text:
    Lottie A. Dunn v. Ambrose Hastings et al.
    1. A vendor of chattels, who delivers the same and takes a note with security for the price, has no equity in the nature of a vendor’s lien as against the holder of a chattel mortgage previously given by the vendee containing a clause covering after-acquired property which reaches the chattels in question.
    2. It is competent and proper for a court of equity, at the suit of a mortgagee of chattels, brought to establish his lien upon after-acquired chattels, to add to a decree establishing such lien a remedy for compensation for deterioration in the value of the chattels pending litigation, or for the value of such as have been removed and converted by the defendant.

      On final hearing on pleadings and proofs.
    On' the 3d of July, 1894, the complainant was the owner of a livery, stable plant, situate at Nos. 152 and 154 Mulberry street, in Newark, consisting of horses, harness, robes, blankets, wagons^ carriages and the ordinary implements of a livery stable. On that day she conveyed the same to Luther Van Pelt and Annie E. Eddy; and took back a chattel mortgage upon the plant, .the items of which were scheduled'and annexed to the mortgage, to secure $1,000 of the purchase-money, payable in monthly installments of $50 each, with interest, commencing August 1st. In the body of the mortgage the property is described thus:
    “All the goods and chattels mentioned in the schedule hereunto annexed and now in our possession, at Nos. 152 and 154 Mulberry street, Newark, N. J., and which said schedule is hereby made a part of this instrument, together with such goods and chattels of like kind that may be purchased from time to time by said parties of the first part to replace such chattels as may have become used up, worn out or consumed in the course of business carried on at the place aforesaid; the intention being that this mortgage shall cover such property as may be acquired by said mortgagors after the date hereof to use in the livery and boarding stable business.”

    Van Pelt & Eddy took possession of the plant, carried on the livery stable business there for some time, and then Mrs. Eddy conveyed her interest to the other joint owner, Van Pelt. Among the articles mortgaged were ten carriages, four horses and divers sets of harness.
    Before Mrs. Eddy conveyed her interest to Van Pelt they had exchanged two of the horses mentioned in the mortgage for two others, which were known as the “Peddy” horses, and paid $35 to boot on the trade. Shortly after Van Pelt became the sole owner he made an 'exchange of two old carriages mentioned in the mortgage for two new carriages of the same character, viz., buggies fit for use in the livery stable business, and paid $125 cash on the exchange. He afterwards bought, or acquired in exchange, a set of double harness and a set of single harness, at a cost of $35 for the two. It was assumed at the hearing, and there was no contention to the contrary, that these additions, so far as they were additions, were no more than sufficient to keep the livery plant up .to its proper condition and: value. In addition to'these changes, however, Mr. Van Pelt, about the 1st of September, 1894, purchased, an additional pair of horses of a1 man by the name of Tiplin at an expense of $225, and added them to his livery stable plant. There was no proof as to whether or not these- horses made a material addition to the plant, and were more than sufficient to keep it up to the value which it had at the time the complainant’s mortgage was given. ■
    He paid for this last purchase of the Tiplin horses by giving two promissory notes endorsed by the defendant Hastings, and as they severally matured paid $25 on them, with the result that in the end Mr. Hastings was obliged to pay them both; and to secure him for the money so paid and for other moneys loaned by Hastings to him, Van Pelt gave to Hastings a chattel mortgage, dated the 15th of December, 1894, upon the four new horses, being the two obtained in exchange, called the Peddy horses, and the two purchased from Tiplin, the two new buggies obtained in exchange for old buggies and the two sets of new harness. Hastings had actual notice of complainant’s mortgage. This chattel mortgage was not put upon record, but Mr. Hastings immediately proceeded to enforce the same. The complainant, learning of this, and payments on her mortgage being in arrear, the whole of it not being yet due, filed her bill of complaint on the 28th of December. In it she stated her mortgage and the changes made by Van Pelt in the horses and carriages and the purchase of the Tiplin horses, and charged that all the additions were subject to her mortgage; that Van Pelt had mortgaged to the defendant Hastings the four horses and two carriages acquired by purchase and exchange, and that Hastings threatened to enforce his mortgage and remove the chattels and dispose of them. The bill prayed a foreclosure, the appointment of a receiver and an injunction against Hastings.
    The injunction was granted, but it turned out that Hastings had succeeded in pushing his proceedings to. a sale two days before the bill was filed, and the chattels mortgaged to Hastings had been sold and purchased by him and again, by him transferred t-o the defendant Barnard for $250, and removed from the premises. Proceedings in contempt against Hastings were taken but failed. A receiver was appointed, and the remaining chattels not removed by Hastings were sold and produced a sum not sufficient to pay complainant's mortgage. The complainant then filed an amended bill, making Hastings and Barnard defendants, setting out the circumstances and praying that her mortgage might be declared to be in equity a lien upon the chattels which Hastings had sold and removed, and that he might be decreed to account for their value to an extent, if sufficient, to pay the balance due on her mortgage.

      Mr. Frank F. Bradner, for the complainant.

      Mr. Ambrose Hastings, pro se.

   Pitney, V. C.

I was embarrassed in hearing this cause by the circumstance that the defendant was without counsel. But it seemed to me that the only ground of defence which he could set up was that, by reason of his having paid the consideration money of a portion of these chattels by becoming surety on the note given for their price, he was, as to them, invested with an equity superior to that of the complainant.

The complainant is in the situation of a person asking for the specific performance of a contract, and such is the nature of her suit. The clause in her mortgage giving her a lien upon after-acquired chattels has no effect at law. It must be construed as a covenant on the part of the mortgagor to give her such lien, which may be enforced in this court by relief, in the nature of specific performance, against the mortgagor or his assignee, with notice, and must be subject to all defences which would lie against an ordinary bill for specific performance.

Upon the facts appearing at the trial, there can be no doubt that the goods taken and carried away by the defendant Hastings were clearly within the description of after-acquired property which should become subject to the mortgage. Those taken in exchange are clearly so. But the clause goes further than to give the complainant an equitable lien upon new property acquired to replace the old that was worn out, because it expressly declares that it is to cover all property acquired for use in the livery and boarding stable business, and the two Tiplin horses and the new sets of harness come within it.

At first, I had a hope that I might be able to hold that the fact that Hastings had indirectly paid for a portion of these chattels by paying the promissory note which was given for them? might subrogate him to the right of the original vendor, and so give him a vendor’s lien upon these two horses which was superior to that of the equitable lien acquired by complainant by virtue of her original mortgage. But, upon reflection, I am unable to adopt that view, and come, with regret, to the conclusion that the Complainant’s equity is superior. She certainly had the right to stipulate as she did for a lien upon after-acquired property, and she put her mortgage promptly on record. All persons dealing with the mortgagors were bound to take notice of it. When the original owner of the newly-acquired chattels sold them to the mortgagor and took a promissory note for the consideration, with security, he was bound to take notice that they at once became subjected to the equitable lien of complainant’s mortgage, and that whatever lien he had was waived by his taking a note on time, with security, and delivering the horses without condition to the purchaser, and the right of the defendant Hastings could not rise higher than that of the vendor and payee of the note given for consideration money.

The doctrine of vendor’s lien, as far as I can find, has never been extended to personal chattels beyond the exercise of the right Of stoppage in transitu.

The suggestions to the contrary by Professor Pomeroy (3 Pom. Eq. Jur. § 1249 et seq.) rest upon cases where the original contract of sale provided for a lien for a portion of the purchase-money, and the formal means adopted for insuring it were defective. Coman v. Lakey, 80 N. Y. 345; Amerman v. Wiles, 9 C. E. Gr. 13.

It is to be observed that the complainant’s right to a lien upon after-acquired property is a part of the consideration of her contract. She sold the plant at the price named, and-gave time for its.payment, presumably upon the strength of the vendor’s contract to give a lien upon future acquisitions and additions to the plant. Her claim, therefore, is meritorious and based upon a valuable consideration, and as sooii as the new. purchases were delivered to the mortgagor, and became, as they did, a part of the plant, her' right vested and became at once paramount. Hastings had ' actual as • well as , constructive notice of her mortgage.. :

I must, therefore, • adjudge that complainant’s ■ mortgage is prior to that of defendant Hastings’,- and, - notwithstanding the sale to defendant Barnard, who 'is not shown to be a bona fide purchaser without notice, is still a lien upon the chattels.

Complainant prays ■ for such relief and a sale of the chattels, or that the defendants may be decreed to account for their value, with the usual prayer for other relief. ■

The more difficult question is what relief can and ought the court to give in this cause. : Granting that the horses, carriages and harness are still'in existence, it is plain that they cannot be of .the same value now as when removed from.the. premises in December, 1894. The natural wear and tear; due to their use, with the addition .to the age of the horses, render certain a deterioration in their value.'

Then their value to the complainant as mortgagee of a plant consisted, more or less, in the fact that they constituted a material part of that plant. A glance at the schedule in her mortgage shows this. The probability is that she could have realized more for the -.complete plant, sold as a whole as it stood before the removal of the articles mortgaged to Hastings, than she could by selling it out by the piece. At least she was entitled to the opportunity to do so.

The complainant was obliged to come to this court in order to establish her equitable title. She has no standing'in a court of law. Under such circumstances the familiar rule is that the court has the power, and ought, if practicable, to give complainant complete relief.

