Frank S. Russell, Appellant, v. Alphonse A. St. Mart and Others, Respondents

Frank S. Russell, Appellant, v. Alphonse A. St. Mart and Others, Respondents. Chattel mortgage given by a-firm and filed in the town of the residence of one pa/rtner and not in that of the other — what creditor, holding a mortgage on the same chattels subsequently given, is not in a position to urge the invalidity of the earlier mortgage— the fact that his mortgage is due and the prior one is not is unimpoi'tant — right to talee possession under the danger clause. December 3, 1900, Frank S. Russell sold certain personal property to the firm of Burtch & Burgess, taking back a chattel mortgage payable December 3, 1901, for a portion of the purchase price. This mortgage was filed December 10, 1900, in the town in which Burtch resided, but was never filed in the town in which Burgess resided. November 26, 1900, Alphonse A. St. Mart and others guaranteed a note made by Burtch & Burgess for the sum of §100, payable February 26,1901. December 21,1900, Burtch & Burgess, pursuant to an agreement made at the time the guaranty was executed, delivered to St. Mart and the other guarantors a chattel mortgage upon the property in question. This chattel mortgage was filed December 21, 1900, in the town in which Burtch resided. Burtch & Burgess failed to pay the note when it became due and St. Mart and the other guarantors paid the same. March 1, 1901, Russell took possession of the mortgaged property and commenced proceedings to foreclose the mortgage. March 7, 1901, he bid off the property at the foreclosure sale. March 29, 1901, he attempted to remove the property, but St. Mart and the other guarantors took possession of it under their mortgage. In an action brought by Russell against St. Mart and the other guarantors for the conversion of the property, it was Held, that under the statute (Laws of 1897, chap. 418, § 92, as amd. by Laws of 1900, chap. 248) it was necessary for the plaintiff to file his mortgage in the town in which Burgess resided as well as in the town where Burtch resided and that his failure to do so rendered the mortgage void as against creditors of the mortgagors and subsequent purchasers and mortgagees in good faith; That the defendants were not subsequent purchasers or mortgagees in good faith because their mortgage was given to secure an antecedent debt and because the filing of the plaintiff’s mortgage in the town in which Burtch resided was notice to them of the existence of that mortgage; That as the defendants were not judgment creditors of the mortgagors at the time they assumed to take possession of the property, they were not in a position, in their capacity as creditors, to urge the invalidity as against themselves of the plaintiff’s mortgage; That the fact that at the time the defendants took possession of the property their mortgage was past due, while the plaintiff’s mortgage had not yet matured, did not entitle them to hold possession of the property as against the plaintiff, as at the time in question the plaintiff was entitled to assert his right to the possession of the mortgaged chattels under the danger clause contained in his mortgage. Spring, J., dissented. Appeal by the plaintiff, Frank S. Russell, from a judgment of the Supreme Court in favor of the defendants, entered in the office of the clerk of the county of Cayuga on the 16th day of September, 1902, upon the report of a referee dismissing the plaintiff’s complaint. James Wright, for the appellant. Gould & Carpenter, for the respondents. [MAJORITY — Williams, J.:] Williams, J.: The judgment should be reversed and a new trial granted before another referee, with costs to the appellant to abide event. The action is for the conversion of personal property. The question in controversy was the right to possession, which both parties claimed. The facts are not in dispute. The questions are as to the law. December 3, 1900, the plaintiff sold to the firm of Burtch & Burgess the property in question for $600, of which $100 was paid down and a chattel mortgage given for the balance, $500, payable December 3, 1901. Burtch lived at Hancock, Delaware county, and Burgess at Auburn, Cayuga county. • The chattel mortgage was filed in the town of Hancock December 10, 1900, but not in Auburn. November 26, 1900, the firm made a note for $100, payable February 26, 1901, and procured the defendants to guarantee its payment. The firm agreed at the time with the defendants to give them a first mortgage upon the property in question when it came into their possession. On the 21st day of December, 1900, the firm did give the defendants a chattel mortgage as agreed, and it was filed in the town of Hancock the same day. The note was negotiated at the bank, and when it became due the firm failed to pay it and the defendants had to pay it. March 1, 1901, the plaintiff, by his agent, took possession of the property, which was turned over to him, and at once commenced proceedings to foreclose the mortgage. On the 7th day of March, 1901, the property was sold under the foreclosure and bid in for the plaintiff. March 29, 1901, the plaintiff attempted to remove the property, but the defendants took possession of it under their mortgage. The referee further found that the taking possession and sale of the property on foreclosure by the plaintiff was not under the danger clause in the mortgage, but by reason of the mistake of his agent in supposing the mortgage was past due. Upon these facts the referee decided that the defendants were -creditors of the firm, and as such under the statute were entitled to avoid the plaintiff’s mortgage for failure to properly file the same; that the title and right to possession of the property vested in the •defendants when their mortgage matured February 26, 1901, and they could hold the property against the plaintiff seeking to retain possession under his mortgage, especially as such mortgage had not matured. The statute required the filing of plaintiff’s mortgage in Auburn, where Burgess resided, as well as in Hancock, where Burtch resided. (Laws of 1897, chap. 418, § 92, as amd. by Laws of 1900, chap. 