Court Opinion

ID: 7111110
Source: CourtListenerOpinion
Date Created: 2022-07-24 12:26:29.753593+00
Date Added: 2024-06-11T16:13:44.713787
License: Public Domain

McClain, J.
(dissenting).— My inability to agree with the views expressed by the majority arises from the -belief that in deciding this difficult and novel question the majority have taken a view of the effect of failing to record a chattel mortgage which is inconsistent with the- view which has been adopted by this court and become familiar to the profession in this State. The conclusion of the majority in this case is summed up in a negative answer, to the question, “ Has death rendered a void mortgage valid ?” The entire opinion is predicated on the theory that retention of possession by the mortgagor without recording renders the instru*128ment void, and that it only becomes a valid mortgage, as against general creditors, when the mortgagor divests himself of possession, or places the mortgage on record. On the contrary, as I understand our decisions, an unrecorded chattel mortgage is valid as between the parties and as to all other persons except “ existing creditors or subsequent purchasers without notice;” and the term “ existing creditors ” has been held to apply in case of general creditors only to those who have acquired a lien upon the property arising by attachment or execution levy without notice actual or constructive, or information on the part of the creditor himself or the officer making the levy, prior to the time when the levy is made, of the existence of the mortgage. Allen v. McCalla, 25 Iowa, 464; Stewart v. Smith, 60 Iowa, 275; Bacon v. Thompson, 60 Iowa, 284; Aultman & Taylor Mach. Co. v. Kennedy, 114 Iowa, 444.
The term “ existing creditors ” has also been construed to include creditors whose claims against the mortgagor are acquired after the execution of the mortgage, and who levy before change of possession or recording, and without notice. Fox v. Edwards, 38 Iowa, 215; McAfee v. Busby, 69 Iowa, 328; Goll & Frank Co. v. Miller, 87 Iowa, 426. A subsequent creditor who has extended credit without notice, actual or constructive, of the unrecorded mortgage, is not protected by the statute, unless he acquires a lien by levy without such notice. Kern v. Wilson, 82 Iowa, 407. Of course, a mortgage can be actually fraudulent as to either existing or subsequent creditors, but in this respect the fact of recording or change of possession is not controlling, although an agreement to withhold from record or a failure to record within a reasonable time may be considered as tending to show the fraudulent intent, where the mortgagee does not take possession. Goll & Frank Co. v. Miller, 87 Iowa, 426; Falker v. Linehan, 88 Iowa, 641; Spencer Co. v. Papach, 103 Iowa, 513; Garner v. Fry, 104 Iowa, 515. But while in some States retention of possession or failure to record is regarded *129as furnishing prima, facie, or even conclusive, evidence of a fraudulent intent, it is not so regarded in this State. Torbert v. Hayden, 11 Iowa, 435; Wilhelmi v. Leonard, 13 Iowa, 330; Hughes v. Cory, 20 Iowa, 899. In other words, in this State the invalidity arising from retention of possession by the mortgagor without recording is a wholly distinct and separate matter from the invalidity resulting from an actually fraudulent purpose participated in by the mortgagee. Here is the fundamental difficulty which I find with the majority opinion.
The distinction between these two radically different grounds of invalidity is treated as one of procedure merely. The majority treat the doctrine that -the creditor can attack the mortgage for fraud only when he has so far pursued his legal remedy as to recover a judgment against the. mortgagor, as though it applied also to mortgages invalid under the statute for failure to record; and they find in this doctrine an explanation of the construction which has been given to the term “ existing creditors ” found .in the statute. In other words, they assume that a pre-existing creditor, who has been in no way injured by a failure to record, because he has not parted with his money on account of want of notice of the instrument which affects his debtor’s capacity to pay his debts, may nevertheless, after getting judgment for such mortgagb, have it set aside as fraudulent — that is, actually fraudulent — even though before he levies he has acquired notice of such mortgage. This is not what the majority say, but it is the necessary and logical deduction from the reasoning employed; for they say that, as the creditors in this case were precluded by the death of Black-man from pursuing their legal remedies as against him, they are entitled, through the administratrix, to procure priority over the mortgagee, although there is not the slightest evidence of any actual intent as between t-he mortgagor and mortgagee to defraud general creditors. I accede fully to the proposition that an administrator or assignee for the *130benefit of creditors may attack a mortgage given by tbe decedent or the insolvent on the ground of fraud, but I cannot accede to the conclusion that the administrator or assignee can attack a chattel mortgage for failure to record, where no actual fraud is shown, and where the general creditors, whom the administrator or assignee represents, are not within the classes of persons protected by the recording acts.
