that such service was not obtained until after the fire had occurred, and hence that there was no forfeiture of the policy. Section 4 of the Chancery Act (Cahill's Stat. 1927, p. 220; Smith's Stat. 1927, p. 244) provides that "the mode of commencing suit in chancery shall be by filing a bill of complaint with the clerk of the proper court, setting forth the nature of the complaint." Under this statute the filing of the bill is the commencement of a suit in equity. Johnson v. Davidson, 162 Ill. 232, 44 N. E. 499. A foreclosure suit is begun by filing a bill of complaint in chancery. The filing of the bill would not necessarily afford the insured notice of the suit, and he might not receive such notice. until summons was served upon him. A certain form of fire insurance policy provides that it "shall be void if, with the knowledge of the insured, foreclosure proceedings be commenced." The policy upon which this suit was brought does not make knowledge by the assured of the institution of the foreclosure

suit a condition upon which the policy may be forfeited. The applicable provision of the instant policy makes it void upon the commencement of a foreclosure suit regardless of notice to the assured. By the contract, the risk or hazard is increased by the mortgagor's default, and no new or additional right in favor of the mortgagee was created

18, 84 Am. St. Rep. 17, 63 Pac. 1074; McIntire v. Norwich F. Ins. Co. 102 Mass. 230, 3 Am. Rep. 458. To sustain his contention, however, that there was no forfeiture of the policy in question, defendant in error relies upon Sharp v. Scottish Union & Nat. Ins. Co. 136 Cal. 542, 69 Pac. 253, 615; Schroeder v. Imperial Ins. Co. supra; Oakland Home Ins. Co. v. Bank of Commerce, 47 Neb. 717, 36 L.R.A. 673, 58 Am. St. Rep. 663, 66 N. W. 646; Lancashire Ins. Co. v. Boardman, 58 Kan. 339, 62 Am. St. Rep. 621, 49 Pac. 92, and Findlay v. Union Mut. F. Ins. Co. 74 Vt. 211, 93 Am. St. Rep. 885, 52 Atl. 429. None of these authorities is in point, for under the policies in these cases either knowledge by the insured of the

commencement of the foreclosure suit was required or there was a mortgage clause protecting the mortgagee.

The judgments of the Appellate and Circuit Courts are reversed, and the cause is remanded to the Circuit Court, with directions to sustain the demurrer.

The present annotation is supplemental to that in 50 A.L.R. 1117. Validity.

(Supplementing annotation in 50 A.L.R. 1117.)

A provision in a policy of insurance that it shall become void upon the commencement of a foreclosure proceeding is enforceable. MACK V. LIVERPOOL & L. & G. INS. Co. (reported

herewith) ante, 1039. See also Insurance Co. of N. A. v. Cheathem (1927) 221 Ky. 668, 299 S. W. 545, to the same effect, notwithstanding the abolition of "strict" foreclosure in that state. General effect of provision.

(Supplementing annotation in 50 A.L.R. 1118.)

Condition of fire policy that it shall become void upon the commencement

of foreclosure proceedings applies alike to the foreclosure of a mortgage existing at the time the policy was issued, and to the foreclosure of a mortgage subsequently executed. MACK V. LIVERPOOL & L. & G. INS. Co. (reported herewith).

As to insured, fire policy became. void upon adjudication made by sheriff in foreclosure proceedings, under provision that, as to him, the policy should become void if, with his knowledge, foreclosure proceedings be commenced, etc. Capital Bldg. & L. Asso. v. Northern Ins. Co. (1928) 166 La. 179, 116 So. 843.

A condition in a fire policy that it shall be void if, with the knowledge of the insured, there be "notice given of sale of any property covered by this policy by virtue of any mortgage or trust deed," has reference to extrajudicial enforcement of a mortgage by means of notice to the mortgagor. Stenzel v. Philadelphia F. Ins. Co. (1903) 110 La. 1019, 98 Am. St. Rep. 481, 35 So. 271 (wherein it was further held that such a condition is inoperative in a state, such as Louisiana, where such mode of enforcing mortgages is unknown to its law); Baker v. Union Assur. Soc. (1928) 81 Mont. 281, 264 Pac. 132.

