Court Opinion

ID: 7895933
Source: CourtListenerOpinion
Date Created: 2022-09-08 21:52:30.351083+00
Date Added: 2024-06-11T16:32:05.133129
License: Public Domain

The opinion of the court was delivered by
Graves, J.:
In this case three propositions are presented. First, did the transaction of June 11, 1902, between Walsh, Lockwood and Youngberg convey any interest in the property to Walsh? So far as the bill of sale and mortgage of November 29, 1901, which were delivered to Walsh, are concerned, probably not; but the bill of sale from Youngberg to Walsh, having been delivered with the intention upon the part of all the parties interested that it should give to Walsh a lien upon the property therein described, must, as we think, be regarded as equivalent to a chattel mortgage. The fact that Youngberg’s name appears as grantor is not important, since Lockwood agreed to this form of security by attaching his name thereto, and Walsh assented to it by his acceptance thereof. To hold otherwise would sacrifice the substance of the transaction for the sake of its mere form. We assume from the manner, in which this question was discussed that it is not seriously insisted upon, and pass it without further comment.
The second claim is that this bill of sale, assuming it to be a mortgage, became void as against Youngberg because it was not forthwith deposited in the office of the register of deeds as provided by law. This claim arises upon the construction of section 4244 of the General Statutes of 1901, which reads:
*226“Every mortgage or conveyance intended to operate as a mortgage of personal property, which shall not be accompanied by an immediate delivery and be 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 faith, unless the mortgage or a true copy thereof shall be forthwith deposited in the office of the register of deeds in the county where the property shall then be situated, or if the mortgagor be a resident of this state, then of the county of which he shall at the time be a resident.”
The bill of sale to Walsh was executed June 11, 1902, but was not recorded until November 2, 1908. The Herron mortgage, under which Youngberg claims, was executed November 21, 1903, and was recorded three days thereafter. From this it appears that the bill of sale under which Walsh claims was on record when the Herron mortgage was taken. It has been decided by this court that under the section of the statute just quoted a mortgage, although invalid while withheld from record, becomes valid whenever recorded. In the case of Cameron, Hull & Co. v. Marvin, 26 Kan. 612, 626, Mr. Justice Valentine used the following language:
“Counsel for defendant in error seem to contend that where a chattel mortgage is not recorded immediately after it is executed, and the property is not immediately delivered to the mortgagees, it is absolutely void as to all creditors whose debts have been created subsequent to the execution of the mortgage and prior to its being recorded, and prior to the delivery of the property, without reference to any lien procured upon the property by virtue of an attachment, or an execution, or otherwise. That is, they claim that such a mortgage is so absolutely void as to general creditors, whose debts have been created after the execution of the mortgage and before the recording of the same, or before the delivery of the property, that they may obtain a lien upon the property after the mortgage is recorded and after the property is delivered, by virtue of an attachment or other legal process. . . . But *227whether the doctrine claimed by counsel is sustained by any authority or not, we do not think it is sound.”
This language has since been cited, approved and followed in McVay v. English, 30 Kan. 368; 1 Pac. 795; Dry Goods Company v. McKee, 51 Kan. 704, 33 Pac. 594; Lead Pencil Co. v. Champion, 57 Kan. 352, 46 Pac. 696. The rule has become settled in this court that an unrecorded mortgage, although void for some purposes, becomes valid whenever recorded, and of the same force and effect thereafter as a new mortgage then executed and recorded. (Utley v. Fee, 33 Kan. 683, 7 Pac. 555, and cases cited supra.) The failure of Walsh to place his bill of sale upon record was therefore immaterial, as to the Herron mortgage, for the reason that when the latter was taken the Walsh bill of sale was on record.
It may be further mentioned that Youngberg was not a creditor within the meaning of the statute under consideration. The protection given to creditors by this law was intended to include only those having some specific lien upon, or right to, the mortgaged property, and not mere general creditors. (Cameron, Hull & Co. v. Marvin, 26 Kan. 612; Dry Goods Company v. McKee, 51 Kan. 704; Hausner v. Leebrick, 51 Kan. 591, 33 Pac. 375.)
The only case cited by plaintiff in error directly supporting a contrary doctrine is the case of Dempsey v. Pforzheimer, 86 Mich. 652, 49 N. W. 465, 13 L. R. A. 388. That case does sustain his contention, and, were it not that this state has adopted another rule, it would be a strong authority. In the case of Cameron, Hull & Co. v. Marvin, 26 Kan. 612, Mr. Justice Valentine challenged the law as announced in Michigan and elsewhere, and since that time this court has followed 'the decisions that sustain the position hereinbefore stated, as shown by the case above cited.
Again, Herron, through his agent, Phillips, had actual notice of the Walsh mortgage and knew that it *228was on record before the execution of the one under which Youngberg claims. Youngberg was a party to the transaction with Walsh, had full knowledge thereof, and was again duly notified at the time of the mortgage sale at which he purchased the goods. He is in no better position than Herron would be, and probably not so good. (Gagnon v. Brown, 47 Kan. 83, 27 Pac. 104.)
Finally it is urged that Youngberg is entitled to the equitable protection of this court because Walsh did not compel Lockwood to satisfy this lien upon the stock out of the proceeds of the sale of the homestead, when he might have done so. This claim for equitable protection is founded upon the idea that, as the debt of Walsh was secured by a mortgage upon the personal property in controversy, and also upon the homestead of Lockwood, and the debt of Herron was secured by a junior lien upon the personal property only, Walsh ought to have paid himself in full out of the proceeds of the homestead; and, not having done so, should for that reason have been denied a recovery in the replevin action. This is said to be a proper application of the general rule in equity that requires the holder of a mortgage upon several pieces of property, upon a part of which there is a junior mortgage, to protect the junior mortgagee by first exhausting that portion of the property not covered by both mortgages.
The case of Bank v. Taylor, 69 Kan. 28, 76 Pac. 425, is cited as an authority directly in point upon this proposition. In that case, however, the surplus in the hands of the senior mortgagee was not the proceeds of ■exempt property. Besides, the holder of that surplus ■expressly agreed with the junior mortgagee to satisfy his claim out of such surplus; but, in violation of this .agreement, he failed so to do, and surrendered the ■surplus, whereby it passed beyond the reach of the junior mortgagee, who, except for his reliance upon ;such promise, might have secured his debt. The bad *229faith of the senior mortgagee in this respect was the real ground upon which that case was decided.
In this case the surplus was the proceeds of exempt property, and Lockwood, the owner, not being a party, the question of exemption could not be conclusively determined. No application was made by the junior mortgagee to Walsh to use the surplus in thé way now suggested, and Walsh at no time agreed so to do. At the time of the settlement of Walsh with Lockwood this action was pending in the district court, and the personal property in controversy at that time was worth $600, while the aggregate of both liens thereon was only $455. The practical effect of the action here invoked as ordinary equity would have compelled Lockwood to surrender to Walsh and Youngberg property and cash amounting to $875 to satisfy an indebtedness of $455, the only reason therefor being to enable Youngberg to retain and enjoy the unconscionable bargain that he had obtained as the result of the fraud and force of Phillips.
It will be seen, therefore, that these cases are wholly dissimilar. The case cited was intended to prevent one person from acting in bad faith, and in violation of his agreement, to the detriment of another; while the rule, if applied in this case, would enable one person not only to act in bad faith with another, but would sanction his wrongful and illegal conduct. This would be highly inequitable.
The judgment of the district court is affirmed.
All the Justices concurring.