Opinion
07-23-1908
SCHNEIDER v. SCHMIDT et al.
Walter J. Knight, for complainant. C. H. Beasley (McDermit & McDermit, of counsel), for defendants.
Bill by Dinah Schneider against Charles Schmidt and another. Decree for defendants.
Walter J. Knight, for complainant.
C. H. Beasley (McDermit & McDermit, of counsel), for defendants.
EMERY, V. C. Complainant is a creditor of the defendants Charles Schmidt (or Smith) and John Huber, and under a decree of this court for $900, besides costs and interests, an execution was levied on November 2, 1905, on certain personal property, upon which at the time of the levy the defendant Emma Schmidt, wife of the defendant Charles Schmidt, held a chattel mortgage given by the debtors, dated and recorded November 4, 1903, and for $1,500 and interest. The mortgaged property was a carousal or merry-go-round, with its appurtenances, owned by the debtors as partners. One object of the bill is to have the chattel mortgage declared void under the fourth section of the chattel mortgage act (Revision 1902; Act April 3, 1902; P. L. pp. 487, 488), because the affidavit of the mortgagee annexed to the mortgage was defective or false in not "stating the consideration of the mortgage," as required by the act. The mortgage executed by Schmidt and Huber, as parties of the first part, after reciting that it is given "for securing the payment of the money herein mentioned," and the consideration of one dollar, conveys the property in question to Mrs. Schmidt (by the name of Emma Smith) with a warranty, the conveyance being upon condition that "if the party of the first part shall pay to the party of the second part the sum of $1,500 in one year from date, with interest at 6 per cent., payable semiannually, then this mortgage shall be void." The parties of the first part then covenant and agree "that in case default shall be made in the payment of the said sum above mentioned," or in case they permit or suffer process against property to be issued against them, or any judgment to be entered up against them, "then the said sum of money herein mentioned shall become Instantly due and payable," and then the mortgagee might take and sell the mortgaged chattels, retaining the sum mentioned and charges, rendering the overplus to the mortgagors. The affidavit of Mrs. Schmidt stated "that the true consideration of the said mortgage is as follows, viz.: For money advanced to the said Charles Smith and John Huber to the amount of $1,500 for the purchase of the goods and chattels mentioned in the in ventory attached to mortgage," and, further, that there is due on the mortgage the sum of $1,500, besides interest from its date.
The proofs show that in November, 1899, Schmidt and Huber bought the carousal in question from a Mr. Luff in Brooklyn for $2,300, upon which payments amounting to about $1,300 were made by March 31, 1900, and that the property was then delivered to Schmidt and Huber, and a chattel mortgage for the balance of the purchase money was given to Luff. At least $1,000 of the $1,300 paid appears to have been advanced by Huber, who probably borrowed some money for this purpose. Before October 15, 1903, Schmidt and Huber turned over to Luff, as payment of $500 of the balance due, another merry-go-round or carousal belonging to Mrs. Schneider, the complainant, upon which Schmidt and Huber held a mortgage. They bought in this mortgaged property at a foreclosure sale under a prior mortgage, and a bill was filed by Mrs. Schneider on October 15, 1903, against Schmidt and Huber to have the sale to them under the foreclosure declared fraudulent and void, and for an account and redemption. A copy of this bill was served upon Mr. Schmidt by delivery to Mrs. Schmidt at her residence, but she was not a party to the bill. The bill was filed in ignorance of the transfer of the complainant's property to Luff, and an injunction against any transfer was asked. The transfer to Luff was first disclosed by the answer in January. 1904. After the filing of this bill, and on or about November 4, 1903, Mrs. Schmidt advanced $1,500, of which $900 was actually given to her husband and $600 to Huber. These advances are proved by the testimony of the three witnesses—Mr. and Mrs. Schmidt and Huber—and, as to the advance of $900, their evidence is corroborated by the production of her deposit book in the savings bank from which she drew the $900 handed to Smith. As to her possession of money sufficient to make the additional advance of $600, I think her evidence reliable, and the actual advance of these sums by her on the credit of the mortgage is satisfactorily proved. As to the amount given to her husband, she states that she loaned it to him to pay off the balance due to Luff. She had married Mr. Schmidt on July 30, 1903, and he applied to her for the loan for this purpose shortly afterward, but no statement was made to her of the exact amount due, nor does she appear to have known either that Mrs. Schneider property had been transferred in part payment, or that, after deducting this, the amount due was only about $500. Her husband used $493.60 of the $900 in paying Luff, and the balance for other purposes, some of it for paying charges and repairs on their residence. The $600 was given in cash to Huber, either directly by Mrs. Schmidt or through her husband, and this was advanced, as all the witnesses say, for the purchase of a bakery by Huber. He used $300 for thispurpose and $250 of the balance for paying a debt to one Donnaker. This debt appears to have been for money borrowed by Huber in connection with the business of the firm. No evidence of indebtedness, other than the mortgage itself, was taken at the time of the advances, and it is clear, I think, that no other was intended to be given.
Upon these facts it is claimed that the affidavit stating the consideration is substantially false in two particulars: First, because the money was not advanced for the purchase of the property as stated in the affidavit; and, second, that the money was not advanced to Schmidt and Huber or the firm, but that it was advanced to the parties individually, to Schmidt $000 and Huber $600, or that at least this latter sum was not advanced to the firm or to the two mortgagors jointly.
