CASES IN THE SUPREME COURT ОР KANSAS. FRANKHOUSER V. ELLETT. (22 Kans. 127.) Chattel mortgage— retention of possession by mortgagor — fraud. Under the statutes of Kansas a chattel mortgage may contain a valid stipulation for the retention of possession by the mortgagor of the mortgaged property. and possession so retained is not, when the mortgage is duly filed, either per se or prima facie fraudulent as against creditors or subsequent purchasers. Where a mortgage is given on a stock of goods, with a stipulation for possession by the mortgagor, and by agreement outside the mortgage the mortgagor is permitted to continue disposing of the goods in the ordinary course of business, and to use a portion of the proceeds thereof in the support of his family, paying the remainder over in discharge of the mortgage debt, the whole transaction is not thereby, as matter of law, rendered fraudulent and void as against creditors and subsequent purchasers, but will be upheld or condemned according as the arrangement is entered into and carried out in good faith, or not. (See note, p. 178) R EPLEVIN. The opinion states the facts. The plaintiff had judgment below. William Thomson, for plaintiff in error. The main statutes of Kansas which bear upon the subject of the registration of chattel mortgages are section 3 of "An act for the prevention of frauds and perjuries" (chap. 43 of Gen. Stat.), and section 9 of article 2 of chapter 68 of the General Statutes, both of which sections took Frankhouser v. Ellett. effect October 31, 1868. These two sections are, to all intents and purposes, the same as the New York provisions, unless the provision at the end of section 3, "this section shall not interfere with the provisions of law relating to chattel mortgages," makes a difference. We contend that the effect of the two statutes of Kansas will be exactly the same without as with that provision. Our statute does not, like the enactments of some States, contain the express provision that the filing of the mortgage shall operate and have the same effect as a change of possession. Such a provision is contained in the Iowa statutes concerning the filing of chattel mortgages, and therefore, the decision of the Iowa court, upon which the defendant in error so fully relies, is no proper rule for guidance in Kansas. The doctrine that "an oral agreement between the mortgagor and the mortgagee of chattels that the former shall retain possession of the goods and sell them in the regular course of his business and apply the proceeds to his own use in the support of his family and otherwise," renders the mortgage void as to the creditors of the mortgagor, has been universally held to be the law in the States of Ohio, Minnesota, Illinois, Alabama, New Hampshire, Missouri, Indiana, Georgia, Tennessee, Wisconsin and New York. Griswold v. Sheldon, 4 N. Y. 581; Freeman v. Rawson, 5 Ohio St. 1; Harman v. Abbey, 7 id. 218; Place v. Longworthy, 13 Wis. 704; Jordan v. Turner, 3 Black f. 309; Herman on Chattel Mortgages, 238; Robinson v. Elliott, 22 Wall. 513. Ruggles, Scott & Lynn, James Rogers and E. M. Sanford, for defendant in error. BREWER, J. Action of replevin. Judgment in favor of plaintiff, defendant in error, to review which this proceeding in error has been brought. Passing by all preliminary questions as to the sufficiency of the record, we pass to a consideration of the substantial matters in dispute. The case was tried by the court, without a jury, and upon an agreed statement of facts. This statement of facts shows that, on March 9, 1876, one Charles J. Kendall was indebted to the defendant in error, Ellett, for money borrowed ($3,263.43) and as an accommodation indorser for $2,500. To secure this, Kendall executed to Ellett the chattel mortgage set out in the record, which was recorded in the proper Frankhouser v. Ellett. office on March 10, 1876. This borrowed money became due about May 9, 1876. The notes on which Ellett was indorser became due respectively about March 24, 1876, and about April 14, 1876. About May 13, 1876, Tenant, Walker & Co. sued out an attachment against said Kendall, which came into the hands of plaintiff in error, an officer, and on said day a portion of the property so mortgaged was seized by said officer, under said attachment; and thereupon this action of replevin was commenced by Ellett, an order of deliverance duly issued, and the said attached property taken and delivered to Ellett. The decision of this case depends upon the question as to whether or not this mortgage is valid. The stipula tions in the chattel mortgage, so far as inaterial, are in these words: "The property sold is to remain in the possession of the said party of the first part, until default be made in the payment of the debt and interest and indorsed notes aforesaid, or some part thereof, but in case of a sale or disposal, or attempt to sell or dispose of the same, or a removal of or attempt to remove the same from said county of Osage, or an unreasonable depreciation in the value, or if from any other cause the security shall become inadequate, the said party of the second part may take such property, or any part thereof into his possession; and upon taking such property into his own possession, either in case of default or as above provided, said party of the second part shall sell the same at public or private sale, and after satisfying the aforesaid debt and interest thereon, and all necessary and reasonable costs, charges and expenses incurred, out of the proceeds of sale, he shall return the surplus to said party of the first part, or his legal representatives; and if from any cause said property shall fail to satisfy said debt and interest aforesaid, said party of the first part hereby agrees to pay deficiency." It is admitted that the notes secured by said mortgage represented a valid