Blanchard v. Cooke

Field, J.

The procedure in this case suggests some interesting questions of practice which have not been argued, but we have considered only the questions argued and the matters involved in them.

We assume that it was within the power of the Superior Court to admit the assignee as a party at the time when, and in the manner in which, he was admitted. We assume also, that the court could modify the original decree according to the facts established at the final hearing. The defendant Cooke, having appeared, and the bill having been taken for confessed against him for want of an answer, had still the right to be heard upon the form of the decree, and to appeal from it. Whether, if the bill was not so definite, or was not of such a nature, that a decree could be entered upon it without hearing evidence, Cooke could, after the bill had been taken for confessed against him, appear and controvert the evidence offered by the plaintiff, need not be determined, for there is nothing in the record or report indicating that any such right was claimed by him.

It is plain that the assignee in insolvency, after Cooke became an insolvent debtor, had an interest in the suit, as the assignment vested in the assignee, not only all the property of Cooke which he could “ have lawfully sold or conveyed,” but also all property “ which might have been taken on execution upon a judgment against him.” Pub. Sts. c. 157, § 46. Bingham v. Jordan, 1 Allen, 373. The Superior Court, on being informed of Cooke’s insolvency and of the appointment of an assignee, should have required the assignee to be summoned in and made a party, unless he voluntarily appeared. The error in this respect was, however, ultimately cured by the admission of the assignee as a party. The assignee was admitted for the purpose of trying the cause upon its merits. Although the court had refused to vacate the final decree against Cooke, or the decree taking the bill for confessed against him, still the assignee so far as his interest was concerned was entitled to try the case upon the merits involved in the issue joined upon his answer, in the same manner as if he had appeared in the suit before these decrees against Cooke were entered. The assignee did not take merely Cooke's title pendente lite. He took all the property which was the subject matter of the suit on which an execution against Cooke could lawfully have been levied, or which Cooke could lawfully have conveyed at the time the assignment in insolvency took effect; and his position in the case might be adverse to that of the insolvent debtor. If it be assumed, which is not clear, that the frame of the bill is such that, on a decree taking it for confessed against Cooke, a decree could be entered that the plaintiff recover any money of Cooke personally on which an execution could issue against Cooke’s body or estate, the amount would necessarily depend upon the amount of the whole indebtedness of Cooke to the plaintiff under the contract, after deducting whatever amount was ordered to be paid to the plaintiff out of the funds in the hands of the clerk, and any change in either of these two amounts would change the amount which the plaintiff would recover against Cooke personally. The necessary effect of admitting the assignee to defend the suit upon its merits was to suspend the original decree against Cooke, if it did not actually vacate it, and the decree finally entered, although it purports to modify the original decree, in effect vacates it, except that part of the decree which dismisses the bill and supplemental bill as to all the defendants but Cooke, and dismisses the cross bill. Indeed, the original decree did not define the amount for which execution should issue against Cooke, and ought not to have been entered in the form in which it was entered. After the assignment in insolvency, if the assignee claimed the property, Cooke had no interest in it except to have it properly applied in payment of his debts, unless there was a remainder which should be paid to him, and no other interest in the suit except to prevent the plaintiff from obtaining a personal decree against him.

If it was material to the rights of the assignee to show that Cooke had not violated the terms of the contract, and that the plaintiff did not rightfully take possession of the goods on November 28, 1884, he should have been permitted to prove these facts, in the same manner as a creditor who had levied an execution against Cooke upon the property might prove them. The assignee is not so far in privity with Cooke that a decree against Cooke would be conclusive upon the assignee.

For the same reason, if the evidence offered that Cooke never consented to the plaintiff’s taking possession, and refused any such consent, was material, it should have been admitted; but, as we read the bill, it contains no allegation of any such consent, and is to be construed to mean that the plaintiff took possession without the consent of Cooke, and that Cooke refused to release any rights he had in the property.