The power and duty of this court to do so-in eases of specific performance is well settled. Borden v. Curtis, 8 Dick. Ch. Rep. 120, where some of the authorities are collected and reviewed.

There is a line of cases decided in England before Lord Cairns’ act of 21 and 22 Victoria which more nearly apply to the case in hand. They are Foster v. Deacon, 3 Mad. 394; Nelson v. Bridges, 2 Beav. 239; 3 Jur. 1098 (Lord Langdale); Binks v. Lord Rokeby, 2 Swanst. 233, 237 (Lord Eldon); Ferguson v. Tadman, 1 Sim. 530; Robertson v. Skelton, 12 Beav. 260; 19 L. J. Ch. 140 (Lord Langdale); Prothero v. Phelps, 7 De G., M. & G. 722; 25 L. J. Ch. 105 (better report), where the question was fully discussed by counsel and all the cases were cited. In that case Lord-Justice Turner said (7 De G., M. & G. 734) “That it was competent to this court to have ascertained the damages, I feel no doubt. It is the constant course of the court, in cases between vendor and purchaser, upon a sufficient case being made for- the purpose, to direct an inquiry as to the deterioration of the estate pending the contract, and in so doing the court is in truth giving damages to the purchaser for the loss which he has sustained by the contract not having been literally performed.”

In Ferguson v. Tadmam there, was deterioration in an estate agreed to be sold, between the time the vendor agreed to give possession and the time when he was actually.able to give possession, the amount of which was ascertained and assessed by a master first, and afterwards, on exceptions to his report, an issue was framed and tried- by a jury,, and the amount.of the deterioration thus ascertained was deducted from the purchase-money: ■

In Nelson v. Bridges the contract was for the privilege of mining and raising stone from a plot of ground. The suit was by the grantee against the grantor, .who had, in violation of his agreement with the complainant, granted the same privilege to another party, who had obtained possession and mined and carried away- a large amount of stone. Decree for specific performance having been granted to the complainant, he then filed a supplemental bill to recover the value of the stone which had been carried away. Lord Langdale, in delivering judgment, said:

“ The stone, or a quantity of the stone, which the plaintiff had obtained a license to quarry, has actually been taken away by the defendant Wordsworth, so that, while the performance of the agreement has been resisted and delayed by the defendants, they, or one of them at least, has taken away a portion of the very subject-matter of the suit, and the plaintiff has been thereby forever deprived of the full benefit of his contract. If that circumstance had been known at the first hearing, I cannot have the least doubt but that the court would, in the exercise of .its jurisdiction, have put in a due course of investigation the question of the amount of compensation which ought to be made to the plaintiff. This matter, it appears, was not brought to the attention of the court at that time, and a supplemental bill is now filed by the plaintiff for the purpose of obtaining compensation. It is said that such compensation might originally have been had at law, or, if not, that, at least, it might have been obtained at law by perfecting the decree for the specific performance of the agreement in some particular form. I am of opinion that it is not necessary for this court, when it has once entertained jurisdiction in a case, to resort to that circuitous mode of giving relief. I think, moreover, that if this matter had been before the court at the first hearing, it would have been put in a proper train of investigation.” He then directed an issue to ascertain the amount of damages which the complainant had sustained.

Phillips v. Sylvester, L. R. 8 Ch. App. 173 (1872), decided by Lord Selborne, affirming the master of the rolls, is to the same effect.

These cases establish the doctrine that where the subject of the contract has deteriorated in value, or has been partially abstracted pending the litigation, under circumstances which relieve the purchaser from responsibility therefor, he may have relief by an ascertainment of the amount of the damages and a deduction therefor from the contract price, and this may be done either under the original bill or by means of a supplement. I think the doctrine applies to this case.

. ' The complainant here occupies the position, and is-entitled to the standing, of; a purchaser who has paid the purchase-money for these goods. It was conceded that the chattels in question are not of sufficient value to pay the amount remaining due to the complainant. Under these circumstances, I think the complainant is entitled to her choice of three remedies — -first, to have the horses, carriages and harness delivered to the receiver, to be by him sold and thé proceeds applied towards the payment of the balance due on her mortgage; second, to receive from the defendant Hastings the sum of $250, with interest from December 25th, 1894, that being the sum for which he sold the chattels to the defendant Barnard; or, third, to bring an action at law against Hastings and Barnard, or either of them, in such form as she may be advised, in which they shall be restrained from setting up that the chattels are not covered by and included in the mortgage in all respects as if they had been in existence and owned at its date by the mortgagors and specially named in the mortgage, and she may count on such a mortgage.

Complainant is entitled to costs as against Hastings.


source: Caselaw Access Project

author: Pitstey, V. C.

license: Public Domain

text:
    Hatch et al. v. John C. Van Dervoort et al.
    1. "Where mortgagees of a stock of goods in a leased store building take possession of the stock and continue to occupy the building for the purpose of sale, they are bound by the promise Of their attorney to the landlord to pay the rent after they took possession.
    2. In such case they are not relieved from paying rent during and on account of the existence of a subsequent order of court restraining the sale pending litigation as to appointment of a receiver and the validity of the mortgages, the goods remaining in the building and being afterwards sold there.
    3. Where mortgagees of a stock of goods in a leased store building take possession there of the goods, by permission of the mortgagors, and use the building for displaying and selling the goods, and keeping the ordinary aécounts of a retail store, they take possession of and occupy the building as tenants of its owner and not as mere licensees of the mortgagors.

      4. Where mortgagees of a stock of goods in a store building under an unexpired lease to the mortgagors, take possession of the goods, and occupy the building for the purpose of sale at retail in the ordinary way, they are liable for the rent stipulated in the mortgagors’ lease, and not merely for a quantum meruit for use and occupation, though there is no contract with the mortgagees fixing the sum to be paid by them as rent.
    5. Where mortgagees of a stock of goods in a leased store building take possession of the goods and occupy the building for the purpose of selling the goods at retail, by permission of the mortgagors and lessees, they cannot avoid liability for rent to the lessor because he did not take proceedings to turn them out of possession and compel them to remove their goods.
    6. Where a receiver, by order of court, sells a mortgaged stock of goods kept in a store building leased to the mortgagors, pending litigation as to the validity of the mortgages, and the mortgagees are liable for the rent, the court may direct payment of the rent out of the proceeds of the sale, though the mortgages are valid.
    7. Where a receiver sells goods by order of court, one not a party to the prior proceedings, and entitled' to the proceeds of the sale, may petition the court for an order to pay the same to him.
    On petition of Cornelius E. Van Dervoort to be paid a certain amount for rent out of the fund in court.

      Mr. George 8: Hilton, for the petitioner.

      Mr. Eugene Stevenson, for the defendants.
   Pitstey, V. C.

The petitioner makes the following case: He is the owner of .a large shop or store for the retail of dry goods, in the city of Paterson, which, in April, 1895, was held under an unexpired lease by a firm of dry goods merchants named Van Dervoort & Slingland (two of the defendants herein) at a yearly rent which amounted to $308.33 per month, and was payable monthly. At that time the store was filled with a large stock of dry goods, which had cost nearly $30,000.

. On the 4th of April Van Dervoort & Slingland, being financially embarrassed and heavily indebted to a bank upon notes endorsed by several of their friends, executed to those friends,. eight in number, several chattel mortgages to secure them in the premises. The aggregate of the debts was about $24,000. On the same day, the chattel mortgagees, acting in concert — their mortgages standing on an equal footing as to priority — took formal possession of the chattels as they were then situate in the store of petitioner but did not remove them. The business of selling the goods at retail continued, by. their direction, under the immediate supervision of Van Dervoort & Slingland. ,

On or shortly after the 4th of April, the complainants .in this suit, New York merchants, to whom Van Der-voort & Slingland! were indebted for goods sold, brought an action at law against, them, with the result that judgment was rendered therein on the 16th of April. The chattel mortgagees, learning of the suit at law, on the 13th of April, advertised all the goods to be sol'd at auction, on the premises, on the 18th of April. In anticipation of judgment being entered against them, Van Dervoort & Slingland made a general assignment for the benefit of their creditors to one Bewkes on the 15th of April. Before Bewkes had qualified or got possession of the goods the complainants recovered judgment, and on the 16th of April filed their bill of complaint in this court, attacking all the chattel mortgages and! praying a receiver. An order to show cause was granted •'with interim restraint, the litigation upon which extended to the 10th of July, when a receiver was appointed, who was ordered and directed to proceed to sell the goods, which had all the time remained in the petitioner’s store.

The receiver qualified and took possession of the goods and store on the 15th of July, and immediately proceeded to make sale in pursuance of the order, but in the stoi’e, with the result that he realized in the neighborhood of $19,000. Litigation was then had in this court as to the validity of the chattel mortgages, with the result that their validity, was sustained. The petitioner, who was not a party to the suit, intervened by petition, at an early date after the sale, and asked for payment of his rent out of the proceeds from the time the chattel mortgagees took possession until the premises were vacated. His claim was not resisted as to the time the receiver was in possession, and he was ordered to pay the petitioner rent for the premises after July 15th and until the store was vacated, and the balance of the fund was ordered to be paid to the chattel mortgagees, less a sufficient sum to cover petitioner’s demand for rent from the date of the chattel mortgages up to the qualification and entry of the receiver. f

One of the chattel mortgagees was a Mr. S., a practicing lawyer in Paterson, who was counsel for Van Dervoort & Sling-land, and also for himself and the other chattel mortgagees. In fact, he devised and carried through the whole plan, and acted throughout as the counsel not only for himself but for the other chattel mortgagees.

