A mortgage given by a corporation to its directors for money actually advanced in good faith for the purpose of paying pressing debts is valid.200 Where a statute makes a chattel mortgage invalid as to the creditors of the mortgagor unless a statement is filed showing the interest of the mortgagee or his assignee, the rights of the mortgagee or assignee as against the trustee in bankruptcy are limited to the amount specified in the statement, though less than the amount actually due.201 A chattel mortgage, taken for the purpose of confirming an unrecorded bill of sale may be held valid under this section.202 A chattel mortgage is not void for indefiniteness of description which purports to be upon all property "now being and remaining in the possession" of the mortgagor." 203 (II) To secure further advances.- Mortgages given in good faith by way of continuing collateral are valid to the amount advanced before the petition is filed.204 (III) On after-acquired property.— The validity of a mortgage on after-acquired property as against a trustee in bankruptcy depends upon the laws of the State wherein the property is situated.20 A sale takes effect as of that date and consequently the potential right of the execution creditor to levy necessarily ends and with it the rights of the trustee in bankruptcy of the seller. Christ v. Zehner (Pa. Sup. Ct.), 16 Am. B. R. 788, 61 Atl. 822; Zehner v. Southern Surety Co. (C. C. A., 3d Cir.), 47 Am. B. R. 132, 272 Fed. 954. 200. Mortgage by corporation to its directors.- Matter of Lake Chelan Land Co. (C. C. A., 9th Cir.), 44 Am. B. R. 14, 257 Fed. 497. See also under this section, post, subtitle "Present fair consideration." 201. Senft v. Lewis (C. C. A., 2d Cir.), 39 Am. B. R. 240, 239 Fed. 116. 202. Lake View State Bank v. Jones (C. C. A., 7th Cir.), 40 Am. B. R. 148, 242 Fed. 821. Cross-reference.- See also under this section, post, subtitle "Chattel mortgages and bills of sale." 203. In re Beede (D. C., N. Y.), 11 Am. B. R. 387, 126 Fed. 853; Davis v. Turner (C. C. A., 4th Cir.), 9 Am. B. R. 704, 120 Fed. 605. See Jones Chatt. Mortg., § 65. 205 204. Marvin v. Chambers, Fed. Cas. 9,179. See Davis v. Turner (C. C. A., 4th Cir.), 9 Am. B. R. 704, 120 Fed. 605; In re Williams (D. C., Ga.), 9 Am. B. R. 731, 120 Fed. 542; Stedman v. Bank of Monroe (C. C. A., 8th Cir.), 9 Am. B. R. 4, 117 Fed. 237; Matter of United States Food Co. (Ref., Mich.), 15 Am. B. R. 329; In re Hawks (D. C., Kan.), 30 Am. B. R. 365, 204 Fed. 309; Bondurant v. Rogers (Ky. Ct. of App.), 46 Am. B. R. 557, 229 S. W. 377. See Am. Eankr. Dig., § 443. As to distinction between mortgage and deed conveying property described therein to secure a debt, under Georgia statute, see In re Caldwell (D. C., Ga.), 24 Am. B. R. 495, 178 Fed. 377. mortgagee, taking possession before the commencement of bankruptcy proceedings against the mortgagor of after-acquired property covered by the mortgage, is entitled under the laws of some states to hold it against the trustee." 206 (IV) Mortgagor in possession with power of sale. In some States a mortgage which allows the mortgagor to retain possession of the as against subsequent creditors without security. Grimes v. Clark (C. C. A., 4th Cir.), 37 Am. B. R. 142, 234 Fed. 604. Minnesota. Under the decisions of Minnesota which do not limit the operation of a chattel mortgage on subsequently acquired property to such as is merely incidental to an existing body of property, the assignment of property to be thereafter acquired by bankrupts became effective as soon as such property was purchased, and title thereto, vested in the surety company at that time, with a right on its part to take possession whenever a default occurred. Title Guaranty & Surety Co. v. Whitmire (C. C. A., 6th Cir.), 28 Am. B. R. 235, 195 Fed. 41. New York. In New York a mortgage on after-acquired property is invalid. In re Marine Const. & Dry Dock