There seem to have been no exceptions taken to the findings of the court upon the original indebtedness of Cooke to the plaintiff under the contract, or to the amount of the payments made by Cooke to him. The value of the goods which had been purchased by Cooke of other persons than the plaintiff, and which were included in the goods of which the plaintiff took possession on November 28, 1884, is not found, although the court finds that they constituted a large portion of the goods. The court also finds that the amount of goods purchased by Cooke in September, October, and November, 1884, on credit, the bills of which remain unpaid, was $6467.84, and that the greater part of these goods were in the store on November 28, 1884. Fraud, either at common law or under the statutes relating to insolvency, is not set up in the answer.

The two questions in .the case are what the rights of the plaintiff- and of the assignee to these goods or the proceeds of them are, assuming that the plaintiff took possession of them on November 28, 1884, for an alleged breach of the contract, and how these rights are affected, if the fact was that there was then no breach of the contract by Cooke.

The contract is of a sale of a stock of goods by the plaintiff to Cooke for the sum of $14,214.94, and a delivery of possession to Cooke, “ with full power and authority to manage, deal with, and sell the same, in the regular course of business as a retail dealer in dry goods,” and it provides “ that for the security of said Blanchard the legal title in said goods shall be and remain in said Blanchard until said sum of $14,214.94, with interest at the rate of seven per cent per annum, shall have been fully paid, it being agreed, however, that said title may vest in said Cooke in the proportion to the amount which at any time he shall have paid on account of said $14,214.94, and interest.” The clause cited then proceeds as follows : “ said Cooke hereby covenanting and agreeing that said Blanchard shall be the legal owner of a fractional part of the stock of goods in said store, whether it be these goods or goods subsequently purchased by said Cooke, which fractional part shall at all times bear the same proportion to the balance of $14,214.94, and interest, then unpaid and due from said Cooke, that the whole amount of goods now bears to said sum’ of $14,214.94.”

This contract cannot be considered as a legal mortgage either ■of the goods bought of the plaintiff or of the goods subsequently bought of other persons. It does not purport to convey to Cooke the title in the stock of goods that belonged to the plaintiff, and then to reconvey that title in mortgage to the plaintiff. As to this stock of goods, it purports to be a conditional sale, whereby the title to a fractional part of the goods shall vest absolutely in Cooke upon payment of portions of the amount due.

As to the after-acquired goods, the contract operates only by way of covenant; it does not purport to be a present conveyance to the plaintiff of the title, defeasible upon the performance by Cooke of his part of the contract. The assignee in effect concedes that the plaintiff is entitled to his fractional part of such of the goods sold by him as were on hand when he took possession. Under this conditional sale, if Cooke did not comply with the conditions of purchase, the plaintiff had the right to take possession of such of the original stock of goods as could be identified, either as owner or as owner in common with Cooke; and whether he took possession or not, his legal title remained. The plaintiff contends that he is entitled to the whole of the goods as security that his debt be fully paid. The contract must be enforced according to the intent of the parties as expressed in it, and we think that, construing all its provisions, it was the intention that the plaintiff should have a fractional share if Cooke made payments on account; and that this share is to be determined by ascertaining the amount due the plaintiff on November 28,1884, when he took possession, computing it with interest at the rate of seven per cent, according to the Massachusetts rule when partial payments have been made. Dean v. Williams, 17 Mass. 417. If the amount thus computed equals or exceeds $14,214.94, then the plaintiff is entitled to all the proceeds of the goods which are a part of the original stock; if the amount is less than $14,214.94, then the plaintiff is entitled to a fractional part, of which fraction $14,214.94 is the denominator and the amount thus found due him is the numerator, and the assignee of Cooke is entitled to the remaining fractional part. Whatever the plaintiff receives of these proceeds, he receives as security for the payment of his debt. The provision that “ Blanchard shall be the legal owner of a fractional part of the stock of goods in said store, whether it be these goods or goods subsequently purchased by said Cooke, which fractional part shall at all times bear the same proportion to the balance of $14,214.94, and interest, then unpaid, and due from said Cooke, that the whole amount of goods now bears to said sum of $14,214.94,” if construed literally, states ratios of equality. By transposing two of the terms, the clause becomes intelligible, and it then would read, “ Blanchard’s fractional part shall at all times bear the same proportion to the whole amount of goods as the balance of $14,214.94, and interest, then unpaid, bears to $14,214.94.” This seems to us the intention of the parties, and is the view taken by the Superior Court, as we understand the report.