The petitioner swears that, as soon as the chattel mortgages were put on record and the fact had become known that they had been given, he at once looked after his rent, and inquired of Mr. S. about the rent that was due at that time, amounting to nearly $1,500, and was informed by Mr. S. that as to that rent he had no remedy. He was offered by Van Dervoort & Sling-land a bill of sale for all the goods, subject to the chattel mortgages, but declined to receive it. He then inquired, as he swears, as to the rent accruing from that time forward until the store should be vacated, and was assured by Mr. S. that the chattel mortgagees, having taken possession, would be answerable (for that rent. This is denied by Mr. S., and I have no doubt that he is honest in his denial, but I find it difficult to suppose that the petitioner, who is of equal credibility with Mr. S., manufactured his evidence upon this point, and it is quite easy to believe that Mr. S. had forgotten that he had made the promise or statement to the petitioner which is testified to by him. It was quite natural that the petitioner should make the inquiry as to future rent, and it was quite as natural, and also reasonable, that Mr. •S. should answer as petitioner swears that he did. It was of the •utmost importance to the mortgagees that the goods, should remain as they were in the store, where they could be sold to the ¡best advantage.

Upon the question of fact as to whether or not a promise was made by Mr. S. to the petitioner, I feel constrained to find that it was made. The fact that petitioner rested quietly, took no other measures to secure his rent or the possession of his premises, indicates that he was relying on some arrangement for its payment, and he swears that he relied on Mr. S.’s promise.

There can be no question that if Mr. S. made such promise— his authority to do so not being disputed — and petitioner relied upon it, the mortgagees are bound by it. It is not a question of the application of the statute of frauds to a promise to pay a past debt, but of a promise, on behalf of the promisor, to pay for use and occupation in futuro.

But the mortgagees argue that, admitting the promise to have been made, still they ought not to be held bound by it beyond the time when the court intervened and stopped their proceeding to sell, and that after the 17th of April and until the 15th of July they were restrained, by the order of this court, from dealing &c. with the goods. But such restraint did not prevent them from seeking another place to store the goods, if they could, at a cheaper rent, and if the order, through inadvertence, could be so construed, it would have been modified upon application for that purpose.

There is much force in the suggestion of counsel for petitioner that, admitting that during the period in question, namely, from April 17th to July 15th, while the order to show cause with its interim restraint was in force', the goods were, in a sense, in the custody of this court for the purpose of being preserved for the benefit of 'the parties who should finally be determined to be entitled, then their storage was necessary for such preservation, and its expense should fall on the goods. Under such circumstances, there can be no doubt that if proper application had been made to the court immediately after the order of April 17th the court would have made immediate provision for the care and preservation of the goods pending litigation, and would undoubtedly have charged the cost thereof upon the goods.

Again, in this connection, it was in the power of the mortgagees to have consented at once to the appointment of a receiver, the result .of which would have been the same as if the appli-. cation had - been made directly for -provision' for - their care and custody. How, in such case, it is not too much-Jo-say-that this court ought now to do that which, if properly moved, it would then have done, especially as petitioner was not a party to-the proceedings.

But over and above, and aside from all these considerations,, the goods remained in the store, and the mortgagees in the end had the benefit of storage of them there, and of having the goods sold from that place. There can be no doubt that the benefit derived from that privilege was considerable. There was a large amount of goods. It was not suggested that there was any other convenient place in the city of Paterson where they could have been sold, and they were finally, without having to be handled over, packed or repacked, sold at retail from the same store and from the same shelves upon which they rested when the mortgages were made. It cannot be denied that this was a great advantage.

The petitioner relies not only upon the promise of Mr. S., speaking for himself and his clients and the other mortgagees,, but upon the fact of the actual occupation and use of the premises by the mortgagees from the middle of April until the middle of July.

In answer to this view of the case, the chattel mortgagees set up that they took possession of the goods only, and not of the store itself, and that they did not become tenants in fact of the petitioner, but that whatever possession they had was by license of Van Dervoort & Slingland, and not as their assignees, and hence that they cannot be considered as having occupied the store in the character of tenants. It seems to me that the circumstances forbid the distinction sought to be taken between the possession of the goods and the possession of the store or rooms. The case shows that the storerooms were used for no other purpose except that of displaying and selling the goods, and keeping the ordinary accounts of a retail store. They were not used for living or' sleeping purposes or other occupancy except that of storing, caring for and selling goods, and such use and occupation was complete and not partial. I am unable to see any practical difference between taking possession of the goods and taking possession of the store.

, It was further suggested that in the absence of an express contract there was no fixed sum of rent to be paid, and that the legal aspect of the petitioner’s-claim against the chattel mortgagees is simply that of a quantum meruit for use and occupation, which would not warrant a distress or entitle petitioner to be paid the amount of his rent by a sheriff who held an execution against the tenants. But it seems to me that that point is not well taken. The premises were held at a fixed price under an unexpired lease. The chattel mortgagees took possession during that lease with the express consent of the lessees. There is no pretence of ignorance on their part as to the amount of that rent. On the contrary, the proof shows that Mr. S. knew the amount of the rent, and that it was accruing and ought, in justice and equity, to be paid by somebody. Now, it seems to me that if the chattel mortgagees took possession of those premises and occupied them in the manner in which they had been occupied by their mortgagors, they must be presumed to have undertaken to pay the rent at the same rate at which their mortgagors or licensors had paid.

It was further suggested by the chattel mortgagees that the petitioner, by remaining quiet and failing to take any proceedings to dispossess his tenants, the mortgagors, or their licensees, was guilty of such laches and acquiescence as prevented him from making his present claim for rent. To this, among other things, the petitioner answered that he could not safely take summary proceedings to obtain possession. I do not agree with petitioner’s counsel in his argument on this point; but I do think that under the circumstances it does not lie in the mouths of the chattel mortgagees to say to the petitioner that because he did not take proceedings to turn them out of possession and compel them to remove their goods (which, as the counsel for the mortgagees says in his brief, would undoubtedly have compelled them to come to some understanding with the petitioner as to rent), that therefore he must be presumed to have intended to give them the use and occupancy of the premises for three months for nothing. In other words, it does not seem to me to lie in the mouths of the mortgagees to say: “ If you expected us to pay you rent you should have taken harsh measures to compel-us to agree to pay rentj because you have not done that, you must be held to have given us the rent.”' It seems to me that there is more plausibility in the argument made by petitioner that the chattel mortgagees, by remaining voluntarily in possession, may be held to have acquiesced in their liability to pay the rent.

Upon a consideration of the circumstances it seems to me that it is inequitable and unjust for the chattel mortgagees to say to the petitioner that the insolvent lessees were his tenants during the period in question, and that they (the chattel mortgagees) were occupying and enjoying the premises as the mere licensees and not the assignees of the lessees, and hence are not liable for the accruing rent; and I conclude that they must be treated in equity as the tenants of the premises at-the rent reserved in the lease!

This position being established, the doctrine of Wood v. Carriage Co., 4 Dick. Ch. Rep. 433, applies. That was, indeed, the case of a receiver of an insolvent corporation, but the principle established includes any sale by order of this court. The soundness of that case was attacked on the argument, but it is not only an authority binding on me but I think it rightly decided. This court ought not to have the power by mere choice of machinery to affect the rights of third parties, and to deprive a landlord of his statutory right, by issuing a simple order to sell instead of a formal writ under seal. Besides, the appointment of a receiver with power of sale has been properly called an “ equitable execution.” 1 High Rec. § 2.

Charging the fund in court with the rent here claimed has the effect merely of reducing the amount which the mortgagees must-credit on their mortgage debt from the proceeds of the sale of the goods, and leave the balance unpaid so much larger, while it reduces the amount due from the lessees to the petitioner for rent. The mortgagees have other security for their debts beside the goods sold. The question was argued upon the assumption that the other security would be insufficient to pay them in full.

One other point remains. Exception was taken by the chattel mortgagees to the standing of the petitioner in this court by mere petition. But there can be no doubt that he has adopted the proper practice. It is perfectly well settled at law that where a sheriff has sold goods by virtue of an execution, and paid the money into court under demand of the landlord, the claim of the landlord will be dealt with by the court of law upon an ordinary affidavit and a rule to show cause. Fischell v. Fleer, 16 Vr. 507 (at p. 511), where the cases in this state and elsewhere are collected. And if such practice prevails at law, I do'not know why it should not prevail also in this court.

In fact, it seems to me to be settled practice to proceed by petition on equitable claims against receivers of this court and for moneys deposited in this court, whether the petitioner be a party to the suit or not. The proceeding by petition in this court has a direct precedent in the case of Wood v. Carriage Co., 4 Dick. Ch. Rep. 433.

I will advise an order that the petitioner be paid his rent from the 4th of April to the 15th of July


author: Emery, V. C.

text:
    The Protection Building and Loan Association v. Emma J. Knowles et al.
    1. A mortgage given by a purchaser of real estate, before the purchase, to a third person to secure money advanced for the purpose of making the purchase, must be postponed to the purchase-money mortgage executed and delivered to the vendor at the time of the delivery of the deed by the vendor, the vendor having no notice of the mortgage previously executed by the purchaser.
    2. As to money advanced to the purchaser prior to the purchase, such mortgagor is not a subsequent mortgagee within the Registry act {Rev. p. 70S $ SB), and is not preferred to the purchase-money mortgage by reason of prior registry without notice.
    3. As to money advanced on such mortgage, subsequent to the purchase and without notice of the purchase-money mortgage, the mortgage is to be preferred to the purchase-money mortgage subsequently recorded.

