Browning v. De Ford

Background

A dispute arose between merchants who bought goods and sellers who later sued to recover their purchase price, and a group of creditors who held a chattel mortgage to secure an earlier debt. The firm of W. F. Wolfe & Son bought stock of goods and gave a joint chattel mortgage on its Oklahoma City store goods to Yance and other creditors, who took possession. Other creditors sued by attachment, and the sheriff seized the goods, removing the mortgagees. The attaching creditors claimed Wolfe & Son obtained the goods by false statements and argued the mortgagees knew of or joined the fraud.

Reasoning

The Court addressed whether the attaching creditors had to prove both the fraudulent purchases and that the mortgagees knew of or participated in the fraud. The Court found ample evidence that Wolfe & Son purchased goods by false representations and that delayed recording of deeds and family connections made the mortgagee’s knowledge a question for the jury. It held a mortgage taken with knowledge that it covers goods fraudulently obtained cannot be asserted against the original sellers, even if the sellers sued for the price rather than simply reclaiming the goods. The jury instruction on these points was proper.

Real world impact

This ruling means sellers who were cheated can challenge mortgages that were taken with knowledge of the fraud and may recover or keep priority. Creditors who knowingly take security on fraudulently acquired goods cannot insist on mortgage priority over attaching vendors. The state supreme court judgment was affirmed on appeal.