The principal contest in the case is as to the rights of the parties to the proceeds of the goods bought by Cooke of other persons than the plaintiff after the plaintiff’s sale to him. By the agreement, Cooke covenants that the plaintiff shall be the legal owner of the same fractional part of these goods as of the goods bought of the plaintiff. That such a covenant would be inoperative to transfer the title to the plaintiff as against an attaching creditor of Cooke, or his assignee in insolvency, if the plaintiff had not first taken possession, seems certain. Pettis v. Kellogg, 7 Cush. 456. Potter v. Boston Locomotive Works, 12 Gray, 154. Huntington v. Clemence, 103 Mass. 482. Chase v. Denny, 130 Mass. 566. Wilson v. Russell, 136 Mass. 211.

The effect of mortgages of after-acquired chattels has been considered/in Jones v. Richardson, 10 Met. 481; Rowley v. Rice, 11 Met. 383; Moody v. Wright, 13 Met. 17; Barnard v. Eaton, 2 Cush. 294, 303 ; Ghesley v. Josselyn, 7 Gray, 489; and Howe v. Freeman, 14 Gray, 566, 577. It was held in the early cases, that at law a mortgage of chattels does not convey property of which the mortgagor was not the owner at the time of the conveyance. Jones v. Richardson, ubi supra, was an action at law, and the question was of title to after-acquired goods, as between a mortgagee and an attaching creditor. The mortgagee offered to prove that he had taken possession of the goods for the purpose of foreclosing his mortgage. The court said: “ But although the mortgagee, with such a power [a power to take possession of all the goods, including those afterwards acquired], would be justified in seizing the goods of the mortgagor, purchased by him subsequently to the date of the mortgage, it would not vest the property in the mortgagee.” 10 Met. 492. The mortgagee “ did not prove, nor offer to prove, any act done by the mortgagor, after the mortgage deed was executed, by which he ratified the same as to the subsequently acquired property. All he offered to prove was, that he had taken possession of the goods before the attachment. But this evidently was irrelevant.” 10 Met. 493. “ As to such property, the mortgage could not be valid, except as between the parties thereto, unless such goods were delivered by the mortgagor to the mortgagee, with the intention to ratify the mortgage, and the mortgagee retained open possession of the same until the time of the attachment.” 10 Met. 493, 494. “ The record of the mortgage deed is no sufficient notice of a legal incumbrance as to subsequently acquired property.” 10 Met. 493.

A delivery to the mortgagee, or a taking possession by him with the consent of the mortgagor, before the attachment, when the mortgagee retained possession, was held in Rowley v. Rice, ubi supra, to give to the mortgagee, either as a pledgee or as a mortgagee, the right to hold the goods as against an attaching creditor. See also Codman v. Freeman, 3 Cush. 306, 309.

In Moody v. Wright, ubi supra, which was a suit in equity under the St. of 1838, c. 163, § 18, the mortgagee had not taken possession, and it was held that the mortgage was void as against an assignee in insolvency. The reason given is “ the want of ■ any binding original contract, which per se could have force and effect to change' the after-acquired property, without some further act by the parties, after the property should have come into existence. Such act we deem to have been necessary to perfect the title of the petitioner, whether his rights of property in such after-acquired articles are sought to be enforced in equity or at law.” And it is said further: “ A stipulation that future-acquired property shall be holden as security for some present engagement is an executory agreement of such a character that the creditor with whom it is made may, under it, take the property into his possession, when it comes into existence, and is the subject of transfer by his debtor, and hold it for his security; and whenever he does so take it into his possession, before any attachment has been made of the same, or any alienation thereof, such creditor, under his executory agreement, may hold the same.”

In Chesley v. Josselyn, ubi supra, it was said, “ Whatever may be the agreement between the parties, the mortgage cannot bind property subsequently acquired, without some further act of assurance or ratification.”