      On filial hearing'on pleadings and proofs.

      Mr: George E. Clymer, Mr. W. Bradford Smith and Mr. Frank E. Bradner, for the complainant. ' • .

      Mr. Edward S. Atwater, for the defendant Chiekering, administrator ad prosequendum of A. E. Van Blarcom, deceased. ,
   Emery, V. C.

■ The bill in this case is filed to foreclose a mortgage for $2,500 with interest, given to the complainant, a building ánd loan association, by the defendants Emma J; Knowles and Francis W. Knowles, her husband, upon premises conveyed to Mrs. Knowles by A. L. Van Blarcom, and the question is whether, for the whole or any part of this sum of $2,500, the association mortgage is a lien prior to a mortgage of $5,000 given to the vendor by Mr. and Mrs. Knowles to secure part of the purchase-money of the premises. This mortgage to the association, which bears the same date as the deed from Van Blaroom to Mrs. Knowles, refers to the premises as conveyed to Mrs. Knowles by that deed, and then recites that “it is given to secure the payment of part of the purchase-money mentioned in said deed which has been advanced by the said association.” The whole purchase-price of the property was, in fact, $6,000, and upon the delivery of the deed a payment of $1,000 in cash was made and a mortgage by Mr. and Mrs. Knowles to Van Blarcom for $5,000, the balance of the purchase-money, was delivered to the attorney of the vendor, Van Blarcom. The complainant, before the delivery of the deed, advanced to the purchaser the sum of $1,000, and subsequently to the delivery of the deed advanced the further sum of $1,500. The $1,000 advanced before the delivery (or its proceeds) was used for making the cash payment on the purchase to the vendor, but the $1,500 afterwards advanced was not, nor was any part of it used for purchase-money. The grantor, Van Blarcom, who was an uncle of Mr. Knowles, the husband of the grantee, lived in California, and after executing the deed there, on the 15th of December, 1891, sent it through his business ■ agents to'Mr. Parker, a counselor-at-law of New York, to. deliver, to Mr. Knowles, the husband of the grantee, upon receiving from him the cash payment of $1,000 and a purchase-money mortgáge for $5,000. The payment of $1,000 was made and the Van Blarcom mortgage delivered by Mr. Knowles to Mr. Parker in New York, on January 11th, 1892, and at the time of the exchange of the papers, Mr. Parker, in order to protect the purchase-money mortgage, proposed to retain the deed, in order to record it at the same time with the purchase-money mortgage, but upon Mr. Knowles’ solicitation he finally consented to deliver both the deed and the mortgage to Mr. Knowles for the purpose of recording them. The deed and this mortgage to Yan Blarcom, which were both dated December 15th,T891, were, at Knowles’ request, delivered to Knowles in New York,, on January 11th, 1892, were taken by him to Newark, and on January 12th, 1892, he delivered the unrecorded deed to' Mr. W. Bradford Smith, the solicitor of the complainant, who then advanced to him for the complainant $1,500, the balance of the complainant’s mortgage, and immediately forwarded the' unrecorded deed, together with the complainant’s mortgage, to the Union county clerk for recording, and the deed and complainant’s mortgage were both recorded on January 12th-, 1892. Knowles retained the Yan Blarcom purchase-money mortgage in his possession until January 20th, 1892, when he sent it to the clerk’s office for record. The $1,500 advanced by the complainant on January 12thj 1892, was made by a check of the association, but whether to the order of Mr. or Mrs. Knowles does not appear. It was not, in fact, used for payment of any part of the purchase-money, but the complainant claims that its mortgage was made, executed and recorded, so far as it is concerned, in good faith, and without any knowledge or notice of the Yan Blarcom mortgage, is a prior lien for the whole amount secured thereby, as well the $1,000 advanced before the delivery of the Yan Blarcom mortgage as the $1,500 subsequently advanced.- Mr. Yan Blarcom died shortly before the filing of the complainant’s bill, and the defendant William H. Chickering, who has been appointed his administrator ad prosequendum, claims that the complainant had notice of his mortgage, and by cross-bill alleges also that Knowles was, by reason of facts therein stated, the complainant’s agent in recording its mortgage, and that by reason of his agency the complainant was chargeable with actual knowledge of defendant’s mortgage. This agency of Knowles is denied in the answer to the cross-bill, which also denies any knowledge or information of defendant’s mortgage until after the advance of its money and the recording of its own mortgage. The answer to the cross-bill further alleges (on information) that it was distinctly understood and agreed, at the time of the delivery of the "Van Blarcom purchase-money mortgage, that the Van Blarcom mortgage should be a second mortgage upon the premises.

No evidence whatever has been produced in support of this latter allegation, nor was Mr. Knowles called to contradict the statements of Mr. Parker, Van Blarcom’s attorney, in reference to the occurrences at the time of the delivery of the deed. These statements show that the deed and purchase-money mortgage were delivered by Mr. Parker to Mr. Knowles, to be recorded together, and that Mr. Parker, in consenting to this arrangement, relied upon Mr. Knowles’ professional integrity and upon his relationship to Mr. Van Blarcom. At the time of the delivery of the deed and mortgage, Mr. Parker had no information, or even cause for suspicion, that Knowles and his wife had already executed a mortgage to complainant upon the premises, nor is there any evidence that Van Blarcom, the vendor, knew that any such mortgage was proposed. One of Mr. Knowles’ letters to Mr. Parker, dated on March 5th, 1892, refers to a letter of Van Blarcom to Knowles, dated February 2d, 1892, in which (as Knowles writes) Van Blarcom denies that he made any agreement that his (Van Blarcom’s) mortgage should be a second mortgage, but this letter of Van Blarcom’s was not produced.

No agreement for postponement of the purchase-money mortgage being shown, the question in the case is whether, for the whole or any part of the money advanced upon its mortgage, the. complainant is to be preferred to the purchase-money mortgage.

The complainant bases its right to preference upon the claim that for the whole amount of the mortgage it is a subsequent bona fide mortgagee for a valuable consideration, not having notice of defendant’s unrecorded mortgage/’ and therefore within the protection of the statute. Rev. p. 706 \22.

The facts in’the case show, in my judgment) that Knowles was not the agent or attorney of the complainant in any part of the transaction,- and the question of notice -to the complainant depends upon the knowledge or Information received by Mr. Smith, the regular attorney of the association, who was the only person acting for the complainant in reference to the loan. - No proof of any actual notice of defendant's mortgage,- on the part of Mr. Smith, is.shown, and his own-statement,--under oath, when called as defendant’s witness, was, that before the mortgage of the association was taken he did not know from Mr. Knowles that he proposed to give his uncle a mortgage for any part of the purchase-money. Knowles, in his letter of March 5th, 1892, to Parker, above referred to, had stated that-before executing the two mortgages he had talked over the matter with Mr. Smith, but Mr. Smith, being-asked on the witness-stand as to his conversations with Knowles, said that he had many conversations with him, but that he had no conversation with him about there being two mortgages, and that he does not recollect any conversation with Knowles, prior to the mortgage, that the mortgage he gave to him (Smith) should be prior to the mortgage he intended to give to Van Blarcom for the balance of the purchase-money. Knowles was not called by the defendant nor was he examined by complainant except upon the question of agency.

In the absence, therefore, of proof of actual notice of the Van Blarcom mortgage on the part of Mr. Smith, the whole question as to such notice depends upon whether the association is, as to any part of the sum secured by its mortgage, to be charged with constructive notice of the existence of the Van Blarcom mortgage.

The provisions of the Registry laws, validating unrecorded deeds or mortgages in favor of subsequent grantees or mortgagees, are not construed to require actual notice of the unrecorded conveyance, but to adopt the general doctrine of courts of lavy and equity as to notice. Holmes v. Stout, 2 Stock. 419 (Errors and Appeals, 1855, Green, C. J., p. 426),

The defendants’ counsel contends, that the complainant is to be' so charged with constructive notice because- the evidence in the case shows that Mr. Smith, the complainant’s attorney, had actual information of facts which, as he insists, were sufficient to put him upon inquiry as to whether the purchase-money was paid; that such inquiry, if it had been prosecuted, would have led to the disclosure of the existence of the purchase-money mortgage; that the failure to prosecute such inquiry was negligence upon the part of complainant’s attorney or agent, and, as a result, the, complainant must be now charged with notice of the fact which vrould have been disclosed but for the negligence of its attorney. The additional facts in the case, bearing upon this question of the delivery of the mortgages, are as follows, Mr. Smith’s connection therewith being specially stated wherever it occurred: ;

On December 7th, 1891, Knowles, who had prepared the deed from , his uncle, Van Blarcom, enclosed it to the latter in California, by letter of that date, for execution and acknowledgment. The deed was dated December 15th, 1891, and'was acknovvledged on that day by Van Blarcom, in California. • ■ .

