Bowden v. Bank of America National Trust & Savings Ass'n

This action was brought by the trustee in bankruptcy of the Dunlap Trucking Company to recover the value of property allegedly converted by the defendant bank. From a judgment in favor of the trustee, defendant appeals.

By March 28,1947, the total indebtedness had been reduced to $38,064. At the request of the bankrupt this was consolidated into one note payable in semimonthly installments of $793 and, to secure this note, Dunlap also executed a chattel mortgage (referred to as the consolidated mortgage) on the entire lot of vehicles previously covered by the series of mortgages and conditional sales contracts. It was not until July 15, 1947 (109 days later), that defendant complied with the provisions of section 195 of the Vehicle Code by depositing a copy of the consolidated mortgage with the Department of Motor Vehicles. In the interval between the date of its execution and recordation the bankrupt became indebted to a number of creditors for small sums totalling about $2,600. These claims remain unpaid and the assets of the bankrupt are insufficient to pay its liabilities in full. It does not appear whether the bankrupt has any creditors whose claims arose prior to the execution of the consolidated mortgage or subsequent to its recordation.

On September 3, 1947, Dunlap having defaulted on the payments due under the consolidated note, defendant took possession of the vehicles described in its mortgages and conditional sales contracts. Eight days later Dunlap filed its voluntary petition in bankruptcy and was adjudged a bankrupt. Plaintiff, Leslie S. Bowden, was named trustee on September 29th.

In this action commenced by the trustee, conversion is alleged on the ground, that the consolidated mortgage was invalid by reason of the excessive interval between its execution

In this connection, the trial court found as heretofore stated that the execution and delivery of the .consolidated mortgage was “for the purpose of superseding certain prior chattel mortgages and conditional sales contracts ...” which with the remainder of the findings and conclusions constitutes a finding that the parties agreed that the consolidated mortgage was to extinguish the prior security interests of defendant. We have then the question as to whether there was any evidence to support that finding. It has been held that the transaction itself is not evidence of such an agreement even ' where the new mortgage covers additional property of the mortgagor and the new note provides for a reduction in the interest rate (Pacific Nat. Agr. Credit Corp. v. Wilbur, 2 Cal. 2d 576 [ 42 P.2d 314 ]), or where the renewal is for different amounts upon different terms of. payment (Parker v. Tout, supra; Tolman v. Smith, 85 Cal. 280 [ 24 P. 743 ]; Howell v. Bowling, 52 Cal.App.2d 487 [ 126 P.2d 630 ]). “The circumstances of the transaction, it is true, may be used to determine the character of the exchange. But the circumstances, to prevail, must be such as to establish the mutual agreeementof the parties.” (Savings & Loan Soc. v. Burnett, supra, 106 Cal. 514 , 531.)

The fact that the original note is marked “paid” or that there is a recital of payment in the renewal instruments is not conclusive evidence that the indebtedness has been discharged. (Gna rini v. Swiss American Bank, 162 Cal. 181 [ 121 P. 726 ]; Bonestell v. Bowie, 128 Cal. 511 [ 61 P. 78 ]; Howell v. Dowling, supra; McArthur v. Wellman, supra.) The necessary agreement to accept the renewal instruments in payment and discharge of the prior debt and lien is not

Two other factors merit discussion as bearing on the question of agreement. Plaintiff points to the fact that some of the vehicles were held under conditional sales contracts and cites 16 California Jurisprudence, page 333, for the proposition that the taking of new or additional security may operate to destroy an existing lien in certain exceptional cases, as “where it is worked by necessary intendment growing out of the agreement of the parties, in that the taking of the later security is inconsistent with the continued existence thereafter of the lien ...” This language is taken from Martin v. Becker, 169 Cal. 301 , at 309 [ 146 P. 665 , Ann.Cas. 1916D 171], and apparently has reference to vendors’ liens and conditional sales contracts, although that case involved a mechanic’s lien. It has been said that, according to the weight of authority, the interest of the conditional seller of chattels is lost by the taking of a chattel mortgage on the same property. (47 Am.Jur., Sales, § 974.) The reason generally given