In Chase v. Denny, ubi supra, the dictum declared in Moody v. Wright was recognized and enforced in an action at law. The rule was stated to be, that if “ the after-acquired property is taken by the mortgagee into his possession before the intervention of any rights of third persons, he holds it under a valid lien, by the operation of the provision of the mortgage in regard to it.” The taking of possession is the assertion of a right which had been previously acquired by the mortgagee, and it could be asserted after the mortgagor had become actually insolvent, if the rights of third persons had not intervened.

In Brett v. Carter, 2 Lowell, 458, it was decided that a mortgage of after-acquired chattels, which we infer had been duly recorded, was good against an assignee in bankruptcy, although it does not appear that possession had been taken by the mortgagee; and it was suggested that this court might reverse the decision in Moody v. Wright. Judge Lowell followed the decisions in England, and in some of the States of this country, and cites the case of Mitchell v. Winslow, 2 Story, 630, which this court had refused to follow. But in Mitchell v. Winslow it ought to be noticed that the deed was duly recorded, although this is perhaps immaterial, and that the mortgagee took actual possession of, and sold, the property before proceedings in bankruptcy were begun; and although the assignee in bankruptcy acquired only the rights of the debtor, while an assignee in insolvency acquires something more, yet the result reached in that case is in accordance with the dictum in Moody v. Wright, and with our decision in the present case.

The recent decisions of this court show no disposition to extend the law beyond the dictum declared in Moody v. Wright, or to adopt the principles for which the case of Holroyd v. Marshall, 10 H. L. Cas. 191, is the leading authority. In this Commonwealth, a sale of personal chattels is not good against creditors, unless there has been a delivery. An unrecorded mortgage of personal chattels is void against creditors, unless the property is delivered to and retained by the mortgagee, and a pledge of chattels is equally void, unless the pledgee retains possession. An executory agreement to sell such chattels as are usually bought and sold in the market is not one that is specifically enforced, and it does not create a trust. Besides, the English statutes of bankruptcy give some relief by vesting in the trustee in bankruptcy property of which the bankrupt is the reputed or ostensible owner with the consent of the true owner, a doctrine unknown to our law. The facts in the case at bar show that contracts for security on after-acquired chattels may operate as traps to catch other creditors, even when no fraud is intended; and we are satisfied with the rule that to enable a mortgagee, as against an attaching creditor or an assignee in insolvency, to hold chattels acquired after the execution of a mortgage, there must be a delivery to him, or possession must be rightfully taken by him, and the possession acquired in either manner must be retained until the chattels have been attached or levied upon by creditors, or until proceedings in insolvency are begun. The only apparent change in our decisions is, that by the recent cases possession of after-acquired chattels rightfully taken by a mortgagee under the power contained in the mortgage, if the possession is retained, vests the title in the mortgagee as against third persons, and a delivery by the mortgagor is no longer- held to be essential. In the cases cited, except perhaps Rowley v. Rice, the mortgages were in fact duly recorded; but this does not appear to have been considered material, except upon the question of fraud. The record of a mortgage of after-acquired chattels has never been held sufficient to make the mortgage valid against other persons than the parties to it. Such a mortgage has not been considered to be within the provisions of the statutes relating to the record of mortgages. Jones v. Richardson, ubi supra.

In the present case the contract is not a mortgage, and it was not recorded, and there is no express provision that the plaintiff may take possession for breach of the contract. No actual fraud is alleged, and we cannot say that the contract on its face is fraudulent and void as to creditors. A mortgage is not void as matter of law because it permits the mortgagor to remain in possession and sell the goods in the ordinary course of business. Such a provision is at most only evidence of a fraudulent purpose, and we think that the same principle applies to this contract. Fletcher v. Powers, 131 Mass. 333.

