Hartford-Connecticut Trust Co. v. Puritan Laundry , 95 Conn. 172 ( 1920 )

Under our statute authorizing retention of possession by a mortgagor of personal property of the several kinds described in the statute, and to which property in question belongs, it is required that the the mortgage shall contain "a particular description of such personal property." General Statutes, § 5206. The description in the mortgage in this action was "all machinery, tools and equipment located on said premises used in connection with the laundry business conducted by the grantor." The trial court held that this was too general and indefinite a description to secure the protection of the chattel mortgage as against attaching creditors and bona fide purchasers. This ruling is justified by Gaylor v. Harding, 37 Conn. 508, andHerman v. Deming, 44 Conn. 124, and is not in fact questioned by the plaintiff. While, therefore, this question is not before us, reference must be made to it because the questions presented are based primarily upon the assumption that this ruling was correct, and that the plaintiff stands in no other position than it would be in if the statute were not in existence.

The appellant claims that the mortgage as to the tools, machinery and equipment involved in this appeal, by reason of the generality of its description, is invalid as between the mortgagor and the mortgagee. Directly the contrary was held by the court in Gaylor v. Harding, supra, a case, up to a certain point, indistinguishable from the present. We quote from page 516 as follows: "None of the property in dispute is particularly described in the mortgage deed, nor enumerated in the schedule thereto attached. The deed was, however, duly recorded, and general words of description are used which, as between the parties, would embrace and convey all the machinery. After a description of the real estate the deed goes on to say, `together with all the machinery, tools and implements contained in said buildings; also all machinery, tools and implements which may from time to time be added to or substituted for those now in use upon said premises and in said building.'" This is, also, the general rule as between the parties. 11 Corpus Juris, p. 456, § 78. Neither did retention of possession of the mortgaged personality make the mortgage invalid as between the parties. The doctrine of the effect of retention of possession by the vendor or mortgagor of personal property, never was applied, or intended to be applied, so as to render a sale or a mortgage of personal property, otherwise valid, invalid as between the parties. The doctrine is solely for the protection of attaching creditors and bona fide purchasers. In all our cases where it is said that retention of possession renders a sale or mortgage void, this result is always affirmed with reference to the rights of such creditors or purchasers, and never as to the rights of the original parties as between themselves. All the discussions are based upon the assumption of a contract good between the parties and as to all others except creditors and bona fide purchasers.Gaylor v. Harding, 37 Conn. 508; Price v.Heubler, 63 Conn. 374, 28 A. 524; Swift v. Thompson,9 Conn. 63; and this principle is recognized and applied in Sanford v. DeForest, 85 Conn. 694, 84 A. 111. See also Patten v. Smith, 5 Conn. 196.

Did the case of the defendant Pratt Company rest upon a priority claimed by reason of an attachment of the mortgaged personal property while it was still in the hands of the mortgagor and nothing more, it may be conceded that the claimed priority over the mortgagee would be made out. But the Pratt Company's situation is controlled by quite other factors than those so far referred to. It appears from the statement of facts that about six months after the mortgage was given by the Puritan Company, the Pratt Company, desiring to purchase the mortgaged property from the Puritan Company, mortgagor, and to remove the property to its own place of business, entered into a contract of conditional sale with the Puritan Company by which the Puritan Company agreed to sell the property to the Pratt Company, title to pass to the Pratt Company when payments had been made in the manner provided in the contract to the amount of $10,600 with interest thereon. While the contract was in form one of renting and hiring, it was rightly regarded by the parties as a conditional sale. In reWilcox Howe Co., 70 Conn. 220, 228, 39 A. 163;Hine v. Roberts, 48 Conn. 267. The Puritan Company, apparently desiring to protect the Trust Company, mortgagee, and also to protect itself from liability to the Trust Company as maker of the notes secured by the mortgage, before executing the contract of conditional sale notified the defendant Pratt Company of the facts as to the mortgage, with the result that the following clause was made part of the contract of conditional sale, to wit: "Said machinery is subject to a mortgage to the Hartford Trust Company for the sum of $7,000, which, in addition to the payments to be made to the said party of the first part [The Puritan Company], by the said party of the second part [The Pratt Company] as herein contemplated, said party of the second part hereby assumes and agrees to pay, as part consideration hereof." The contract then specifically provides for the payment of a portion of the so-called weekly rent to the Trust Company on account of the mortgage debt referred to. Under this contract the Pratt Company became a purchaser of the property, conditional of course, not only with full notice of the plaintiff's interest therein and therefore not as a bona fide purchaser, but as a purchaser undertaking by this express contract to assume and pay the Trust Company's claim as part of the purchase price of the property involved in the transaction. By undertaking this obligation the Pratt Company not only undertook to pay the plaintiff, but by so doing to pay and discharge the obligation of the Puritan Company evidenced by the mortgage, and therefore made the contract immediately and directly for the benefit and advantage of the Puritan Company as a method of discharging the secured debt of the Puritan Company to the plaintiff. After this undertaking and delivery of this property under this contract, the Pratt Company cannot be heard to say that it is not bound by the terms of this agreement. The Pratt Company is not a purchaser in good faith. Neither lack of particularity in the description, nor retention of possession by the Puritan Company, have caused or permitted any fraud upon the Pratt Company considered as a purchaser, and to allow its present claim would enable it to work a fraud upon both the Puritan Company and the plaintiff. Such allowance would enable the Pratt Company to take and hold possession of the property at the same time that it repudiated its express obligation to pay, made in the very contract under which it holds. We think the Pratt Company as purchaser is by its contract clearly estopped from disputing the validity of this mortgage.

