Collingsworth v. Bell

The opinion of the court was delivered by Allen, J. : The position taken by counsel for plaintiff in error is, that the validity of the mortgage to J. W. Rankin was fully established, and was assumed by the court in the instructions to the jury, and this being so, the right of the mortgagee to hold possession of the goods himself, or to transfer them to whomsoever he pleased and for whatsoever consideration, was absolute, and could not be challenged on the ground of fraud by the creditors of Rankin Bros. ; that, as against the mortgagee, Rankin Bros, had no attachable interest in the property, and that their creditors had no standing for an attack on the validity of any transfer of the property the mortgagee might see fit 'to make. In support of this position, author-, ities are cited to the effect that the mortgagee of chattels has the legal title thereto, and, after condition broken, may maintain an action to recover the possession thereof against an officer holding writs of attachment or execution against the mortgagor. (Ament v. Greer, 37 Kan. 648 ; Jones, Cli. Mortg. § 1.) It is insisted that under any view of the evidence in this case the plaintiff had succeeded to all the rights of the mortgagee, that he was in possession of the property, and that the defendant therefore could not acquire any right' to the possession of the property by virtue of writs against Rankin Bros., the mortgagors. It is also contended that the judgment in the former case, between J. W. Rankin and the defendant Bell, was an adjudication between the parties affirming the validity [342] of Rankin’s mortgage ; that the plaintiff is a privy of Rankin, and that the defendant cannot, in this action, question the validity of the mortgage ; that the validity of the mortgage being established, the law does not permit an inquiry into the good faith of the mortgagee in dealing with the mortgaged property. There is much plausibility in the argument, but it is not sound. Although the legal title to mortgaged chattels and the right of possession after condition broken vest in the mortgagee, that title is not a full and absolute title, but is still subject to the equirable rights of the mort•gagor, and whatever surplus remains ' of the mortgaged chattels after satisfaction of the debt is an asset of the mortgagor to which his creditors have a right to look for the satisfaction of their claims. A fraud may be committed by the parties to the mortgage and a purchaser buying from the mortgagee, as against creditors of the mortgagor. If it were not so, a mortgage for a trifling sum on a large stock of goods might be used as a means for perpetrating the grossest kind of a fraud on creditors. Although the precise question now presented has not been heretofore decided by this court, we think the principle has been clearly recognized in several cases. In Wygal v. Bigelow, 42 Kan. 477, it was held that a mortgagee of chattels might become a purchaser at a sale under the mortgage, but that in making the sale he must act fairly and in good faith, and that a fraudulent sale would not extinguish the mortgagor’s right, but would render the mortgagee, if he afterward converted the property to his own use, liable to account to the mortgagor for the full value of the mortgaged property. It was said in the opinion : 1 ‘ The mortgagee has no right by any unfairness to sacrifice the property and deprive the mortgagor of [343] the surplus over the debt which by a fair and honestly-conducted sale might arise. . . . The defendants were entitled to have a fair and bona fide sale.” See, also, Jones v. Franks, 33 Kan. 497; Denny v. Van Dusen, 27 id. 437. The stock of goods claimed by the plaintiff consisted of a great many articles, and might have been sold either piece by piece or in separate lots. The value as claimed by the plaintiff largely exceeds the amount of the mortgage debt. Under such circumstances, the mortgagee might have realized enough to pay his claim out of a portion only of the goods. In such case the remainder of the stock would have been liable to attachment for the debts of the mortgagors. "We are very clear that a legal fraud can be committed by the mortgagee and participated in by the purchaser from him against the rights of creditors of the mortgagor. Assuming, then, that the judgment in the prior action between Rankin and Bell is an adjudica tion of the validity of Rankin’s mortgage, we still think that such a fraud might be committed in the disposition of the mortgaged goods as would absolutely defeat the plaintiff’s claim. In this action it is not enough for the plaintiff to show that the property was not subject to attachment. He asks affirmative relief, and he bases his right to that relief on a transaction which the jury has found to be fraudulent. How ever weak the defendant’s title may be, the plaintiff’s fraud defeats his claim. The judgment is affirmed. All the Justices concurring.