There is said to be much confusion among the authorities as to whether an administrator or assignee for the benefit of creditors may question the validity of a mortgage on the ground that it is fraudulent as to creditors but, in my opinion the confusion grows out of the difference of view in the different States with reference to the effect of" failure to record; and while, no doubt, in those States where an unrecorded mortgage, the mortgagor retaining possession, is treated as fraudulent as a matter of law, the administrator or assignee may question its validity, I think it will be found that in the States where such mortgage is treated as valid, save in so far as other, persons change their legal relations to the property without notice of such mortgage, the administrator or assignee is not deemed to be in a position to raise the question in behalf of mere general creditors. Thus,, in Stewart v. Platt, 101 U. S. Rep. 731 (25 L. Ed. 816) a case arising under the recording acts of New York — it is held that an assignee in bankruptcy representing general creditors has no higher rights as against an unrecorded mortgage than the-bankrupt himself. On the other hand, in People’s Savings Bank v. Bates, 120 U. S. Rep. 556 (7 Sup. Ct. 679, 30 L. Ed. 754) — a case arising under the laws of Michigan — the doctrine is recognized that a general creditor having levied an attachment may by a bill in equity contest the validity of an unrecorded mortgage; but this is predicated upon the rule recognized by the courts of Michigan that such a mortgage is fraudulent as against general creditors-, and no doubt in the application of this rule an assignee for the benefit of creditors or the administrator of the deceased *131mortgagor representing general creditors could attack such' a mortgage, the creditors having been prevented by the assignment or the death of the mortgagor from putting themselves in a position to attack the mortgage for fraud.
The term “ existing creditors ” has been .the subject of consideration, and has acquired undea- our decisions a definite and-well-recognized-meaning. It has been so construed as to exclude general pre-existing creditors who have not acquired a lien by attachment or execution levy before being affected with notice^ 'either actual or constructive, of the execution of the mortgage, and to include subsequent creditors who have acquired such lien. That some construction was necessary in order to determine the intention of the Legislature is plain, for it does not appear from the language whether the term “ existing ” has reference to the time when the mortgage was executed or the time when adverse rights which could be enforced in court accrued. This court has adopted the latter of these two meanings, and I think ‘that this construction has now become a rule of property, and should be controlling. That this court, in construing the term “ existing creditors,” never had in mind any purpose of making that term equivalent to a creditor who has put himself or been put in a position simply to attack the mortgage for actual fraud as a fraudulent conveyance, is manifest from a consideration of the. cases. A creditor who has obtained a judgment at law may, without, going further, attack' a conveyance or mortgage for actual fraud; but it has never been suggested, and it would be clearly inconsistent with the views taken in eases, in this court already cited, to hold that a judgment creditor, without securing a specific lien by attachment or execution levy, can defeat a chattel mortgage on the ground that it is unrecorded. If he could do so, notice would be immaterial; for why should the fact of notice be of any significance when a pre-existing creditor seeks to reach property which the debtor has attempted to put beyond his reach, not fraudulently, but as a matter of *132fact by giving, a mortgage thereon to a third person? On the other hand, I do not understand that merely to seize property by the levy of an attachment gives a general creditor the right to question the validity of a fraudulent conveyance. Bor that purpose the general creditor must go further than to levy the attachment. He must establish the existence of an indebtedness by securing a judgment, or show facts excusing him from doing so. It is true that the attaching creditor may cause property fraudulently conveyed or mortgaged to be levied on under his attachment, and when the grantee or mortgagee seeks to take it out of the hands of the officer by legal process on the ground that it was not .subject to levy, he may contest the validity of the conveyance or mortgage under which the grantee claims; but I know of no authority in this State or elsewhere supporting the position that the attaching creditor, who has not secured a judgment at law, may maintain a bill in equity to set aside the conveyance as fraudulent.
My conclusion is that an unrecorded chattel mortgage, the mortgagor retaining possession, is invalid under the statute, and in the absence of any finding of a fraudulent purpose to delay or hinder creditors in the enforcement of their claims, only as against existing creditors or purchasers without notice, and that the term “ existing creditors ” means creditors who have acquired a lien upon the property by levying attachment or execution, and that an administrator representing general creditors does not have a right'to the mortgaged property prior and superior to that of the mortgagee under the unrecorded mortgage. This conclusion, I think, is in harmony with the entire current of the decisions in this State as to the effect to be given to unrecorded chattel mortgages.
Weaver, J., concurs in the dissent.