Court Opinion

ID: 6734418
Source: CourtListenerOpinion
Date Created: 2022-07-20 23:17:09.420767+00
Date Added: 2024-06-11T16:01:42.673058
License: Public Domain

ON REHEARING.
We have carefully considered the petition for rehearing. It has not convinced us that we were in error. It is urged that it appears that the mortgagee took its security for an antecedent debt, and that, therefore, it does not occupy the same vantage ground which it would have held had the mortgage been taken to secure a loan made on the strength of that security. This contention is founded on an utter misapprehension of the question. A mortgagee, whether for a present or an antecedent debt, whose security is prior in point of time, is entitled to priority of lien except as such priority is affected by the statute. We hold, that one who attaches for a debt incurred before any default in filing the mortgage exists is not entitled to the protection of the statute; that he is not within its manifest policy and spirit. To bring himself within the act, he must show that he parted with value while the default existed. But a mortgagee who has first obtained a valid lien has a right to rely upon the priority secured by what the law regards as his superior diligence, whether the mortgage is to secure an old or a new debt. His lien is protected, unless the creditor can point to a statute which denies the mortgagee such .protection. The question whether the attaching creditor comes within the statute is in no manner affected by the inquiry whether the mortgagee took his security for an existing claim or a newly created indebtedness. This inquiry only becomes important as to one whose lien is subsequent in point of time, but who claims priority of right. It is never made to determine the rights of one who has secured the first lien in point of time. He stands on his legal priority until one having a subsequent lien brings himself within some statute which will give him priority of right.
It is also urged that the attaching creditor was • injured by the delay in enforcing his claim, induced by the failure to file the *214chattel mortgage, creating in his mind the belief of the solvency of the debtor. It would be difficult to support such a contention under the facts in this case, the execution of the mortgage having been followed by the levy of the attachment within a few days. But considering this argument in the abstract, without reference to the particular facts of this litigation, we can see no force m it. It amounts to this: That a creditor may be as greatly prejudiced by refraining from action, relying on the silence of the record, as if by a binding agreement he had actually extended the time of payment. But how is the creditor injured by the withholding of the mortgage from the record under such circumstances? Had the mortgage been immediately filed, he must have attached subject to it. He is in no worse position if he attaches, and the mortgagee who has not filed his security claims and is allowed priority. The mortgage is simply a first lien, as it would have been had it been promptly filed. But where time of payment is extended by binding agreement, the creditor is seriously detrimented, because the mere subsequent discovery of an unfiled chattel mortgage will not entitle him to rescind the agreement extending the time of payment, there being no fraud. To hold that mere inaction entitles one to protection would be to overturn elementary principles. It would destroy the distinction which has always been recognized between subsequent incumbrancers for a newly created indebtedness and those who 'have merely taken security for antecedent obligations. To remain passive for a day because lulled into a sense of security by the silence of the record would as fully entitle to protection as to stand inactive for a week or a month, or even a year. Upon this theory, then, every mo'rtgagee for an existing claim would become, at least after the expiration of a day, an incumbrancer entitled tó protection as against a prior unrecorded instrument. But all authority is against this.
It is also urged that this rule will have a tendency to encourage fraud by inducing the withholding of mortgages from record. This argument, if such it can be termed, applies with equal force *215to the doctrine that a subsequent chattel mortgagee for an antecedent debt is not protected as against an unfiled prior mortgage on the same property. The first mortgage may be withheld from record for a year, and yet one who was a creditor when it was given, and who has not since it was executed altered hiá position . to his disadvantage, cannot, by taking a second mortgage on the property, although without knowledge of the unfiled.lien, secure any priority, however long thereafter the first mortgage is kept from record. If the mortgage in either case is kept from record for a fraudulent purpose, a different rule would apply.. Nor do we think that one who takes security for an honest debt will care to risk that security by failing without reason to file it as required by law. There can be no pretense, under the facts of this case, that the attaching creditor refrained from taking steps to collect his claim because of the silence of the record. Only three days elapsed between the execution of the mortgage and the commencement of the action in which the property was seized. He was not stirred to action by discovering that a chattel mortgage had been given. Nor is there aught to indicate that he would have enjoyed any more advantageous position had’ the mortgage been filed the day it was given, and had he thereafter and on the same day commenced his suit and seize the property. It is said that, if the creditor whose claim accrues while the default in filing the mortgage exists is to be protected even after the mortgage is filed, he may wait two years, and then, by attaching, surprise the mortgagee, who will be injured because he has not anticipated that his lien could be so defeated. But is the innocent creditor who parts with his money on the strength of the mortgagor’s credit — a credit frequently created because of his ownership of unincumbered property — to be debarred his right to rely on the silence of the record merely by reason of the filing of the mortgage before he can seize the property for his claim? Debts are seldom payable when incurred, and, if the subsequent filing of the unfiled instrument is to destroy the innocent creditor’s right to protection, the greatest injustice will be done him; for it will *216be generally, if not invariably, impossible for him to sue upon his claim until some time after the debt is contracted. Moreover, to assert that the mortgagee would be surprised by a seizure after two years is to beg the question. He is not surprised if the law entitles such creditor to protection whenever he attaches. The mortgagee knows that he runs the risk of his lien being defeated by such a creditor if he fails for a time to file his mortgage; and if the right to priority has once attached to such creditor’s debt, and if it can be secured by a seizure before the mortgage is filed, wherein is the mortgagee detrimented if such seizure is allowed priority when made after the mortgage is filed? We are aware of decisions which place a different construction upon similar statutes. We had examined them before the original opinion in this case was written, but could