Co. (C. C. A., 2d Cir.), 16 Am. B. R. 325, 144 Fed. 649, modifying 14 Am. B. R. 466, 135 Fed. 921; In re Adamant Plaster Co. (D. C., N. Y.), 14 Am. B. R. 815, 137 Fed. 251; Zartman v. First National Bank, 16 Am. B. R. 152, 109 N. Y. App. Div. 406, 96 N. Y. Supp. 633, affd. 19 Am. B. R. 27, 189 N. Y. 267, 82 N. E. 127; Matter of LeslieJudge Co. (C. C. A., 2d Cir.), 46 Am. B. R. 707, 272 Fed. 886; Compare In re Burnham (D. C., N. Y.), 15 Am. B. R. 548, 140 Fed. 926. Personal property used in bankrupt's business and consisting of machinery, tools and office fittings which were purchased with the proceeds of the sale of mortgage bonds, intermingled with other funds, does not pass under an after-acquired property clause in the mortgage given to secure the payment of such bonds, so that such property can be held by the mortgagee as against the trustee in bankruptcy who represents the general creditors. In re Niagara Lead & Battery Co. (D. C., N. Y.), 20 Am. B. R. 788, 202 Fed. 298. Washington.—A mortgage on afteracquired property is valid in Washington if there is a provision for accounting and application of proceeds in satisfacton of the mortgage. Matter of McLean (D. C., Wash.), 46 Am. B. R. 322, wherein it was held that although the mortgage was valid in its inception still where the evidence showed that there was no accounting as required, the mortgagee should be held responsible to creditors of the mortgagor for the amount of credit extended by the mortgagor for sales made. Mortgage on lumber to be sawed.In re Pine Tree Lumber Co. (C. C. A., 9th Cir.), 46 Am. B. R. 463, 269 Fed. 515. Mortgage on wheat in bins.- Matter of Ballard (D. C., Tex.), 44 Am. B. R. 651, affd. 48 Am. B. R. 458, 279 Fed. 600. Mortgage on future crops.- Butter Cotton Oil Co. v. Collins (Ala. Sup. Ct.), 40 Am. B. R. 200, 75 So. 975. property with power of sale in the course of his business, is ineffectual to create a lien as against the creditors of the mortgagor and is therefore invalid as against his trustee in bankruptcy." Thus it has been held that a mortgage given on an automobile by a dealer is invalid against his trustee in bankruptcy where the dealer remains in possession and offers the automobile for sale in his salesroom as his property, even though the mortgage is properly recorded.208 On the other hand, it has been held that, under a statute providing, in effect, that every mortgage attempted to be given on a stock of goods daily exposed for sale, in parcels, in the regular course of business, and contemplating a continuance of the possession of the goods and a control of the business by the owner, shall be deemed void, a mortgage on an automobile in stock is not invalid where by the terms of the mortgage and the practice of the parties no automobile could be sold without special authority of the mortgagee, and without the money being applied in reduction of the debt.209 Neither does the 207. In re First Nat. Bank of Canton (C. C. A., 6th Cir.), 14 Am. B. R. 180, 135 Fed. 62; Egan State Bank v. Rice (C. C. A., 8th Cir.), 9 Am. B. R. 437, 119 Fed. 107; In re Hickerson (D. C., Idaho), 20 Am. B. R. 682, 162 Fed. 345; In re Bellevue Pipe & Foundry Co. (Ref., Ohio), 22 Am. B. R. 97, citing Ohio cases; Covington v. Brigman (D. C., N. Car.), 32 Am. B. R. 35, 210 Fed. 499; In re Standard Tel. & Elec. Co. (D. C., Wis.), 19 Am. B. R. 491, 157 Fed. 106, affd. 20 Am. B. R. 671, 162 Fed. 675, which was affd. 24 Am. B. R. 761, 216 U. S. 545, 54 L. Ed. 610. Mortgage on shifting stock of merchandise. A chattel mortgage given by a bankrupt on a stock consisting of wines, liquors and cigars, etc., which, with the knowledge of the mortgagee, were bought and sold and dealt in from day to day in the usual course of trade, all of the proceeds being retained by the bankrupt and no part being turned over to the mortgagee, is invalid. In re Noethen (C. C. A., 2d Cir.), 29 Am. B. R. 234, 201 Fed. 