OLIVER v. ELEC. PROD. CONSOL., 59 Wn.2d 276 (1961)

367 P.2d 618

NINA H. OLIVER et al., Respondents, v. ELECTRICAL PRODUCTS CONSOLIDATED, Appellant, L C HOTELS, INC. et al., Defendants.[*]

No. 35798.The Supreme Court of Washington. Department One.
December 28, 1961.

[1] CHATTEL MORTGAGES — REQUISITES AND VALIDITY — AFTER-ACQUIRED PROPERTY CLAUSE. An after-acquired property clause in a chattel mortgage is valid. [2] SALES — CONDITIONAL SALE CONTRACT — NATURE AND PURPOSE — LIMITATIONS. A conditional sale contract is a device recognized by statute to protect the seller of personal property which is to be paid for in installments although possession is delivered to the conditional vendee; however, it may not be used as security for a loan, as that is the office of a chattel mortgage. [3] SAME — PREREQUISITES — SELLER AS OWNER. A seller must be the actual owner of property sold by a conditional sale contract in order to retain title, and a genuine sale is an indispensable prerequisite. [4] SAME — CONSTRUCTION AND OPERATION — FUNCTION OF CHATTEL MORTGAGE — EFFECT. Because of the summary remedies available to the conditional sale vendor, such a device is disfavored, and if employed to perform the function of a chattel mortgage, the instrument is a chattel mortgage. [5] SAME. A conditional sale contract covering certain hotel furniture, which provided that furniture subsequently purchased by the vendee as replacements or additions could be “repossessed” upon default, was actually, insofar as the after-acquired property clause was concerned, a chattel mortgage and void against all creditors of the mortgagor unless accompanied by an affidavit of good faith, since the purpose of the after-acquired property clause was to give the seller a security interest in property he never owned, which is the function of a chattel mortgage. [1] Seen Am. Jur., Chattel Mortgages § 29.

Appeal from a judgment of the Superior Court for Lewis County, No. 24977, John E. Murray, J., entered July 26, 1960. Reversed.

Action to enjoin an execution sale of personal property. Judgment creditor appeals from judgment granting injunction.

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Whitmore, Vinton Powers, for appellant.

Little, Palmer, Scott Slemmons, Kenneth A. Cox, an Dysart Moore, for respondents.

FOSTER, J.

The court must decide conflicting claims to personal property used in the Lewis-Clark Hotel in Centralia. Appellant is a judgment creditor of the assignee of the conditional sale vendee. Respondents are the conditional sale vendors of the personal property used in operating the hotel which they sold to Hill and wife in 1951. Subsequently, the Hills sold to the defendant L C Hotels, a corporation, which is not a party to this appeal but which was in possession of the hotel and its equipment at the time of appellant’s execution levy.[1]

By the terms of the conditional sale contract, the purchasers agreed to replace and renew the hotel furniture and equipment as required at their own expense, so that there would never be any diminution in either the value or the quantity thereof. The contract provided that the conditional vendors would be entitled to “repossess” such after-acquired property in the event of the purchaser’s default.[2] All of the

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property purchased by the conditional vendee for use in the hotel, either as replacement or addition, “shall become the property of the Sellers immediately upon the installation in said real property.”

Nine years after the execution of the conditional sale contract, the assignees of the conditional vendees purchased from third parties additional hotel furniture and equipment upon which the instant execution was levied. That execution sale was enjoined at the suit of the respondents. The judgment creditor appeals.

The sole issue for decision is the right of the respondents under the after-acquired property clause in the conditional sale contract as against the judgment creditors.

[1] By an unbroken line of decisions, an after-acquired property clause in a chattel mortgage is valid.[3] A chattel mortgage, however, is void as against all creditors, both existing and subsequent, unless it is accompanied by an affidavit of good faith. Such is the plain mandate of RCW 61.04.020. This conditional sale contract had no affidavit of good faith, nor was it filed as a chattel mortgage as required by RCW 61.04.030. [2, 3] The conditional sale contract is a device recognized by statute to protect the seller of personal property which is to be paid for in installments although possession is delivered to the conditional vendee. Hughbanks, Inc. v. Gourley, 12 Wn.2d 44, 120 P.2d 523, 138 A.L.R. 658; Lyon v. Nourse, 104 Wn. 309, 176 P. 359. However, it may not be used as security for a loan, for that is the office of a chattel mortgage. Hughbanks, Inc. v. Gourley, supra; Lyon v. Nourse, supra; Sullivan v. Lewis, 170 Wn. 413,

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16 P.2d 834; Kelly v. Price, 148 Wn. 542, 269 P. 842 Mahon v. Nelson, 148 Wn. 110, 268 P. 144; Lahn Simmons v. Matzen Woolen Mills, 147 Wn. 560, 266 P. 697; Pacific States Securities Corp. v. Austin, 146 Wn. 492, 263 P. 732.[4] The seller must be the actual owner of the property sold in order to retain title. A genuine sale is the indispensable prerequisite. Because the respondents never owned the property, it was impossible for them to retain title to such property.

[4, 5] Hughbanks, Inc. v. Gourley, supra, decided that, because of the summary remedies available to the conditional sale vendor, such device is disfavored. If employed to perform the function of a chattel mortgage, the instrument is a chattel mortgage. Such is the instant case with respect to the after-acquired property clause. It was so decided by the Supreme Court of New Mexico in Joe Heaston Tractor Implement Co. v. Claussen, 59 N.M. 486, 489, 287 P.2d 57:

“In the present case the Heaston company, seller, only owned the property turned over to the buyer, Claussen, at the time the sale was consummated, and it is difficult to see how the seller could `retain’ title to property it did not then own. In our opinion, the option in the case of default under paragraph (3) converted the instrument into a chattel mortgage. Certainly this is true as to the after-acquired merchandise.”

Such, likewise, was the decision in Dudley v. Dickie, 281 F.2d 360, 364 (C.A. 9th):

“. . . For in equity an agreement in form a conditional sale would be treated as a chattel mortgage when the purpose of the transaction is to give the seller a security interest in property which he never owned and therefore could not sell. . . . Accordingly, that inventory of the Riddle General Store acquired after the execution of the contract of conditional sale between appellees and the bankrupts must be deemed to have been mortgaged by the Branches, rather than conditionally sold to them.”

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So, here, looking through form and label, as far as the after-acquired property clause is concerned, the instrument in question was a chattel mortgage. It was void as to the appellant because it did not contain the good faith affidavit, and it was not filed as a chattel mortgage.

The judgment is reversed.

FINLEY, C.J., DONWORTH, WEAVER, and ROSELLINI, JJ., concur.

February 2, 1962. Petition for rehearing denied.