Court Opinion

ID: 6548227
Source: CourtListenerOpinion
Date Created: 2022-07-19 22:21:29.404421+00
Date Added: 2024-06-11T15:56:01.887472
License: Public Domain

Hart, J., (after stating the facts). In the case of Morton v. Williamson, 72 Ark. 390, it was held (quoting from syllabus) : “A mortgage embracing ‘all the lumber and logs now on the ground, and all that may be put on the ground and sawed by us until final settlement of our account’ with the mortgagees, being recorded, created a lien on any lumber subsequently manufactured at the mortgagor’s mill, though not in existence when the mortgage was executed, until the mortgagees’ account was fully settled.” In that case the contention was between the mortgagees and subsequent purchasers of the mortgagors as to which was entitled to the mortgaged property. The court held in favor of the mortgagees because, by the terms of the mortgage, the mortgagor was allowed to sell the lumber as the agent of the mortgagees, and not on his own account. As to the property embraced in the mortgage, which was not intended to be sold, such as the real estate, sawmill, fixtures, teams, etc., there can be no question but that the mortgage is valid. Morton v. Williamson, supra; Lund v. Fletcher, 39 Ark. 325. But it is insisted by counsel for appellant that appellee’s claim to the lumber under the mortgage can not be maintained, and to sustain their contention they rely upon the case of Lund v. Fletcher, supra. They insist that because the mortgagor under the terms- of the mortgage sold the lumber in due course of trade on its sole account, and not as agent of the mortgagee, the mortgage is void, and that appellant acquired no rights under it. They also contend that the talcing possession of the .lumber constituted a preference within the meaning of our statutes in regard to insolvent corporations, and should be set aside under section 951 of Kirby’s Digest. There was, under the facts disclosed by the record, no actual fraud in connection with the execution of the mortgage, nor is any fraud shown with reference bo the subsequent conduct of the parties. Constructive fraud is relied upon, arising from the fact that by the terms of the mortgage the mortgagor was allowed to sell the lumber in due course of trade on his own account, and not as agent of the mortgagee. There are tw.o lines of decisions upon this question' — one holding that the mortgage is absolutely void, and that no subsequent act of the parties can impart any validity to it, and the other holding that the mortgage is valid between the parties, but invalid as to subsequent purchasers, attaching or execution creditors or others acquiring specific liens upon the property. See case notes to 25 L. R. A. (N. S.), p. 110 and 145, and 17 L. R. A. (N. S.), p. 937. In the case of Lund v. Fletcher, supra, our court held that in such case the mortgage “was invalid, save between the parties, on account of the power left in the mortgagor to sell in ordinary course of business.” It necessarily follows that, if the mortgage is valid between the parties, it constitutes a lien upon the property against every -person except subsequent purchasers and creditors acquiring a specific lien upon the property; and such is the effect of the decision in the case of Lund v. Fletcher, supra, and other similar cases in this State. This view is strengthened by the decisions of our court, which held that if a mortgagee takes possession of the mortgaged chattels before any other right or lien attaches his title under the mortgage is good against everybody, if it was previously valid between the parties, although it be not acknowledged or recorded. Garner v. Wright, 52 Ark. 385; Applewhite v. Harrell Mill Co., 49 Ark. 279; Martin v. Ogden, 41 Ark. 186. The facts show that the mortgaged property was taken into possession on the 17th day of June by appellee by agreement between all parties interested in the mortgage. The receiver was appointed on July 3, and the intervention of appellant was filed on the 12th day of August following. So, if the taking possession of the mortgaged property constituted a preference, the application to set it aside was made in apt time. Kirby’s Digest, § § 949-951- The remaining question is, did the taking possession of the mortgaged property constitute a preference? In Jones on Chattel Mortgages (5 ed.), § 178, the author says: “If a mortgagee takes possession of the mortgaged chattels before any other right or lien attaches, his title under the mortgage is good against everybody, if it was previously valid between the parties, although it be not acknowledged and recorded, or the record be ineffectual by reason of any irregularity. The subsequent delivery cures all such defects, and it also cures any defect there may