Opinion
5-25-1950
BOWDEN v. BANK OF AMERICA NAT. TRUST & SAVINGS ASS'N. Civ. 17483.
Hugo A. Steinmeyer and Robert H. Fabian, Los Angeles, for appellant. Samuel B. Stewart, Jr., San Francisco, Freston & Files, Ralph E. Lewis, Los Angeles, of counsel. Craig, Weller & Laugharn, Los Angeles, for respondent, by Thomas S. Tobin, Los Angeles.
BOWDEN
v.
BANK OF AMERICA NAT. TRUST & SAVINGS ASS'N.
May 25, 1950.
Rehearing Denied June 12, 1950.
Hearing Granted July 20, 1950. *
Hugo A. Steinmeyer and Robert H. Fabian, Los Angeles, for appellant. Samuel B. Stewart, Jr., San Francisco, Freston & Files, Ralph E. Lewis, Los Angeles, of counsel.
Craig, Weller & Laugharn, Los Angeles, for respondent, by Thomas S. Tobin, Los Angeles.
MOORE, Presiding Justice.
Appeal from a judgment for the value of certain movables found to have been wrongfully taken by defendant from the bankrupt and converted to its own use.
The Dunlap Trucking Company, a corporation, herein referred to as Dunlap or the bankrupt, acquired many motor trucks, trailers and other automotive equipment. The transactions involved in this controversy were purchases made on the time payment plan. In three instances Dunlap bought on conditional sales contracts payable in monthly installments; in seven, it financed the purchases by loans from appellant to which it made installment notes and chattel mortgages. The three conditional sales agreements were dated July 10, August 20 and September 5, 1946. Each was duly assigned to appellant. Five of the mortgages involved were taken prior to March 18, 1946, when the advances aggregated $48,000. The remaining mortgages were dated May 14, 1946, and February 1, 1947, and were recorded respectively on July 8, 1946, and February 4, 1947. The latter two were to secure the sum of $5,200--making appellant's total outlay the sum of $53,496. An installment note evidenced the amount of the debt secured by each mortgage and the amount of each monthly payment. They aggregated $2,470 per month.
The total of such indebtedness having been on March 28, 1947, reduced to $38,064, it was by Dunlap consolidated in one note payable in semi-monthly installments of $793. A chattel mortgage on the entire lot of vehicles mentioned in the instruments above described was by Dunlap executed as security for the payment of such note. One hundred nine days later, July 15, 1947, the consolidated mortgage was deposited (sometimes referred to herein as 'recorded') in the office of the State Motor Vehicle Department pursuant to section 195, Motor Vehicle Code. 1 Between the dates of its execution and recordation, Dunlap became indebted to a number of creditors for small sums aggregating not to exceed $2600.
On September 3, 1947, Dunlap having defaulted on the monthly payments due on the consolidated note, appellant 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. On September 29, 1947, plaintiff was named as its trustee.
This action was filed by respondent alleging conversion in that the consolidated mortgage was invalid by reason of the excessive interval between its execution and recordation. He pleaded that the assets of the bankrupt were grossly insufficient to pay its liabilities in full; that as to those who became creditors of the bankrupt during the 109-day period it was absolutely null and void as security. Upon a general denial and on allegations of (1) ownership under earlier mortgages and conditional sales contracts and (2) acceptance of the consolidated mortgage as a renewal or extension of all the indebtedness of Dunlap, following a trial the court found that the bank held title to three vehicles under conditional sales contracts; three others under a mortgage dated February 1, 1947; the balance of the vehicles under six separate mortgages executed and recorded in 1946. Also, the court found that the consolidated mortgage was delivered to appellant for the purpose of superseding the prior chattel mortgages and contracts held by the bank by consolidating the existing indebtedness into one debt, payable in consolidated, semi-monthly installments; at that time appellant held legal title to all the vehicles and was the registered owner, holding the pink slips as security for the balance of the purchase prices under the conditional sales contracts and the notes and mortgages; the consolidated mortgage was not recorded until July 15, 1947; during the interval of 109 days Dunlap became indebted to divers small creditors who continued so at the date of its being adjudged a bankrupt; the consolidated mortgage constituted a secret lien and was a void security as against creditors; appellant took possession purportedly under the consolidated mortgage on September 3, 1947, and by its seizure and attempt to foreclose the mortgage converted all the vehicles included in the instrument. Upon such findings the court concluded that (1) under sectoin 70, sub. a(5) of the National Bankruptcy Act, 11 U.S.C.A. § 110, sub. a, (5), respondent was vested with all rights of the bankrupt and of its creditors to the chattels described in the consolidated mortgage; (2) appellant was an unsecured creditor insofar as the rights of creditors existing between the date of the execution of the mortgage and its deposit with the Department of Motor Vehicles whose claims were filed and allowed in bankruptcy proceeding; (3) the chattel mortgage under which the property was seized did not constitute valid security as against them and respondent; (4) the sale of the chattels constituted a conversion of same for which respondent is entitled to judgment without prejudice to appellant's right to establish its claim as unsecured. Judgment for $40,000 was thereupon awarded.
