Davis v. Bowman

35 P. 264, 25 Or. 189, 1894 Ore. LEXIS 2

• Court: Oregon Supreme Court
• Decided: January 8, 1894
• Status: Published

Opinion

Opinion by

Mr. Chief Justice Lord.

Our inquiry in this case is whether, upon the facts as disclosed, the time of filing, or the time of executing, such mortgages should determine their priority. The solution of this inquiry depends upon our statutes. Prior to eighteen hundred and sixty-two our statute, like those of several other states, declared, in substance, that every mortgage of chattels thereafter made should be absolutely void, except as to the parties, unless the possession of the thing mortgaged be delivered to and be retained by the mortgagee, or unless the mortgage be filed as prescribed: Statutes, 1855, § 18, p. 528. In the revision of the statute for the purpose of framing a code of civil procedure, this section was.repealed: Statutes of Oregon, p. 126. When the mortgages in question were executed and filed our statute provided that “ It shall be the duty of the county clerk, upon the presentation for that purpose of any mortgage or conveyance intended to operate as a mortgage of goods and chattels, or a copy of any such instrument, and the payment of his fees, to endorse thereon the time of receiving the same, and to deposit such instrument or copy in his office, to be kept for the inspection of all persons interested ”: Hill’s Code, § 3054. After such mortgage has been filed, the statute also provides that it “shall cease to be valid as against the creditors of the person making the same, or subsequent purchasers or mortgagors in good faith, after the expiration of one year from the filing of the same, or a copy thereof, unless within thirty days next preceding the expiration of the year the mortgagee, his agent or attorney, shall make and annex to the instrument, or copy, on file as aforesaid, an affidavit setting forth the interest which the mortgagee has, by virtue of such mortgage, in the property therein mentioned, upon which affidavit the clerk shall indorse the time when the same was filed”: Hill’s Code, § 3056.

So far as these provisions are concerned, there is nothing in them to indicate that filing or failing' to file a ehattel mortgage, where there is no change of possession of the property mortgaged, raises or removes any presumption of fraud, disputable or conclusive, which affects the validity of such mortgage as against creditors, subsequent purchasers, or mortgagees in good faith. But subdivision 40 of section 766 provides that “every sale of personal property, capable of immediate delivery to the purchaser, and every assignment of such property, by way of mortgage or security, or upon any condition whatever, unless the same be accompanied by an immediate delivery, and be followed by an actual and continued change of possession, creates a presumption of fraud as against the creditors of the seller or assignor, during his possession, or as against subsequent purchasers in good faith and for a valuable consideration, disputable only by making it appear on the part of the person claiming under such sale or assignment, that the same was made in good faith, for a sufficient consideration, and without intent to defraud such creditors or purchasers; but the presumption herein specified does not exist in the case of a mortgage duly filed or recorded as provided by law.” As the sections which we have cited are in pari materia they must be construed together. The “ mortgage duly filed or recorded as provided by law” in the last clause of subdivision 40, section 766, necessarily refers to section 3054, as there is no other section which provides for the filing of mortgages of personal property; and, as this section is silent regarding the effect of filing, or neglecting to file, a chattel mortgage, where the mortgagor retains possession, we must turn to said subdivision 40, to ascertain the nature of the legal consequences which result in such cases. Under this subdivision, a mortgage of personal property, unaccompanied by delivery and possession of the chattels mortgaged, raises a presumption of fraud, disputable but not conclusive, which may be overcome by showing that such mortgage was made in good faith and for a valuable consideration. Under the circumstances stated, the mortgage is valid ■ as against third parties, when the dona fides of the transaction is made to appear. But the latter clause of the subdivision is to the effect that the fraud implied from the possession of the mortgagor does not exist when the mortgage is filed as provided by section 3054; the filing of the mortgage takes the place of the change of possession, or obviates its necessity. Such filing, like the transfer of the possession to the mortgagee, gives notice to third parties of his interest in the mortgaged property. It stands for a change of possession, and thus removes the presumption of fraud which would otherwise exist. By this means, a mortgagor is enabled to pledge bis chattels as security, and retain the possession and use of them in a reasonable way, while the mortgagee is relieved from the burden of proving the bona fides of the transaction. The filing being a substitute for the mortgagee’s possession, its object is to give notice to third parties, and to show the transaction to have been bona fide, and thus remove the presumption of fraud which would otherwise arise against it. As a consequence, if a mortgage of personal property is filed, although the mortgagor retains possession, the presumption of fraud does not exist; but if the mortgage has not been filed, a presumption of fraud arises, as against creditors and subsequent purchasers, which may be rebutted by making it appear that such mortgage was made in good faith. “ The presumption raised by this subdivision,” Boise, J., said, “is as to unrecorded mortgages”: Orton v. Orton, 7 Or. 482, 83 Am. Rep. 717. As to such mortgages,—not recorded or filed, —there is a presumption of fraud which, unexplained, renders them invalid, but which when explained, removes such presumption and leaves them intact and valid. Hence, a mortgage of chattels, unaccompanied by delivery and possession, although not filed, if made in good faith and for a valuable consideration, is not invalid as against creditors and subsequent purchasers.