not give them our approval. To follow them would conduct us to this anomalous position: Had the attaching creditor in this case been met at the farm by an offer to give him a mortgage on the same property, and had this offer been accepted by him, there is not an adjudication which would have upheld this mortgage as a lien prior to the unfiled mortgage had the former been received merely as security without any extension of time or other act on the part of the creditor to his prejudice. And yet, by a refusal to accept security, it is contended that, under the same statute which has denied him protection as mortgagee, the creditor has actually increased his rights, and has secured protection. He has been benefited by his rejection of the proffered security. A number of Minnesota cases are cited as controlling. They are not at all in point. In Murch v. Swensen, 40 Minn. 421, 42 N. W. Rep. 290, the question arose under the Minnesota statute of frauds, providing that every sale, unless accompanied by an immediate delivery, and followed by an actual and continued change of possession, etc., is presumed fraudulent and void as against creditors, etc., unless it appears that the transfer was made in good faith. The word “creditors” as used in this statute, is expressly defined by the next section to mean all persons who are creditors of the vendor at any time *217while the property remains in his possession or under his control. Gen. St. 1878, Ch. 41, § 16. There is no such definition of the word “creditors” as used in our registry law relating to the filing of chattel mortgages. Moreover, the object and construction of such a statute are different from the purpose and interpretation of a mere registry law. In Tolbert v. Horton, 31 Minn. 518, 18 N. W. Rep. 647, all that was decided was that a subsequent mortgagee who took with actual notice of a prior unrecorded mortgage is not entitled to protection. How this can be an authority for the contention of the attaching creditor in this case that he can claim protection it is difficult to see. It will be noticed that the Minnesota statute is radically different from ours. It contains an element which makes it, as to mortgages, a statute against frauds and perjury. In that state the mere filing of the instrument will not suffice. There still exists, if the property is not delivered, a presumption of fraud which must be overcome. Gen. St. 1878, Ch. 39, § 1. Our registry law contains no such feature. Section 4379, Comp. Laws. See, also, § 4657, Id. This peculiar provision of the Minnesota act is noticed by both opinions in the case, as well the dissenting as the prevailing opinion. In the construction that such statute was more than a mere registry law all members of the court agreed. Says Judge Mitchell: “Our statute on chattel mortgages is not a-mere registry law, as seems to be often assumed. It is a statute declaring certain mortgages void as to certain persons unless certain things exist or are affirmatively made to appear.” Bank v. Ellis, 30 Minn. 270, 15 N. W. Rep. 243, merely decides that it is not essential to the protection of a subsequent chattel mortgagee in good faith, as against an unfilled prior chattel mortgage, that the former should place his mortgage on file before the prioi^ mortgage is filed. This decision stands firmly on the language of the statute. But the fact that the subsequent.mortgagee was a mortgagee in good faith was not controverted, and, it affirmatively appeared in aid of the presumption that he was a bona fide mortgagee; that the mortgagee, on taking the security for an existing debt, surrendered *218a valid attachment lien on the mortgagor’s crops, thus altering his position to his disadvantage, relying upon the mortgage. This, under all of the authorities, constituted him a bona fide incumbrancer. The New York cases cited to support the view that the seizure before the actual filing of the instrument gives priority fully support this position. But the highest court in that state has not passed directly on this point. Karst v. Gane, 61 Hun, 533, 16 N. Y. Supp. 385, and cases there cited. Says Mr. Jones in his work on Chattel Mortgages, (§ 245:) “But in New York it is held that'a mortgage not duly filed is void as against a general creditor whose claim has accrued during the continuance of the default in filing the mortgage, although the creditor is not in a position to raise the question until he has obtained a judgment or process against the property. The object of the act is to prevent the setting up of secret mortgages against persons who may deal with the mortgagor on the faith that his property is not thus incumbered. Therefore, when a creditor has obtained judgment and execution, he may go back to the origin of the debt, and show, if he can, that, when it was contracted, the incumbrance with which he is thus confronted was kept secret by being withheld from registry;” citing Thompson v. Van Vechte, 27 N. Y. 568; Stewart v. Beale, 7 Hun. 405; Fraser v. Gilbert, 11 Hun. 634. In this condition of the decisions in that state we believe that the court of appeals will finally settle the construction of their registry law, which is the same as ours, in accordance with the views we have herein expressed.
It is also urged that the description in the mortgage was not sufficient as to third persons until the mortgage was filed. It may be that the language of the opinion was susceptible of the construction that-the statement in the mortgage that the property was on a certain section, in a particular township and range, was insufficient as to attaching creditors until the mortgage had been filed. But this is not our view. Whenever a description is challenged as insufficient)' we are to inquire whether the creditor, after inspecting the instrument, and aided by the inquiries it *219suggested, could ascertained what property was intended to be mortgaged. Apply that rule to this case. The property was attached on a piece of real estate answering to the description contained in the mortgage of the land on which the mortgaged property was situated. Property the same as that described in the mortgage is found thex-e. It is owned by the mortgagor. The ex-editor is aware of his ownership. It is seized by him as the mortgagor’s property. Would a sane person entertain a doubt whether the mortgage was intended to cover the property seized? It will not do to assex't that the cx'editor could not know of the contents of the mortgage until it had been filed. Not-being within the protection of the law, he is bound to know of the mortgage and its contents without filing. . If a creditor or mortgagee may insist that a description in an unified mortgage is not good mex'ely because he did not know of the mortgage, he can always defeat an unified mortgage containing the most minute and pex-fect description of the property, although he does not fall within the scope of the statute which annuals the instrument as to certain classes of persons unless filed. The description, if good as to third persons when the mortgage is filed, is equally good as to them although the instrument is not filed. Whether such third persons are protected under the statute as against such unified mortgage is an entirely distinct and different question.
(54 N. W. Rep. 1034.)
The petition for rehearing is denied.
Wallin, J., having been of counsel, took no part in the above decision.