248; Bueb v. Geraty, 28 Misc. Rep. 134; 59 N. Y. Supp. 249; Stewart v. Platt, 101 U. S. 731, 737.) The mortgage was, therefore, void as to creditors of the mortgagors and subsequent purchasers and mortgagees in good faith. (Laws of 1897, chap. 418, § 90, as amd. by Laws of 1900, chap. 248.) The defendants were not subsequent purchasers, nor were they mortgagees in good faith, because their mortgage was given to secure an antecedent debt, and because the filing of plaintiff’s mortgage, in Hancock was notice to them of the existence of the plaintiff’s mortgage which was on file there. (Bueb v. Geraty, supra, and cases therein referred to.) The mortgage was given for an ante cedent debt, although the promise was made when the debt was contracted that the mortgage would be given as soon as the firm acquired title to the property. (Harder v. Plass, 57 Hun, 540, 544, and cases therein referred to.) While the statute was not complied with by plaintiff in filing his mortgage, yet the filing in the town of Hancock, where one member of the firm resided, and where the defendants filed their mortgage, was notice to them of the existence of plaintiff’s mortgage when their mortgage was given. The defendants cannot, therefore, he regarded as subsequent mortgagees in good faith, so as to permit them as such to allege the invalidity of the plaintiff’s mortgage, for failure to file the same, as directed by the statute. They claim, however, that they occupy the position of creditors to the extent of the $100 owing them and as such are entitled to allege the invalidity of the plaintiff’s mortgage, regardless of their knowledge or notice of such mortgage. Even if they may be regarded as creditors, they were not judgment creditors with an execution at the time they claimed a right to the possession of the property. They were not, therefore, in a position as creditors to allege the invalidity as against themselves of the plaintiff’s mortgage. (Thompson v. Van Vechten, 27 N. Y. 568, 582; Southard v. Benner, 72 id. 424.) The fact that they had a mortgage lien upon the property did not enable them to hold the property as creditors under the statute against the plaintiff’s mortgage. The only case in which it is claimed a doctrine similar to this has been held is State Trust Co. v. Casino Co. (5 App. Div. 381). It was said in the course of the prevailing opinion in that case that “where * * * the warehouseman, being a creditor, as against whom the mortgage is void for failure to refile, has possession of the property, and a right to retain it for his lien, with a right to sell the same to discharge the amount thereof, he is in a very different position from a general creditor, because the latter, before he can levy on the property, or have the right to sell it, must obtain a judgment and issue execution, or obtain some legal process against the property. We think, therefore, that as against a chattel mortgage, a creditor in possession of the property, with a right to sell it in discharge of his debt, is in a position similar to that of a judgment creditor in respect to his right to assail or deny the validity of the mortgage.” The report of the case shows that Justice Ingraham concurred in the prevailing opinion, but in a separate opinion written by him he said: “ It is quite clear, however, that Maxwell could not hold this property as such creditor if he were shown to be one, as he has no judgment against the corporation, being at most a mere contract creditor. As such he cannot question the mortgage. This was the question in the case of Thompson v. Van Vechten (27 N. Y. 582). It was there held that although the mortgage was void as to all creditors who were such at the time of the failure to refile the mortgage as required by the statute, such creditors could not legally question the mortgage until ‘ the creditor clothes himself with a judgment and execution or with some legal process against his property, for creditors cannot interfere with the property of their debtor without process.’ It would seem quite clear, therefore, that Maxwell, as a> mere creditor of the Casino Company, could not hold this property as against the mortgagee.” Van Brunt, P. J., and Patterson, J., concurred in the prevailing opinion, however, and, therefore, a majority of the court approved of the language quoted from the prevailing opinion. The law has never been carried to this extent in any other case. It was not necessary to a decision of that case to hold this doctrine and we do not feel justified in so holding in the disposition of this case. The other proposition urged in behalf of the defendants, that inasmuch as the plaintiff’s mortgage had not matured, and the defendants’ mortgage was past due, at the time possession of the property was claimed by each, that the defendants were entitled to hold possession as against the plaintiff, we think cannot be maintained. The referee found that the plaintiff did not take advantage of the danger clause in his mortgage, and did not take the property or foreclose his mortgage, or seek to hold possession imder that clause. The circumstances hardly warranted such a finding. The firm was insolvent. They had failed to make a success of the business, and had proposed to surrender the property to the plaintiff under his mortgage. The property was barely sufficient to pay his claim. The plaintiff was clearly in danger of losing his mortgage debt, unless he held the property under the sale on foreclosure. Clearly he was in a position to assert his right to the possession under the danger clause, and we think under these circumstances the defendants were not entitled to deprive him of such possession for the reason alleged. Our conclusion is, therefore, that the plaintiff was entitled to maintain this action, and that judgment was erroneously ordered for the defendants. The judgment should, therefore, be reversed and a new trial granted as hereinbefore suggested. All concurred, except Spring, J., dissenting. Judgment reversed and new trial ordered, with costs to the appellant to abide event, upon questions of law only, the facts having been examined and no error found therein.