American Lead Pencil Co. v. Champion

Martin, C. J. I. We do not feel called upon to decide whether the judgment creditors stand in a position to question the validity of the several chattel mortgages, each of which was given to secure a bona fide, although a preexisting, debt. If they secured liens upon the fund in the hands of the receiver, certainly they were subsequent in time to the recording of the chattel mortgages. It cannot be held as a matter of law that the entire failure of the Bank to file its mortgage of June 6, 1890, and the delay in filing that of December 6 until December 22, 1890, operated as a fraud upon creditors who relied on the false representation of Champion that his stock was not mortgaged. The mortgage of June 6 was never [357] operative as against creditors ; and that of December 6 was void as to them until December 22, 1890, unless the Bank is to be treated as having the possession of the store from December 6 until December 22. ¶3903, Gen. Stat. 1889. If the commercial creditors had obtained liens on or prior to December 22, they would be in a position to question any antecedent rights claimed by the Bank ; but, on December 22, the Bank not only recorded its mortgage but also took actual possession of the store. At that time the plaintiffs in error were only simple contract creditors of Charles T. Champion, while the Bank not only held a mortgage then recorded but actual possession under it. The withholding of a chattel mortgage from record may cast suspicion upon the good faith of the indebtedness which it is given to secure ; but good faith being admitted or shown, the only effect of a failure to file it for record is to render it void as against the creditors of the mortgagor and as against subsequent purchasers and mortgagees in good faith until it is filed for record or actual possession taken under it. Cameron, Hull & Co. v. Marvin, 26 Kan. 612; McVay v. English, 30 id. 368, 371; Sedgwick City Bank v. Mercantile Co., 45 id. 346; Cagnon v. Brown, 47 id. 83, 85. II.’ Mary E. Champion and Hattie C. Crozier, as well as the commercial creditors, attack the validity of the mortgage to the Bank on the ground that Charles T. Champion was permitted to conduct the store and dispose of the proceeds of sales in his own way, and that the recording of their mortgages and taking possession thereunder -were prior in point of time to the recording of the mortgage of the Bank and the possession of the Bank under the same. This claim is not tenable. They had actual knowledge of the prior mortgage, and as to them it was immaterial [358] whether that mortgage was recorded or not; and they could not have been prejudiced in any way by the manner in which the business was conducted between Charles T. Champion and the Bank. They had no lien, even as against Charles T. Champion, until December 22 ; and immediately after they obtained the mortgages and had them recorded they entered upon a struggle for possession with the mortgagee having the prior claim. They acted in bad faith toward the Bank and ought not to gain any advantage thereby. The conclusions of fact are favorable to the Bank, and we think that they are sufficiently supported by the evidence. The record does not show the amount realized by the receiver ; but we feel satisfied that the funds in his hands will be insufficient to pay the three mortgage claims and that nothing will be left for the commercial''.creditors. If any balance should remain, however, they ought to have the benefit of it. The judgment of the District Court will be affirmed. All the Justices concurring.