97, affg. 27 Am. B. R. 910, 195 Fed. 573. Under the decisions of Oregon, when it appears either upon the face of a chattel mortgage or by parol evidence aliunde, that a mortgagee of personal property has given the mortgagor unlimited power and authority to dispose of the property in the usual course of trade, the mortgage is void as to attaching creditors, even though there was not actual fraudulent intent on the part of either of the parties to the instrument, and hence it is also void as to the trustee in bankruptcy of the mortgagor. Scandinavian-American Bank v. Sabin (C. C. A., 9th Cir.), 36 Am. B. R. 151, 227 Fed. 579. 208. General Securities Co. v. Driscoll (C. C. A., 5th Cir.), 46 Am. B. R. 472, 271 Fed. 295; Citizens American Bank & Trust Co. v. Driscoll (C. C. A., 5th Cir.), 48 Am. B. R. 394, 279 Fed. 748; Matter of Hallbauer (D. C., Fla.), 46 Am. B. R. 132, 275 Fed. 126; Boice v. Finance & Guaranty Corp. (Va. Ct. of App.), 102 S. E. 501. 209. Border Nat. Bank v. Coupland (C. C. A., 5th Cir.), 39 Am. B. R. 165, 240 Fed. 355; Matter of Mitchell Motor & Service Co. (D. C., Wash.), 46 Am. B. R. 716, 274 Fed. 492. statute just mentioned apply to a mortgage on wheat in bins.210 In some jurisdictions a provision giving the mortgagor power to sell and apply the proceeds in payment of the mortgage debt does not render the mortgage invalid, but it is rendered invalid by a provision allowing the mortgagor to sell the goods and use the proceeds to replenish his stock,211 while in still other jurisdictions such a mort 210. Matter of Ballard (D. C., Tex.), 44 Am. B. R. 651. 211. Dodge v. Norlin (C. C. A., 8th Cir.), 13 Am. B. R. 177, 133 Fed. 363; In re Hawks (D. C., Kan.), 30 Am. B. R. 365, 204 Fed. 309; Peterson v. Sabin (C. C. A., 9th Cir.), 32 Am. B. R. 509, 214 Fed. 234; Pierre Banking & Trust Co. v. Winkler (S. Dak. Sup. Ct.), 40 Am. B. R. 622, 165 N. W. 2; Bank of Dillon v. Murchison (D. C., S. Car.), 31 Am. B. R. 740, 213 Fed. 147; (not void per se.) Mortgage on shifting stock of merchandise. A New York chattel mortgage given to secure a part of the purchase price of a stock of goods, which permits the mortgagor to sell the goods in the ordinary course of business although providing that the stock shall be kept up to its present standard as to quality and quantity and purporting to give a lien on all goods purchased to replenish the stock is void as to the mortgagor's creditors, in the absence of a provision for turning over the proceeds of sales to the mortgagee or for using such proceeds to replenish the stock or for a renewal of the lien by giving renewal or new mortgages on new stock purchased. Matter of Purtell (D. C., N. Y.), 32 Am. B. R. 824, 215 Fed. 191; Matter of Davis (D. C., N. Y.), 19 Am. B. R. 98, 155 Fed. 671; In re Marine Construction & Dry Dock Co. (D. C., N. Y.), 14 Am. B. R. 466, 135 Fed. 921, mod. 16 Am. B. R. 325, 144 Fed. 649; Skilton v. Codington (N. Y. Ct. of App.), 15 Am. B. R. 810, 185 N. Y. 80, 77 N. E. 790; Zartman v. National Bank (N. Y. Sup. Ct.), 16 Am. B. R. 152, 109 N. Y. App. Div. 406, 96 N. Y. Supp. 633, affd. 19 Am. B. R. 27, 189 N. Y. 267, 82 N. E. 127. Right of trustee to take advantage of invalidity. Prior to bankruptcy, the bankrupt had given to his fatherin-law a chattel mortgage covering tools, furniture, personal property, etc., of every kind. He was at the time running a small store and his stock of merchandise, covered by the mortgage, was sold from time to time as his own and the proceeds used primarily for the support of the bankrupt's family, though occasional payments were made upon the mortgage but no account of sales was kept, and the mortgagee made no objection to the disposition made of the proceeds. Held, that the mortgage was invalid as to any of the property, as against the general creditors, and that the trustee in bankruptcy might take advantage of such invalidity. In re Hartman (D. C., N. Y.), 26 Am. B. R. 76, 189 Fed. 196. Possession and sale of property by mortgagor.