Babbitt Bros. Trading Co. v. Marley , 28 Ariz. 589 ( 1925 )

On July 21st, 1921, John M. Neal and R.C. Brazel mortgaged to Babbitt Bros. Trading Company, a corporation, hereinafter called plaintiff, in addition to certain other property, 165 head of cattle branded . The mortgage was executed in proper form and recorded the same day in Yavapai county. The cattle were located in that county but the mortgage recited that the mortgagors were residents "of the county of Yavapai and Mohave, state of Arizona." Thereafter John Marley and Roy Butler, hereinafter called defendants, purchased the cattle described from the mortgagors Neal and Brazel, without either the knowledge or consent of plaintiff mortgagee, except as such consent may be implied from the terms of the mortgage itself. The purchase price was paid to the mortgagors, who never accounted for it to plaintiff. Thereafter plaintiff brought suit against defendants for the value of the cattle. The case was tried before the court which rendered judgment for defendants and plaintiff appealed.

The defendants, both by demurrer and answer, raised what is admitted to be the real issue in the case, viz.: That by the insertion of a certain typewritten clause in the mortgage, the plaintiff consented in advance that the mortgagors might sell the cattle free from the mortgage lien. This clause reads as follows:

"It is understood and agreed that all sales of cattle made from the above-named brand are to be applied on the note herein set forth and no uses are to be made of such proceeds without the written consent of the parties of the second part."

The mortgage is on the usual form and also contains, among other things, the following printed clause:

"If the mortgagors shall sell, or assign, the said goods or chattels or any part thereof or any interest therein, . . . then and in any or either of the aforesaid cases all of said note . . . shall at the option of said mortgagee . . . become due and payable and the said mortgagee . . . shall thereupon have the right to take immediate possession of said property and for that purpose may pursue the same wherever it may be found. . . ."

There are two principles of law applicable to the issue in this case, both of which are admitted by counsel to be true, so we cite no authority therefor: First, a contract is to be construed, if possible, so that every part thereof shall be effective; second, if in a contract there appear a printed and a typewritten clause which are irreconcilable the one with the other, the typewritten clause will prevail. It is the contention of defendants that there is an irreconcilable conflict in the two clauses quoted, the printed forbidding, and the typewritten granting, the mortgagors the right to sell the cattle without further permission from the mortgagee, and therefore, under the second principle of law cited above, the sale was with the consent of the mortgagee, and passed title to them. Plaintiff claims, however, that the two clauses can be construed so as to harmonize, and that such construction forbids the sale of the cattle without further consent from it, unless the purchaser sees to an application of the purchase price in accordance with the terms of the typewritten clause. If that be the proper construction, it may, of course, recover from defendants.

When a chattel mortgage is given on property to secure the debt, the natural presumption is that the creditor intends to retain the security he has taken, and therefore the ordinary rule of law is that any sale made to one who has notice, actual or constructive, of the mortgage, is subject to this lien. The mortgagor may, however, at any time sell his interest in the property, subject to such lien.

It sometimes happens, though, that the mortgagee, while willing to leave the property with the mortgagor until the debt is due, does not desire third parties to take physical possession thereof, even with the consent of the mortgagor, and therefore it has become customary to provide that if the property is disposed of, the debt immediately becomes due, and the mortgagee may enforce his lien. Such provisions do not invalidate the sale of the mortgagor's interest to the purchaser, but give immediate right of possession to the mortgagee, and postpones the rights of the purchaser until the former's lien is satisfied. The mortgage in question contains a provision of the kind referred to, and if it were not for the typewritten clause, there can be no question but that the mortgagee's rights in this suit are superior to those of the defendants. The decisive question then is: What effect, if any, has the typewritten clause?

We must assume it was inserted for some purpose and, if we can discover that purpose, must give it effect even though it nullifies some printed provision of the mortgage. The clause, while not in so many words giving anyone a right to sell the cattle, plainly assumes it and is intelligible only on the supposition that the right of sale was given in some form or manner. If it does not, it is an absurdity, dealing with a condition which could not arise.