be through an insufficient description of the property. The taking of possession is an identification and appropriation of the specific property to the mortgage. * * * Delivery of possession under a mortgage before rights have been acquired by others will cure any invalidity there may be in the instrument, whether arising from an insufficient description of the property, an insufficient execution of the instrument, the omission to record it, or from its containing a provision which makes it void except between the parties; as, for instance, an agreement that the mortgagor may retain possession and sell a stock of goods in the usual course of trade.” “If the after-acquired property is taken by the mortgagee into his possession before the intervention of any rights of third persons, he holds it under a valid lien by the operation of the provision of the mortgage in regard to it. * * * Such taking of possession, though effected immediately before insolvency proceedings were instituted and with full knowledge of the insolvency of the mortgagor, would not be an acceptance of a preference, but the assertion of a right which had been previously acquired by the mortgagee under an instrument in writing made when the parties to it were both competent to contract, and when there was no qualification of the right of either to deal with the other.” Chase v. Denny, 130 Mass. 566; Deering v. Cobb, 43 Am. Rep. 596, 74 Me. 332; McLoud v. Wakefield, 70 Vt. 558, 43 Atl. 179; Peabody v. Landon, 61 Vt. 318, 15 Am. St. Rep. 903; Re Rogers, 132 Fed. 560; Fisher v. Zollinger, 79 C. C. A. 76, 149 Fed. 54. See also Martin v. Holloway, 25 L. R. A. (N. S.), p. 110, and case note. The Supreme Court of the United States held: “The enforcement of a lien by the mortgagee taking possession, with the consent of the mortgagor, of after-acquired property covered by a valid mortgage, made and recorded prior to the passage of the act, is not a conveyance or transfer under the bankrupt act; and, where it 'does not appear that it was done to hinder, delay or defraud creditors, it does not constitute a preference under the act, although at the time of the enforcement the mortgagee may have known 'that the mortgagor was insolvent and considering going into bankruptcy and the petition was filed within four months thereafter.” Thompson v. Fairbanks, 196 U. S. 516. The court said: “So in this case, although there was no actual existing lien upon this after-acquired property until the taking of possession, yet there was a positive agreement, as contained in the mortgage and existing of record, under which the inchoate lien might be asserted and enforced, and, when enforced by the talcing of possession, that possession, under the facts of this case, related back to the time of the execution of the mortgage of April, 1891, as it was only by virtue of that mortgage that possession could be taken. The Supreme ¡Court of Vermont has held that such a mortgage gives an existing lien by contract which may be enforced by the actual taking of possession,' and such lien can only be avoided by an execution or attachment creditor whose'lien actually attaches before the taking of possession by the mortgagee. Although this after-acquired property was subject to the lien of an attaching or an execution creditor, if perfected before the mortgagee took possession under his mortgage, yet, if there were no such creditor, the enforcement of the lien by taking possession would be legal, even if within the four months provided in the act. There is a distinction between the bald creation of a lien within the four months and the enforcement of one provided for in a mortgage executed years before the passage of the act, by virtue of which mortgage, and because of the condition broken, the title to the property becomes vested in the mortgagee, and the subsequent taking possession becomes valid, except as above stated. A trustee in bankruptcy does not in such circumstances- occupy the same position as a creditor buying under an execution or by attachment, and his rights, in this exceptional case, and for the reasons just indicted, are somewhat 'different from what they are generally stated.” Thompson v. Fairbanks, supra. The mortgage in this case was valid between the parties. The mortgagee made a valid transfer of it to appellee. The mortgagor made default, and, under the terms of the mortgage, the property was turned over to appellee. We think that it follows from the principles announced from the authorities supra that the delivery of the property gave effect to the assigned mortgage as to the after-acquired property; and that, under the facts of this case, no preference was obtained under our statutes relating to insolvent corporations. The decree will therefore be affirmed.