But the Pratt Company says that the rule as to bona fide purchasers does not apply, — that its claim is based upon its rights as an attaching creditor, and that the fact of notice does not defeat the right of an attaching creditor. We may admit that under our law the mere fact of notice does not, under ordinary circumstances, affect the rights of an attaching creditor.Swift v. Thompson, 9 Conn. 63. The situation of an attaching creditor and that of a bona fide purchaser differ materially. "In such cases there is a material distinction between purchasing property voluntarily and paying money therefor, and attaching it to secure a debt. Creditors ordinarily stand on as high ground as bona fide purchasers without notice." Ives v. Stone,51 Conn. 446, 458. To determine whether the rule as to attaching creditors applies in this case, it is necessary to revert to the special facts found with reference to the attachment. The Pratt Company took possession of the property under the contract of conditional sale and held possession at the time it caused the attachment to be made. It appears that upon the same date as the conditional sale, April 4th, 1918, the Puritan Company made a separate contract with the Pratt Company, by which it agreed forthwith to set up and install said machinery in the Pratt Company's laundry and place the same in good condition, repair and running order, free from expense and charge to the Pratt Company; and it was further agreed that the instalment payments provided for in the contract of conditional sale should not begin until one week after the property was removed, installed and in running order. This contract was not incorporated in or referred to in any part of the contract of conditional sale, though it was made upon the same date and was collateral thereto. It was an independent contract to do certain work upon the property described in the conditional sale; otherwise it is difficult to see why it was neither incorporated nor referred to in the conditional sale. Certain other collateral contracts were made upon the same day which are not here material. On July 2d 1918, the Pratt Company's attorney wrote the Puritan Company, complaining that certain articles had not been delivered, and certain other articles delivered had not been set up pursuant to the collateral contract, and further notifying the Puritan Company that on account of failure to carry out the contract the Pratt Company would not accept the property delivered; that it tendered the property back; that it had suffered great loss in consequence of the failure to fulfil the agreement, and that the Pratt Company would not accept the property under any conditions. The Pratt Company in fact made no tender of the property back other than by the attorney's statement referred to above, and held possession and control of it in the premises of the Pratt Company until February 24th, 1919, when, by writ of attachment, it brought an action against the Puritan Company to recover damages on account of an alleged failure of the Puritan Company to carry out its agreements in connection with the sale. Under this writ the deputy sheriff attached all of said property then in possession of the Pratt Company, and took the same into his possession, and such attachment is still in force. So far as appears the action is still pending. It is upon this attachment that the Pratt Company claims priority over the plaintiff's mortgage. The court also found that the Puritan Company is wholly insolvent and that it is and will be unable to pay the notes secured by the mortgage. It does not appear that the conditional sale has ever been abrogated further than by the attorney's notice above referred to, and the action begun in February, 1919, is still pending. We must therefore regard the claimed breaches by the Puritan Company as still in litigation. The contract of conditional sale contained no provision authorizing its rescission or discharge by the Pratt Company, and for all that appears in the record this contract is still in force between the Pratt Company and the Puritan Company.

The question that emerges from these facts attending the attachment, seems to be this: may the Pratt Company, while holding possession of the property under the contract of conditional sale, avoid its express obligation to recognize, assume and pay the mortgage upon the property, by making an attachment of the same property in a suit based upon a claimed violation of the very contract under which it obtained possession of the property and is holding it at the time of the attachment? By the attachment the Pratt Company, under the guise of claiming to be a creditor, is seeking to appropriate the property against its express undertaking. We do not think that the purpose or spirit of our somewhat rigorous law in favor of attaching creditors, either requires or permits this to be done. The purpose of the law is to prevent fraud that may arise because the debtor is permitted to seem to have that which he does not have. The case of the Pratt Company is not the usual case of an attaching creditor having notice simply, but of a creditor under contract with its vendor, not only to recognize the prior rights of the mortgagee, but to assume and pay the mortgage in discharge of a liability of its vendor. What the Pratt Company really got from the Puritan Company was the equity of the Puritan Company in the property over and above the Trust Company's mortgage interest, by a contract in which it substituted itself for the Puritan Company as to the payment of the mortgage, and that was precisely its position at the time of the attachment. The Puritan Company, under the conditional sale, had a leviable interest at the time of the attachment, but this interest was, as to the Pratt Company, only the equity over the mortgage claimed, and was the bare legal title retained by it to secure payment of the purchase price, — the greater part of this price being the obligation of the Pratt Company to assume and pay the mortgage. These special facts take the case out of the ordinary rule as to attaching creditors, and the Pratt Company, the attaching creditor, has no priority over the plaintiff mortgagee. To allow the claimed priority would be permitting a rule designed to prevent fraud to work a fraud.

The first and last reasons of appeal are, in substance, that the court erred in rendering judgment for the plaintiff. This is not the specific statement of error required under § 5837 of the statute relating to appeals. Avery v. Ginsberg, 92 Conn. 208, 102 A. 589. All the specific claims of error in the reasons of appeal are considered in the foregoing opinion.

There is no error.

In this opinion the other judges concurred.