Mietus, Edmund R.

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Chattel Mortgages on After-Acquired Property

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Marquette Law ReviewVolume 23Issue 2 February 1939 Article 5Chattel Mortgages on After-Acquired PropertyEdmund R. MietusFollow this and additional works at: http://scholarship.law.marquette.edu/mulrPart of the Law CommonsThis Article is brought to you for free and open access by the Journals at Marquette Law Scholarly Commons. It has been accepted for inclusion inMarquette Law Review by an authorized administrator of Marquette Law Scholarly Commons. For more information, please contactmegan.obrien@marquette.edu.Repository CitationEdmund R. Mietus, Chattel Mortgages on After-Acquired Property, 23 Marq. L. Rev. 80 (1939).Available at: http://scholarship.law.marquette.edu/mulr/vol23/iss2/5THE MARQUETTE LAW REVIEWCHATTEL MORTGAGES ON AFTER-ACQUIRED PROPERTYThe question of the validity and effect of attempts to mortgageafter-acquired property is one which has caused much difficulty anddiversity of opinion among the several states. Under the common law,whose rule the Wisconsin Supreme Court has adopted, there could beno valid mortgage of property which was not in existence at the dateof the mortgage, or of property which did not at least potentiallybelong to the mortgagor as an incident of property then in existenceand belonging to him.' That is, where creditors of or innocent pur-chasers from the mortgagor were involved, only that property whichexisted when the mortgage was executed would be burdened with thelien of the mortgage.The courts in a majority of the states recognized what they con-sidered an injustice in this rule, and have held that the mortgage actedas an executory agreement attaching to the property when acquired,although it was ineffective to pass any title to such property, andenforced the agreement in equity.2 But neither the courts of Wisconsinor of Massachusetts will enforce the after-acquired clause, even inequity.3In Chynoweth v. Tenney the court ruled that an estoppel againstthe mortgagor must fail, since "An estoppel prohibits one from settingup the truth against some act or statement of his own, upon whichanother has acted in such a manner that he will be injured if the truthis afterwards allowed to be shown," but where we have an after-acquired clause, it appears on the face that the grantor has no title,"and the grantee is bound to know that, in law, the conveyance isinoperative."'But in no case does the mere attempt to include such property in themortgage render it wholly void. In fact, if the mortgagor, after heacquires the property, by some affirmative act, such as actually deliv-ering the property over to the mortgagee,3 or by executing and de-"Comstock v. Scales, 7 Wis 138 (1858) " . . . a chattel mortgage can onlyoperate upon property in actual existence at the time of execution . . . " Casev. Fish, 58 Wis. 56, 15 N.W. 808 (1883); Merchants' & Mechanics' SavingsBank v. Lovejoy, 84 Wis. 601, 55 N.W. 108 (1893); Taylor v. Barton ChildCo., 228 Mass. 126, 117 N.E. 43 (1917).2 Borden v. Croak, 131 111. 68, 22 N.E. 793, 19 Am. St. Rep. 23 (1889). Thesecourts usually apply the doctrine that "Equity considers as done that whichought to be done."3 Chynoweth v. Tenney, 10 Wis. 341 (1860); Kohler Imp. Co. v. Preder, 217Wis. 641, 259 N.W. 833 (1935) "In either a sale or a chattel mortgage offuture goods the grantee acquires no title, and if the grantor refuses todeliver when the same come into existence, the grantee cannot enforce thesame in equity." Blanchard v. Cooke, 144 Mass. 207, 11 N.E. 83 (1887).'Chynoweth v. Tenney, 10 Wis. 341 (1860).6 Ibid.