Opinion
Decided November 28, 1927.
Chattel mortgages — Automobiles — Mortgagee filed chattel mortgage before owner filed bill of sale — Subsequent bona fide purchaser and mortgagee not chargeable with notice of prior mortgage — Mortgagee's replevin judgment, without possession, not binding upon subsequent purchaser, when.
1. Where a chattel mortgagee takes a chattel mortgage upon an automobile, and files the same as a chattel mortgage, and the owner of the automobile subsequently obtains a bill of sale and files such bill of sale with the clerk of courts, a later mortgagee in good faith and for value is not chargeable with notice of such prior mortgage.
2. When a chattel mortgagee begins an action in replevin against an owner, who in the meantime has sold the automobile, but does not take possession of the property, the judgment in such action is not constructive notice to a subsequent mortgagee from a purchaser of the automoblile in the regular chain of title.
ERROR: Court of Appeals for Franklin county.
Mr. W.B. McLeskey, for plaintiff in error.
Mr. John R. Horst, for Thomas McReynolds.
Mr. W.S. Pealer, for H.B. Tait Company.
The final questions here are:
(1) Is a bona fide purchaser of an automobile under a legal chain of title bound to take notice of a chattel mortgage given by the owner and placed on file before such owner acquires the legal title of record?
(2) Is an adjudication in a former action in favor of such chattel mortgagee conclusive upon the parties in this action?
The case originated in the Municipal Court, and the final issue was as to the validity of the mortgage of the Ohio Finance Company.
The Municipal Court adjudged the mortgage of the Ohio Finance Company invalid and the Court of Common Pleas affirmed the judgment. The case is here on error.
The chronology of the facts is as follows:
November 21, 1923, the automobile was sold verbally to John Oswald.
March 22, 1924, Oswald mortgaged to the Ohio Finance Company.
March 29, 1924, said chattel mortgage was filed.
May 3, 1924, bill of sale to John Oswald was executed and filed.
June 24, 1924, Oswald by bill of sale duly filed sold to Charles Taggart.
November 10, 1924, Taggart by bill of sale duly filed sold to B.C. Bond.
November 28, 1924, Bond, by bill of sale duly filed, resold to Taggart.
June 15, 1925, Taggart, by bill of sale duly filed, sold to Thomas McReynolds.
February 9, 1925, McReynolds sold to H.B. Tait Company.
January 15, 1925, the Ohio Finance Company filed suit in replevin for said automobile.
November 30, 1925, this action was commenced.
In the case of Ohio Farmers' Ins. Co. v. Todino, 111 Ohio St. 274, 145 N.E. 25, 38 A.L.R., 1118, the court had before it a case involving the scope and effect of the automobile registration law, and it was held that no title to a purchaser of an automobile vested until a bill of sale duly executed and delivered is filed for record. This forcible language is found in the opinion at page 277 (145 N.E. 26):
"In view of the requirement of the statute that a bill of sale shall be verified before it can have force and effect, how can it be successfully argued that no bill at all may have force and effect? Omission of action is not action. Nonperformance is not performance. Failure to do a thing is not the doing of it. The absence of a paper is not the equivalent of a paper. As title cannot pass without a verified bill of sale, and in this transaction no bill of any kind or character was executed by the donor or filed by the donee (plaintiff), how can it be claimed that at the time of the theft plaintiff was the sole and unconditional owner of the car, within the meaning of the policy?"
What equitable rights or inchoate title vested in Oswald at the time of the verbal contract to purchase, and delivery of possession, we need not decide. The full legal title vested only when the bill of sale to Oswald was executed, delivered, and filed of record. The mortgage of Oswald taken and filed prior to the vesting of the legal title in Oswald was at most an equitable mortgage. It was not a conveyance in the chain of title. It is claimed that, when Oswald completed his title by obtaining and filing the bill of sale, the equitable mortgage of the finance company ripened into a vested legal mortgage by operation of law. In a limited sense this would be true, but we cannot escape the conclusion that the rights of the mortgagee would attach only as against the mortgagor and others having no superior equity.
The purchasers from Oswald were bona fide purchasers for full value without actual notice of the rights of said chattel mortgagee. The final question is, therefore, Are such purchasers chargeable with notice of the chattel mortgage executed by Oswald prior to his obtaining the legal title? We are unable to find an adjudication upon this exact question in our own state. The case of Sternberger v. Ragland, 57 Ohio St. 148, 48 N.E. 811, contains a discussion on the subject of constructive notice as applied to conveyances not in the chain of title. Judge Williams in the opinion says at page 156 (48 N.E. 812):
"When a prospective purchaser finds a complete record title in the proposed seller, he is not bound to examine for mortgages made to the latter after he became the owner; such a mortgage is not in the chain of his title, and is not, therefore, constructive notice to a subsequent purchaser, of a prior unrecorded deed made by him to the mortgagor."
This case shows a disposition to confine constructive notice to conveyances in the chain of title. Upon the identical question here the decisions in other states are in conflict. We, however, adopt this statement of the law from 23 Ruling Case Law, p. 209:
"The better rule, however, is that a recorded deed by one who has no title, but who afterwards acquires the title, is not constructive notice to a subsequent purchaser in good faith from the same grantor. It is also held that a record of a mortgage given before the mortgagee acquired title to the mortgaged lands is not constructive notice to a subsequent purchaser or incumbrancer from such mortgagor after he acquired title."
Accepting this view, we hold that the purchasers from Oswald in the line of title hold a superior title to that taken by the Ohio Finance Company under its chattel mortgage.
This leaves for consideration the effect of the former adjudication. The burden of proof is upon the Ohio Finance Company upon this issue. The agreed statement of facts shows that the replevin action was filed on or about January 15, 1925, but no showing is made as to when the summons was issued or served upon the actual defendants, nor does it appear in the record that the property was actually taken from the custody of its owner until about April 15, 1925. In the meantime Thomas McReynolds acquired title to and possession of the automobile as a bona fide purchaser for full value and without notice. The bill of sale was filed January 16, 1925. McReynolds' title was therefore complete on January 16, 1925, and it would be incumbent upon the Ohio Finance Company in order to sustain its claim of adjudication to prove not only that its action in replevin was filed, but that summons was issued and served and the property taken before McReynolds acquired his title. This we think the record fails to show, and the claim of adjudication must be rejected, as McReynolds at least was a necessary party to the replevin action. It follows, therefore, that the judgments of the Municipal Court and the Court of Common Pleas should be affirmed.
Judgment affirmed.
FERNEDING and KUNKLE, JJ., concur.