Horton v. Wright, Barrett, & Stillwell Co. ( 1917 )

Grace, J.

This is an appeal from, an order of the district Gourt of Ward county from a judgment and an order of said court overruling-the motion for judgment and a new trial.

The complaint in the case is one for conversion of a certain frame1 building located on lots 5 and 6 of block 30 of the first addition to the1 city of Minot, on the right of way of the Minneapolis, St. Paul, & Sault Ste. Marie Railway Company, the value of which building is stipulated to be $1,200. The complaint is in proper form, and among other things a proper demand is set out. The answer is a general denial, with the exception that the defendant admits its corporate character.

The facts in the case are in substance as follows: In September, 1908, plaintiff was the owner of the frame building in question. The Minot Paper Company was at that time a corporation engaged in business in the city of Minot, of which George D. Mann was president and managing officer. During the summer of 1908 negotiations were had between the paper company and the plaintiff herein concerning the leasing of said property by the paper company. A written lease was drawn up, but not executed. The amount of rental set foifh in said lease was $65 a month. The paper company paid $65 for one month. Thereafter negotiations were had between the paper company and Horton whereby the paper company executed to Horton twenty-three notes of $100 each, one of said notes to be payable each month. Eighteen of said notes have been paid by the paper company to Horton, and five of such notes have not been paid. The defendant in this action maintains that such notes were given by the paper company to Horton in payment of such building, that such sale was an absolute sale, and that by such sale the absolute title passed from Horton to the Paper Company. On the other hand the plaintiff claims that the sale of such building to the paper company was a conditional sale, and that he reserved title until the full payment of all of said twenty-three notes. The paper company was indebted to the defendant herein in the sum of $5,000. The defendant took a chattel mortgage upon such building, claiming that it had no notice of the rights or equities of the plaintiff herein in such building by reason of the nonpayment of five of said twenty-three notes of $100 each, and plaintiff herein claiming that the defendant herein had full notice and knowledge of the plaintiff’s interest in and title to such building until the full amount of $2,300 was paid. Each of these latter two questions of fact, whether there was an absolute or conditional sale of such building to the paper company by Horton, and whether the defendant herein took its chattel mortgage with actual notice of the plaintiff’s title to and interest in such building, were submittéd to the jury as questions of fact.

At the same time these two questions of fact were submitted to the jury, there was submited also what was considered by the court other questions of fact, which were contained in an instruction by the court to the jury, and which is as follows: “If you find from the evidence that the mortgage to the defendant was given to secure a debt already due from the Minot Paper Company to the defendant and no new credit was given and no extension of time was given the paper company by the defendant as consideration for the mortgage on the building, then, and in that case, the defendant was not a bona fide mortgagee of said building for value, and its mortgage is not any protection whatever against the claim of the plaintiff.”

The giving of this instruction is assigned by the appellant as prejudicial error. We are of the opinion that the giving of such instruction was prejudicial error, for the reason that the matters set forth in such instruction under the evidence in the case should not have been submitted to the jury as a question of fact; and to clearly demonstrate this it is only necessary to refer to the evidence in this case concerning the indebtedness of the Minot Paper Company to Wright, Barrett, & Still-well, the defendant in this case. Mr. Wright, representing the defendant, came to Minot during the early part of May, 1910, to give attention to the debt which was due from the Minot Paper Company to the defendant.. At the time when Mr. Wright was in Minot in the early part of May, 1910, it was conceded, as shown by the testimony, that the Minot Paper Company was indebted to the defendant in a sum of a little in excess of $5,000, all of which indebtedness was past due. It is also conclusively shown by the testimony of George D. Mann, said Wright, and S. J. LeDue, that on or about the 5th day of May, 1910, said indebtedness of about $5,000 was placed into eleven promissory notes executed at that time in the presence of Wright, Mr. Mann, and Mr. LeDue. In fact, there is no dispute but what these notes were executed at such time, and they provided for the payment of such debt in monthly instalments so that one of such notes would come due each month; and that at the same time and place arrangements and agreements were made with the Minot Paper Company to give security by way of chattel mortgage to secure such notes, and the building in question it was agreed should be a part of such security, and within a few days after May 5th, and in pursuance of such agreement and arrangement as was made in Minot on or about the 5th day of May, 1910, such chattel mortgages were executed by the Minot Paper Company to secure such notes, and in which was included the building in question. Such chattel mortgages were duly filed. The effect of this whole transaction was to extend the time of payment of the whole of such indebtedness for a definite time, and the further legal effect of such transaction was to make the consideration of such mortgage perfectly good and valuable, and to make the mortgagee a bona fide mortgagee for value, and entitled it to the protection accorded a bona fide mortgagee for value. This entire question, then, as contained in these instructions, under the evidence, was purely a matter of law for the court, and should not have been submitted to the jury, and was improperly submitted to the jury, being purely a question of law. Under the state of the record, the question of whether there was a conditional sale of such property, and whether the defendant had notice of the plaintiff’s title and equities in such property, were proper questions for the jury; but the evidence clearly showing that the debt due from the Minot Paper Company to the defendant was placed into new notes, and the time of the payment of the whole debt having been definitely extended, there was no question of fact concerning the extension which could be submitted to the jury. The court’s instruction should have said that the mortgagee in this case under the evidence adduced was a mortgagee for value and entitled to the protection of a bona fide mortgagee for value. The jury returned a verdict in favor of the plaintiff, but in doing so it is impossible to tell upon what they based their verdict. It may have been based and determined upon the testimony concerning the condition of the sale, or that the defendant had notice of plaintiff’s title and equity, or it may have been based upon whether or not the defendant was a mortgagee for value. The questions were not specially submitted, and we have no means of knowing or reaching any conclusion that can be based upon reason as to which of such matters or questions may have influenced the jury in arriving at the verdict. .