As the effect of the contract is that Cooke covenants that the legal title to a fractional part of the after-acquired goods shall vest in the plaintiff as security for the payment of the debt due to him, the plaintiff’s position even in equity ought not to be better than if he held an unrecorded mortgage of these after-acquired goods as security for the debt; and a mortgage of after-acquired goods cannot in any event give a better title than a mortgage of goods belonging to the mortgagor when the mortgage is executed. Our statutes concerning mortgages of personal chattels provide that, “ unless a mortgage is recorded as aforesaid within fifteen days after the date thereof, or unless the property mortgaged is delivered to and retained by the mortgagee, the mortgage shall not be valid against any person other than the parties thereto, except as is hereinafter provided.” Pub. Sts. c. 192, § 1. An assignee in insolvency is not one of the parties within the meaning of the statute. The limitation of the time of record was first enacted in the St. of 1874, c. Ill, § 1, (see St. 1875, c. 14,) and, before this statute, it was sufficient if the record was made at any time before the rights of third persons had intervened. Mitchell v. Black, 6 Gray, 100.

We think that the limitation of time within which a mortgage must be recorded to make the record effectual does not apply to the time within which mortgaged property, if the mortgage is unrecorded, must be delivered to and retained by the mortgagee, and that it is sufficient if the property is delivered to the mortgagee before, and is retained by him until, the rights of third persons have attached. Carpenter v. Snelling, 97 Mass. 452. Wright v. Tetlow, 99 Mass. 397. In Wright v. Tetlow, it is said that “ the manifest intention of the Legislature was, to require in the case of an unrecorded mortgage of chattels such delivery of possession as would be necessary in the case of an absolute sale, which need not be recorded.” In the case of the sale of a chattel which is identified, the title to which has passed as between the parties and upon which the vendor has no lien for the price, and which it is the duty of the vendor to deliver immediately to the vendee, wé are not aware that it has ever been held that possession rightfully obtained by the vendee, and retained by him, did not constitute a delivery as against third persons, although the vendor had done no acts indicating an intention to deliver. Our recent decisions have therefore proceeded upon the theory, which by a dictum in Jones v. Richardson, ubi supra, was denied, that when the chattels are acquired, and are identified by the terms of the mortgage, the title passes as between the parties, and a possession rightfully obtained by the mortgagee, and retained by him, vests the title in him as against third persons whose rights have not attached before the possession is taken, and that delivery by the mortgagor is not necessary; and in the case of informal instruments not technically mortgages, and not recorded, this has been distinctly decided. Mitchell v. Black, Wilson v. Russell, and Chase v. Denny, ubi supra. See Huntington v. Clemence, ubi supra.

Following the analogy of these cases, if the contract between the plaintiff and Cooke was not actually fraudulent and void as against the creditors of Cooke, either at common law or under the statutes relating to insolvency, and if the plaintiff rightfully took possession of the goods before they were attached, or before proceedings in insolvency were instituted, and retained this possession, we think his title, to the extent of his interest, is good against the assignee in insolvency. This is, in effect, the ruling of the Superior Court. But the plaintiff’s possession must be rightful in order to enable him successfully to assert his title against the assignee. If he had no right to take possession when he took it, his possession cannot avail him. Our construction of the contract is, that the plaintiff had not the right to take possession unless there had been some breach of the contract by Cooke; but, if there had been a substantial breach, that the ..plaintiff had this right while the default continued. The plaintiff would have this right in regard to the goods' he sold to Cooke, if Cooke did not pay for them as agreed, and we think the intention was to give him the same right in regard to the goods subsequently purchased. The evidence offered by the assignee, “ that there had been no breach of said contract by said Cooke on or before November 28, 1884,” should therefore have been admitted. The plaintiff’s title to that part of the original stock which can be identified has not been lost, whether he rightfully took possession or not.

The decree entered on January 11, 1886, except that part of it which dismisses the cross bill, and dismisses the bill and supplemental bill as to all the defendants but Cooke, is reversed, and the final decree entered on June 2-, 1886, is also reversed. As the decrees are reversed, Cooke is to have leave to plead his discharge in insolvency, and to be heard upon it. It is in the discretion of the Superior Court whether the decree taking the bill for confessed against Cooke be vacated or not, and whether any of the parties be permitted to amend their pleadings. The cause is remanded to the Superior Court for further proceedings in accordance with this opinion. So ordered.

Case Details

Case Name: Blanchard v. Cooke

Court Name: Massachusetts Supreme Judicial Court

Date Published: Mar 23, 1887

Citation: 144 Mass. 207

Court Abbreviation: Mass.