-A provision in a chattel mortgage, that the mortgagors may remain in possession of a stock of merchandise and sell it out in the usual course, paying a per cent of the sales each week to the mortgagee, does not render the mortgage void per se. Good faith is the controlling principle in testing the validity of such a conveyance, and this must be in each case decided upon the evidence. Cauthorn v. Burley State Bank (Sup. Ct., Idaho), 33 Am. B. R. 794, 144 Pac. 1608. Sale of mortgaged property without accounting for proceeds.- Where bankrupt who had given a chattel mortgage on a stock of goods to a bankrupt was, gage is valid as to the after-acquired property only from the time the mortgagee takes possession thereof.212 Where such a power of sale is limited to a part only of the mortgaged property the mortgage is not rendered void in toto as against the bankrupt's trustee but only to the extent of such portion as to which the power of sale is given.213 An analogous question to the one just considered is as to the validity of a conditional sale of chattels to a vendee who offers them for sale to the public generally as in the case of retail mer chants.214 (11) PLEDGE. The lien of a pledgee is not only recognized, but is unimpaired, and he has the right to retain the property until it is released by a payment of his claim.215 The validity of a contract of with the knowledge of the mortgagee, permitted to sell the goods and, having deposited the proceeds in the bank, to use them for his own benefit and in the purchase of new merchandise, with no understanding that the proceeds should be reinvested and the mortgage lien attach to the goods, so purchased, and, although many times the mortgage indebtedness, in goods, were sold and the proceeds so deposited, only a small payment was made to the bank and no account rendered of the disposition of the proceeds, the transaction, under the law of South Dakota, constituted a legal fraud which voided the mortgage as against bankrupt's creditors. In re Geiver (D. C., S. Dak.), 28 Am. B. R. 413, 193 Fed. 128. 212. In re Ball (D. C., Vt.), 10 Am. B. R. 564, 123 Fed. 164. 213. Matter of Davis (D. C., N. Y.), 19 Am. B. R. 98, 155 Fed. 671; Peterson v. Sabin (C. C. A., 9th Cir.), 32 Am. B. R. 599, 214 Fed. 234. 214. See under this section, ante, subtitle "Conditional sales;" also under section 70, post. 215. Jerome v. McCarter, 15 N. B. R. 546; Yeatman v. Savings Inst., 9 U. S. 764; Clark v. Iselin, 21 Wall. 360; Matter of Harvey (D. C., Ala.), 32 Am. B. R. 337, 212 Fed. 340; Griffin v. Smith (Cal. Sup. Ct.), 41 Am. B. R. 354, 171 Pac. 92. Assignment of life insurance policy. - Matter of Baird (D. C., Del.), 40 Am. B. R. 552, 245 Fed. 504; Kellogg v. King (Miss. Sup. Ct.), 39 Am. B. R. 762, 75 So. 134. Storage charges against pledged property. Howard V. Mechanics' Bank (D. C., N. Y.), 45 Am. B. R. 112, 262 Fed. 699. Assignment of accounts.- Matter of National Discount Co. (C. C. A., 6th Cir.), 47 Am. B. R. 12, 272 Fed. 570. Verbal pledge of insurance policies. -The manual delivery of insurance policies, or other choses in action, to a pledgee with full power of control over them and with the intention of passing the equitable right to them is efficacious to that end, even if the legal title remains in the pledgor, and, constituting an equitable and enforceable pledge good between the parties, is good as against the trustee in bankruptcy of one of them. Jones v. Coates (C. C. A., 8th Cir.), 28 Am. B. R. 249, 196 Fed. $60. Restraining sale by pledgee.— In the case of Matter of Mayer, Leslie and Baylis (C. C. A., 2d Cir.), 19 Am. B. R. 356, 157 Fed. 836, it was held that a bankruptcy court is without power to restrain a sale by the pledgee of property held by him under a valid agreement of pledge by the bankrupt, and pursuant to its terms. |