[Vol. 23livering a deed of surrender of the property ratifies the mortgage,it will be binding between the parties. To be effective as against credi-tors and purchasers, there must be an actual transfer of the possessionto the mortgagee, either by a voluntary delivery or by an exercise ofthe right to possession.7 It is clear, however, that if there has beenno such ratification or actual surrender of the property after acquisi-tion, the after-acquired clause will be considered a mere license, un-coupled with an interest, and revocable at the will of the mortgagor."The problem as to the effect of the after-acquired clause most fre-quently arises where there is an attempt to mortgage future crops.Crops which must be sown annually are personalty and do not passwith the land, hence they can be the subject of a valid chattel mort-gage. Nevertheless, in Wisconsin, only such crops may be mortgagedas are up, out of the ground, and have the appearance of a growingcrop.'" In this respect, the Wisconsin Supreme Court holds contra tothe general rule, under which crops to be grown in the future may,under certain conditions, be mortgaged." But the law of each statemust be closely studied, inasmuch as there are wide divergences ofopinion as to when the mortgage takes effect, the rights of purchasers,of creditors, etc.For purposes of convenience, the cases may be classified into thoseinvolving landowner and creditor, landowner and tenant, and land-owner and cropper. As a rule, a creditor of a landowner cannot securea lien on the future crops because of the principle invalidating mort-gages on after-acquired property. But Lanyon v. Woodward" demon-strates an interesting exception, under the doctrine of joint adventure.Here the landowner had purchased seed from the creditor, under a con-tract by which the creditor was to remain the owner of the seed andcrop. The landowner agreed to return a certain number of bushels ofgrain from the crop and to sell the entire crop to the creditor at adeterminable price. Although this agreement had the effect of securinga lien on future crops, the court construed it as a "joint adventure,6 Farmers' Loan and Trust Co. v. Commercial Bank, 11 Wis. 215 (1860).7 Merchants' & Mechanics' Savings Bank v. Lovejoy, supra note 1. Lamson v.Moffat, 61 Wis. 153, 21 N.W. 62 (1884); Single v. Phelps, 20 Wis. 419 (1866).8 Kohler Imp. Co. v. Preder, 217 Wis. 641, 259 N.W. 833 (1935). In this casethe court went on to say that the provisions of the Uniform Sales Act (Wis.Stat. (1937) § 121.05) authorizing contracts to sell goods not in existence ornot acquired, have no application to chattel mortgages.9 Simanek v. Nemetz, 120 Wis. 42, 97 N.W. 508 (1903)."' Comstock v. Scales, 7 Wis. 138 (1858). In Hill v. Merriman, 72 Wis 483, 40N.W. 399 (1888), it was held that a chattel mortgage upon a crop of grainwhich was not yet sown, or at least was not in existence when the mortgagewas given, is inoperative." Weyrauch v. Johnson, 203 Iowa 1380, 208 N.W. 706 (1926) ; In re Miller, 244Mich. 302, 221 N.W. 146 (1928) ; Mocassin State Bank v. Waldron, 81 Mont.579, 264 Pac. 940 (1928).12 Lanyon v. Woodward, 55 Wis. 652, 13 N.W. 863 (1882).1939] NOTESTHE MARQUETTE LAW REVIEWthe raising of flax-seed," and enforced it against a holder of a subse-quent chattel mortgage on the same crop, who had notice of theprior contract.In arrangements between the landlord and tenant, where the land-lord reserves a lien on future crops to secure rents, the court has saidit is not to be construed as a chattel mortgage, but rather as a validand binding contract between the parties." In Kohler Improvement Co.v. Preder,4 it was held that "There is a very clear distinction betweenthe so-called landlord and tenant cases in which there is a reservationof the title (to the crops) in the lessor for the purpose of securing therent to become due under the lease, and the line of cases involving thevalidity of chattel mortgages upon crops not in actual existence." Buteven in such case, the landlord may be estopped as against a bona fidepurchaser.'