In DeYoe v.Harper Brothers, Inc., supra, an affidavit which failed to state that part of the consideration represented bonus moneys was held defective.Summary of this case from Sickinger v. Zimel
Decided April 30th, 1937.
1. The affidavit attached to a chattel mortgage must truthfully state the consideration, and any substantial deviation from the truth, however honestly made, will invalidate the mortgage as against creditors.
2. The Chattel Mortgage act ( 1 Comp. Stat. p. 463 § 4) provides that the affidavit annexed to a chattel mortgage shall state the consideration therefor and as nearly as possible the amount due and to grow due thereon. In the instant case each chattel mortgage stated the consideration as being an amount greater than the true consideration. In consequence, the mortgages were voided against creditors of the mortgagor.
3. The true consideration for a chattel mortgage must be set out in the affidavit annexed thereto, not merely particularly but completely. The whole instrument must stand or fall together, so that a partial compliance will not validate a chattel mortgage even to the extent of the consideration which is truthfully set forth.
On appeal from an order of the court of chancery advised by Vice-Chancellor Egan, who filed the following opinion:
"The American Discount Company claims to hold two chattel mortgages on the property of the defendant. They are dated September 13th, 1934, and May 16th, 1935, and in the amounts of $6,000 and $2,250, respectively. Their validity was questioned by the receivers of the defendant herein. The question arising upon argument before the court, it was on September 6th, 1935, referred to John J. Fallon, one of the special masters of this court, to determine the legality and priority of the mortgages. On May 8th, 1936, the special master filed his report wherein he declared that the affidavits attached to the said mortgages did not truthfully recite the consideration, and that in consequence, the said mortgages were voided against creditors of the mortgagor, Harper Brothers, Incorporated. Ehler v. Turner, 35 N.J. Eq. 68; Finkel v. Famous Lunchroom Co., 100 N.J. Eq. 85; McDonald v. H.B. McDonald Const. Co., Inc., 117 N.J. Eq. 181; Locke Cotton Mills Co. v. Plasket, 119 N.J. Eq. 598.
"The testimony and proof submitted at the hearing before the special master, shows that the true consideration of the mortgage dated September 13th, 1934, was $5,000 and not $6,000 as stated in the mortgage; and the true consideration of the mortgage dated May 16th, 1935, was $1,000 and not $2,250 as therein set forth.
"The affidavits in both mortgages did not truthfully state the consideration. That circumstance vitiates the instruments. In the case of Hunt v. Ludwig, 93 N.J. Eq. 314; affirmed in 94 N.J. Eq. 158, the court said: `The affidavit must truthfully state the consideration, and that a substantial deviation from the truth, however honestly made, will invalidate the mortgage as against creditors.'
"Section 4 of `An act concerning mortgages on chattels (Revision of 1902),' 1 Comp. Stat. pp. 463, 464, provides that every chattel mortgage which shall not be accompanied by an immediate delivery, and 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, having annexed thereto an affidavit or affirmation made and subscribed by the holder of the said mortgage, his agent, or attorney, states the consideration of said mortgage and as nearly as possible the amount due and to grow due thereon.
"In the instant case the affidavit in the chattel mortgage dated September 13th, 1934, recites among other things, the following:
"`* * * the true consideration of the said mortgage is $5,000.00 this day advanced by the mortgagee to the mortgagor upon the stipulation to repay said sum as well as the additional sum of $1,000.00 in consideration of the hazards taken and the interest, services rendered, and disbursements made by and for the mortgagee in and about making appraisal of the within mentioned motor vehicles, making credit investigation of mortgagor, searching records for liens on said motor vehicles, examining documentary title of the mortgagor, and drawing and recording this mortgage, making a total of $6,000.00. There is now due and to become due on this mortgage the sum of $6,000.00.'
"There is no way of ascertaining from the evidence submitted at the hearing before the master how the `additional sum of $1,000 in consideration of the hazards taken,' c., was arrived at; and the indebtedness in such sum is not established or substantiated, by proofs. The testimony as to the consideration is conflicting and is not convincing.
