Court Opinion

ID: 8268265
Source: CourtListenerOpinion
Date Created: 2022-10-16 19:15:13.100648+00
Date Added: 2024-06-11T16:43:26.300780
License: Public Domain

The opinion of the court was delivered by
Van Syckel, J.
This bill is filed by the receiver of an insolvent corporation, appointed by the court of chancery, against Madeline A. Roe, who holds a mortgage upon the chattels of the corporation, to obtain a decree declaring the mortgage void as to creditors. Between the time of giving the mortgage and its filing for record, the corporation continued its business and incurred large liabilities, which were unpaid when the receiver was appointed.
*366This appeal is taken from the decree of the court of chancery -declaring the mortgage void as to the creditors represented by the receiver.
The case of Receiver v. Spielman, 5 Dick. Ch. Rep. 120, which was affirmed by this court, 5 Dick. Ch. Rep. 796, establishes the right of the receiver to challenge the validity of this mortgage.
The decision of the controversy involves the true construction of the Chattel Mortgage act of May 2d, 1885. Rev. Sup. p. 491.
The fourth section of that act provides— '
“ That every mortgage or conveyance intended to operate as a mortgage of goods and chattels hereafter made, which shall not he 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, and as against subsequent purchasers and mortgagees in good iaith” &c.,
unless the mortgage has annexed an affidavit as specified in said fourth section and is recorded as required by the fifth section.
The language of this act is the same as that of the original act of 1864 (P. L. of 1864 P 493), with the addition of the provision for an affidavit, except that “ record ” is substituted for “filing.”
That these acts were intended to protect creditors-at-large is apparent from the fact that the draughtsman did not adopt the language of the act requiring the registry of mortgages of real estate.
That act provides that real estate mortgages
“ shall be void and of no effect against a subsequent judgment creditor, hona fide purchaser or mortgagee for a valuable consideration not having notice thereof unless recorded” &c.
The omission of the word “judgment” before “creditors” in the acts of 1864 and 1885 is an unmistakable indication that there is no limitation of the class of creditors to which they shall apply; not “judgment creditors” alone, as in the Real Estate Registry act, but all creditors without exception.
*367Our cases uniformly hold that the object of these enactments was to give publicity to liens upon personal property, and to sweep away secret arrangements, by which creditors were embarrassed and defeated. De Courcey v. Little, 4 C. E. Gr. 119; S. C., 6 C. E. Gr. 357; Bank v. Sprague, 6 C. E. Gr. 530.
And the effect as to creditors of the failure to take immediate ■possession or to record the chattel mortgage has been passed upon by this court.
In Williamson v. Railroad, 2 Stew. Eq. 336, Mr. Justice Depue, in delivering the opinion of the court, says: “ There is a distinction made in the statute between the creditors of the mortgagor and subsequent purchasers and mortgagees, with respect to the avoidance of the mortgage for neglect to file the same, or to take immediate possession. Purchasers or mortgagees, in order to take advantage of the failure of another mortgagee of chattels to comply with the statute, must be subsequent purchasers or mortgagees, taking their title under the mortgagor in good faith. A purchaser or mortgagee acquiring his rights with notice of the existence of the antecedent mortgage, does not obtain his title in good faith. Consequently, possession taken of the mortgaged property under a prior chattel mortgage, however long postponed, will give it priority over a subsequent purchase or mortgage, if possession be taken, in fact, before such subsequent sale or mortgage was made. But no such qualifications apply as against the creditors of the mortgagor. Their rights may have accrued prior or subsequent to the mortgage, and yet they will be entitled to the benefit of the statute. Knowledge of the existence of a chattel mortgage executed by the debtor, will not preclude a creditor from availing himself of the objection that the mortgage is void, because it was not accompanied by immediate delivery of the things mortgaged, followed by an actual and continued change of possession. The distinction between creditors and subsequent purchasers or mortgagees in this respect, was recognized in the opinion of this court in National Bank of Metropolis v. Sprague, 6 C. E. Gr. 530.”
The opinion further declares that “ the chancellor’s construction of the statute, holding that possession of the chattels mort*368gaged taken before judgment recovered, will not give validity to* the mortgage as against the execution creditor, if the mortgage-was not filed according to the provisions of the act, and there was not an immediate delivery and continued change of possession of the things mortgaged, was correct.”
It must therefore be conceded that the correct interpretation of the fourth section of the act of 1885 is, that if the mortgage-is unrecorded, the failure to take immediate possession postpones-the mortgage to all creditors of the mortgagor, as well those who become creditors before possession is taken, as those who-become creditors after there has been a failure to take immediate-possession • the mortgage by the terms of the act is invalidated by such delay as to creditors.
I agree with the vice-chancellor, that the force of the word “ immediate ” extends throughout the sentence, and applies to the “filing or recording,” as well as to “the delivery of possession.”
The protection to creditors would be slight if the mortgagee could retain his priority over creditors by filing his mortgage-long after it was taken by him, instead of taking possession of the goods mortgaged. The policy of the statute cannot be so-easily defeated. Immediate possession or immediate recording means as soon as may be by reasonable .dispatch under the circumstances of the case.
The effect of the ninth section of the act of 1885 remains to-be considered. It is as follows:
“ That every chattel mortgage hereafter recorded pursuant to the provisions of this act shall be valid against the creditors of the mortgagor, and against subsequent purchasers and mortgagees from the time of the recording thereof until the same be canceled of record, in the manner now provided by law for canceling of mortgages of real estate.”
This section had, manifestly, two objects in view.
One was to change the law requiring a mortgage to be refiled,. and to provide that, after it was recorded according to law, it should be a valid encumbrance until it was satisfied or canceled , of record.
*369The other purpose was to modify the rule which had prevailed under the interpretation previously given to the language of the fourth section of the act of 1885.
As before stated, if the mortgagee fails to record his mortgage immediately, he cannot, according to the fourth section, regain his position as against creditors of the mortgagor by after-wards recording it, whether they become creditors before or after such recording.
In my judgment, the purpose of the ninth section was to enable the mortgagee who failed to record his mortgage immediately, to preserve his lien as against all persons who become creditors of the mortgagor after he records his mortgage, and in that respect to put him on the same footing with one who purchases or takes a mortgage after the prior mortgage is recorded.
This interpretation is in harmony with the policy of the registry law, which is directed against secret liens and not against known encumbrances, and it gives full effect to the words “ from the time of the recording thereof until the same be canceled of record.” It is also just in its operation, as there is no good reason why the law should favor a general creditor, who has notice from the record, more highly than it does a purchaser or mortgagee with like notice.
Unless so construed, it must be held either that these words in the ninth section have no effect whatever, so far as credito'rsat-large are concerned, which is not permissible if reasonable effect can be given to them, or that a filing at any time, however long, after the credit is given, entitles the mortgage to priority over the creditor.
The latter construction would nullify the fourth section of the act, so far as it applies to general creditors, and sweep away the guard against secret liens.
The mortgage of the appellants was not recorded as prescribed by the act of 1885, and it is, therefore, subsequent and subject to the claims of all persons who became creditors of the mortgagor before the mortgage was recorded, but is prior to the claims of all those who became creditors after it was recorded. In this case it appears that all the credits were given before *370the mortgage was recorded, and the decree should therefore be affirmed.
For affirmance — The Chief-Justice, Garrison, Gum-mere, Lippincott, Magie, Van Syckel, Bogert, Brown, Krueger, Sims — 10.
For reversal — None.