St. Paul Title Insurance & Trust Co. v. Berkey

Vanderburgh, J. One Ferriss, now insolvent, executed a bill of sale to Berkey of the personal property in controversy, intended as security for a debt. It is admitted to be in the nature of a mortgage, though absolute in form, and the conditions are not expressed in it. It was dated July 10, 1890, and filed as a mortgage in the city clerk’s office on the same day, but was never acknowledged. Without deciding the question whether such an instrument should be treated as a chattel mortgage under the statute, so as to make the record constructive noiice if duly acknowledged as required, it is enough that it was not acknowledged, and for that reason the filing and record thereof were unavailing. It would be singular if the holder of such an instrument should be held to be in any better position than a mortgagee in an ordinary chattel mortgage. On the 19tb day of July, 1891, the defendant obtained possession of the property, which had previously been left in Ferriss’ possession, and this plaintiff, who had previously been appointed assignee in insolvency of the mortgagor, Ferriss brought this action to recover possession of the property as part of the assets of the insolvent -estate. It becomes necessary to consider the relation of the creditors to the holder of this bill of sale, and the effect of the want of constructive notice provided for by statute in the ease of chattel mortgages. The first section of chapter 39, Gen. St., makes the mortgage void where possession is retained by the mortgagor, and the mortgage is not filed, (though the transaction is bona fide,) as against the creditors of the mortgagor and subsequent bona fide purchasers or mortgagees in good faith. It is suggested by plaintiff’s counsel that the words “in good faith” limit the preceding words “mortgagees and purchasers,” only, and do not apply to “creditors,” and, if the mortgage is not filed, it is absolutely void as to them without respect to the question of notice, that is to say, whether they have actual notice that would, during the life of the mortgage, [500] afford them the same information which the record would disclose or not. The record, because it is notice, is intended to stand in the place of the delivery of the possession, and thus protect parties dealing with the mortgagor in possession of the property from being misled and defrauded by the existence of liens which they can know nothing of. But suppose a creditor deals with and trusts the mortgagor with actual notice of such liens, so that he has all the knowledge the record could afford, it is clear that as to him such notice should be held to take the place of the record, and that the statute has no application to such a case. The question of notice becomes material in determining the rights of creditors in such cases. See Brown v. Brabb, 67 Mich. 17, 18, (34 N. W. Rep. 403.) It is true tliat creditors must become attachment or execution creditors, and their demands established by judgment, in order to enforce them as against mortgagees in such cases, but this is unimportant as respects the question of their previous actual notice. If the bill of sale in this instance was executed in good faith to secure an honest debt, then it is valid, at least as to all such creditors as had seasonable notice of the same. And it was enough, in the first instance, for the defendant to prove that the bill of sale was given and accepted in good faith, and not for the purpose of defrauding any creditor of Ferriss, as defendant offered to do. And it was error to reject the evidence so offered. If such evidence had been introduced in defendant’s behalf, it would then have devolved upon the plaintiff to show that the creditors represented by him, or some of them, belong to that class who are entitled to challenge the validity of the mortgage because of its not having been properly recorded. Brown v. Brabb, 67 Mich. 32, (34 N. W. Rep. 403;) Newton v. Newton, 46 Minn. 33, (48 N. W. Rep. 450.) For the error in rejecting defendant’s offered testimony, there must be a new trial. It is hardly necessary to add that notice, or want of notice, to the assignee is immaterial, as the rights of creditors, as respects mortgages previously executed, must be deemed to be fixed when the assignment is made; but he represents the body of creditors, and by virtue of the authority vested in him under the statute he may as [501] sert the same remedies, which the creditors are entitled to, and without reducing their demands to judgment. Chamberlain v. O’Brien, 46 Minn. 80, (48 N. W. Rep. 447;) Brown v. Brabb, 67 Mich. 24, (34 N. W. Rep. 403.) Order reversed. Application for reargument denied May 5, 1893. (Opinion published 55 N. W. Rep. 60.)