Opinion
08-07-1931
LION SHOE CO. et al. v. PRICE et al.
Kiminel & Kimmel, of Paterson, for complainants. William N. Gurtman, of Passaic, for defendants.
Syllabus by the Court.
Chattel mortgages. A statement of consideration annexed to a chattel mortgage must set forth the true and an actual consideration, and a statement setting forth notes or checks is not sufficient statement of consideration.
Syllabus by the Court.
Chattel mortgages. The statement of consideration must be complete, and where the statement is only partial the mortgage is void for the entire amount.
Syllabus by the Court.
Chattel mortgages. Section 4 of the Chattel Mortgage Act (1 Comp. St. 1910, p. 403) applies as well to creditors who become such before the recording of a mortgage defective thereunder as well as to prior creditors.
Syllabus by the Court.
Chattel mortgages. The mortgagee who takes possession and sells property under a mortgage, void by section 4 of the Chattel Mortgage Act (1 Comp. St. 1910, p. 463), held liable to account to creditors for proceeds of sale.
Suit by the Lion Shoe Company and others against Morris Price and another.
Decree for complainants.
Kiminel & Kimmel, of Paterson, for complainants.
William N. Gurtman, of Passaic, for defendants.
LEWIS, Vice Chancellor.
This is a suit where judgment creditors of defendant Price compel the defendant Golden to account for the proceeds of the sale under a chattel mortgage on property of defendant Price. In 1928, Price executed a document purporting to be a chattel mortgage to Golden to secure the sum of $3,000. Appended thereto was an affidavit purporting to set forth the consideration. The document was recorded as a chattel mortgage, and subsequently complainants sold goods to Price. Defendant Golden subsequently sold the goods under the chattel mortgage for the sum of $3,400. After the sale, complainants reduced their claims for judgments. It is contended on behalf of complainants that the affidavit appended to the mortgage was defective under the statute, and that the mortgage was accordingly void as against them, and that defendant Golden should be directed to account to them out of the $3,400 for the amount of their judgments. In my opinion, they have sustained this contention.
The Chattel Mortgage Act (section 4 [1 Comp. St. 1910, p. 463]) provides, so far as relative here, that every mortgage not accompanied by immediate delivery "shall be absolutely void as against the creditors of the mortgagor * * * unless the mortgage, having annexed thereto an affidavit * * * stating the consideration of said mortgage * * * be recorded." Here there was a statement annexed purporting to set forth the true consideration for the $3,000, and enumerating certain notes and checks aggregating more than one-half of the principal sum and two items set forth as cash loans. The dates and names of the makers of these checks and notes are set forth, but there is no statement as to what the consideration was for them. It is settled by the decisions that the mere setting up of a note or check is not sufficient compliance with the statute, the purpose of which was to require the true and actual consideration to be stated as a safeguard against fraudulent mortgages to secure fictitious claims. Ehler v. Turner, 35 N. J. Eq. 68; Latham v. Lawrence, 11 N. J. Law, 322; Dunham v. Cramar, 63 N. J. Eq. 151, 51 A. 1011; Collerd v. Tully, 78 N. J. Eq. 557, 80 A. 491, Ann. Cas. 1912C, 78.
The statute requires that the statement set forth the true consideration for the entire amount covered by the mortgage, and the statement in the instant case that part of the consideration was loans does not validate the mortgage even to the extent of the loan. The entire instrument stands or falls together. Collerd v. Tully, 78 N. J. Eq. 557, 80 A. 491, 492, Ann. Cas. 1912C, 78. The court says: "The statute makes it obligatory that it should set forth the consideration of the mortgage, not partially, but completely."
It is contended on behalf of defendant Golden that complainants cannot be heard to attack the mortgage to him because they were not creditors before the recording of the mortgage. This position is untenable. The protection given to recorded mortgages as against subsequent creditors is extended only to a person claiming under a mortgage made in compliance with the statute. The statute was not complied with because the true consideration was not set forth. Vanaman v. Pliehr, 75 N. J. Eq. 88, 71 A. 692; Seacoast Finance Corp. v. Cornell, 104 N. J. Law, 24, 138 A. 695.
Having seized and sold the chattel under a mortgage that was void as against the creditors, . defendant Golden is chargeable with the proceeds and must account therefor. National Shoe & Leather Bank v. August, 54 N. J. Eq. 182, 33 A. 803.
A decree will be advised accordingly.