Lankford v. First National Bank of Lawton , 75 Okla. 159 ( 1919 )

On the 4th day of January, 1913, one Garrett attempted to execute to the Bank of Lawton a chattel mortgage on certain personal property located in Comanche county to secure an indebtedness owing by him to the bank. The mortgage was not acknowledged before any officer authorized to take acknowledgments of deeds, but was witnessed by two witnesses, Frank T. Blair and M.A. Wert. On April 25 and 28. 1913, respectively, Garrett executed to the First National Bank of Lawton two chattel mortgages on a portion of the property included in the Bank of Lawton mortgage. These mortgages were also witnessed by two witnesses. The note due the Bank of Lawton not being paid, one McCalmant, acting as its agent, took possession of the mortgaged property, whereupon the First National Bank instituted a replevin action to recover the possession of the property covered by its mortgage. Thereafter, the property and the affairs of the Bank of Lawton having passed into the hands and control of the bank commissioner, the latter was substituted as a party defendant in the replevin proceedings. The case was tried on an agreed statement of facts; the only question involved being that of the effect to be given the first mortgage. It was stipulated and greed that Blair, one of the witnesses to the Bank of Lawton mortgage, was a stockholder in said bank, while the other witness, Wert, was a stockholder and director therein, and that at the time the First National Bank took its mortgage it did not examine the records in the office of the register of deeds, and, we may fairly assume, had no actual knowledge of the prior mortgage. The Bank of Lawton mortgage was filed for record on the 6th day of January 1913, in the office of the register of deeds of Comanche county, and did not disclose upon its face the interest of the witnesses thereto. Such being the case, it is insisted that the mortgage being regular on its face, imparted constructive notice thereof to all subsequent purchasers and incumbrancers, including the First National Bank, whose mortgages are admittedly subsequent in point of time.

The statute regulating the manner of the execution of mortgages of personal property originally required that the mortgage must be signed by the mortgagor in the presence of two persons, who should sign the same as witnesses thereto, and that when so executed and attested no further proof or acknowledgment was required to admit such mortgage to be filed in the office of the register of deeds. Section 3547, Stat. 1890; section 3275. Stat. 1893; section 3583, Rev. Ann. Stat. 1903. On May 22, 1908 (Laws 1907-8, c. 57), section 23 of chapter 51 of the Statutes of 1893 (section 3275), was amended to read as follows:

"A mortgage of personal property must be signed by the mortgagor. Such signature may either be attested by acknowledgment before any person authorized to take acknowledgments of deeds, or it may be signed and validated by the signature of two persons not interested therein. Mortgages signed in the presence of two witnesses or acknowledged before an officer, as herein provided, shall be duly admitted of record." Section 4427, Comp. Laws 1909; section 4036, Rev. Laws 1910.

Ordinarily the offices of an acknowledgment are merely to entitle the instrument to registration, to give it effect after its deposit for record or registration, as constructive notice to persons without actual notice and to authorize its admission in evidence without any other proof of its execution being necessary at the time of its introduction. And, in the absence of a statute making the acknowledgment essential to the validity of the instrument, it is very generally held that the acknowledgment is no part of the contract between the parties, and that an acknowledged instrument is valid and effective as between the parties. 1 Corpus Juris, 747. But it is equally true that it is within the power of the Legislature to prescribe acknowledgment or proof as an essential prerequisite to the validity of a deed or other instrument, and where this is required it has been held that the instrument does not acquire any effective force until it has been acknowledged. Does the statute requiring that a mortgage of personal property be signed and validated by the signature of two persons not interested therein make the execution and attestation an essential prerequisite to the validity of such mortgage, or is the purpose only to affect the right of the mortgage to registration and to authorize its admission in evidence without further proof of its execution? The language, it will be noted, is out of the ordinary. It requires that it be "signed and validated" by the signatures of two disinterested persons. To validate means "to render valid; to give legal force; to confirm." Webster's Int. Diet. Until the mortgage was both signed and attested in the manner prescribed by the statute it was not, therefore, valid. The statute requires, not that the mortgage be signed in the presence of one witness, but in the presence of two witnesses. Furthermore, it is not sufficient that the mortgage be signed in the presence of two witnesses, but two witnesses not interested in the mortgage. It is when these combined requirements are met that the statute makes the mortgage valid, when not acknowledged before some person authorized to take acknowledgments of deeds. It was to meet the evil of permitting interested parties to act as witnesses to chattel mortgages in which they were substantially interested that the present statute was enacted. Bank of Ames v. Lehr,37 Okla. 1, 130 P. 288. The old statute by its terms, and by decisions of the court, did not disqualify those interested in the mortgage from acting as witnesses thereto. Watts v. First National Bank, 8 Okla. 645, 58 P. 782; Farmers' State Bank r. Spencer, 12 Okla. 597, 73 P. 297; Kee v. Ewing, 17 Okla. 410,87 P. 297; Bank of Ames v. Lehr, 37 Okla. 1, 130 P. 288. With this situation in mind, the Legislature enacted the present statute requiring, in effect, that where the mortgage is not acknowledged before an officer authorized to take acknowledgments, but before two witnesses, in order to make valid the execution thereof, it should be signed in the presence of two disinterested witnesses. These views find abundant support among the reported cases. In Clark v. Graham, 6 Wheat. 577, 5 L.Ed. 334, the deed in question was executed in the presence of one witness only, whereas the law of Ohio required all deeds for land to be executed in the presence of two witnesses, and it was held to be perfectly clear that no title to land could be acquired or possessed, unless according to the laws of the state in which the land was situate; that, although there were no negative words in the statute pertaining to the execution of deeds declaring deeds for the conveyance of land executed in any other manner to be void, yet this must be necessarily inferred in the absence of all words indicating a different legislative intent. The deed was held to be void. In Lewis et ux. v. Herrera, 10 Ariz. 74. 85 P. 245, Revised Statutes of the Territory of Arizona of 1901, sec. 725, provided that every deed of conveyance of real estate must be signed by the grantor, be duly acknowledged before some officer authorized to take acknowledgments, and properly certified to by him for registration. It was held in an action involving the transfer from a husband to a wife that, as the deed had not been executed in the manner prescribed by law, it was insufficient to effect a conveyance of real estate. The case was appealed to the Supreme Court of the United States, where the judgment of the Arizona court was affirmed (Lewis v. Herrera, 208 U.S. 309, 28 Sup. Ct. 412, 52 L.Ed. 506), the second paragraph of the syllabus reading:

