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Opinion of the Court.

1881, did not give it priority of right over Bates, Reed & Cooley; and the mortgage that was in fact first executed and delivered, must be held to give priority of right.

In Kohl v. Lynn, 34 Mich. 360, 361, the Supreme Court of Michigan said that, "the statute which makes a mortgage of chattels, which has not been recorded, void ‘against subsequent purchasers or mortgages in good faith,' uses those terms in the sense which has always been attached to them by judicial decisions." Guided by this rule, which we deem a sound one, we concur with the court below in holding that the words "mortgagee in good faith," mean the same thing as “mortgagee for a valuable consideration without notice."

It is insisted that the principles announced in Swift v. Tyson, 16 Pet. 1, and Railroad Co. v. National Bank, 102 U. S. 14, sustain the proposition that the bank was a mortgagee in good faith, although the mortgage to it may be held to have been given merely as security for past indebtedness. The general doctrine announced in Swift v. Tyson was, that one who be comes the holder of negotiable paper, before its maturity, in the usual course of business and in payment of an existing debt, is to be deemed to have received it for a valuable consideration, and is, therefore, unaffected by any equities existing between antecedent parties. In that case, Mr. JusticeStory said that the rule was applicable as well as when the negotiable instrument was received as security for, as when received in payment of, a preëxisting debt. In Railroad Co. v. National Bank, it was held, conformably to the recognized usages of the commercial world, that "the transfer before maturity of negotiable paper as security for an antecedent debt merely, without other circumstances, if the paper be so indorsed that the holder becomes a party to the instru ment, although the transfer is without express agreement by the creditor for indulgence, is not an improper use of such paper, and is as much in the usual course of commercial business as its transfer in payment of such debt. In either case, the bona fide holder is unaffected by equities or defences between prior parties, of which he had no notice."

p. 28. Do these principles apply to the case of a chattel mortgage

Opinion of the Court.

given merely as security for a preëxisting debt, and in obtaining which the mortgagee has neither parted with any right or thing of substance nor come under a binding agreement to postpone or delay the collection of his demand? Upon principle, and according to the weight of authority, this question must be answered in the negative.

The rules established in the interests of commerce to facilitate the negotiation of mercantile paper, which, for all practical purposes, passes by delivery as money, and is the representative of money, ought not, in reason, to embrace instruments conveying or transferring real or personal property as security for the payment of money. At any rate, there is nothing in the usages of merchants, as shown in this record, or so far as disclosed in the adjudged cases, indicating that the necessities of commerce require that chattel mortgages be placed upon the same footing in all respects as negotiable securities which have come to the hands of a bona fide holder for value before their maturity. Such a result, if desirable, must be attained by legislation, rather than by judicial decisions.

One of the earliest cases in the Federal courts upon this subject is that of Morse v. Godfrey, 3 Story, 364, 389. It there appeared that one Reed mortgaged to Godfrey all stock in trade and nearly all his real estate. The latter subsequently mortgaged the same property to a bank. In a contest between the bank and the assignee in bankruptcy of Reed, the former claimed to be a bona fide purchaser for value without notice of the invalidity, under the bankrupt law, of the mortgages to Godfrey. Mr. Justice Story said:

"This leads me to remark that the bank does not stand within the predicament of being a bona fide purchaser, for a valuable consideration, without notice, in the sense of the rule upon this subject. The bank did not pay any consideration therefor, nor did it surrender any securities, or release any debt due, either from Reed or Godfrey, to it. The transfer from Godfrey was a simple collateral security, taken as additional security, for the old indebtment and liability of the parties to the notes described in the instrument of transfer. It is true that, as between Godfrey and Reed and the bank,

Opinion of the Court.

the latter was a debtor for value, and the transfer was valid. But the protection is not given by the rules of law to a party in such a predicament merely. He must not only have had no notice, but he must have paid a consideration at the time of the transfer, either in money or other property, or by a surrender of existing debts or securities held for the debts and liabilities.

"But here the bank has merely possessed itself of the property transferred as auxiliary security for the old debts and liabilities. It has paid or given no new consideration upon the faith of it. It is, therefore, in truth, no purchaser for value in the sense of the rule.