Appellant contends that the judgment should be reversed upon four grounds: (1) it held at all times a valid, continuing lien for the entire indebtedness under the original mortgages and conditional sales contracts, even though it be conceded that the consolidated mortgage was invalid as to the small claims; (2) in fact, the consolidated mortgage was valid and was immunue to attack by respondent under a rational interpretation of section 195 of the Motor Vehicle Code; (3) assuming that the original mortgages had been discharged and the consolidated mortgage was subject to successful attack, still the amount of recovery such under conditions should be restricted to the damage measured by the amount of the claims of the small creditors assumed to be entitled to attack the consolidated mortgage; (4) there is no evidence of damage in the sum of $40,000.
Consolidated Mortgage a Nullity
Having been withheld from record for over three and a half months after its execution, the consolidated mortgage was void. During that period new creditors of Dunlap came upon the scene. Not only was it tardily recorded but when it reached the records it was found to contain the following: '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 on any part thereof.' Furthermore, that mortgage was prepared by appellant upon its own blank form. It knew that in accepting a chattel mortgage upon the vehicles it was ignoring the fact that at that time it had ownership of three vehicles as vendor under the three conditional sales contracts and the remainder as assignee of the certificates of ownership (pink slips). Therefore it could not become a mortgagee of the vehicles. Alexander v. Walling, 105 Cal.App. 525, 534, 288 P. 138; Standard Auto Sales Company v. Lehman, 43 Cal.App. 763, 776, 186 P. 178. But notwithstanding the consolidated mortgage was invalid as evidence of a lien, it was so utterly inconsistent with the subsistence of the original liens and reservations of title as to evidence the mutual intention of the parties to vest Dunlap with ownership free of encumbrances except the lien in favor of the bank created by the consolidated mortgage. However, by virtue of its neglect promptly to deposit the new instrument as required by section 195, supra, it faced the bankruptcy court without security for its loans. By its own participation in the preparation of the consolidated mortgage all its rights under the sales contracts and the seven original chattel mortgages were extinguished. Also, by reason of its failure promptly to deposit it as provided by section 195 it became a nullity as to creditors, purchasers or encumbrancers. Moore v. Bay, 284 U.S. 4, 52 S.Ct. 3, 76 L.Ed. 133, 134, 76 A.L.R. 1198. Consequently, it had no standing against the attack of the trustee.
Appellant contends that the consolidated mortgage if invalid could extend no further than to protect the few creditors who extended credit during the 109-day period. Such is not the law with relation to the rights of a creditor holding a chattel mortgage belatedly recorded where the debtor is adjudged a bankrupt. When he has failed to record his mortgage with reasonable promptness, it is rendered invalid. In 1928 the federal Supreme Court held that the delay of 19 days to record a chattel mortgage rendered it a nullity and that what thus is recovered for the benefit of the estate is to be distributed in dividends of an equal per centum on all allowed unsecured claims. 'The trustee in bankruptcy gets the title to all property * * * which prior to the petition he could by any means have transferred, or which might have been levied upon and sold under judicial process against him.' Moore v. Bay, supra. The Moore-Bay decision is established law in matters affecting bankruptcy. It is the subject of favorable comment in a note found in 76 A.L.R. page 1200.
Appellant contends that the original mortgages still subsist, that they meet all requirements of the law with respect to the formalities and the recordation and since there was not a specific finding that the parties agreed to a cancellation or satisfaction thereof the creditors were unharmed and the seizure and sale were lawful. Since the court found that the consolidated mortgage superseded the original mortgages, the question of release of those mortgages is definitely settled. The fact that it was of record and therefore served as notice to any new creditors of Dunlap does not avail appellant. It was a nullity as to all creditors and appellant's good faith could not give it life. If by its acceptance of the consolidated mortgage the bank erased the original mortgages and if the new instrument became a nullity before it was recorded no amount of good faith on the part of appellant will serve to re-establish the old mortgages or to vitalize the new. Noyes v. Bank of Italy, 206 Cal. 266, 272, 274 P. 68. The chattel mortgage is a creature of statute and rights asserted under it can be preserved only by a strict compliance with and a diligent observance of code provisions relative thereto. Kahriman v. Jones, 203 Cal. 254, 255, 256, 263 P. 537.
Appellant argues that while section 2957 of the Civil Code provides that a chattel mortgage is void unless the mortgage is recorded, yet section 195 of the Vehicle Code has distinctly different language in that it provides that 'no chattel mortgage on any vehicle * * * is valid as against creditors * * * until the mortgagee * * * has deposited with the department * * * a copy of said mortgage * * * accompanied by a properly endorsed certificate of ownership to the vehicle described.' By reason of the difference in verbiage of the statutes appellant asserts that the legislative intent was to treat a mortgage on a motor vehicle as being valid from the time it is deposited and not as a nullity where the mortgagee neglects promptly to deposit it with the Department, citing In re Wiegand, D.C., 27 F.Supp. 725. But the Circuit Court of Appeals concluded that the different words used in the two statutes have the same meaning, to wit, that the mortgage is void unless recorded with reasonable promptness. Bank of America v. Sampsell, 9 Cir., 114 F.2d 211; Budget Plan Finance, Inc., v. England, 9 Cir., 170 F.2d 59; Moore v. Bay, supra . The decision in the Sampsell case merits approval as the precedent to be followed inasmuch as it not only follows Moore v. Bay, but is in harmony with the state policy which is hostile to any form of secret lien.