On the same day, Van Blarcom enclosed the deed to Messrs. Coombs, Crosby & Eddy, of New York, with directions to. deliver to Mr. Knowles and receive from him $1,000 cash, and a mortgage on the property for $5,000, payable in two years, duly executed, and directing the employment of Mr. Parker. On January 2d, 1892, Knowles wrote Coombs, Crosby & Eddy that Mr. Van Blarcom had written him that he had placed with them a deed for land in Summit, New Jersey, and had authorized them to deliver the same to him on receipt of $1,000 cash and a mortgage- for $5,000, and stating that he would call upon them Monday, January 4th, between three and four o’clock in the afternoon, prepared to close the transaction. What communication had passed between Knowles and the association previous to this time, January 2d, 1892, in reference to applying for or obtaining a loan for them on the property, does not appear, but the mortgage to the association was acknowledged on January 4th, 1892, and Smith says that it was acknowledged before him on that day aud was in his possession from that day until it was recorded. There is no other proof of any delivery to Smith or the association at any time, or of any express agreement or understanding on the part of Smith as to the terms of his holding the mortgage before the actual advance of the money, or of any contemplated future delivery of the mortgage. Knowles had been a student in the office of Fort & Smith (in which Smith was a partner) up to June, 1891, when he was admitted to the bar, and at this time had desk room in the office and was allowed to print his name on the firm’s cards and letter-heads, but had no connection with or interest in the firm.

The complainant’s mortgage was, as Smith states, drawn by Knowles, in order to save the expense of Smith’s drawing it, Knowles giving Smith the date of his deed, and Smith also witnessed the execution of the mortgage. The source from which this information as to the true date of the deed was derived by Knowles, so that he could communicate it to Smith in time to .insert the date and execute the mortgage on the 4th of January, does not appear, but Smith says that Knowles told him the'deed was in New York, or he was going to New York for it. He further says: " •

“I told Knowles in drawing the mortgage to make it a purchase-mpney mortgage, and whatever of the money is necessary to get your deed you can pay to your uncle, and the making of it a purchase-money mortgage will avoid the necessity of searching for judgments against your wife.”

The purchase-money clause was inserted and no searches for judgments against Mrs. Knowles were made. Smith relied on Knowles for the searches. ’ Smith also says that he didn’t know how much of the $2,500 Knowles required, or whether he required all to get his deed, but that, on the following Saturday, January 9th, Knowles told him that he needed $1,000 of the money to get his deed, and that he (Smith) then went to the treasurer of the association and asked him for a check for the amount of the Knowles loan, but that the treasurer, on that application, did not have the whole amount ($2,500) subject to his check, and Smith says that he then told the treasurer that Mr. Knowles required only $1,000 to get his deed, whereupon the treasurer gave him a check for $1,000, payable to Smith’s order. On the 9th of January, and before the delivery of the deed in New York, Smith endorsed this check to either Mr. or Mrs. Knowles as part of the loan. The check is not produced. On January 9th Knowles went to Parker’s office in New York with a check for $1,000, to the order of Coombs, Crosby & Eddy, and a mortgage for $5,000, but on account of a mistake in the description the mortgage was not accepted by Mr. Parker, and Mr. Knowles took back the mortgage for correction, leaving the check, in the meantime, in Mr. Parker’s possession. This mortgage to Van Blarcom was also dated December 15th, 1891; was declared to be given to secure the payment of part of the purchase-money, and was acknowledged on January 4th before Joseph K. Franks, a master in chancery. The mortgage, having been corrected’, was, on the 11th day of January, delivered to Mr. Parker and handed by him to Knowles to record with the deed, under the circumstances above stated, and Mr. Parker retained the check for $1,000 as the cash payment. The unrecorded deed was, on January 12th, handed by Knowles to Smith, who then looked at the deed and, as he says, he thinks he then examined it and that he must have noticed the consideration money, which was $6,000.

Smith had retained the association mortgage in his possession since its execution on the 4th of January, and had, in the meantime, received from the association a check for $1,500, the balance of this loan. Upon receiving the deed from Knowles, he endorsed over this check and handed.-it to Knowles, without making any search for mortgages by the' purchasers since the date of the deed or of its delivery, ■ and without, as he says, making any further inquiry whatever of Knowles as to the payment of any part of the purchase-money. ■ . . .

In reference to his knowledge of the financial condition of Knowles at'this time. Mr. Smith says; .that" the' ,$1,000 which Knowles took from him was all that he knew of his having, positively, but that the deed was made to Knowles’ wife, and he (Smith) didn’t know what his wife had, but he knew that the wife’s father was a responsible man — a man of means. This knowledge did not appear to be the result of any inquiries made in this transaction, nor does Smith swear that he made the advance on reliance on the advance of the money by either Mrs. Knowles or her father.

Under this state of facts it is clear, I think, that as to the $1,000 which was advanced prior to the delivery of the deed, the association mortgage cannot be preferred to the purchase-money mortgage. A purchaser who receives a deed, and, as part of the same transaction, delivers a mortgage to the vendor for part of the purchase-money, has, so far as that mortgage is concerned, only such an instantaneous and temporary seizin that the purchase-money mortgage must be superior to all conveyances or encumbrances executed prior to the inception of his estate. This is the law as settled in reference to prior judgments, mechanics’ liens and .other prior claims against the purchaser (Wallace v. Silsby, 13 Vr. 1 (at p. 8 &c.), and cases cited; Clark v. Butler, 5 Stew. Eq. 664), and must, for the same equitable reasons, be applied to mortgages on the property executed by a mortgagor before he receives his deed. As was said by Chief-Justice Church, in Dusenbury v. Hulbert, 69 N. Y. 541, 545: “A vendor of real estate has no occasion to examine the records for encumbrances created prior to his conveyance. He has the power to protect himself by a qualified or conditional transfer or by any legal mode of creating a lien to secure himself for unpaid purchase-money. When he conveys and instantly takes-a conveyance as such security, no-authority is needed to demonstrate the gross injustice of permitting a prior mortgage from intervening to his prejudice.” In this case there was nothing to put the vendor or his attorney upon inquiry, nor was either of them, under the circumstances of this ease, charged with any duty of inquiry in favor of any prior claimant under the purchaser, whether by mortgage or otherwise.

As to this $1,000, it should also be noticed that the Mortgage Registry act only protects subsequent and not prior mortgages. If, therefore, the association mortgage is, under the facts above stated as to delivery, to be considered as taking effect as a present conveyance by the purchaser as early as January 4th, the day of its execution and acknowledgment, or on January 9th, the day of advancing the $1,000, the mortgage, to that extent, was a mortgage prior- in time to the purchase-money mortgage, and must, as to this amount, rest for priority not upon the statute, but upon its equity, independent of the statute. For the reasons above stated no such equity exists as to the purchase-money mortgage, if the association mortgage be considered as delivered at the time of the advance of the $1,000 and prior to the delivery of the deed. If the association mortgage is to be treated' as delivered after the delivery of the deed, on January 11th, and as delivered at the time of the advance’ of the $1,500, then clearly, as to the advance of $1,000 made on January 9th, the-mortgage must be considered as delivered to secure an antecedent debt and, to that ektent, the association is not a mortgagee for a valuable consideration,” under the Real Estate Registry acts. Knowles Loom Works v. Vacher, 28 Vr. 490, and cases cited, especially Mingus v. Condit, 8 C. E. Gr. 313, and Dewitt v. Van Sickle, 2 Stew. Eq. 209, establish that a precedent debt is not a valuable consideration within the meaning of the Registry acts relating to real estate. The only proof as to the time and circumstances of the delivery of complainant’s mortgage is, as I have above stated, that it was executed and acknowledged before Smith on January 4th and was then taken by him and retained in his possession and without any further agreement as to delivery, until January 12th, when it was sent for record with the deed.

As to the $1,500 advanced after the delivery of the deed and of the Van Blarcom mortgage, the complainant is, to this extent, clearly a subsequent mortgagee for a valuable consideration, and, inasmuch as, at the time of the advance and of the subsequent record of its mortgage, the Van Blarcom mortgage had not been recorded, the complainant is, by reason of priority of record, entitled to priority to this extent, provided it is, within the language of the statute, a bona Jide mortgagee “ not having notice ” of the defendant’s mortgage. And, as is well settled, the complainant may rest on its priority of record, and the burden of establishing notice is upon the holder of the prior unrecorded mortgage. Hendrickson v. Woolley, 12 Stew. Eq. 307 (Errors and Appeals, 1884).

The Van Blarcom mortgage, moreover, might have been protected in this case under the Registry laws, by recording it immediately, even if the deed were not recorded. Under the rule settled in Semon v. Terhune, 13 Stew. Eq. 364 (Chancellor Mun-yon, 1885), a subsequent mortgagee is bound to search the records-for mortgages subsequent to the date of his mortgage, even if his mortgagor’s deed is not recorded. ■!