The mortgage of the plaintiff was executed subsequent to, but on the same day as, the two mortgages of the defendant, but before they were filed. As the plaintiff had no actual notice of the existence of such mortgages, and the property remained in the possession of the mortgagor, in the absence of explanation, they were presumptively invalid as against the plaintiff. But if the defendant had succeeded in filing his mortgages before the execution of the plaintiff’s mortgage, no such presumption would have arisen affecting their validity. The filing of the defendant’s mortgages, after the plaintiff filed his, did not relieve them of the presumption of fraud which impugned their bona fides. Nor did the filing of the plaintiff’s mortgage in any way affect their legal status in this regard. It was not the filing of the plaintiff’s mortgage, but the failure of the defendant to file his before the execution of the plaintiff’s mortgage, that fixed their status as presumptively fraudulent. The plaintiff filed his mortgage to protect it from the implication of fraud as against subsequent, and not prior, mortgages; hence his mortgage obtained no priority over the defendant’s mortgages on account of being first filed. If the defendant should show, or it should be admitted, that his mortgages are bona fide, they are valid instruments, and as such created liens on the property in question from the date of their execution, which, being prior to the execution of the plaintiff’s mortgage, gives them priority. The case is different where the statute declares in effect that no chattel mortgage shall be valid, except as to the parties, unless possession be delivered to and retained by the mortgagee, or unless the mortgage be filed or recorded as prescribed. Under this kind of statute, an unrecorded chattel mortgage, or one not filed, is absolutely void as against a subsequent mortgagee. “The statute,” said Marston, J., “declares the instrument shall be absolutely void, and nothing short of a change of possession, or filing as the section requires, can save it”: Cooper v. Brock, 41 Mich. 491, 2 N. W. 660. In other words, the statute declares that a prior unrecorded mortgage “shall be absolutely void as against” subsequent mortgages in good faith: DeCourcey v. Collins, 21 N. J. Eq. 360. If our statute was of this sort, the mortgages of the defendant, not having been filed when the mortgage of the plaintiff was executed, could not have priority, because they would be entirely void as against it. Such is not the legal consequence that follows want of possession or filing under our statute. Under it a chattel mortgage not filed, where the possession is retained by the mortgagor, in the absence of explanation showing the transaction to be fair and honest, would be considered fraudulent as against subsequent mortgagees. On the other hand, if such mortgage is shown, or admitted, to be founded on a valuable consideration, and made in good faith, it must be considered a valid instrument as against creditors, subsequent purchasers, or mortgagees.

Under the circumstances first stated, the mortgage of the plaintiff would be entitled to priority over the mortgages of the defendant, not because it was first filed, but because those of the defendant were not filed when his was executed, and therefore were to be regarded as presumptively fraudulent against it; while under those last stated, the mortgages of the defendant would be entitled to priority over that of the plaintiff, because, being valid instruments, they impressed a lien on the property from the date of their execution, which, being prior to the execution of the plaintiff’s mortgage, conferred priority of right. As the case was brought and tried upon the theory that the priority of the mortgages in question was in be determined from the time of the filing, without Vegard to the time of their execution, the facts found, and the argument conceded, that the defendant’s mortgages were bona fide, or valid instruments. Considered as such, the defendant acquired a lien on the property by his mortgages, which was prior to that acquired by the plaintiff’s mortgage, and consequently he had a right to take the property covered by them, and, in so doing, did “not wrongfully take or convert to his own use the chattels mentioned in the complaint.” In view of these considerations, the case of Pittock v. Jordan, 19 Or. 8, 13 Pac. 510, which holds that a chattel mortgage given in good faith is not valid as against a subsequent mortgage first filed, must be overruled. At common law the Tale unquestionably was that where there was no change in the possession such transaction was void as to creditors. The rule of Twyne’s Case and the other English cases following it, was that the retention of possession by the vendor or mortgagor rendered the transaction, as a matter of law, absolutely void; while in this country the courts are divided, some holding strictly to the English doctrine, and others holding such a transaction only presumptively fraudulent, subject to explanation, which should be considered by a jury with the other evidence in determining whether the title of the vendee or mortgagee was in fact affected by fraud: 2 Kent’s Com. 516-531; Marks v. Miller, 21 Or. 317, 14 L. R. A. 190, 28 Pac. 17. The doctrine of our statute is founded on the principle of these latter decisions. As the case stands, in view of the considerations suggested, the judgment must be reversed, and the cause remanded for such further proceedings as may he proper and not inconsistent with this opinion. Reversed.