Appellant contends that the court erred in finding respondent's damage to be $40,000. It insists that recovery should have been limited to the sum of $2600. It relies upon section 3336 of the Civil Code which makes the measure of damage in a conversion action the value of the property converted or an amount sufficient to indemnify the injured party to the extent of his loss. Appellant argues that respondent stands in the shoes of the complaining creditors and can recover no more than their losses. There are two answers to such contention. (1) The failure of appellant promptly to record the consolidated mortgage made it a nullity under the federal law. Moore v. Bay, supra; 76 A.L.R. note on page 1200. Because, forsootd, under the laws of this state a belated recordation of a chattel mortgage is a valid notice to subsequent creditors no advantage can on that account be gained by a creditor of a bankrupt in an action by the latter's trustee to recover property taken from the bankrupt where the recordation of the mortgage was unreasonably delayed and new debts were incurred. If under the doctrine of Moore v. Bay appellant's mortgage was a nullity as to all creditors, the trustee was entitled to all the bankrupts' property, leaving the way open to all creditors to share in the assets of the estate according to their established claims. Therefore, the total value of the converted property was recoverable by the trustee. 2 (2) As to the property's value in the sum of $40,000, the court derived its finding from conflicting evidence. The president of Dunlap testified that the value of the vehicles was in excess of $50,000. One witness appraised them at $29,000. The fact that the witness Glove testified to a large reduction in the market value of the vehicles between June and October, 1947, did not compel the trial court to adopt the appraisal of any particular witness. The value of $40,000 was evidently derived from a consideration of the several appraisals and the depreciation as proved. The finding of value will not be disturbed in the absence of a clear showing that it was arbitrary and on review it will be supported by the proof favorable to the judgment. Wood v. Samaritan Institution, 26 Cal.2d 847, 849, 161 P.2d 556; Morrison v. Willhoit, 62 Cal.App.2d 830, 836, 145 P.2d 707. On appeal it must be presumed that the court believed the testimony that supports the finding. Taber v. Beske, 182 Cal. 214, 217, 187 P. 746.
Appellant's complaint of a lack of findings with respect to material issues comes with poor grace. After proposed findings had been filed, appellant presented courter findings. At a conference of court and counsel the findings and amendments proposed by appellant were adopted. No objection was made by appellant to any finding finally made. The opportunity afforded, section 634, Code Civ.Proc., to propose amendments to and criticisms of proposed findings imposes upon the losing party the duty of presenting such matters to the trial judge while the latter still has jurisdiction of the case and if no objection is made the right to object must be deemed to have been waived. La Vigne v. La. Vigne, 96 Cal.App.2d 531, 216 P.2d 75; Del Ruth v. Del Ruth, 75 Cal.App.2d 638, 644, 171 P.2d 34.
Judgment affirmed.
WILSON, J., concurs.
McCOMB, J., deeming himself disqualified, takes no part in this decision. --------------- * Subsequent opinion 224 P.2d 713. 1 'No chattel mortgage on any vehicle registered hereunder irrespective of whether such registration was effected prior or subsequent to the execution of such mortgage, is valid as against creditors or subsequent purchasers or encumbrancers until the mortgagee or his successor or assignee has deposited with the department, at its office in Sacramento, a copy of said mortgage with an attached certificate of a notary public stating that the same is a true and correct copy of the original, accompanied by a properly endorsed certificate of ownership to the vehicle described in said mortgage if said vehicle is then registered hereunder, or if said vehicle is not so registered, by an application in usual form for an original registration, together with an application for registration as legal owner, and upon payment of the fees as provided in this code.' Section 196, Vehicle Code. 'When the chattel mortgagee, his successor or assignee, has deposited with the department a copy of the chattel mortgage as provided in section 195 hereof, such deposit constitutes constructive notice of said mortgage and its contents to creditors and subsequent purchasers and encumbrancers but such mortgaged vehicle shall be subject to a lien as provided in Division VIII hereof.' Section 197, Motor Vehicle Code. 'Upon the deposit of any such chattel mortgage and application for registration and upon the payment of the fees as provided in this code, the department shall register the mortgagee, his successor or assignee as legal owner in the manner provided for the registration of motor vehicles under the provisions of this act.' 2 While under federal law failure promptly to record a chattel mortgage renders it ineffective as to all creditors whose interest arose subsequent to its execution, yet under California law a belated recordation of such a mortgage is notice to all who become creditors after the recordation. Wolpert v. Gripton, 213 Cal. 474, 481, 2 P.2d 767.