage was made after the partnership was a going concern, and the complaint in each instance came from a creditor of the partnership who was such at or before the time the chattel mortgage was given. No case is cited to us, nor have we, on careful search, been able to find a precedent, where the objector to the, chattel mortgage became such after the chattel mortgage was given.
Appellee relies largely on the case of Clapp v. Adams, supra. A reading of that case, however, shows that the partnership had about reached an end when the chattel mortgage in question was given to one Hemingway. The prior creditors of the partnership of Clapp & Adams were objecting to allowing this chattel mortgage precedence over other claimants as creditors of the partnership. All of the claims objected to, however, were claims that antedated the chattel mortgage; hence the Clapp ease does not solve the question before us.
Just what was the status of these parties at the time of the making of this chattel mortgage?
The original firm of Lohr & Cutler was, by operation of law, dissolved by the sale by Lohr of his interest therein. The new firm of Cutler & Horgen was about to take over and continue the business conducted by the former firm. At the time of the making of this chattel mortgage, there were no creditors of the new firm, and no creditors of the old firm; hence no one could complain of the making of this chattel mortgage unless it be Cutler, who says, in his declaration above referred to, that he knew .of the making of the chattel mortgage and consented thereto. This chattel mortgage was duly recorded, and it not only covered Horgen's interest in the property then in existence, but it provided for a mortgage on the undivided half of any additional property that was put into the stock. Having been duly recorded, it was constructive notice to all the world of its contents, and any person who dealt with the new firm constructively had notice of the existence of this chattel mortgage and its contents. These various creditors, now having-claims against this new firm of Cutler & Horgen, therefore, are held to have known, at the time they dealt with the firm, that, if their goods went into the same, they would be covered by this chattel mortgage properly recorded. This being true, it follows that they cannot, under such circumstances, assert that the chattel mortgage is inferior to their rights 'as creditors. The district court erroneously held otherwise.
But it is urged that, because the mortgagee permitted the new firm to continue the business in the ordinary course of retail trade, without any provision in the mortgage that the proceeds of the sale should be applied upon the mortgage indebtedness, the mortgage was void as to these creditors of the firm, and we are cited to several decisions from sister states on this proposition, among which are: Black Hills Merc. Co. v. Gardiner, 5 S. D. 246 (58 N. W. 557) ; Paxton & Gallagher v. Smith & Co., 41 Neb. 56 (59 N. W. 690) ; Durr v. Wildish, 108 Wis. 401 (84 N. W. 437).
There is no provision in this chattel mortgage authorizing the new firm to continue the business in the ordinary course of retail trade, and if the mortgage did contain that provision, it -would not invalidate the mortgage. In Meyer v. Evans, 66 Iowa 179, at 185, this court said:
"It has often been held by this court that the fact that the mortgagor retains possession of the mortgaged property, and reserves the right to sell the same in the ordinary course of trade, and apply the proceeds to his own use, does not render the mortgage fraudulent in law" (citing Iowa cases).
II. F. S. Lohr was the owner of the building in which this business was conducted both by the old and by the new firm. The new firm of Cutler & Horgen entered into a lease with F. S. Lohr for the occupation of the same building, which lease was to run from the 1st of July, 1921, to the 1st of July, 1926, at a monthly rental of $125. The assignment in this case was made on the 25th day of April, 1924. The assignee took possession of the stock, and continued to use the building until she sold the stock, on the 8th day of January, 1925. At the time assignee took possession, there was one year's rent unpaid. The assignee paid seven months' rent from the time she occupied the building as such assignee, and the court allowed the landlord for his one year of unpaid rent, and also for two months' rent while the building was occupied by assignee, on which the rent was unpaid. Complaint is made of this order of the court's because he says that, under the law, he was entitled to six months' rent after the sale of the property by the assignee.
Regardless of what the general rule may be in such matters, the evidence shows that the landlord bought this stock of goods from the assignee, immediately moved in, and took possession of the same, and continued to conduct a retail business in the building for which he was claiming rent. Under these circumstances, we feel that the -order of court was right.
That the attorney filing this mortgage and having proven up, is entitled, after having filed the proper affidavit, to have attorney's fees taxed, as provided in the notes, see Davidson v. Vorse, 52 Iowa 384.
It is further urged that there should be an equitable apportionment made of the costs in the assignment, and that certain costs therein should not be considered in determining the dividend that F. S. Lohr should receive on his chattel mortgage. With this we do not agree. The statute marks out the method by which distribution is to be made in insolvent estates, and we have no disposition to disturb the ruling of the district court thereon.
F. W. Lohr also appeals in this matter, claiming that he performed certain services for the assignee, who was a sister of his, and that the reasonable value thereof was something over $200. The evidence, however, shows that the t ,. " " contemplated insolvency proceedings ox this firm . . " , . " were pending for some time before the deed of asgjgILine]Dlt¡ that 'w. Lohr was attorney for his brother, F. S. Lohr, in looking after the matter. Some tax matters also arose in the proceedings, resulting in a compromise with the county as to the taxes. The district court held that "it was not understood or intended by either him [F. W. Lohr] or the assignee that he was to make any charge for his services as attorney, but was rendering his services to her only because she was his sister, and for her benefit;" that, if he were subsequently employed by her, it was unnecessary' to employ other attorneys. The firm of Kugler & Bartlett seems to have been the principal attorneys in looking after the assignee's business.
We have read the record, and it is sufficient to support the finding of the district court in disallowing attorney's fees to F. W. Lohr for services claimed.
This question of attorney's fees here, of course, has no reference whatever to the attorney's fees provided for with reference to the notes and chattel mortgage.
In accordance with this, the ruling of the district court will be modified'by giving the chattel mortgage priority, as above indicated. Otherwise, the ruling of the district court is concurred in. If desired, the case may be remanded for judgment in the same court in accordance herewith. — Modified and affirmed.
Evans, C. J., and De Graff and Morling, JJ., concur.