"Acknowledgment by the grantor before a proper officer is made as much a prerequisite to the validity of a deed as the signing, by Ariz. Rev. Stat. 1901, sec. 725, providing that 'every deed or conveyance of real estate must be duly acknowledged before some officer authorized to take acknowledgments, and properly certified to by him for registration.' "

In Forrester v. Reliable Transfer Co., 59 Wn. 86, 109 P. 312, Ann. Cas. 1912A, 1093, it appeared from the certificate of the officer that it was acknowledged only by the lessee. The statute prescribing the duty of the officer taking the acknowledgment did not appear to differ materially from the usual statutes governing the duties of such officers. An attempt was made to prove acknowledgment of its execution by the lessor by parol evidence or evidence other than of a certificate of legally authorized officer. The court said in rejecting the offer:

"It is to be remembered that the statutory requirement as to acknowledgment is a requirement affecting the validity of the lease, and is not a mere prerequisite entitling it to public record, as in many states is the only office or purpose of an acknowledgment."

In Hendon v. White, 52 Ala. 597, in a scholarly and well-considered opinion by Mr. Chief Justice Brickell, it was held that under the provisions of the Revised Code of that state no conveyance was entitled to pass title to real estate, unless attested by one, and where the grantor could not write, by two witnesses, or acknowledged before a proper officer. The opinion reviews a number of early decisions, including Clark v. Graham, supra. The rule announced has been frequently followed by the Supreme Court of Ohio. Indeed, it appears to be the settled rule of decision of that state. Richardson v. Bates,8 Ohio St. 257; Smith's Lessee v. Hunt. 13 Ohio, 260. 42 Am. Dec. 201: Hout v. Hout, 20 Ohio St. 119.

Holding, as we do, that the statute provides an essential prerequisite to the validity of a mortgage of personal property, and that the attesting witnesses must not be interested in the mortgage, we conclude that the mortgage given the Bank of Lawton was ineffectual unless it be that the interest of the witnesses be not such as would disqualify them under the statute. Prior to the enactment of the statute pursuant to which the mortgage in question was executed there was no statutory qualification respecting attesting witnesses to a mortgage of personal property. This fact was noted in Watts v. First National Bank, supra, and Farmers' State Bank v. Spencer, supra. In the former case the attesting witnesses were the president and cashier, respectively, of the bank to which the mortgage was given, and it was observed in the opinion that the court would not conclude therefrom that they were stockholders or that they had any financial interest in the bank, in the absence of proof. In Farmers' State Bank v. Spencer one of the attesting witnesses was a stockholder in the mortgagee bank. The court in the opinion, however, contented itself with simply following its former opinion in the Watts Case and by calling attention to the statute at the time in force. In Kee v. Ewing, supra, it was said, concerning the acknowledgment of the execution of a written instrument affecting real estate, the authorities required that the officer could not acknowledge the execution of the instrument of the kind, made to himself, and, using the court's language:

"We think they are equally clear that an officer of a bank who is a stockholder therein may not take an acknowledgment of such an instrument made to secure a debt made payable to the bank, and, if so taken and acknowledged, the instrument would not be entitled to record, and such record, if made, would not give to it the force and effect of a recorded instrument."