Whether the acceptance by the seller of a chattel mortgage on the same property necessarily supersedes the conditional sale contract appears to be an open question in this state. Plaintiff cites several cases stating the truism that “the vendor cannot have a lien upon personal property of which he is the owner.” (Alexander v. Walling, 105 Cal.App. 525 , 534 [ 288 P. 138 ]; Katzenbach & Bullock Co. v. Breslauer, 51 Cal.App. 756 , 757 [ 197 P. 967 ]; Standard Auto Sales Co. v. Lehman, 43 Cal.App. 763 [ 186 P. 178 ].) These decisions, however, do not involve the problem presented in this case. The two cases first cited involved executory contracts for the sale of personal property and the question decided was that, because a sale had not been completed, the sellers need not proceed pursuant to the Civil Code sections then in effect which dealt with the enforcement of liens of unpaid sellers. (See also Eads v. Kessler, 121 Cal. 244 [ 53 P. 656 ]; Bayfield v. Van Meter, 120 Cal. 416 [ 52 P. 666 ]; Gibbs v. Barnard, 86 Cal. 531 [ 25 P. 63 ].) The Lehman case holds that the security interest of a conditional seller is not a “mortgage, deed of trust or lien . . . or . . . pledge” within the meaning of the attachment statute (Code Civ. Proc., § 537(1)). That decision is based on a strict construction of a statute listing certain types of security, the existence of which will preclude the right to attachment, the theory being that other kinds of security are impliedly excluded from its operation. (Standard Auto Sales Co. v. Lehman, supra, 767; Hougham v. Bowland, 33 Cal.App. 2d 11 ,17 [ 90 P.2d 860 ].) In Timm Aircraft Corp. v. Byram, 34 Cal.2d 632 [ 213 P.2d 715 ], the provisions of an agreement between a contractor and the United States which gave the government a lien on the funds advanced were considered to be a factor indicating that the contractor was the owner of the funds for tax purposes.

Thus, it has been held that the conditional seller, although registered as the “legal owner,” is not personally liable for taxes assessed on the automobile conditionally sold. (County of San Diego v. Davis, supra; of. Sherman v. Quinn, 31 Cal. 2d 661 [ 192 P.2d 17 ].) The conditional buyer has an insurable interest in the property sold, at least to the extent of his payments on account. (Coniglio v. Connecticut Fire Ins. Co., 180 Cal. 596 , 599 [ 182 P. 275 , 5 A.L.R. 805 ]; Dunne v. Phoenix Ins. Co., 113 Cal.App. 256 , 260 [ 298 P. 49 ]; Zecchini v. Chicago Fire & Marine Ins. Co., 104 Cal.App. 458 [ 285 P. 1072 ]; Smith v. Jim Dandy Markets, 172 F.2d 616 , 618; see Fageol Truck & Coach Co. v. Pacific Ind. Co., 18 Cal.2d 731 , 744 [ 117 P.2d 661 ].) ‘‘ The interest of a purchaser under a conditional contract of sale, though it does not amount to a legal title, may be made the subject of a chattel mortgage which will be good otherwise than as against the vendor.” (Pacific States Say. & Loam Co. v. Strobeck, 139 Cal.App. 427 , 432 [ 33 P.2d 1063 ]; Glen Falls Indemnity Co. v. Perscallo, 96 Cal.App.2d 799 , 803 [ 216 P.2d 567 ]; see Walker v. Hous

These considerations amply illustrate that a' conditional sale, as well as a chattel mortgage, involves a division of interests in the property sold. (For further discussion, see Jones, Chattel Mortgages and Conditional Sales, (6th ed.), §§ 1263-1279; Williston on Sales (rev. ed.), §§ 337, 579; Void on Sales, § 95.) The general rule applicable to the transactions here in question is that the acceptance of one form of security as a substitute for, or in addition to, another form of security does not, of itself, have the effect of extinguishing the original security interest. (Crisman v. Lanterman, 149 Cal. 647 , 653 [ 87 P. 89 , 117 Am.St.Rep. 167 ] , Exchange Bank of Perry v. Nichols, 196 Okla. 283 [ 164 P.2d 867 , 872]; Smith v. Thomas, 42 Idaho 375 [ 245 P. 399 , 401];

As evidence of an agreement that the consolidated mortgage was taken in satisfaction of the prior mortgages and contracts, plaintiff points to a clause in the instrument which reads as follows:

“The mortgagor does hereby warrant that he is the sole owner of all the within mentioned personal property and that there are no liens or encumbrances or adverse claims of any kind whatever thereon or any part thereof.”

The mortgage was signed by the president and secretary of Dunlap, the mortgagor, but it was not signed by any representative of the defendant bank. Such a warranty on the part of the mortgagor does not constitute an express agreement by the defendant mortgagee to give up its previous security rights. There is no reason to suppose that the creditors represented by the plaintiff, as trustee in bankruptcy of the mortgagor, were misled by the warranty clause. At the time the consolidated mortgage was executed, and during the period when those claims arose, the defendant was registered as the legal owner of the vehicles and it held the ownership certificates pertaining thereto. The creditors of the mortgagor could therefore have ascertained that defendant claimed an interest in the vehicles.

It follows that defendant’s interests under the separate mortgages and contracts were not extinguished by the execution of the consolidated mortgage and that defendant was not guilty of conversion in repossessing the property in ac

The judgment is reversed.

Gibson, C. J., Shenk, J., Edmonds, J., Traynor, J., Schauer, J., and Spence, J., concurred.