There are three main rules concerning the character of a purchaser for value. The first rule is that a creditor who takes a mortgage on property as security for a debt or demand already due without giving any new consideration, or being induced to change his condition in any manner, is not entitled to the protection accorded to a bona fide purchaser for value as against prior liens or equities, unless there is some new consideration at the time of the execution of the mortgage. Smith v. Moore, 112 Iowa, 60, 83 N. W. 813; Bybee v. Hawkett, 8 Sawy. 176, 12 Fed. 649, 11 Mor. Min. Rep. 594; Alexander v. Caldwell, 55 Ala. 517; Craft v. Russell, 67 Ala. 9; Banks v. Long, 79 Ala. 319; Anthe v. Heide, 85 Ala. 236, 4 So. 380; Gilchrist v. Gouch, 63 Ind. 576, 30 Am. Rep. 250; Durham v. Craig, 79 Ind. 117; Schumpert v. Dillard, 55 Miss. 348; Reeves v. Evans, — N. J. Eq. —, 34 Atl. 477; Manhattan Co. v. Evertson, 6 Paige, 457; Donaldson v. State Bank, 16 N. C. (1 Dev. Eq.) 103, 18 Am. Dec. 577; People’s Sav. Bank v. Bates, 120 U. S. 556, 30 L. ed. 754, 7 Sup. Ct. Rep. 679; Sweeney v. Bixler, 69 Ala. 539; Phelps v. Fockler, 61 Iowa, 340, 14 N. W. 720, 16 N. W. 210; Martin v. Bowen, 51 N. J. Eq. 452, 26 Atl. 823; DeLancey v. Stearns, 66 N. Y. 157; Spurlock v. Sullivan, 36 Tex. 511; 27 Cyc. 1191, note 52; Woodburn v. Chamberlin, 17 Barb. 446; Matthews v. Kennedy, 113 Ga. 378, 38 S. E. 854; Tiffany v. Warren, 37 Barb. 571; Thompson v. Van Vechten, 27 N. Y. 568; Jones v. Graham, 77 N. Y. 628; Zimmer v. Wheeler, 2 N. Y. S. R. 326; Button v. Rathbone, 126 N. Y. 187, 27 N. E. 266; Doig v. Haverly, 92 Hun, 176, 37 N. Y. Supp. 455; 5 R. C. L. § 85, p. 449; Knowles Loom Works v. Vacher, 57 N. J. L. 490, 33 L.R.A. 310, 31 Atl. 306.

The second rule is, although a mortgage is given to secure a pre-existing debt, yet if the mortgagee at the same time and in consideration of the giving of the mortgage surrenders some security for the same debt which he already held, such as some form of lien or a note with a good indorser, this would establish a new consideration and give him the right of a purchaser for value. Wilson v. Knight, 59 Ala. 172; Constant v. University of Rochester, 111 N. Y. 604, 2 L.R.A. 734, 7 Am. St. Rep. 769, 19 N. E. 631; O’Brien v. Fleckenstein, 86 App. Div. 140, 83 N. Y. Supp. 499; National Bank v. Lanier, 7 Hun, 623; Lane v. Logue, 12 Lea, 681.

The third rule is that, although a mortgage is given to secure an antecedent debt, nevertheless, if at the time and in consideration of the giving of the mortgage the creditor grants a definite extension of time of payment, this is such new consideration as will give him the character of a purchaser for value. Randolph v. Webb, 116 Ala. 135, 22 So. 550; Alston v. Marshall, 112 Ala. 638, 20 So. 850; Jones v. Robinson, 77 Ala. 499; Downing v. Blair, 75 Ala. 216; Craft v. Russell, 67 Ala. 9; Gilchrist v. Gough, 63 Ind. 576, 30 Am. Rep. 250; Koon v. Tramel, 71 Iowa, 132, 32 N. W. 243; Port v. Embree, 54 Iowa, 14, 6 N. W. 83; DeMey v. Defer, 103 Mich. 239, 61 N. W. 524; Schumpert v. Dillard, 55 Miss. 348; Cary v. White, 7 Lans. 1; Farmers’ & M. Nat. Bank v. Wallace, 45 Ohio St. 152, 12 N. E. 439; Farmers Nat. Bank v. James, 13 Tex. Civ. App. 550, 36 S. W. 288; Watts v. Corner, 8 Tex. Civ. App. 588, 27 S. W. 1087; Ingenhuett v. Hunt, 15 Tex. Civ. App. 248, 39 S. W. 310; Missouri Broom Mfg. Co. v. Guymon, 53 C. C. A. 16, 115 Fed. 112; 35 Century Dig. title “Mortgages” § 356.

The defendant in this case granted a definite extension of time. The evidence conclusively establishes' this point. New notes were taken for the amount of the debt owing from the paper company to the defendant, and chattel ¡mortgages were given securing such notes, and all of such •notes, and all of such indebtedness, therefore, was extended for a definite time. Therefore, under the third rule, the mortgage in question was one for value, and the mortgagee was entitled to protection as a mortgagee for value. There was no dispute about this matter. There could be none. The mortgages show for themselves, and the testimony is conclusive concerning the execution of the notes, and there was no disputed fact concerning these matters which could be submitted to the jury. That there was a definite extension of time as to said debt is certain, and it was the duty of the court to take cognizance of such extension of time for the payment of the debt as a matter of law, and to have instructed the jury as a matter of law that the defendant was a bona fide mortgagee for value. The court did not do this, and gave the instruction complained of, which is hereinbefore set out in full, which we hold to be reversible and prejudicial error. The judgment of the trial court is reversed, and the case is remanded for a new trial.