"The affidavit annexed to the mortgage dated May 16th, 1935, recites inter alia that:
"`* * * the true consideration of said mortgage is $1,000.00, this day advanced by check, from the mortgagee to the mortgagor; the sum of $600.00 in consideration for the extension of time in the payment of installments due and to become due under a certain chattel mortgage executed between the same parties hereto, covering chattels other than herein set forth in the schedule, which chattel mortgage is dated the 13th day of September, 1934 * * * and which chattel mortgage is at present in default, both as to principal and interest; upon the stipulation of the mortgagor to repay the aforementioned sums of $1,000.00 and $600.00 as well as the additional sum of $650.00 in consideration of the hazards taken and the interest, services rendered and disbursements made by and for the mortgagee in and about making appraisals of the within mentioned motor vehicles, making credit investigation of the mortgagor, searching records for liens on said motor vehicles, examining documentary title of the mortgagor, and drawing and recording this chattel mortgage, making a total of $2,250.00. Deponent further says that there is due on said mortgage the sum of $2,250.00.'
"The special master in his report on this last mentioned mortgage says:
"`It will be observed that while in the affidavit annexed to the mortgage of September 13th, 1934, it is said — "there is now due and to become due on this mortgage," the affidavit annexed to the mortgage dated May 16th, 1935, says — "deponent further says that there is due on said mortgage." The statute, supra, provides that in stating the consideration of the mortgage the affiant must as nearly as possible state the amount due and to grow due thereon.
"`The solicitor for the mortgagee, in a brief submitted to me wherein he undertakes to uphold the validity of the aforesaid mortgages, says in part that —
"`"The proofs manifest that on September 13th, 1934, the date of the execution of the earlier mortgage, the mortgagee through its president, Joseph Levine, delivered to the mortgagor a check for $5,000 (pages 119, 134) and that on May 16th, 1935, the date of the execution of the later mortgage, the mortgagee delivered to the mortgagor a check in the sum of $1,000 (page 134); that the additional sum of $1,000 mentioned in the earlier mortgage and the additional sum of $650 mentioned in the later mortgage represented a bonus agreed upon between the parties (pages 32, 40, 313, 314, 315); that they were arbitrary figures (page 314). The evidence further elicited that the additional sum of $600 contained in the later mortgage was an arbitrary figure agreed upon between the parties in consideration for an extension of time in the payment of the installments due and to become due under the earlier mortgage which was then in default (pages 27, 28, 54). The proofs further manifest that the aforesaid bonuses were exacted by the mortgagee in consideration of: 1. The hazards taken — which, Mr. Levine explained, meant that in the event any trucks covered by the mortgages were burned or wrecked the mortgagee would have no redress against the mortgagor (pages 32, 38). 2. The interest — which the evidence shows was not separately computed but was included and contemplated within the sum agreed upon as a bonus (page 39). 3. The services rendered and disbursements made by and for the mortgagee as follows: a. Appraisals of the motor vehicles mentioned in the mortgages, made by Murray Singer (pages 137, 360) who received $100 in cash in connection with the earlier mortgage, and $25 in cash in connection with the later mortgage (pages 24, 30, 138). b. Credit investigation of the mortgagor, made by Miss Berenson, a stenographer employed by the mortgagee at a stated weekly salary (pages 23, 34); c. searching of records for liens against said motor vehicles made by Ellis Schechtman, Esq., of Newark (pages 24, 149, 174); d. examination of documentary title of mortgagor, made by Ellis Schechtman, Esq., of Newark (pages 24, 149, 174); e. drawing and recording the chattel mortgages, performed by Ellis Schechtman, Esq., of Newark (pages 24, 149, 174), who was paid in addition to his general retainer the sum of $2.50, the recording fee of each mortgage (page 125).
"`"These facts were essentially undisputed. True, considerable stress was laid by the receivers upon the unusual method of the mortgagee in transacting its business affairs and the fact the books of the mortgagee did not disclose the payments allegedly made by it to Murray Singer as appraisal fee and to Ellis Schechtman as legal fees. The records did disclose, however, that there was a payment of $35 made to Schechtman by the mortgagee in connection with the matter and it was uncontroverted that the recording fees were paid (page 125).