In other words, the notice contemplated by the condition is one given in the enforcement of a mortgage or trust deed under a power of sale which may be included therein, and without court proceedings. Baker v. Union Assur. Soc. (Mont.) supra.

Such a condition does not apply to notice published and posted by sheriff in connection with sale of property under foreclosure proceedings by action. Ibid.

Construction of provision-what constitutes foreclosure.

(Supplementing annotation in 50 A.L.R. 1119.)

"Strict" foreclosure having been abolished by statute, and the word "foreclosure" having come to mean an equitable proceeding for the enforcement of a lien against property in satisfaction of a debt, the institution of a suit to enforce a mortgage lien is a "foreclosure proceeding," within the

meaning of a condition in a fire policy that it shall be void if, with the knowledge of insured, "foreclosure proceedings be commenced." Insurance Co. of N. A. v. Cheathem (Ky.) supra. -what constitutes commencement of

foreclosure.

(Supplementing annotation in 50 A.L.R. 1121.)

It having been provided by statute that the mode of commencing suit in chancery shall be by filing a bill of complaint with the clerk of the proper court, the "commencement of foreclosure proceedings," within the meaning of condition in fire policy, takes place upon filing a bill of complaint in chancery for the enforcement of a mortgage lien. MACK V. LIVERPOOL & L. & G. Ins. Co. (reported herewith). It follows that, even as to the mortgagee, the commencement of a foreclosure suit is not postponed until the summons issued in that suit is served upon insured, the mortgagor. Ibid.

Insured's knowledge or lack of knowledge.

(Supplementing annotation in 50 A.L.R. 1122.)

Under condition in fire policy providing merely that it shall become void upon the "commencement of foreclosure proceedings," the policy is forfeited, even as to the mortgagee, by the commencement of foreclosure proceedings, regardless of the mortgagor's (insured's) lack of knowledge of the commencement thereof. MACK v. LIVERPOOL & L. & G. INS. Co. (reported herewith).

Effect of insurer's consent to mortgage being placed on property. (Supplementing annotation in 50 A.L.R. 1125.)

Forfeiture of a fire policy by the commencement of foreclosure proceedings, in violation of condition in policy, is not prevented, even as to the mortgagee, by the fact that insurer assented to the encumbrance. MACK v. LIVERPOOL & L. & G. INS. Co. (reported herewith) ported herewith) citing Springfield Steam Laundry Co. v. Traders' Ins. Co. (1899) 151 Mo. 90, 74 Am. St. Rep. 521, 52 S. W. 238, and Titus v. Glens Falls Ins. Co. (1880) 81 N. Y. 410;

Insurance Co. of N. A. v. Cheathem (1927) 221 Ky. 668, 299 S. W. 545. See also, to the same effect, the earlier case of Hole v. National F. Ins. Co. (1927) 122 Kan. 328, 50 A.L.R. 1113, 252 Pac. 263, wherein it was demonstrated that the statement of the rule to be found in 26 C. J. 239, "But where insurer consents to an existing mortgage, a judgment of foreclosure [meaning a judgment in proceedings instituted after issuance of the policy] will not forfeit the policy, although it prohibits the institution of foreclosure proceedings," is not supported by the case cited thereto, Fitzgibbons v. Merchants & B. Mut. F. Ins. Co. (1904) 126 Iowa, 52, 70 L.R.A. 243, 101 N. W. 454.

And this is true notwithstanding assent is given after issuance of the policy, as by the attachment of a "loss payable" rider to the policy. Insurance Co. of N. A. v. Cheathem (Ky.) supra. This, it will be noted, is contrary to the rule adopted in Funk v. Anchor F. Ins. Co. (1915) 171 Iowa, 331, 153 N. W. 1048-cited on p. 1125 of the original annotation in 50 A.L.R.

