Farmers' State Bank of Alva v. Kavanaugh , 98 Okla. 119 ( 1924 )

Upon this appeal the only proposition urged by the plaintiff in error is that the trial court erred in rendering judgment in favor of Kavanaugh Shea and against the plaintiff in error on the agreed statement of facts. It is the contention of intervener that the lien of its mortgage extended to and embraced the proceeds of the sale in the hands of C.O. Green, clerk of the sale, and that the same were not subject to garnishment.

This contention is not tenable under the general rule stated in the case of Carr v. Brawley, 34 Okla. 500, 125 P. 1131, and the authorities there cited. This is the language there used:

"The lien of the mortgage does not follow the proceeds of a sale of the mortgaged property, where the mortgagee consented to the sale."

Authorities there cited support that statement. Maier v. Freeman (Cal.) 44 P. 357; White Mountain Bank v. West, 46 Me. 15; Waters v. Bank (Iowa) 21 N.W. 582. Neither can the contention be sustained upon the theory that the mortgager was the agent of the mortgagee in the sale of the mortgaged property, and that the possession of the proceeds by the mortgagor was the possession of the mortgagee, for the reason that the instant the sale is made with the mortgagee's consent this lien ceases to exist. Partridge v. Minn. D. E. Co. (Minn.) 78 N.W. 85; New England M. S. Co. v. Great W. E. Co. (N.D.) 71 N.W. 130; Muse v. Lehman (Kan.) 1 P. 904.

Under the agreed statement of facts in this case no fraud was intended to be perpetrated on anyone in the sale as advertised and held. It is affirmatively shown that a portion of the property sold was covered by the mortgage of intervener. And that some of it was not so covered. It also appears that the sale was not conducted by the mortgagor, but by a clerk of the sale, and that the proceeds have never been in the hands of the mortgagor nor under his control. It appears to have been agreed between the mortgagor and mortgagee that the sale was to be so conducted, because on the day preceding the sale the mortgagee served a written notice on said clerk, naming him, expressly stating the conditions on which it agreed to relinquish its lien.

These facts and circumstances seem amply sufficient to constitute the clerk of the sale a trustee of the proceeds of the mortgaged property sold. Hoyt v. Slemans (Iowa) 149 N.W. 442; Minneapolis Thresh. Mach. Co. v. Calhoun (S.D.) 159 N.W. 127. Since the trustee is not liable to the mortgagor for any of the trust funds applied by him in conformity with his trust, it must follow that the performance of his trust cannot be defeated by creditors of the mortgagor through garnishee process. The rights of the creditors against the trustee are no greater than those of their judgment debtor. This is elementary. Where a sale is made upon an agreement or understanding that the proceeds from the mortgaged property sold shall be applied on the mortgage debt, such proceeds are not subject to the claims of creditors unless they are received by the mortgagor. Bergman v. Guthrie (Iowa) 56 N.W. 502; McIntyre v. Hauser (Cal.) 63 P. 69.

Having reached this conclusion, it will be necessary to reverse this cause for further proceedings because a part of the funds held by the garnishee are proceeds of property not covered by the mortgage of the intervener. These funds are subject to the claims of plaintiffs under the garnishment, and the amount so subject should be determined.

For the reasons herein stated the judgment of the trial court should be reversed with directions to vacate the judgment heretofore rendered and for further proceedings in conformity with the views herein expressed.

By the Court: It is so ordered.