"`"The receivers also attached considerable importance to the fact that the disbursements made by the mortgagee in connection with the earlier mortgage did not total the sum of $1,000, and that the disbursements made by the mortgagee in connection with the later mortgage did not total the sum of $650. The affidavit does not make any such representation and the proofs show that the mortgagee made no attempt to place a separate value upon the hazards taken, a separate value upon the interest, a separate value upon the services rendered and a separate value upon the disbursements (pages 45, 48, 315).
"`"It is also apparent that the receivers attached considerable significance to the fact that the term `bonus' is not used in the mortgages. By a mere reading of the affidavit it is clear that the sums of $1,000 and $650, respectively, constitute a premium for the hazards, interest, services rendered and disbursements referred to therein * * *."'
"The special master questions the credibility of the claimant's witnesses, Murray Singer and Miss Berenson, and says (page 7, master's report):
"`* * * because of their lack of frankness and hesitancy while testifying, and the untruthfulness of the testimony of Miss Berenson in some respects which is manifest by a comparison with the records of the American Discount Company, and as to Murray Singer a further reason relied upon by me being his failure to produce records in his possession which would have either corroborated or controverted the testimony given by him, by Miss Berenson and Mr. Levine. The proofs manifest quite a disparity between the testimony of Mr. Levine and his bookkeeper, Miss Berenson, and Mr. Murray Singer. A reading of the testimony of Miss Berenson will readily manifest that she contradicted herself quite a number of times on points of importance and materiality which would tend to prove or disprove the truthfulness of the affidavits to the chattel mortgages.'
"There is nothing in the affidavit attached to the mortgages which indicates that there was any bonus agreed upon, or paid, although the solicitor of the alleged mortgagee argued that part of the consideration mentioned in the affidavits attached to the mortgages represented bonus moneys. Felin v. Arrow Motor Machine Co., 96 N.J. Eq. 44. In Lion Shoe Co. v. Price, 108 N.J. Eq. 553, it is held that the true consideration must be set forth not merely particularly but completely, and that the whole instrument must stand or fall together so that a partial compliance will not validate the mortgage even to the extent of the consideration which is truthfully set forth. Moore v. Preiss Trading Corp., 119 N.J. Eq. 366; affirmed, 120 N.J. Eq. 214.
"The testimony of the said Joseph Levine, president of the American Discount Company, in part is as follows:
"` Q. You swore that the facts set forth in the affidavit in that chattel mortgage were true, didn't you? A. That's right. Q. And as a matter of fact, at the time this chattel mortgage was executed, and the affidavit was signed by you there were no disbursements made in the character of an appraisal, in the making of credit investigation, searching the records, examining the documentary title of the mortgagor and drawing and recording this mortgage, were there? The master — Do you understand that question? At the time you signed this affidavit, had any of those disbursements been made? The witness — not yet, no; paid after.'
"That evidence of Levine indicates that the circumstances in the instant case are not unlike the facts recited in the case of Kauffman v. Utility Trucking Co., 120 N.J. Eq. 576, recently decided by the court of errors and appeals.
"Because of the evidence submitted at the hearing before the special master, the report of the special master was by order of this court, dated July 10th, 1936, confirmed, and the said mortgages then and there declared null and void and of no effect."
Mr. Isadore Glauberman, for the appellant, American Discount Company.
Mr. Herman Herbert Singer, for the respondent, receivers of defendant corporation.
The order appealed from will be affirmed, for the reasons stated in the opinion filed in the court of chancery by Vice-Chancellor Egan.
For affirmance — THE CHIEF-JUSTICE, TRENCHARD, PARKER, LLOYD, CASE, BODINE, PERSKIE, HETFIELD, DEAR, WELLS, WOLFSKEIL, RAFFERTY, JJ. 12.
For reversal — DONGES, COLE, JJ. 2.
For modification — HEHER, J. 1.