And where, under the Registry laws, a vendor’s mortgage may be fully protected by a prompt registry, it would be against the policy of these laws to impose on a subsequent purchaser or mortgagee the duty of protecting prior rights by inquiry. These prior rights may, under the laws, be fully protected by record, and, as was said by Lord Selborne in Agra Bank v. Barry, L. R. 7 E. & I. App. 135, 157, the fact that statutes so provide is one fact or circumstance to be considered in determining whether and to what extent the duty of inquiry arises, and is always a fact of great importance. It is, in my judgment, the fact which, in connection with Mr. Smith’s denial of notice, turns the scale in the present case, for, although there are some circumstances in the evidence from which it may perhaps fairly be argued that Smith, on making the advance of the $1,500, did not make all the inquiries which a more cautious attorney and one who placed less reliance on Knowles would have made as to the payment of the whole purchase-money, yet these circumstances do not seem to me sufficiently decisive to dislodge complainant’s mortgage as to the $1,500 from the strong position of priority given to it, prima fade, by the statute, supported as this is by the oath of Mr. Smith, the only witness called to speak directly upon the question of knowledge. The defendant might •have called Knowles as well as Smith as his witness, and, although not obliged to do so, the failure to call the only other witness who had actual knowledge of the transaction imposes on the defendant. I think, the burden of showing that the indirect or circumstantial evidence relied on clearly establishes ,a negligence on Smith’s part which deprives his client of the benefit of the statute and imposes on it all the effect of an actual notice of which there is no proof. The circumstances are not sufficient to establish that Smith was bound, as against the vendor, to make further inquiries as to the purchase-money on advancing the .$1,500. Defendant’s counsel relied strongly, if not principally, upon the fact that the complainant’s mortgage professed to be a purchase-money mortgage for the whole amount ($2,500), and should therefore be considered, on the face of it, an admission on complainant’s part that at least this much of the whole purchase-money was unpaid. But the explanation given by Smith, that on originally drawing the mortgage it was supposed that the whole $2,500 might be needed, prevents the form of the mortgage from having the effect which defendant insists upon. At the time of advancing the $1,000 the association was notified that this amount was all that Mr. Knowles required “ to get his deed,” and this information then given cannot be considered sufficient to charge'Smith, at the time of the subsequent advance of $1,500, with the duty toward the vendor of then inquiring whether or how the purchase-money beyond the $1,000 had been paid. It is also urged that as Knowles had no means beyond the $1,000 advanced by the association, and Smith knew this, he was, on receiving information that the total amount of ■consideration paid was $6,000, charged with the duty of inquiring as to the payment of the balance before advancing this $1,500. But the conveyance being made by the vendor to Mrs. Knowles, and a deed to her being produced to Smith, it seems to me that, in the absence of information that Mrs. Knowles had not paid the purchase-money, Smith was not charged with any duty toward the vendor of making these inquiries. As to the $1,500 advanced on January 12th, 1892, the evidence, therefore, as I view it, fails to justify a postponement to the defendant’s mortgage of the priority given to complainant by the statute, and a decree will be advised directing that, as to this amount, with interest, the complainant’s mortgage is a prior lien to the defendant’s mortgage, but as to the $1,000 advanced on January 9th, 1892, it is a subsequent lien to the defendant’s mortgage.


author: ■ Emery, Y. C.

text:
    Gertrude D. Boice et al. v. Cornelius N. Conover et al.
    1. Where the affidavit to a partnership chattel mortgage, given to secure a loan of §2,000 to one of the partners individually, and endorsements of unmatured firm notes for §2,800, recited that the true consideration thereof was a loan of §4,800 to the firm then due and owing, the mortgage was, as to a prior judgment creditor of the firm, void, under Rev. Sup. p. 491 ¶ declaring a chattel mortgage void as to creditors unless an affidavit is attached thereto stating the consideration, although the misstatement was the result of an honest mistake of the mortgagee.
    2. A father, knowing that a partnership which his son was to enter with another would require several thousand dollars capital, promised to lend them §2,000, and after the partnership was formed advanced that amount, and took his son’s individual notes therefor, payable in long time, and, on maturity, took renewal notes of the son individually. The son, who kept the firm hooks, credited the advances as payments on his share of the capital. — -Held, that the advances were to the son individually, and not to the firm.
    3. A creditor who accepts a chattel mortgage as security for his debt becomes a purchaser, and cannot, therefore, while relying on his mortgage, have a prior voluntary conveyance by the mortgagor declared fraudulent as to him, in his right as creditor.
    4. Where two chattel mortgages are in point of time a first and second lien on firm property, and an execution levied on the firm property and individual property of one of the partners a third lien on it, and the first mortgage, which is larger than the execution lien, is, as to the execution creditor, void by statute as in fraud of creditors, in marshaling the securities the execution lien should be first paid, then the excess of the first mortgage over the execution lien, then the second mortgage in full, and then the unpaid balance of the first mortgage.
    5. In such a case, the first mortgagee cannot compel the execution creditor to resort first to the individual property levied on to satisfy his lien.
    6. Two chattel mortgages on the stock and accounts of a firm, and an execution on the stock, were in time respectively a first, second and third lien; and a receiver, being appointed, paid to the first, with the consent of the second mortgagee, but without notice to the execution creditor, part of the sum due on his mortgage. The first mortgage was subsequently held void as to the execution. — Held, that the payment was made subject to the right of the execution creditor, if the payment included part of the proceeds of the stock, to have the same repaid into court for the satisfaction of his lien.

      On final hearing.

      Mr. John S. Voorhees, for the complainants.

      Mr. Alan H. Strong, for the defendant Edwin Allen.

      Mr. Charles H. Runyon, for the defendant Mapes &c. Co.
   ■ Emery, Y. C.

The dispute in this case relates to the respective’ priorities of two chattel mortgages and of a judgment and execution creditor; one chattel mortgage being held by complainants, one by the defendant Edwin Allen and the execution creditor being the defendant the Mapes Formula and Guano Company. Both chattel mortgages were given by the defendants Cornelius N. Conover and William Allen, partners as Conover & Allen, the complainants’ mortgage being dated on October 21st, 1893, and recorded October 25th, 1893, subsequent to the defendant Allen’s-mortgage, which was dated September 8th, 1893, and recorded September 9th, 1893. The two mortgages cover the same property, and include the partnership stock, horses, wagons &c., goods and fixtures, and also the books of account, debts &o., due or to-become due to the firm. The judgment of the Mapes &c. Company was obtained on December 12th, 1893, in the Middlesex circuit court, for $1,096.61 damages, and $33.50 costs, upon an account due from the firm of Conover & Allen which, as appears from the record of the judgment, was incurred between February 2d and April’ 10th, 1893, and previous to the execution-of either of the chattel mortgages.

Upon execution issued under this judgment, levy was made-upon the goods and chattels covered by the chattel mortgages (but not upon the book accounts and choses in action mortgaged),, and also upon the separate interest of Conover, one of the members of the firm, in certain real estate in Middlesex county; Levy was made on the execution before the filing of complainants’ bill.

On December 28th, 1893, complainants filed a bill to foreclose their chattel mortgage, disputing the priority of defendant Allen’s mortgage as to $2,000, part of the debt secured by it, on the ground that this portion of the debt secured by Allen’s mort3 gage was the individual debt of "William Allen, one of the part-] ners, and was not a firm debt, and the mortgage was, therefore,! charged to be fraudulent anc( voluntary as to complainants^ mortgage, which was given to secure a firm debt or liability. Upon this bill a receiver of the mortgaged property was appointed, the receiver being Mr. C. H. Eunyon, the attorney of the Mapes company, and the mortgaged property (including the book accounts and debts due) has been sold and collected. Out of the proceeds the receiver has paid to Edwin Allen the sum of $2,017.78, under orders of the court (consented to by complainants); to be applied on that part of the debt secured by Edwin Allen’s mortgage which was not disputed by complainants’ original bill. Subsequently to this sale and collection by' the receiver and to these payments, and in order to reach the funds in court for application on his mortgage, the defendant Edwin Allen (at the suggestion of the court, made when the case was brought to hearing) filed a cross-bill upon his mortgage against the complainants and the Mapes &c. Company, who had not put in any answer to the original bill. In its answer to the cross-bill the Mapes company attacks the Allen mortgage as void for want of a proper affidavit under the statute relating to chattel mortgages, and also as a voluntary mortgage to the extent of $2,000, in that it was given to this extent-by the members of the firm, upon the firm property, to secure an individual debt of one of the partners, and is, therefore, void as against the judgment creditors of the firm, whose debts existed at the time of the mortgage.

The defendant Edwin Allen alleges that the entire indebtedness secured or intended to be secured by his mortgage was a partnership debt or liability, and, as against the execution creditor, defendant also alleges that the real estate of Conover, one of the defendants in execution, is sufficient to satisfy the execution, and claims that this must be first sold before resorting to the goods and chattels of the firm.

The Allen' mortgage was given to secure the payment of $4,800 on demand, with interest from the date of the mortgage (September 8th, 1893), and in his affidavit annexed to the mortgage, Edwin Allen, the mortgagee, swears that

"the true consideration of the said mortgage is as- follows, viz., the sum of four thousand eight hundred dollars cash money loaned by this deponent to said Cornelius N. Conover and William Allen, partners, trading as Conover & Allen, at their request and before the execution hereof, and now due and owing from them to this deponent, and the deponent further says that there is due on said mortgage the sum of forty-eight hundred dollars besides lawful interest thereon from the 8th day of September, 1893.”