Effect of mortgage clause. (Supplementing annotation in 50 A.L.R. 1125.)

See also Capital Bldg. & L. Asso. v. Northern Ins. Co. (1928) 166 La. 179, 116 So. 843, involving standard mortgage clause.

Under loss payable clause attached to fire policy making loss payable to mortgagee as its interest might appear, with the further provision that its rights were subject to all the terms and conditions of the policy, one of which was that the policy should be void if, with the knowledge of the insured, foreclosure proceedings were commenced, the holder of the mortgage (in this case, the assignee thereof) cannot recover where the condition as to the commencement of foreclosure proceedings has been violated, as by the mortgagee itself having instituted a suit, with the knowledge of insured, to enforce the mortgage lien; that is, in the absence of some act on the part of insurer, estopping itself from relying upon the condition. Insurance Co. of N. A. v. Cheathem (Ky.) supra.

L. S. E.

applicability to sale by

Headnote by HARVEY, J.

Messrs. Walter S. Keith, Harold C. McGugin, and Dallas W. Knapp for appellants.

Mr. Harold Medill, for appellee: Walton and Strawn were personally liable to plaintiff for the value of the goods that came into their possession to the amount of its account.

Vacuum Oil Co. v. Wichita Independent Consol. Cos. 110 Kan. 245, 203 Pac. 915; Burns v. Vance, 116 Kan. 470; 227 Pac. 528.

Harvey, J., delivered the opinion of the court:

This action presents the question whether the Bulk Sales Law (Rev. Stat. §§ 58-101 et seq.) applies in the circumstances disclosed by the record. The facts are substantially

these: J. R. Walton was the owner of a building in Coffeyville equipped with counters, wall fixtures, and shelving, and having a gasoline pump and air stands in front, used as an automobile garage. He also had a number of articles in the building spoken of as "equipment," consisting largely of tools, appliances, and devices used in connection with the garage busines, and seven used automobiles spoken of as "rental cars." On August 19, 1925, he entered into a written contract with B. L. Bressie and L. L. Stevens by which he sold to them the equipment and used automobiles above mentioned, and leased to them the building for a term of five years at a monthly rental of $225. There was executed between the parties an instrument called a "chattel mortgage and lease," which recited the sale of the equipment and used automobiles for $3,449.17, of which $2,000 was paid in cash, and the balance, with interest thereon, was to be paid in three installments. It also provided for the lease and payment of rents, and specifically provided that Walton had a lien upon the property sold for the unpaid portion of the purchase price and for the rents, and the buyers and lessees were to keep the gas and air stands in good repair at their expense. It contained the provision, usual in chattel mortgages, that, on condition broken, or if Walton should

deem himself insecure, he might take possession of the property covered by the lien, and sell the same at public or private sale. This chattel mortgage and lease was promptly recorded in the office of the register of deeds. Bressie and Stevens took possession of the building and the property sold. Later they paid the balance due, $1,449.17, and the automobiles named in the instrument were released from the lien. Later, B. L. Bressie sold his business to his partner, L. L. Stevens, who thereafter conducted the business under the name of the Stevens Motor Company. It is not contended, however, that the Bulk Sales Law applied to this sale, for it does not apply to a sale of the interest of one partner in a business to the other. Schoeppel v. Pfannensteil, 122 Kan. 630, 51 A.L.R. 398, 253 Pac. 567. This case is cited and the doctrine approved by the Supreme Court of Iowa in Peterson Co. v. Freeburn, 204 Iowa, 644, 215 N. W. 746. On April 13, 1926, Stevens advised Walton that he could no longer pay the rent on the building nor the damages to the gas pump. Walton then informed Stevens that he deemed himself insecure, and demanded possession of the equipment sold and of the leased premises, under the terms of his chattel mortgage and lease. Walton took possession thereof, and, in accordance with the provisions of the chattel mortgage and lease, which authorized him to sell the same at public or private sale, he did sell them to the defendant Ed Strawn, and Strawn went into possession thereof.

