LOUPIS v. ASHLEY, 102 N.H. 357 (1959)

156 A.2d 756

GEORGE G. LOUPIS, JR. v. JEROLD M. ASHLEY a.

No. 4787.Supreme Court of New Hampshire Grafton.Argued December 2, 1959.
Decided December 31, 1959.

1. Where a personal property mortgage permitted the mortgagor to sell the mortgaged merchandise in the usual course of business without notice or consent of the mortgagee or lienholders and specifically provided that the mortgagor maintain a constant inventory in excess of the mortgage indebtedness and use the proceeds of any sale to maintain the merchandise to the amount of the loan secured by the mortgage, and the evidence warranted the finding that the requirements thereof were met by the parties, such mortgage could be found to comply with the requirements of RSA 360:21 authorizing sale of mortgaged property.

2. Such mortgage having been duly recorded (RSA 360:3) and foreclosed in accordance with the requirements of RSA 360:28, 29, title obtained by the purchaser at the sale was superior to the rights of a creditor’s attachment made subsequent to the recording of the mortgage.

BILL IN EQUITY, to restrain Jerold M. Ashley, a deputy sheriff, and Foster Beef Company, a judgment creditor, from proceeding with an execution sale of equipment in a store in Enfield by reason of a judgment obtained by the latter against one Harry L. Tucker.

On September 20, 1957, Harry L. and Ruth C. Tucker executed a chattel mortgage to secure the payment of a note to Cross, Abbott Co., a Vermont corporation, in the amount of $2,791. The mortgage covered certain equipment listed therein and “all stock and inventory of groceries, meats, dairy products, canned goods, and all other goods, wares and merchandise, now on hand and in the said store premises, and all stock of like kind hereafter purchased and placed in said store, by us the said mortgagors. It being expressly agreed that the said mortgagors shall have the right to sell said stock . . . in the usual course of business, without notice to or consent of any subsequent mortgagee or lien holder of the said mortgaged property. Provided that the said mortgagors shall keep and maintain a constant inventory valued at Three Thousand ($3,000.00) Dollars, and the said mortgagors hereby agree to make such further purchases from the proceeds and avails of the sale of said stock . . . and to keep said stock . . . to the amount of the promissory note hereinafter described . . . It is further agreed . . .

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that the within mortgage is to cover and convey all the increase of the property conveyed, and of any additions to the stock . . . not exceeding in the aggregate the amount stated in this mortgage.” The mortgage was duly recorded on September 24, 1957.

On April 26, 1958, upon default, the mortgagee commenced foreclosure proceedings by posting the required notices (RSA 360:3) and on the same day took actual possession of the property by taking an inventory and padlocking the store in which they were located. The plaintiff purchased the property in question at the foreclosure sale on May 3, 1958. No question is raised about the formalities of the foreclosure. RSA 360:28, 29.

On the day of said sale but before the time appointed therefor, Foster Beef Company caused an attachment to be made of all the contents of the store in question. At the request of its counsel, the deputy sheriff who made the attachment announced at the foreclosure sale that Foster Beef Company claimed that the mortgage was void as to its attachment and that whoever bought the property would do so subject to its claim. Having obtained a judgment thereon notice was given of a sheriff’s sale of the fixtures in said store to be held on November 12, 1958, by virtue of a levy made pursuant to an execution.

After hearing on the bill to restrain said sale, the Court ruled “that the provisions of the mortgage requiring a constant inventory and the use of the proceeds of the sale of the merchandise for the purchase of new merchandise is in substantial compliance with the provisions of RSA 360:21, and also that the taking of possession by the mortgagee prior to the defendant’s attachment gave the mortgagee priority and the petitioner holds title free from the attachment even if the mortgage is held not to have met the requirements of RSA 360:21.” The defendants were enjoined and restrained from conducting the proposed sale. Their bill of exceptions was allowed and transferred by Grimes, J.

Fred P. Carr and William E. Lovejoy (Mr. Lovejoy orally), for the plaintiff.

Samuel A. Margolis (by brief and orally), for the defendant.

LAMPRON, J.

“Except as modified by specific statute it has been the general rule in New Hampshire and in a majority of other jurisdictions that an understanding or agreement between the

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chattel mortgagor and mortgagee that the former is free to sell the chattels for his own benefit renders the mortgage void as to creditors.” Haskins v. Dube, 101 N.H. 224, 225; anno. 73 A.L.R. 236. The reason for this rule is that the object of a mortgage is to secure a debt. If the parties to the mortgage could agree between them that the mortgagor could dispose of the mortgaged goods without paying on the mortgage debt this “would furnish the readiest means of affording shelter to an embarrassed debtor, under which he could carry on his business and defy his creditors.” Putnam v. Osgood, 51 N.H. 192, 202.

RSA 360:21 provides that “a personal property mortgage may provide that the mortgagor with the permission of the mortgagee may sell or exchange any of the mortgaged property in accordance with the provisions of the mortgage . . . if the proceeds of such sale or exchange are applied upon the mortgage debt or are used for the purchase of property to be included in the mortgage lien.” “Such a sale and such an application of the proceeds has no tendency to hinder, delay, or defraud the unpreferred creditors” which is the evil sought to be prevented by the general rule previously stated. Wilson v. Sullivan, 58 N.H. 260, 265.

The Court ruled “that the provisions of the mortgage requiring a constant inventory and the use of the proceeds of the sale of the merchandise for the purchase of new merchandise is in substantial compliance with the provisions of RSA 360:21.”

The mortgage specifically required that the mortgagor keep and maintain a constant inventory of $3,000 and use the proceeds from the sales of the mortgaged stock to keep said stock goods to the amount of $2,791.

A sales supervisor of the mortgagee was in the store at least once a week to check on its operation. There was evidence that the mortgagor “would try to make payments on the account but would fall behind . . . . He might pay three hundred dollars one week. The next week he would fall behind because he couldn’t pay for a load of stuff that was delivered to him in approximately the same amount.”

It could be found on this evidence that the provisions of the mortgage together with the actual procedure followed by the parties from its inception to the time of taking possession by the mortgagee complied with the requirements of RSA 360:21. The mortgage was duly recorded (RSA 360:3) and foreclosed in accordance with the requirements of RSA 360:28, 29. The title

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obtained by the purchaser, the plaintiff, was therefore superior to the rights of Foster Beef Company under its attachment made subsequent to the recording of the mortgage. The Court’s decree enjoining and restraining it from conducting a sale of the fixtures under its levy of execution was proper. Wilson v. Sullivan, supra.

In view of the result reached it is unnecessary to decide the issue of whether the taking of possession by the mortgagee prior to defendant’s attachment gave it priority even if the mortgage were held not to have met the requirements of RSA 360:21.

Decree affirmed.

All concurred.