- In no case may a person who is a mere cropper, and whotherefore has no interest in or title to the land validly mortgage thecrop.",At common law, a mortgagee is vested with a defeasible title to themortgaged property. Therefore, under the rule that the incident fol-lows the principal, it has been held in the common law states, of whichWisconsin is one, that there may be a valid chattel mortgage coveringthe increase of livestock.'1 In Funk v. Paul,'5 the leading Wisconsin"case on this point, it was decided that if the mortgage by express termsdoes cover the increase, as between the parties, it remains a lien uponsuch increase until the mortgage is discharged. But in respect to subse-quent purchasers, the mortgage does not cover after the nurture period13 Hill v. Merriman, 72 Wis. 483, 40 N.W. 399 (1888).14 Kohler Imp. Co. v. Preder, 217 Wis. 641, 259 N.W. 833 (1935). In Layng v.Stout, 155 Wis. 553, 145 N.W. 227 (1914) the court undertook to explain theapparent inconsistency between the rule here set forth and the rule that cropsare personalty (Cf supra note 9) thus: "It is true that, as between landlordand tenant, in the absence of any express agreement to the contrary. the titleto the crops ordinarily vests in the tenant. But where a landlord is about tolease his land, why may he not contract that the title to the crops raised there-on shall vest in the owner of the soil that produced them? It would seem tobe entirely consonant with reason to so hold, and the authorities pretty uni-formly do hold that such stipulations are valid.""3 Layng v. Stout, 155 Wis. 553, 145 N.W. 227 (1914).26Klyv. Rummerfield, 117 Wis. 620, 94 N.W. 649 (1903)."I Brown v. Schwab, 27 Ariz. 457, 233 Pac. 593 (1925).Is Funk v. Paul, 64 Wis. 35, 24 N.W. 419 (1885) "There would seem to be novalid reason for terminating the lien as against the mortgagor, merely becausethe period of 'suitable nurture' had passed. Such nurture did not give the lien,and its termination could not take it away as against the mortgagor. As tosuch mortgagor the question of notice or insufficiency of description is notinvolved, for he had actual notice that such increase was, in fact, covered bythe mortgage. But as to subsequent bona fide purchasers and mortgagees with-out notice the question is different. As to them, the period of nurture beingpassed, and the young being entirely separated from the mother, and not beingmentioned in the mortgage, nor any longer connected with the mother cov-ered by the mortgage, they have neither actual no constructive notice of themortgagor's rights and interests, nor anything to put them upon inquiry."[Vol. 23has passed, unless the purchaser has actual or constructive notice thatthe young animals are in fact those referred to in the mortgage. How-ever, if the increase is not mentioned in the mortgage, after the younghave been separated from their mother there is nothing to put the pur-chasers on inquiry as to the existence of any lien covering the young,and so such purchasers would not be bound unless they had actualnotice of the mortgage.The question of the validity of chattel mortgages on stock in tradeand future acquisitions is governed by statute in Wisconsin. Such mort-gages are given full effect upon compliance with certain filing require-ments." Nevertheless, the lien will be lost, as against creditors andpurchasers, if the mortgagor is authorized to sell for his own benefit,2or to apply the proceeds wholly or in part to his own use. In an earlycase, Blakeslee v. Rossman, the court ruled that "A chattel mortgagepermitting the mortgagor to remain in possession, to sell and apply theproceeds or any part of them to his own use, is fraudulent and voidin law as against creditors." The fraud is conclusive, and even a takingof possession by the mortgagee does not purge the fraud, and givesno valid title as against creditors.EDMUND R. MiETus.1 0 Wis. Stat. (1937) § 241.14. See also 19.MAQ. L. R. 257 (1935) and 20 MARQ.L. R. 199 (1936).20 Knapp v. Milwaukee Trust Co., 216 U.S. 545, 30 Sup. Ct. 412, 54 L.ed. 610(1910).2 Wymelenberg v. Badger Furnace Co., 220 Wis. 473, 265 N.W. 718 (1936);Ross v. State Bank, 198 Wis. 335, 224 N.W. 114 (1929); Morley-Murphy Co.v. Jodar, 220 Wis. 302, 264 N.W. 926 (1936) ; Franzke v. Hitchon, 105 Wis. 11,80 N.W. 931 (1900).22 Blakeslee v. Rossman, 43 Wis. 116 (1877).19391 NOTES

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Chattel Mortgages on After-Acquired Property

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