Title: Joe Heaston Tractor & Imp. Co. v. Claussen
Citation: 287 P.2d 57, 59 N.M. 486
Docket Number: 5932
State: new-mexico
Issuer: new-mexico Supreme Court
Date: August 18, 1955

287 P.2d 57 (1955) 59 N.M. 486 JOE HEASTON TRACTOR &amp; IMPLEMENT CO., a New Mexico corporation, Plaintiff-Appellant, v. R.L. CLAUSSEN, Defendant, Richard C. oshH, Trustee in Bankruptcy for R.L. Claussen, Intervenor-Appellee. No. 5932. Supreme Court of New Mexico. August 18, 1955. Marron &amp; McRae, Joseph Phil Click, Albuquerque, for appellant. Scott H. Mabry, Albuquerque, for appellee. McGHEE, Justice. It is agreed the sole question to be determined by us is whether a written contract for the sale of a stock of merchandise, executed by the buyer and seller, and properly acknowledged, filed for record in the office of the county clerk, and providing on its face that the seller has title to replacements of and additions to a stock of merchandise as security for the unpaid balance of the purchase price, gives to the seller a valid security interest as against the trustee in bankruptcy of the buyer in additions to and replacements of the stock of merchandise as originally sold. The trial court held the instrument to be a conditional sale contract and that the seller did not have a lien against the additions and replacements. *58 The contract for sale of the stock of merchandise contained the following provisions, inter alia: In addition, the contract provided the buyer would maintain on hand net inventories, cash and accounts receivable, at all times, of a dollar value at least equal to the unpaid balance of the purchase price, that he would furnish monthly statements thereof to the seller, and that the seller, its agents and attorneys were to have free access to the books and records of the buyer. The buyer agreed that so long as there remained any unpaid balance on the purchase price he would not draw money from the business in excess of $600 per month for his personal or living expenses. Provision was also made that he would pay lease rentals, that he would keep the property insured, and that he would furnish warranty service on merchandise sold and service repossessions. It will be noted the contract provides for the doing of a number of things by the buyer of advantage to the seller, other than paying for the stock and fixtures. *59 The conventional remedies of the holder of a conditional sale contract on default of the buyer are the alternate ones provided in paragraphs (1) and (2) above, relating to defaults; but in paragraph (3) we find the conventional remedy of a mortgagee upon default by the mortgagor, plus the unusual provisions for an assignment of bills receivable owing to the buyer and the assignment of money in his bank account which came with the business. Because of the harsh remedies available to the holders of conditional sale contracts, they are not favored in the law. Hughbanks, Inc., v. Gourley, 1941, 12 Wash. 2d 44, 120 P.2d 523, 138 A.L.R. 658; Annotation 92 A.L.R. 304, pp. 310, 311. In case of doubt, the courts hold the instruments in question to be chattel mortgages. Bogert, Commentaries on Conditional Sales, Vol. 2A, Uniform Laws Annotated, p. 11. The only purpose of a conditional sale contract is to give the seller security for the purchase price of property agreed to be sold by the terms of the instrument. There are many authorities, such as First Nat. Bank of Missoula v. Marlowe, 1924, 71 Mont. 461, 230 P. 374, which hold the seller must be the actual owner of the article sold before a conditional sale contract is valid as such; otherwise, it is held to be a mortgage. In Gervasi v. Seattle &amp; R.V. Ry. Co., 1928, 148 Wash. 635, 269 P. 1050, it was held that a purported conditional sale contract providing that, in the event of default, the vendor could retake the article, sell it and charge all costs and attorneys' fees to the purchaser, who should be liable for any deficiencies, and also authorizing the prosecution of concurrent remedies, amounted to a chattel mortgage only and passed title to the vendee thereunder. Its doctrine was followed in Roberts v. Speck, 1932, 170 Wash. 324, 16 P.2d 463; Robert Morton Organ Co. v. Armour, 1933, 173 Wash. 462, 23 P.2d 887, 27 P.2d 1119, and a number of other Washington cases. To the same effect is Weber Showcase &amp; Fixture Co. v. Waugh, D.C. 1930, 42 F.2d 515. See also First Nat. Bank of Missoula v. Marlowe, supra. As heretofore stated, the third alternative remedy given the seller is the common remedy given the mortgagee in a chattel mortgage, and the seller is entitled to foreclose it as such. In the present case the Heaston company, seller, only owned the property turned over to the buyer, Claussen, at the time the sale was consummated, and it is difficult to see how the seller could "retain" title to property it did not then own. In our opinion, the option in the case of default under paragraph (3) converted the instrument into a chattel mortgage. Certainly this is true as to the after-acquired merchandise. Since the case of First Nat. Bank of Albuquerque v. Haverkampf, 1911, 16 N.M. 497, 121 P. 31, there can be no question of the validity of a chattel mortgage as against subsequent creditors, on a stock of merchandise left with the mortgagor for sale in the ordinary course of trade, from the time of its filing for record. Such holding is implicit in the opinion in that case. In First Nat. Bank of Roswell v. Stewart, 1906, 13 N.M. 551, 86 P. 622, this Court upheld the validity of a chattel mortgage on a stock of merchandise where the seller was permitted to dispose of it in ordinary course of trade and replenish it with other merchandise. However, this Court specifically refused to decide whether the lien extended to after-acquired stock because the question was not raised below. The first time the validity of a chattel mortgage on a stock of merchandise, so far as it affected after-acquired merchandise, was directly passed upon by a court in New Mexico, was in the case of In re Harnden, D.C.N.M. 1912, 200 F. 175, 176, where the late Judge Pope (who was the trial judge in First Nat. Bank of Roswell v. Stewart, supra, and a former Chief Justice of this Court) upheld a chattel mortgage on such after-acquired merchandise. The matter was before him on the following questions certified by the referee in bankruptcy: Judge Pope concluded the questions had to be decided according to the law of New Mexico where the mortgage was executed, and, after reviewing the cases of Spiegelberg v. Hersch, 1884, 3 N.M., Gild., 281, 4 P. 705; First Nat. Bank of Roswell v. Stewart, supra; and First Nat. Bank of Albuquerque v. Haverkampf, supra, said: It was held in Sawyer v. Long, 1894, 86 Me. 541, 30 A. 111, that a mortgage on a stock of goods containing permission to sell the stock and replace sold articles with the proceeds of sale, and providing the mortgage should cover such replacements was valid and that such goods were covered by the mortgage. Our statute on the recording of chattel mortgages, § 61-8-2, 1953 Compilation, does not make an unfiled chattel mortgage void as to general creditors; yet the seller here is appealing for relief in equity, and, as was done in the case of the mortgage in the Harnden case, we will, as a condition precedent to directing foreclosure of his mortgage on after-acquired goods, require him to waive such mortgage on any goods acquired by Claussen subsequent to execution of the mortgage but prior to its being filed for record on April 21, 1952, if any such goods went into the hands of the receiver. The judgment will be reversed and the cause remanded to the District Court with instructions to set aside its former judgment and render a new one in accordance with the views herein expressed. It is so ordered. COMPTON, C.J., and SADLER and KIKER, JJ., concur. LUJAN, J., not participating.