Court Opinion

ID: 7809620
Source: CourtListenerOpinion
Date Created: 2022-09-07 17:11:15.180899+00
Date Added: 2024-06-11T16:30:25.976515
License: Public Domain

Hart, J., (after stating the facts). The decision of the court below proceeded upon the theory that, under the .agreement between P. B. Farrow and Mrs. A. .A. Farrow, the former retained snch an interest in the goods and fixtures as to render him liable to the interveners for the amount of their claims. In other words, the chancellor seems to have been of the opinion that the instrument in question constituted a partnership agreement between P. B. Farrow and Mrs. A. A. Farrow. We do not think this position is sound. It is apparent from the language of the instrument that the parties intended the instrument to be a mortgage for the security of the purchase money of the goods and fixtures. It expressly states that the property is intended to secure the note given by Mrs. A. A. Farrow to P. B. Farrow for the purchase price of the goods. It also provides that, in the event the note is not paid, P. B. Farrow may take possession of the property for the purpose of enforcing the payment of the note and that he may sell the property, either at public or private sale, for that purpose; and that the amount remaining after the payment of said note is to be paid to Mrs. A. ,A. Farrow. Where there is an indebtedness or liability between the parties, and .a conveyance is intended to secure it, the transaction is a mortgage, whatever the language of the instrument. American Mortgage Co. v. Williams, 103 Ark. 484. Moreover, the interested parties here have .so treated the transaction. P. B. Farrow in his complaint seeks the foreclosure of the instrument as a mortgage. The interveners in their intervention call the instrument a chattel mortgage, and assert that its execution was fraudulent. They also alleged that its execution and the proceedings under it were in contravention of the provisions of the Bulk Sales Law and therefore void. ■ Having held that the instrument is a mortgage, we now come to the question of whether a chattel mortgage is a sale, transfer or assignment in bulk of the goods and fixtures within the meaning of our Bulk Sales Law. Our Bulk Sales Act was passed by the Legislature to protect the rights of creditors from fraudulent .sales of property upon which credit had been extended. Fiske Rubber Co. v. Hayes, 131 Ark. 248, and Stuart v. Elk Horn Bank & Trust Co., 123 Ark. 285. In several States having statutes similar to ours as to the point under consideration, the courts of last resort have held that the execution of a chattel mortgage on a stock in trade is not a violation of a statute forbidding a sale, transfer or assignment in bulk, of any part or the whole of a stock of merchandise, otherwise than in the ordinary course of trade. In Hannah & Hogg v. Richter Brewing Co., 12 A. & E. Ann. Cas. 344, and 12 L. R. A. (N. S.) 178, the Supreme Court of Michigan held that a chattel mortgage is not within the meaning of a statute forbidding the sale, transfer or assignment of a stock of goods in bulk without certain preliminary proceedings. To the same effect see McAvoy v. Jennings, 44 Wash. 79, 87 Pac. 53. In Noble v. Fort Smith Retail Grocery Co., 46 L. R. A. (N. S.) 455, the Supreme Court of Oklahoma held that a chattel mortgage covering a stock of merchandise, where the mortgagor remains in possession, and has the usual right of redemption, creates a lien only, and does not pass title, and is not a sale, exchange or assignment within the meaning of its Bulk Sales Law, and is therefore not within the inhibition of said statute. In Wasserman v. McDonnell, 190 Mass. 326, 76 N. E. 959, it appeared that the owner of a stock of dry goods executed and delivered a chattel mortgage thereon which was duly recorded. There was a clause in the mortgage giving the mortgagor the right to remain in possession of the goods and to sell his stock in trade in the usual course of business. The mortgage also applied to all future stock that might be acquired in the-business. There was a breach of the conditions of the mortgage, and the mortgagee took possession of the mortgaged property for the purpose of foreclosing it. There was no actual fraud shown in the execution of the mortgage. It was there contended that the Bulk Sales Law of the State of Massachusetts applies to a mortgage and the foreclosure thereof. The court held against the contention, saying: “We are of the opinion, however, that this act has no application to the case at bar. The object of the statute was to protect creditors against fraudulent sales. Here no fraud was shown. The mortgage was on six months’ time, and was given for a valuable consideration. It does not appear that, when it was given, the mortgagor had any creditors except the mortgagee. The mortgage was duly recorded. ’ ’ So in the present case no actual fraud was shown. There was bona fide debt due from Mrs. A. A. Farrow to P. B. Farrow. She purchased a stock of goods from him and gave her note for the purchase price thereof. The mortgage was given to secure this note, and was duly filed for record. It is also claimed that the mortgage was void because it contained a clause that the mortgage should apply to all future acquired .stock that the mortgagor might have in his business. The court also held against this contention, and said: ‘ ‘ The law in Massachusetts is now well settled. While property acquired after a mortgage is delivered does not pass to the mortgagee as against attaching creditors and subsequent vendees and mortgagees, yet a provision in a mortgage that it shall cover all after-acquired goods operates as an executory agreement that such goods shall be holden by the mortgagee as security, when acquired by the mortgagor, and the mortgagee may take possession before the rights of third persons intervene. The mere fact that a person is a creditor is not enough. He must have a claim upon the goods before the mortgagee takes possession, either by attachment or by a .seizure upon an execution.” (Citing cases.) The trend of our decisions is in accord with the holding of the Supreme Court of Massachusetts in both these respects. In Little v. National Bank of Mena, 97 Ark. 57, the court held that a mortgage conveying all the lumber on hand and all the lumber which the mortgagor should later acquire, though it provided that the mortgagor might sell such lumber on its own account in due course of trade, constituted a valid lien upon such, property against every person except subsequent purchasers and creditors acquiring a specific lien upon the property, and earlier decisions of the court were cited to sustain the holding. In that case the court also held that if the mortgagee takes possession of the mortgaged chattels before any other right .or lien attaches, his title under the mortgage is good against everybody, if the mortgage was previously valid between the parties, although it would have been invalid as to subsequent purchasers or creditors acquiring specific liens because it gave the creditor power to sell on his own account in due course of trade. The court further held that the enforcement of the mortgage lien by the mortgagee taking possession, with the consent of the mortgagor, of the property covered by the mortgage was not a preference within our statute prohibiting preferences among creditors of insolvent corporations. As above stated, no actual fraud was shown in the present case. The mortgage was valid between the parties. The mortgagee took possession of the property covered by the mortgage for the purpose of foreclosing the mortgage and discharging the mortgage indebtedness before the other creditors of the mortgagor had acquired any right to or lien upon the property. This he had a right to do under the principles of law above announced and the court erred in holding the mortgagee liable for the claims of the interveners. It follows that the decree must be reversed, and the cause will be remanded for further proceedings in accordance with law and not inconsistent with this opinion.