Williams v. Kirk

¶1This action is replevin and plaintiffs had judgment in the trial court.

¶2Statement. Plaintiffs claim the property under a chattel mortgage given to them by'the owners. Defendant is a constable and had seized the property # x J under a writ or attachment sued out by creditors of the mortgagor owners. The facts necessary to state for a decision of the cause are these.

¶3The plaintiffs’ mortgage was given to secure a *461tona fide debt owing to them by the mortgagor. Plaintiffs purposely withheld the mortgage from record and allowed the mortgagor to remain in possession until the day before the attachment was levied, being about nine months after the mortgage was executed, at which time they recorded the mortgage and took possession of the property covered by it. In the interval, between the time the mortgage was executed and the time it was recorded and possession taken, the mortgagor became indebted to the creditor for whom defendant levied the attachment, the debt for which the attachment was levied was made in the interval; the creditor having no knowledge of the mortgage.

¶4Fconveyances: ga|efromTecIn our opinion, the mortgage was fraudulent and void as to such creditor. It is true that we have a well recognized line of cases in this state, of which Dobyns v. Meyer, 95 Mo. 132, is a type, holding that where the fraudulent character of a chattel mortgage is such that it may be cured by possession being taken by the mortgagee, and such mortgagee takes possession before the rights of third parties attach, the mortgage will be held valid, notwithstanding that it may have been invalid up to the time of taking possession. But this case presents a different consideration. It is placed without the class of eases referred to by the fact that here the rights of third parties have intervened, though they had not attached to the property in specie. These mortgagees intentionally withheld the mortgage from record for fear, as their own testimony shows, that its going on record would injure the mortgagor, and the creditor, without knowledge of its existence, permitted the mortgagor to become indebted to him. It would be a fraud upon the creditor to allow the mortgagee toso cover the mortgagor’s property. It is such a fraud as that the principle of estoppel in pais may be invoked in *462favor of the creditor and against the mortgagee. The mortgagee has by a line of conduct induced the creditor to extend credit, or permit the creation of the indebtedness to him on the faith of appearances which the mortgagee now seeks to say were not real. He can not in justice be permitted to do so.

¶5TasiUf Í.UÜ: It is true that there is no direct proof in this case that the creditor, when he dealt with the mortgagor, inquired for incumbrances on the property or that he dealt with him on the faith of the property being unincumbered. But we must assume that in business affairs, property is a basis of credit. It is a matter of common observation and knowledge that the giving a chattel mortgage by a business concern injures its credit. It would be palpably unfair and unjust to permit one to accept a conveyance securing an indebtedness and keep it concealed from others until after they have extended credit to the grantor.

¶6' Counsel state that the question involved here has not been decided in the appellate courts of the state. If it has not, there are a number of cases which have announced a principle, (on facts much like these, except that they relate to real estate) which applies to what we have written. Bank v. Doran, 109 Mo. 401; Bank v. Frame, 112 Mo. 502; Bank v. Buck, 123 Mo. 141; Barton v. Sitlington, 128 Mo. 164. Some interesting cases from other states' are found supporting our views, and which concerned personal property. Root v. Harl, 62 Mich. 420; Hilliard v. Cagle, 46 Miss. 336.

¶7In Barton v. Sitlington, supra,Judge Bukg-ess quotes with approval the following from Jones on Chattel Mortgages, section 337a:

¶8“But if it appears that the mortgage was withheld from record in order to enable the mortgagor to remain in possession of a stock of goods and to deal with it as *463his own and thereby aid him in making purchases of new goods on a false credit, the mortgagee will be estopped as against parties so misled from asserting the existence of a lien under his mortgage. But no one can complain of a failure to file a chattel mortgage for any length of time, unless after its date and before its filing, or before the mortgagee takes possession under it, the creditor assailing it has dealt with the mortgagor as he would not have dealt had the mortgage been recorded.

¶9men! agree‘ II. But it is said that there was no proof of an agreement between mortgagor and mortgagee that the mortgage should be withheld from record and the legal proposition is urged that to render the mortgage fraudulent there must have been an agreement. The cases of Hegeler v. Bank, 129 Ill. 157, Mull v. Dooley, 89 Iowa, 312, and Lumbert v. McKibben, 91 Iowa, 345, are cited in support of this contention. It is not necessary for us to say whether we consider it essential to the invalidity of a mortgage withheld from record that there should be an agreement to withhold it. For, in this case, conceding there was no agreement between the mortgagor and mortgagee, we think, as before stated, it clearly appears that the mortgagee kept the mortgage from the records in order that it might not injure the credit of the mortgagor. We deem this to be equivalent to an agreement to withhold it. It is certainly as effectual in its results.

¶10The circuit court took the view that possession being taken by the mortgagee before the levy of the attachment validated the mortgage, or, at least, prevented it from being declared invalid by those who had no claim on the specific property, thus placing the case in the class of Dobyns v. Myers, supra. And this view is supported by the supreme court of Kansas in *464Cameron v. Marvin, 26 Kan. 612. The argument advanced to support this view is that since the creditor is a general creditor, with no right to any specific property, and since the mortgagee had a right to take security for his claim at any time, and since, in case of a mortgage withheld from record, he does no more by taking possession than he could have done by taking the property in pledge, or by a mortgage then executed, no harm could result to the creditor. It seems to us that there is omitted from such argument the whole equity .of estoppel in -pais. Besides it is not always a question, when dealing with a fraud feasor., whether his fraudulent conduct has actually, in any given case, worked an injury to the complainant. Furthermore, it must be apparent that he who takes mortgage security, does so for an advantage to himself. He secures an advantage over other creditors. He has a right to this advantage when he pursues, a proper course. But if he be allowed this advantage by a deceptive line of conduct — by a concealment — the tendency of which is to deceive and give false credit, he ought to be deprived of such advantage. It may be that, in many instances, a debtor would not give a mortgage but for the inducement of concealment which is held out to him. The tendency and result of permitting acts of this nature are against fair dealing. It is against the policy of- the state as evidenced by the registry acts. When it is so well known that the execution of a chattel mortgage by a trading concern is a matter of alarm to all who have business connections with such institution, who can say that parties who deal with it would have extended credit, if they had known of the mortgage? Every presumption is they would not.

¶11Among other cases defendant cites us to McIntosh v. Smiley, 32 Mo. App. 125; s. c., 107 Mo. 377. That *465case has no application to this; from the fact that the decisive fact in this case did not present itself in that. Besides, Judge Hall was careful to state in McIntosh v. Smiley, that possession taken by the vendee completed “his title against all persons except those whose rights may have intervened, bettveen the sale and the taking of possession” (italics ours). In the case at bar, as we have attempted to show, plaintiffs’ superior equity arose after the mortgage was made and before possession was taken.

¶12The result is that we reverse the judgment and remand the cause.