Atchison Saddlery Co. v. Gray

The opinion of the court was delivered by Cunningham, J. : It will be seen from the statement of the case that the court below took the view that the use by Henderson Brothers of the funds derived from the sale of the mortgaged goods for purposes not authorized by the chattel mortgage rendered the transaction wholly void and annulled the security of the mortgage in favor of the execution creditor. It can hardly be claimed, since the decision in the case of Frankhouser v. Ellett, 22 Kan. 128, that the provision quoted above had the effect of rendering the mortgage void. Had that provision been carried out in good faith, no cqmplaint could have been made. The agreement itself was not contrary to law. Henderson Brothers were violating their agreement’ when they assumed to use the proceeds for any purpose other than as therein provided; but such violation, without the knowledge or consent of the mortgagee, would not make void the mortgage as to it. The defendant in error contends that, as the mortgage contained the provision relative to the payment to the bank, and that the plaintiff in error might take possession of the goods at any time by paying to the bank any portion of its debt remaining unpaid, it was [82] the duty of the plaintiff in error, if it desired to preserve its rights, to see that the agreement was carried out in good faith, and that therefore it was bound to know of any misappropriation of funds by Henderson Brothers. We cannot give our approval to this contention. Plaintiff in error was doing business 250 miles or more from Arkansas City. It had a right to assume that the agreement of Henderson Brothers was being honestly carried out. There is no presumption that it knew otherwise. Its first note had not yet become due. The time which had elapsed between the giving of the mortgage and the levy of the execution was not so great as to justify any presumption of laches on its part. It may be that the burden of showing that it had no knowledge of the manner in which Henderson Brothers were conducting the business, and that it did not consent to the same, fell upon the plaintiff, and that it should have made such showing in the first instance. If this be so, the court ought to have permitted the introduction of such evidence even after it had rested. We do not understand that the court refused this because it would interfere with the orderly conduct of the case, but because such evidence would not, in the opinion of the court, help the plaintiff. In this we disagree with the. trial court. We think the plaintiff ought to have been permitted to show that it had no knowledge of the misappropriation of the proceeds of the sale of the mortgaged property, and that upon such showing the court should have held that its mortgage was not, as a matter of law, vitiated solely by the misconduct of Henderson Brothers. The case will be reversed and remanded for further proceedings. Johnston, Greene, JJ., concurring.