In that case the mortgage was not given to the bank, but to one Kee. There was nothing on the face of the mortgage to indicate either that the bank had an interest in the mortgage or that the bank cashier before whom the acknowledgment was taken had an interest in the bank or in the debt secured by the mortgage, though it was found that the bank was in some way interested in the note and mortgage, the nature and extent of which was not determined. The case of Ardmore National Bank v. Briggs Mach. S. Co., 20 Okla. 427, 94 P. 533, 23 L. R. A. (N. S.) 1074, 129 Am. St. Rep. 747, 16 Ann. Cas. 133, involved the execution of a deed of trust made in the Indian Territory and a judgment rendered by the United States Court for the Southern District, and hence the Oklahoma statute was not involved. In Bank of Ames v. Lehr, supra, the early opinions of the court based on the old statute were followed, though attention was called to the act of May 22, 1908, which was enacted subsequently to the execution of the mortgage there under consideration. It may be conceded, under the doctrine of corporate entity, that a stockholder has no independent ownership in the corporate property. If, however, the corporate property is enhanced in value, the stockholder secures the benefit of such enhancement by the increased value of his shares; and while in a given case this benefit may be small, in another case it may be large, and it will not do to say that the amount of beneficial interest should be made the criterion of disqualification on the ground of interest. All that is necessary in such cases is to give effect to the plain mandate of the statute, and require that the witnesses be not interested, even as stockholders, in the mortgage to which they are attesting witnesses. This rule is followed by a great majority of the decided cases of the courts, as will be seen from an examination of the following cases: Ogden Building Ass'n v. Mensch, 196 Ill. 554, 63 N.E. 1049, 89 Am. St. Rep 330; Wilson v. Griess, 64 Neb. 792. 90 N.W. 866; First National Bank v. Citizens' State Bank, 11 Wyo. 32, 70 P. 726, 100 Am. St. Rep. 925; Hayes v. Southern Home Bldg. Loan Ass'n., 124 Ala. 662, 26 Smith,. 527, 82 Am. St. Rep. 216: Boxar Bldg. Loan Ass'n v. Heady, 21 Tex. Civ. App. 154,50 S.W. 1079, 57 S.W. 583; Winsted Savings Bank. Ass'n v. Spencer. 26 Cann. 195; Betts-Evans Trading Co. v. Bass.2 Ga. App. 718, 59 S.E. 8; Southern Iron Equipment Co. v. Voyles,138 Ga. 258, 75 S.E. 248, 41 L. R. A. (N. S.) 376, Ann. Cas. 1913d 369: Horbach v. Tyrell, 48 Neb. 514. 67 N.W. 485. 489. 37 L. R. A. 437: Withers v. Baird. 7 Watts (Pa.) 227, 32 Am. Dec. 754; Bowden v. Parrish, 86 Va, 67, 9 S.E. 616, 19 Am. St. Rep. 874; 1 Corpus Juris. 802; 1 Devlin, Real Estate, sec. 477B; City Bank of Boone v. Radtke, 87 Iowa, 363. 54 N.W. 435; Smith v. Clark, 100 Iowa. 605. 69 N.W. 1011; Kothe v. Krag-Reynolds Co., 20 Ind. App. 293. 50 N.E. 594; and Florida Saving Bank v. Rivers, 36 Fla. 575, 18 So. 850. While there are some cases to the contrary the weight of authority clearly supports the rule announced in the foregoing opinions. Where, as in this jurisdiction, under section 4036 of the statute, the acknowledgment is an essential part of the instrument and necessary to its, validity, it is clear that the attesting witnesses must be, disinterested. Any other view would circumvent the statute and permit its willful violation with impunity. The question in no wise involves the duty of the recording officer in receiving and filing such mortgages, In this way we may give effect to the statute requiring the signature of the grantor to be validated by the signature of two persons not interested therein, while to hold otherwise would permit the mortgagee, the acts of whose officers vitiated the instrument, to reap all the benefits of a valid mortgage, after registration. Such was not the purpose of the Legislature in enacting the statute, and it is not the province of the courts to aid parties to disregard a statute which they themselves have violated, as in the case at bar. The mortgage being void for want of due execution, its subsequent registration gave it no efficacy. From what has been said it will be seen that the following conclusions are properly deducible from the record:

(1) Section 4036. Rev. Laws 1910, requiring a mortgage of personal property to be signed by the mortgagor, and providing, as one method of its execution, that it may "be signed and validated by the signature of two persons not interested therein," makes the act of attesting the mortgagor's signature by witnesses not disqualified by interest an essential part of the instrument and necessary to its validity as a statutory mortgage.

(2) A mortgage of personal property given a state banking corporation not acknowledged before an officer authorized to take acknowledgments of deeds, but attested by two stockholders of the bank, one of whom was its president, is, on account of the interest of the attesting witnesses, invalid. Such mortgage, although filed for record in the proper office, is, because of its inherent defect, ineffectual to impart constructive notice, to subsequent purchasers or incumbrancers.

(3) A stockholder of a corporation an interested person within the meaning of section 4036, Revised Laws 1910, and therefore disqualified to act as an attesting witness to a chattel mortgage made to such corporation.

Entertaining these views. I regard the opinion of the court as illogical and unsound, and therefore dissent.