There are three ways in which a sale of the cattle might be made: First, by the mortgagee alone; second, by mutual consent of the parties; third, by the mortgagors alone. Obviously the first method was not contemplated by the clause. It would be foolish for the parties to stipulate that the proceeds must be used in accordance with the written consent of the party who received the money. We cannot believe that the mortgagee making the sale and receiving the proceeds agreed to solemnly express his own consent in writing that the money should be applied by him in a certain manner. Did it mean that sales could be made by mutual consent? It would seem unlikely the parties would think it necessary to insert a written stipulation in advance to do a thing which they could always agree to at any time, just as well without the clause in question as with it. Was it intended that the mortgagors could sell without the further consent of the mortgagee? If that was the purpose of the parties, a clause of this nature would indeed be necessary, for in its absence the printed clause would govern, and a sale by the mortgagors would immediately make the whole debt due and payable, and give possession of the property to the mortgagee. Further the express conditions of the clause are only necessary and, indeed, intelligible, if the proceeds of the sale were to be placed primarily in the hands of the mortgagors, a state of affairs which would naturally arise only if they made the sale. We conclude, therefore, that the clause in question impliedly gave the right to the mortgagors to sell the cattle, but that they stipulated the proceeds of any such sale should be applied on the indebtedness unless a special written consent to the contrary was given by the mortgagee. But, it is contended, the condition annexed to the consent was one of which defendants had full notice and they could only take the property free of the lien if those conditions were complied with. It will be observed both were conditions subsequent, and not precedent. They could not come into effect unless there were a sale already made. We have, therefore, this question for solution: When a mortgagor sells mortgaged property with the consent of the mortgagee and, to the knowledge of the purchaser, agrees with mortgagee he will apply the proceeds on the debt, or do some other thing, does the lien continue unless the purchaser sees to it that the purchase price is applied in accordance with the agreement or the thing done?

We have examined the authorities cited by counsel on this point and are of the opinion that, where the purchaser is a party to the agreement or the condition is a condition precedent, he only takes a clear title when such agreement is carried out. Brimm v. Long, 22 Kan. 119; Fields v. Jobson Wagon Co. et al.,109 Mo. App. 84, 81 S.W. 636; Dodson v. Dedman,61 Mo. App. 209; Eagle Drug Co. v. White (Tex.Civ.App.), 182 S.W. 378;First Nat. Bank of Tulsa v. Hoover (Tex.Civ.App.),244 S.W. 1044. But where the purchaser is not a party to the agreement, and the condition is a condition subsequent, he takes a good title without the duty of seeing to the application of the proceeds, or the execution of the agreement. Woodward v.Jewell, 140 U.S. 247, 35 L. Ed. 478, 11 Sup. Ct. Rep. 784 (see, also, Rose's U.S. Notes); Rusk Lumber Co. v. Meyer (Tex.Civ.App.), 126 S.W. 317; Abbeville Live Stock Co. v. Walden,209 Ala. 315, 96 So. 237; Lumberman's Nat. Bank v. Bush, etc. (Tex.Civ.App.), 247 S.W. 295; National City Bank v. Adams,30 Ga. App. 219, 117 S.E. 285; New England Mortgage SecurityCo. v. Great Western Elevator Co., 6 N.D. 407, 71 N.W. 130.

We think this construction is in harmony both with logic and justice. It is notorious that it is a very common practice in chattel mortgages on cattle in Arizona to allow the mortgagor to sell the mortgaged cattle, or part thereof, without referring the proposed sale to the mortgagee; the latter relying on his trust in the personal promise of the mortgagor to apply the proceeds as agreed upon. To hold that a purchaser is required at his peril to see to the proper application of the proceeds of a sale under a clause of this kind would be requiring him to distrust the honesty of the very ones whom the mortgagee, by his written contract, had trusted. If a mortgagee wishes to transfer his trust from his lien to the personal promise of the mortgagor and expresses that faith in the mortgage, a third party who has relied on such a situation should not suffer because the mortgagor betrays the trust.

We conclude that the defendants were entitled to judgment, and it matters not whether it was entered on the plea in bar or after the sustaining of a general demurrer.

The judgment is affirmed.

McALISTER, C.J., concurs.