It is admitted by the answer and the cross-bill of Edwin' Allen, and is undisputed ou the evidence, that at the time of giving the mortgage .neither the firm nor William Allen owed Edwin Allen more than $2,000, and that the $2,800 additional included in the mortgage represented notes to that amount which Edwin Allen had endorsed for the accommodation of the firm, and on which he was liable as endorser, but which were not then due, so that to this extent the true state of the indebtedness and the true consideration of the mortgage were not disclosed by the mortgage or affidavit. The execution creditor insists that this failure to disclose the true consideration of the mortgage avoids the mortgage as to it under the statute, and also that the affidavit that any of the $2,000 indebtedness was due or to become due from the firm was false, in fact, this being a debt due solely from William Allen for the capital advanced by William Allen to the firm. The disputed question of fact in the case is whether the $2,000 was an indebtedness due from the firm or only from William Allen, and upon the whole evidence I reach the conclusion that the debt was not a firm debt, but was due to Edwin Allen from his son William alone and not from the firm. Edwin Allen had no dealings whatever with Conover, the other partner, in relation to the advance of the $2,000, and this money was at different times between June 20th, 1892, and August 3d, 1892, paid or advanced by Edwin Allen to his son William,'the evidence of indebtedness in each case being notes signed by William Allen alone, which were delivered by him to his father and were renewed when due by the son’s obligations alone. By the agreement between the partners, each was to contribute $2,500 capital, and in the books of the firm, which were kept by William Allen, he entered the moneys received by him from his father as part of the credit to his account as a partner. So far as William is concerned, this and the other evidence in the case— showing that up to the time of giving the mortgage these advances from his father had not been treated as a partnership liability — is conclusive, and entirely overcomes his present statement that the money was originally advanced as a loan-to the firm. William Allen’s statement that the advances from his father were put in his account so that it could be either way, that I owed it to him or the firm owed it to him,” is of itself sufficient to discredit his present evidence.

As to Edwin Allen’s evidence on this point, it appears that he knew that it would require about five or six thousand dollars to buy the stock or business which the firm proposed to take, and that before the partnership was formed he promised his son to let them have $2,000. One thousand dollars of the amount was advanced June 20th, 1892, on a note for one year, signed only by his son ; $300 on July 15th, 1892, on a similar note. These two notes were renewed, on falling due June 20th, 1893, and July 15th, 1893, by other notes of the son alone, for one year. On July 23d, 1892, there was another advance by Edwin Allen to his son of $500, for which he took his son’s note, probably at one year, and on August 3d, 1892, the fourth and last advance of $150 on William’s note for one year. The former was renewed on July 23d, 1893, by a note of six months, and the latter on August 3d, 1893, by a note at one year. These notes make up $1,950, and are all the evidences of indebtedness produced in relation to the advances, and Edwin Allen still retained all these renewed notes up to the time of hearing.

His explanation of the notes being signed by his son and not by the firm, is that he wasn’t near the firm’s place of business, and when he gave me these I didn’t have any idea of trouble ahead. I was careless in taking them in that way.” This explanation given when trouble ” had arisen and his advance to his son is put in jeopardy, is not sufficient to overcome the effect of the written evidence agreed on by the parties at the time of the advances, by taking the securities of his son alone. The time for repayment fixed by the notes is an additional indication that the advances were not temporary loans to the firm which were to be repaid by them, but that they were advances to the son alone. The money advanced undoubtedly went to the use of the firm, but this is not sufficient to constitute the lender a creditor of the firm (Bannister v. Miller, 82 Atl. Rep. 1066, Reed, V. C., October, 1895), and the question is whether Edwin Alleu advanced the money to his son or whether he advanced it to the firm.

Considering the situation and the relationship1 of the parties— the security given being notes of the son alone, and the time for repayment — and' the' whole aspect of the case, it seems to me that there is. no evidence which will justify me in holding that the real transaction was not the one which was evidenced by the writings agreed on by the parties at the time.

Complainants claim that, under the decision in Uhler v. Browning, 4 Dutch. 79, 82 (New Jersey Supreme Court, 1859), the parol evidence is not admissible to contradict the written evidence furnished by the notes themselves, or to show that the notes were debts of the firm, but without resting the decision upon this point, I find that as matter of fact upon all the evidence, it appears that $2,000 of the indebtedness included in the Allen mortgage was not for cash money loaned by Edwin Allen to the partners at their request and before thé execution of the mortgage, as stated in the affidavit, but was, in fact, for money advanced to "William Allen alone, and the payment of which was assumed by the firm for the first time by the chattel mortgage itself, this assumption by the firm • being subsequent to the creation of the debts of the complainant and of the Mapes company.

It is claimed on behalf of defendant Allen that the indebtedness to complainant was purely voluntary and arose subsequent to the execution of the Allen mortgage, this claim being based on the fact that the complainants’ mortgage was given only to secure them against liability as endorsers for accommodation on a note of Conover and Allen for $1,500; that the complainant Gertrude Boice was a married woman and ■ therefore not bound by the endorsement, and that her subsequent payment of the note to the bank which had discounted it was. purely voluntary on her part and not sufficient to constitute her an existing creditor of the firm. The fault in this contention is that it overlooks the fact that the real creditor of the firm upon these notes was the bank, and that the complainant Mrs. Boice, on paying the notes, as she had a right to do, and perhaps was morally bound to do, was substituted for the bank as the creditor of the firm; and therefore, so far as relates to the time when the complainants’ debt was created, occupies the position of the bank as a creditor of the firm existing at the time of the Allen mortgage. Cramer v. Reford, 8 C. E. Gr. 367, 380, 387. The real question of difficulty in relation to complainants’ case against the Allen mortgage is not whether the complainants were existing creditors at the time of the Allen mortgage, but whether, having taken a mortgage to secure their debt, they are now simply subsequent mortgagees or purchasers from the firm, and not creditors standing in their rights as creditors for an existing debt or liability which was the consideration of the mortgage.'

■ The attack upon the validity of the Allen mortgage is made from two different standpoints — first, under the Chattel Mortgage act, and secondly as voluntary conveyances'made by a firm to secure the individual indebtedness of one of the partners, and therefore fraudulent and void against creditors of the firm. The Mapes company insists upon both of these objections; the complainants have, on the record, only relied upon the latter objection.

As to the first objection, the fourth section of the Chattel Mortgage act of May 2d, 1895 (Rev. Sup. p. 491), provides

■“that every mortgage of goods and chattels * * * shall be absolutely void as against the creditors of the mortgagor and as against subsequent purchasers and mortgagees in good faith, unless the mortgage have annexed thereto an affidavit stating the consideration of said mortgage and as nearly as possible the amount due and to grow due thereon.”

The affidavit annexed to the Allen mortgage failed altogether to disclose its true consideration. For $2,800 of it the mortgagee was only liable as endorser; for the other $2,000 the money had been advanced, as I have found, to "William Allen and not to the firm. •

The status of the indebtedness disclosed in the affidavit diverges so widely from the true state of facts that it seems impossible to deny that this affidavit did not, either in respect to the $2,800 or the $2,000, comply with the letter or the spirit of the statute, and the suppression of the true consideration was manifestly material.

Mr. Allen’s counsel claims that this misstatement was the resul£ of an honest mistake, but the question is one of the construction of a statute which defines what the affidavit must contain and makes no exception or allowance for mistakes. As was said in Kennard v. Gray, 58 N. H. 51, a case arising on an affidavit under a somewhat similar law, the statute condemns such securities because their natural tendency is to deceive and defraud creditors, however honest the intention of the parties; And, as was held by Mr. Justice Dixon in Fletcher v. Bonnet, 6 Dick. Ch. Rep. 618 (Errors and Appeals, 1898), the validity of the chattel mortgage depends on the correctness of the information in the affidavit and not on the knowledge of the affiant of its truth. Neither, as it seems to me, can the validity of the mortgage depend on the honesty of an affiant in making an affidavit which is substantially untrue. I hold, therefore, that as against the Mapes &c. Company, judgment creditors of the firm, the Allen mortgage is void under the chattel mortgage statute. As to complainants’ mortgage the situation is different. It is proved by one of the complainants’ witnesses that the complainant Mrs. Boice and her attorney, who drew her mortgage, had actual knowledge of the Allen mortgage at the time of taking her mortgage, and if the complainants’ rights rest solely on her mortgage she is not protected by the statute, which only covers mortgagees in good faith — that is, without notice.

But complainants claim that they are creditors of the firm, and that inasmuch as the mortgage given to Edwin Allen was to secure a debt of the individual partner, she is entitled to set it aside as fraudulent against her, under the statute relating to fraudulent conveyances. As to judgment creditors of the firm the mortgage would be set aside (Bannister v. Miller, supra), but the question is whether, as a mortgagee, the complainants are not to be considered as purchasers under the statute of frauds rather than creditors. The complainants are not standing here upon their original debt and upon the rights which the common law and statute both gave them as creditors to set aside any conveyance made by their debtor to others in fraud of their rights as creditors, but so far as relates to their lien on the mortgaged property they stand solely upon a mortgage voluntarily made to them by their debtors of the debtors’ rights in personal property, which property had previously been subjected by their grantors to the payment of a voluntary charge in favor of Edwin Allen.

Under the statutes relating to fraudulent conveyances, mortgagees of real estate have always been held to be purchasers and entitled to the protection of the 27th Elizabeth relating to subsequent purchasers, re-enacted substantially in our statute of frauds and perjuries (Rev. p. 446 § 13; Lavalette v. Thompson, 2 Beas. 274 (Chanceller Green, 1861); 1 Sm. Lead. Cas. (8th ed.) 28), and judgment creditors are not purchasers within 27th Elizabeth so as to avoid voluntary conveyances. Beavan v. Lord Oxford, 2 Jur. N. S. 121.