The action was by plaintiff against Bressie and Stevens (Stevens was not served with summons), and also against against Walton and Strawn, for the price of the two radios sold by plaintiff to Bressie and Stevens November 25, 1925, and January 8, 1926, seeking to hold them for the direct liability as purchasers, and seeking to hold Walton and Strawn under the provisions of the Bulk Sales Act. No notice was

given creditors of the taking of possession of the property by Walton under the terms of the chattel mortgage and lease, nor of his sale thereof to Strawn. There was a trial to the court. Judgment was rendered for plaintiff. Walton and Strawn have appealed.

Appellants contend that the judgment is contrary to law. The contention is well taken. It might very well be held under the evidence in this case that the garage business, as conducted, or, rather, that the things in the garage, did not constitute a "stock of merchandise" within the meaning of Rev. Stat. § 58-101, following the reasoning in Farmers & Drovers Nat. Bank v. Hannaman, 115 Kan. 370, 223 Pac.

478. See 40 C. J. 635. But, passing that point, is the claim of plaintiff under the Bulk Sales Law superior to that of Walton under his mortgage? This chattel mortgage correctly described each article constituting the "equipment," and gave Walton a specific lien thereon, not only for the balance of the purchase price of the equipment and automobiles sold, but for the sums to be paid Walton under the other covenants of the instrument, which were the payments of rent for the full term of the lease, and what proved to be the injury and damage to the gas and air stands. In April, 1926, Walton was justified in deeming himself insecure, not only for the $540 damage to the gas and air stands, which Stevens was unable to pay, but because Stevens then announced to him that he would be unable to pay rents in the future. We see no reason why the rights accruing to plaintiff under the Bulk Sales Law should be superior to those of Walton under this chattel mortgage. In Gorman v. Hellberg, 190 Iowa, 728, 180 N. W. 732, a stock of merchandise turned over by the lessee to his landlord on a lien "for rent accrued and to accrue" was held not to be in violation of the Bulk Sales Law. Generally, the lien of a chattel mortgage, when

The

the statutory conditions with respect to execution, delivery, filing, or recording are complied with, is superior to liens subsequently acquired. See 11 C. J. 647, 651. The Bulk Sales Law is primarily designed for the benefit of creditors of merchants, and to prevent transfers fraudulent as to them. mortgage to Walton covering the specific equipment involved, of record months before the indebtedness to plaintiff, of which mortgage the plaintiff had notice at the time the indebtedness was created, cannot Iwell be said to have been given in fraud of plaintiff. No authority is cited supporting the view that the rights of plaintiff under the Bulk Sales Law would be superior to the rights of Walton under his mortgage.

Since Walton had a valid mortgage on the equipment, the taking possession of the mortgaged property under the terms of the mortgage and selling it do not constitute a sale in violation of the Bulk Sales Law. That law does not apply to sales made under judicial process (Rev. Stat.

Fraudulent con

plicability to

§ 58-104), and veyances-Bulk should not apply to Sales Law-apa sale by a mort- sale by chattel gagee under the mortgagee. provisions of a prior mortgage. The facts in this case differ from those in Linn County Bank v. Davis, 103 Kan. 672, 9 A.L.R. 468, 175 Pac. 972, for there the chattel mortgage, in the form of a bill of sale, was given by the merchant on his stock of merchandise, and the grantee or mortgagee was placed in possession of the property. The controversy there was between the grantee in this bill of sale and a then existing creditor of the merchant.

The judgment of the court below will be reversed, with directions to render judgment for defendants Walton and Strawn.

Petition for rehearing denied April 14, 1928.