Collateral Finance Co. v. Braud

18 N.E.2d 392, 298 Ill. App. 130, 1938 Ill. App. LEXIS 546
CourtAppellate Court of Illinois
DecidedDecember 30, 1938
DocketGen. No. 40,065
StatusPublished
Cited by5 cases

This text of 18 N.E.2d 392 (Collateral Finance Co. v. Braud) is published on Counsel Stack Legal Research, covering Appellate Court of Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Collateral Finance Co. v. Braud, 18 N.E.2d 392, 298 Ill. App. 130, 1938 Ill. App. LEXIS 546 (Ill. Ct. App. 1938).

Opinion

Mr. Justice Friend

delivered the opinion of the court.

In a garnishment proceeding instituted in the municipal court by plaintiff .against defendant, as garnishee, the latter answered “no funds.” Plaintiff contested the answer, which was subsequently set for hearing, and upon trial the court discharged the garnishee. Plaintiff appeals.

The uncontroverted evidence discloses that November 28, 1936, Meier Motors Company, Inc., executed a chattel mortgage on certain personal property to the Universal Dealers Company, which was not recorded until January 12, 1937. Subsequently, and prior to January 29, 1937, Universal Dealers Company took possession of the property for the purpose of foreclosing its mortgage, and on January 29 sold the property under the chattel mortgage sale to I. S. Brand, trading as Brand Motor Sales, garnishee herein, for $2,850. No question is raised as to the bona tides of these transactions. March 3, 1937, Collateral Finance Company, plaintiff herein, confessed judgment on three notes of Meier Motors, Inc., one for $2,000, executed December 17, 1936, and the other two notes for $291.30 and $200 respectively, dated January 13, 1937, all payable to bearer and each having a power of attorney to confess judgment.

As ground for reversal, plaintiff takes the position that the mortgage, under which the garnishee purchased the chattels described therein for $2,850 and upon which his rights are predicated, was fraudulent and void as to the creditors of the mortgagor, because it was not recorded within 10 days as provided by the Chattel Mortgage Act, as amended in 1931; that although Braud purchased the chattels at what he supposed was a valid mortgage sale, nevertheless by reason of the delayed recordation, the creditors’ rights to the chattels therein itemized or the proceeds thereof, are paramount to the rights of any other person claiming thereunder, including Braud; that even though the chattel mortgagee took possession of the chattels prior to the time that plaintiff instituted-suit, but long after the mortgage was executed, and after the statutory period for recordation had elapsed, the chattel mortgagee could not thereby defeat plaintiff’s claim once the plaintiff obtained judgment and commenced the instant proceeding; that the sale, and therefore Braud’s purchase, was wholly without authority, and amounted to a technical conversion of the goods; that the chattels were valued at $2,850, and therefore Braud is liable in garnishment to plaintiff up to the sum of $2,850 plus interest at the rate of 5 per cent per annum from January 29, 1937, the date of the sale.

Since the controversy arises over the construction of the Illinois Chattel Mortgage Act (ch. 95, Ill. Rev. Stat. #¡L937 [Jones Ill. Stats. Ann. 83.01 et seq.~\) a summary of the statutory law and the rights of parties thereunder will be helpful to an understanding of the issues involved. Section 1 of the statute reads as follows: “No mortgage, . . . shall be valid as against the rights and interests of any third person, unless possession thereof shall be delivered to and remain with the grantee, or the instrument shall provide for the possession of the property to remain with the grantor, and the instrument is acknowledged and recorded or filed as hereinafter directed; . . . ” Under this provision of the statute, if the mortgagor delivers the chattels to the mortgagee nothing further is required to make the mortgage valid as against third persons. However, if the mortgager retains possession of the chattels, then the mortgage must be acknowledged and recorded as provided in subsequent sections of the act.

Prior to 1931 section 4 of the statute made no provision as to the time within which recordation of a chattel mortgage was required. It read as follows: “Such mortgage . . . acknowledged as provided in this act shall be admitted to record by the recorder of the county in which the mortgagor shall reside at the time when the instrument is executed and recorded. . . .” Thus, a chattel mortgage could be recorded at any time after its execution and still be a valid lien as against the rights of third persons. Failure to record his mortgage imposed on the mortgagee only the risk that some third person might acquire a right or a lien upon the chattels prior to the time that the mortgagee asserted his lien. Under this section as originally enacted a chattel mortgage was a valid lien only from the time it was filed for record, even as against purchasers and creditors with actual notice. (Blatchford v. Boyden, 122 Ill. 657.) And since the only requirements for the validity of a mortgage as against third persons were a transfer of possession to the mortgagee, or a recordation ¿f the mortgage, the courts of this State held that the mortgagee could cure defects of an improperly recorded mortgage or one that was not recorded at all, by either taking possession of the chattels or by subsequently recording* a corrected instrument before any other right or lien intervened. (Springer v. Lipsis, 209 Ill. 261.) In that situation, if a creditor acquired a lien upon the chattels before the defective or unrecorded mortgage was cured, by reason of the mortgagee’s taking possession, the lien of the mortgage became subordinate and subject to the intervening rights of lien creditors. (Southern Surety Co. v. People’s State Bank of Astoria, 332 Ill. 362.)

It is pointed out by plaintiff’s counsel that this state of the law was obviously unfair to other than mortgage creditors, because general creditors who had extended credit to a debtor, relying on his possession of chattels against which there was no mortgage of record, often learned, before their debt had matured, that the holder of some unrecorded mortgage had cured the defect by taking possession of all the debtor’s chattels and foreclosing the mortgage, thus leaving no property out of which the general creditors could satisfy their claims, and it is argued that the legislature, in recognition of the unfairness of this situation and of the opportunities for fraud which were presented, by reason of the indeterminate period during* which a mortgagee under an unrecorded mortgage could maintain a secret lien, enacted an amendment to the chattel mortgage act in 1921, known as section 4A, which provided in substance that no mortgage should be valid against the creditors of the mortgagor, even though admitted to record as provided in section 4, unless it should be filed for record within 10 days of its execution, and that any such instrument not filed within the prescribed 10 days should be fraudulent and void as to creditors. The Supreme Court in Nelson v. Hoffman, 314 Ill. 616, held this amendment unconstitutional on the ground that it made reference to the title only, instead of being inserted at length in the new act. However, the court, in passing upon the validity of the amended section 4A, recognized the purpose of the amendment, and commented on it as follows: “The sole purpose of section 4A was to amend section 4 so that mortgages acknowledged and recorded should be good and valid from the time of filing for record against everybody except creditors of the mortgagor, but not good and valid against such creditors unless filed for record within ten days of their execution. ’ ’ The opinion in Nelson v.

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Bluebook (online)
18 N.E.2d 392, 298 Ill. App. 130, 1938 Ill. App. LEXIS 546, Counsel Stack Legal Research, https://law.counselstack.com/opinion/collateral-finance-co-v-braud-illappct-1938.