This section 13 of our statute extends in terms only to the purchasers of real estate, and the 27th Elizabeth has been con-strued not to embrace chattels. 2 Big. Fraud 526 § 2. And it has been held, in a late English case (Barton v. Vanheythuysen (45 Eng. Ch), 11 Hare *126), that it did not extend to chattels, and that a mortgagee of chattels could not, under his mortgage, attack a previous voluntary conveyance by his mortgagor, although he might have set it aside, had he stood simply upon the rights which the law gave him as creditor. See, also, Bill v. Cureton, 2 Myl. & K. 503, 512.

Perrine v. Bank, 26 Vr. 402, decides that where a mortgage is declared to be subject to a prior mortgage, this will prevent the mortgagee, as mortgagee, from contesting the validity of the former mortgage as a fraud o,n creditors. And, although there was no such provision in complainant’s mortgage, it seems to me that so long as the complainant stands on her rights as mortgagee of goods and chattels,'under a mortgage given to secure a pre-existing debt or liability, they must accept the mortgage, as a mortgage only, to the extent of the mortgagors’ then interest in the property mortgaged, and cannot, as mortgagees, claim to set aside the previous voluntary mortgage as a fraud upon them, considered in the light of creditors under the statute. In- other words, a mortgagor of a fraudulent grantor cannot attack a fraudulent conveyance, on the basis of being a- creditor, for the debt which was the consideration of the mortgage, and the reason is that the rights to attack a fraudulent conveyance, given by the common law and statute to creditors, are rights which proceed from the law only, and are given by the law alone to creditors purely as creditors, and having a lien as such creditors' on the property conveyed. If the debtor by his voluntary act intervenes to secure such creditor by-mortgage or deed subsequent to the fraudulent conveyance, ;the creditor then becomes a purchaser, succeeding to his grantor’s rights as they, were-at -the time of the conveyance, and .protected only as .such- purchaser is protected from previous fraudulent conveyances.--He is certainly a .purchaser,, and cannot be at once,both creditor,and -purchaser. This view of the effect of taking a mortgage or conveyance by a creditor is confirmed'by.the following cases.:, 1 Hilliard Mort. 625 §§ 9, 10, citing Sprague v. Graham, 39 Me. 160; Fox v. Clark, Walk. (Mich.) 535, a leading case.

Upon this branch of the case, therefore, I conclude that the Allen mortgage is not invalid against the complainants, either under the Chattel Mortgage act or as a conveyance in fraud" of the creditors of the firm.

The Allen mortgage,- which is the first in point of time, being thus valid against the complainants’ mortgage, the second security, in time, and invalid as against the execution creditor, the third security, and the complainants’ mortgage, being admittedly valid as against the execution creditor, these three encumbrances, so far as relates to the proceeds of sale of the goods and chattels which they all cover, would regularly'be marshaled under the rule settled in Hoag v. Sayre, 6 Stew. Eq. 552 (Errors and Appeals, 1881). This rule is that the execution creditors shall first be paid out of the proceeds, so far as the amount due on the first mortgage extends, then.the first mortgagee shall receive from the proceeds the balance of the amount for which his mortgage is prior to the second mortgagee, then the second mortgagee is to be paid in full, and then the residue to the first mortgagee. The defendant Allen insists, however, that there must be a further marshaling of securities in his favor, and that the execution creditor must first exhaust the separate real estate of Cornelius N. Conover, which has been levied on and not yet-sold. If the execution creditor were now here simply as a creditor seeking as a complainant to set aside a fraudulent conveyance, made by the judgment debtors, then, under the rule settled in Wales v. Lawrence, 9 Stew. Eq. 207 (Van Fleet, V. C., 1882), it might be necessary to sell the separate real estate of any of the debtors, before the property fraudulently conveyed could be reached. But the execution creditor in this case is a defendant and rests on his levy made on the goods and chattels of his debtors and upon his statutory .rights under the Chattel Mortgage act to have the mortgage of complainants on these chattels declared void as to him. His status as defendant claiming the benefit of the Chattel Mortgage act is different from that of a creditor as complainant attacking a fraudulent conveyance under the act relating to fraudulent conveyances, and the fact that the execution creditor has not exhausted his rights against the separate real estate under the execution, is no reason for denying him the right given by the statute, to have the goods and chattels levied on first applied to the payment of his debt, if he so chooses ; and, indeed, the sale of the goods and chattels, which was prevented by the appointment of a receiver under a prior mortgage, would otherwise regularly have taken place under the statute, prior to a sale of any of the lands.

The defendant Allen further insists that upon the principle of marshaling securities, the execution creditor, having two funds, must first resort to the one not covered by Allen’s mortgage. But these rules are not applicable. In the first place, there clearly can be no enforced marshaling of securities, unless the securities to be marshaled are all valid as against the creditor whose security is marshaled. To require the creditor in this case first to exhaust the separate real estate would be to compel him to relieve, by his good security, the mortgage which -is void against him, and in effect would be indirectly holding it valid against him. But secondly and most important, the doctrine of marshaling does not apply as between creditors of different persons. 14 Am. & Eng. Encycl. L. 699, and cases cited ; 1 Story Eq. Jur. §§ 642, 645.

Mr., Justice Story says:

“ Where a creditor has a right to resort to two persons, who are his joint and several debtors, he is not compellable to yield up his x-emedy against either, since he has the right to stand upon the letter and spirit of his contract, unless some supervening equity changes or modifies his rights. If each debtor is equally bound in equity and justice for the debt, as in the case of joint debtors or partners, where both have had the full benefit of the debt, the interfei'ence of a court of equity to change the responsibility from both pai-tners or debtors to one, would seem to be utterly without any principle to support it, unless there was a duty in one of the debtors or partners to pay the debt in discharge of the other.”

See, also, Dorr v. Shaw, 4 Johns. Ch. 17, 80; Ex parte Kendall, 17 Ves. 520. In the latter case Lord Eldon says that there might be an opposite equity — that of compelling the creditor to go first against the property of surviving partners, primarily liable, before resorting to the separate estate of a deceased partner. In our courts the rule is recognized that the firm assets must be exhausted before the separate estate of a deceased partner can be charged with the firm debts. Buckingham v. Ludlum, 10 Stew. Eq. 137, 148 (Van Fleet, V. C., 1889); affirmed, 14 Stew. Eq. 539. There has been no issue on the record, or' suggestion on the evidence in this case, that, as between the partners, Conover and Allen, Conover is equitably liable to pay complainants’ debt in discharge of the firm assets, and evidently such an issue could not be determined without taking an account between the partners, nor without .bringing in all who are interested in Conover’s separate, real estate levied on. No equitable duty is charged or appears, imposing on the partner Conover the duty of discharging the execution for the firm debt from his individual property before exhausting the firm assets, and the judgment will, therefore, be first paid from the proceeds of the sale of the firm property levied on.

A single question remains for consideration. It relates to the effect of the orders made in the cause, directing the receiver, out of the moneys in his hands, to pay the sum amounting to $2,000 toward payment of the note of that amount endorsed by Edwin Allen for the accommodation of the firm of Conover & Allen. On March 6th, 1894, and before the time of the Mapes company to answer had expired, an order was made directing that the receiver apply $750 of the moneys in his hands for that purpose toward the payment of the note then due and held by the National Bank of New Jersey, the said note forming part of the consideration of Allen’s mortgage. This order was made upon a written waiver of notice, signed by complainants’ solicitor, and their written statement annexed to the order that no objection was made to granting the same. No notice was given to the Mapes company. On May 18th, 1894, another like order was made, directing the receiver to pay the balance due on the note out of the moneys in his hands, so far as they extended. This order was made upon the written consent of the complainants’ solicitors annexed to the order, and also without any notice to the Mapes company. The receiver made the payments directed by these orders on March 10th, 1894, $750, and on May 26th, 1894, $1,267.78, in all, $2,017.78.

The funds in the hands of the receiver consisted of proceeds of sale of the mortgaged goods and chattels embraced in the levy, and also of accounts collected which were included in both mortgages, but were not covered by the levy. The payments were made without the consent of the execution creditor, for although the receiver was the attorney for the execution creditors, the payment made by him as receiver under orders of the c-ourt, and without notice to the execution creditor, cannot be considered as consented to by them. These payments, therefore, must be considered as made out of the proceeds of the accounts collected, as to which the Chattel Mortgage act does not apply, and as to which the consenting parties also had the authority to consent.' They cannot be considered as effective against the execution creditor in relation to the proceeds of sale of the goods and chattels covered by his execution. The execution creditor will therefore -be paid out of the proceeds of sale of the goods levied on, and if the amounts paid as above exceed the proceeds of accounts collected, the defendant Edwin Allen must return the excess to the receiver, so far as it represents goods levied on, for the purpose of satisfying the execution.

The receiver is the officer of the court, appointed by it to convert the property for the benefit of the persons ultimately entitled, and for the purposes of paying out in the suit, the money in the receiver’s hands must be treated as money in the court. Regularly, money in court can only be paid out on notice to all parties to the suit, or at least to all the parties appearing on the record to be interested in the proceeds. Where a fund is improperly paid out of court, without providing for a payment due on it, the court will order the person who has received it to pay the amount. 2 Dan. Ch. Dr. *1805. The same course is pursued where the fund has been paid out in consequence of fraudulent misrepresentations. 2 Dan. Ch. Dr. *1814. The payment to Edwin Allen in this ease must be considered as having been made subject to the rights of the parties who had no notice of the order and did not consent to it, and subject to any direction on final decree for reimbursement in their favor. The accounts of the receiver will be settled before final decree, if necessary to carry out these directions, and the form of decree settled on notice to all parties.