The first objection is not well founded. The "consideration" of the mortgage was the advance of $1,500 of the mortgagee's money to the mortgagors, and the statement of the purpose of the advance, or the use to which it was to be put, is no part of the statement of the consideration required by the statute. The statement might be important as evidence on the question of bona fides of the whole transaction, but the sole legal consideration for the mortgage was the advance of the money by the mortgagee, and this was truly stated.
As to the second objection, there is no doubt, I think, .that, as to the $900, it was intended to be advanced by Mrs. Schmidt for the use of the firm (either wholly or in part), and on the credit of the firm and its property. The payment to Schmidt was an advance to Schmidt and Huber. There is more difficulty about the advance of the $000 to Huber, which was intended for his own use, and whether as to this sum the statement of the affidavit that the $1,500 was advanced to Schmidt and Huber was true. In my judgment the solution of this question depends on the determination on the whole evidence of whether or not it appears that this advance, as well as the $900, was made on the joint credit of the borrowers, for which they were both directly responsible, or on the individual credit of each for the amount given to him. That the joint property was to be given as security for both advances is conclusively settled by the very form of the mortgage. In this mortgage there appears also a covenant by both Schmidt and Huber that, on default in the payment at the time mentioned in the condition, the entire debt shall become instantly due and payable. By this covenant they became, in my judgment, personally jointly responsible for the payment, and upon this covenant an action at law might be brought for the debt against both of them. The further provision of the covenant, that, upon the debt becoming thus due, the property might be sold, was an addition to the covenant, and not a restriction or qualification. This joint covenant for payment, taken in connection with the fact that no other evidence of indebtedness was taken from either Schmidt or Huber, has decisive weight in reaching the conclusion that the advance of the $900 and $600 was made to Schmidt and Huber jointly, and that the affidavit in this respect was not false.
Second. Complainant's second ground for relief is based on a claim that as the defendants Schmidt and Huber fraudulently transferred her property to Luff in part payment of the amount due on his mortgage for the purchase money of the mortgaged chattels belonging to complainant, she is in equity entitled to a lien on these chattels for the value of this property so transferred to Luff, or, at least, the amount of the credit given by him therefor, and that this lien is prior to Mrs Schmidt's mortgage, because at the time of her advance she knew of the suit brought by complainant against Schmidt and Huber. The equity is claimed to arise either on the principle of following funds held in trust, or of subrogation to the original mortgage held by Luff on the chattels. The principle of subrogation is not applicable to this bill, for no such case is stated, nor is Luff a party to this suit. He has receipted for the mortgage and in full. It does not appear that the mortgage is outstanding, or in the hands of any person who can be affected by decree in this suit. If the mortgaged chattels now in question were paid for by funds or property considered to be held in trust, they might to the extent for which the trust property was taken in payment be followed, and a lien for this amount be declared against the trustees, or those taking with notice. But the chattels mortgaged by Mrs. Schneider to Schmidt and Huber were not strictly held in trust by them after their debt was due and their purchase at the foreclosure sale under the prior mortgage. They held the goods subject to redemption, and, although a private sale or transfer by them after their purchase did not bind the mortgagor as to the amount of the sale, it did operate to pass the title to Luff, and, in the absence of any notice on his part of the circumstances making the purchase at the foreclosure sale invalid, his title to the goods was valid in equity as well as at law, and his credit on his own mortgage of the amount agreed upon at this sale was, so far as Mrs. Schmidt was concerned, a valid payment and discharge of his mortgage to the extent of the payment as against her mortgage. Mrs. Schneider, the mortgagor, was entitled to a credit on her mortgage of the fair value of the goods, and to a decree based on this value, against the mortgagors, for the excess in value beyond her mortgage debt. But to the extent of this debt ($300) the sale was certainly valid as against her, and, as to the subsequent mortgage of the property now in question, to which the whole proceeds of sale ($500) were applied for the reduction of Luff's prior mortgage on it, there would seemto be no trust or lien impressed on the property in complainant's favor. Her only remedy in the suit brought against Schmidt and Huber, the mortgagors, without joining Luff, the purchaser, was a personal decree against the mortgagors to account for the fair value of the mortgaged property sold to Luff.
Mrs. Schmidt having actually advanced money at the time of taking the mortgage and on its credit, notice of the alleged trust must be clearly shown. The transfer of complainant's property to Luff by Schmidt and Huber had probably been made before her marriage to Schmidt, certainly before October 15, 1903, and it does not appear that any information about the transaction was given to her. The notice relied on is that given by the suit brought by complainant against Schmidt and Huber in October, 1903. On this bill there was an application to enjoin the transfer of the chattels mortgaged by complainant to Schmidt and Huber, which were alleged in the bill to be in the possession of Schmidt and Huber, and service upon Schmidt seems to have been made by delivering a copy of the bill to Mrs. Schmidt. She denies receiving the papers, but the probability is that she did receive them. The question is: What was the effect of such service, if made, as notice to her of complainant's equity now claimed? I think the suit was no notice to Mrs. Schmidt at all of this equity. The bill did not refer to these chattels now mortgaged, nor was the equity now claimed set up directly or indirectly. It was a bill to redeem other mortgaged chattels, and for an account. The suit was not a lis pendens in reference to the property mortgaged to Mrs. Schmidt, and it was not until the subsequent trial of the suit in 1904 that it was disclosed that the property had been transferred to Luff in part payment of his mortgage.
Defendant being therefore a bona fide mortgagee without notice, and the affidavit being sufficient under the statute, her chattel mortgage is prior to complainant's judgment, and the bill to have it declared void must be dismissed.