and bona fide indebtedness of said Kendall. There is no admission, that at the time said mortgage was executed, Kendall had or ever entertained any idea or intention, by its execution or otherwise, to hinder, delay or defraud his creditors; nor is there any evi dence of any such idea or intention, unless it can be said, as matter of law, from all the facts in the agreed statement, that he had such intention. It is agreed that Ellett had no knowledge, at the time the mortgage was given, that Kendall intended either to hinder, delay or defraud his creditors, unless the facts of which he did have knowl Frankhouser v. Ellett. edge should be deemed knowledge of such intention, and that he took the mortgage in good faith for the purpose and with the intention solely of securing his said claim against said Kendall, unless the facts stated show a want of good faith. The only other facts in the statement that can be material are: That at the time the mortgage was given Kendall owed several parties in different amounts, aggregating about $1,850; that the mortgage in question covered all Kendall's property except about $2,000 in accounts, $1,600 of which were considered by Kendall to be good, and three town lots valued at twenty-seven dollars and fifty cents. Ellett had knowledge that some of these claims were sent to the bank, of which he was president, for collection and that K. could not pay his indebtedness in the usual course of his business. At this time K. make an effort to get extensions from all his creditors except Ellett; and before he got these extensions Ellett consulted an attorney, under whose advice the mortgage was given, said attorney informing Ellett that if the mortgage was duly filed for the period of two months the lien created by it would be valid. The mortgage was executed. Kendall got his extensions "under the impression and with the hope that before said indebtedness could again mature he would be able to sell his entire stock of goods and pay his debts, and with the hope of avoiding the odium of having failed in business." Kendall did not inform these creditors that he was about to give this mortgage. After the execution of said mortgage Kendall, with the consent, knowledge and agreement of Ellett, continued in his business of general merchant, and with Ellett's consent and agreement held and controlled said mortgaged goods, disposed of the same in the usual way, received and controlled the proceeds and made deposit thereof, amounting to $1,350, in the Osage City Savings Bank, in the name of Ellett, for the purpose of having the same applied to the refunding to Ellett money advanced by him to take up the note of $2,000 to said bank, upon which Ellett was accommodation indorser as aforesaid, and which $1,350 was so applied. Kendall was permitted to buy goods to replenish the stock and check upon Ellett's account in said bank to pay for same, and did so check to the extent of about $400 for a few necessary staple goods to keep said stock in order, which goods were bought and shipped in Kendall's name and placed in his store-room with the said mortgaged goods, but were always so kept by K. separate from the mortgaged goods. Kendall, also, with the knowledge and con Frankhouser v. Ellett. sent of Ellett, used groceries and goods out of his store, and said mortgaged goods and money derived therefrom, necessary to support his family from the time the mortgage was given, March 9, 1876, to May 13, 1876. It may be added that Tenant, Walker & Co. and said plaintiff in error had actual notice and knowledge of said mortgage at the time of said levy under the attachment, and that Ellett protested against the levy. The statutes of Kansas that have any bearing upon this subject are section 3 of the act for the prevention of frauds and perjuries, which reads: "Every sale or conveyance of personal property unaccompanied by an actual and continued change of possession shall be deemed to be void, as against purchasers without notice and existing or subsequent creditors, until it is shown that such sale was made in good faith and upon sufficient consideration. This section shall not interfere with the provisions of law relating to chattel mortgages." And section 9 of article 2 of chapter 68: "Every mortgage or conveyance intended to operate as a mortgage of personal property which shall not be accompanied by an immediate delivery and be followed by an actual and continued change of possession of the things mortgaged shall be absolutely void, as against the creditors of the mortgagor and as against subsequent purchasers and mortgagees in good faith, unless the mortgage, or a true copy thereof, shall be forthwith deposited in the office of the register of deeds in the county where the property shall then be situated, or if the mortgagor be a resident of this State then of the county of which he shall at the time be a resident." The first proposition of counsel for plaintiff in error is, that as the possession of the mortgaged property was retained by the mortgagor, the mortgage, although duly filed in the office of the register of deeds, must be deemed to be void as against creditors, until shown to have been made in good faith and upon sufficient consideration, and that no such showing having been made, the district court erred in not holding the mortgage void. In other words, he contends that the same rule applies in mortgages as in sales, and that retention of possession is presumptive evidence of fraud; that the failure to deposit the mortgage in the register's office renders the instrument absolutely void, while the depositing does not make it even prima facie valid. Depositing is absolutely essential to the validity of a chattel mortgage; without it none can be enforced against creditors. Delivery of possession of the mortgaged property or proof of good |