Smith, Heddens & Co. v. Epley

The opinion of the court was delivered by HortoN, C. J. : The principal question presented in this case is whether the chattel mortgage executed [76] by Epley & Shaw to Henry Beck is void as against tlie creditors of J. W. Epley. A few days after the execution of the mortgage, Epley purchased the interest of his partner, C. M. Shaw, in the mercantile business in which they were engaged. From that time to the 23d of November, 1889, 'when the goods were seized under the mortgage to plaintiffs, Epley was in the possession thereof as the owner and sold the same at retail in the usual course of business. With the knowledge of Beck, and without any objection from him, Epley had the power to use the proceeds of the sales of the mortgaged property in any manner he pleased — even for the payment of his private expenses. There was no agreement between Epley and Beck that any of the proceeds should be paid to the latter. No part of the sales were applied to pay the indebtedness secured by the chattel mortgage, or for the benefit of the mortgagee. In fact all sales were made by Epley in his own behalf and at his own discretion and with control of the proceeds reserved to himself. We have ruled that— “A power given to the mortgagor to sell the whole of the mortgaged property would really render the mortgage nugatory and the mortgagor would still remain substantially the owner of the property. Such a power in any mortgage would be inconsistent with any supposed incumbrance granted by the mortgage.” (Rathbun v. Berry, 49 Kas. 745. See, also, Leser v. Glaser, 32 id. 546; Implement Co. v. Schultz, 45 id. 52.) As the business of J. W. Epley, after the giving of the mortgage to Beck, was carried on for about eight months the same as before, as the proceeds of the sales were used by Epley as he saw fit for the purchase of new goods, for his personal expenses, without any regard to the mortgage debt, -with full knowledge [77] and consent of Beck, the mortgage is void as to the plaintiffs and other creditors. The reasons for the invalidity of the Beck mortgage are fully stated in the opinions in Rathbun v. Berry, supra, and Implement Co. v. Schultz, supra, in view of the special findings of fact of the jury. It is suggested that the plaintiffs are not attaching creditors, and that as they took their mortgage with notice of the prior mortgage, the Beck mortgage is not void as to them. It is true that they had notice of the prior mortgage when they accepted their mortgage to secure their claim; Instead of taking a lien by attachment they preferred a mortgage-lien, but when they accepted their mortgage they had notice that J. W. Epley had possession of the mortgaged property as the owner thereof, had the absolute control over the same, the absolute right to sell it as he chose, and the absolute control over the proceeds. They knew therefore that the Beck mortgage was void, and no lien upon the stock of goods. A motion has been filed in this case to dismiss upon the ground that the case-made was not signed and allowed within the time limited by the order of the court. The record does not sustain the allegations of the motion. The case-made seems to have been signed and settled according to the provisions of the statute in the presence of the attorneys of the parties after amendments to the case had been suggested 'by the defendants. The judgment of the district court will be reversed, and the case remanded with direction to that court to render judgment upon the findings of fact in favor of the plaintiffs and against the defendants, !. W. Epley and H. Beck. All the Justices concurring.