""

After referring to Dickerson v. Tillinghast, 4 Paige, 215,1 in which it was held by Chancellor Walworth that the transfer of an estate upon which there was a prior unrecorded mortgage, in payment of a preëxisting debt, without the transferee giving up any security or divesting himself of any right, or placing himself in a worse situation than he was in before, did not make the latter, who was without notice of the prior mortgage, a grantee or purchaser for a valuable consideration, Mr. Justice Story proceeded: "I do not say that I am prepared to go quite to that length, seeing, that by securing the estate as payment, the preëxisting debt is surrendered and extinguished thereby. But here there was no such surrender or extinguishment or payment; and the general principle adopted by the learned Chancellor is certainly correct, that there must be some new consideration moving between the parties, and not merely a new security given for the old debts or liabilities without any surrender or extinguishment of the old debts and liabilities or the old securities therefor. So that upon this ground alone the title of the bank would fail. The case of Swift v. Tyson, 16 Pet. 1, does not apply. In the first place, there the bill was taken in payment or discharge of a preexisting debt. In the next place, it was a case arising upon negotiable paper, and who was to be deemed a bona fide holder thereof, to whom equities between other parties should not apply. Such a case is not necessarily governed by the same

1 S. C. 25 Am. Dec. 528.

Opinion of the Court.

considerations as those applicable to purchasers of real or personal property under the rule adopted by courts of equity for their protection.". See also Rison v. Knapp, 1 Dillon, 186, 200, 201.

In Johnson v. Peck, 1 Woodb. & Min. 334, 336, which was a case of a mortgage given to secure a preëxisting debt due from a mortgagor who had previously purchased the goods under such representations as entitled his vendor to sue to recover them back, Mr. Justice Woodbury said: "When rights of third persons intervene in this class of cases they are to be upheld, if those persons purchased the property absolutely and parted with a new and valuable consideration for it without notice of any fraud. But if they have notice of the fraud or give no new valuable consideration, or are mere mortgagees, pawnees, or assignees in trust for the debtor, or for him and others, such third persons are to be regarded as holding the goods open to the same equities and exceptions as to title as they were open to in the hands of the mortgagor, pawner, or assignor."

And so in 2 American Leading Cases, 5th Amer. ed., p. 233, it is stated, and we think properly, as the doctrine established by a preponderance of authority, that "whatever the rule may .. be in the case of negotiable instruments, it is well settled that the conveyance of lands or chattels as security for an antecedent debt will not operate as a purchase for value, or defeat existing equities." See 2 Leading Cases in Equity, 104, 3d Am. ed.; Strangham v. Fairchild, 80 Ind. 598.

Such, we think, is also the doctrine of the Supreme Court of Michigan. In Kohl v. Lynn, 34 Mich. 360, the court, after observing that the object of the statute is to protect those who have acquired rights under the circumstances which would render them liable to be defrauded unless protected against instruments of which they knew nothing when acquiring their rights, said: "It has always been held that a purchaser who had paid nothing could not be thus defrauded, and that no one could be protected as a bona fide purchaser, except to the extent of his payments made before he received such notice as should have prevented him from making further payments.

Opinion of the Court.

This doctrine has been too uniformly recognized to require discussion or citation of authorities. As Kohl had made no payments at all before the property was replevied from him, he was not a bona fide purchaser, and his rights are subject to the mortgage."

In Stone v. Welling, 14 Mich. 514, 525, where the issue was between the holder of an unrecorded mortgage and a subsequent grantee, who agreed to surrender indebtedness of the grantor to him and others, and put the deed on record without notice of the mortgage, the court said:

"Welling claims that the agreement which was given for the deed was amply sufficient to support it, and to entitle him to the rights of a bona fide purchaser under the recording laws. It was satisfactory, it is said, to Hart; and as to the indebtedness held by Welling and Root against him, it would have the effect of a present discharge. That it was satisfactory to Hart can be of no consequence on this question, since, to constitute Welling a bona fide purchaser he must have parted with something of value, and not merely given a contract which he could avoid, if his title under the deed proved defective. Thomas v. Stone, Walker's Ch. 117; Dixon v. Hill, 5 Mich. 404; Warner v. Whittaker, 6 Mich. 133;1 Blanchard v. Tyler, 12 Mich. 339. Nor do we think the agreement had the effect to discharge any indebtedness. It was executory in its character, covering not only the claims of Welling and Root, but also other claims to be procured by them, and upon which it cannot be claimed that the agreement itself would have any effect whatever."

In Boxheimer v. Gwin, 24 Mich. 372, 379, the defendant in a suit brought to foreclose a recorded mortgage, relied upon a subsequent deed of the mortgagor, which he was induced to take under the representation of the latter, that the mortgage debt had been paid. After sustaining the claim of the plaintiff upon certain grounds, the court said that the defendant must fail in the suit upon the further ground that, although he acted with good faith, he was not a bona fide purchaser or

1 S. C. 72 Am. Dec. 65.

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