Beavers v. Farmers' & Traders' Bank

• Decision Date: 02 February 1914
• Citation: 177 Mo. App. 100,163 S.W. 529
• Court: Missouri Court of Appeals
• Parties: BEAVERS v. FARMERS' & TRADERS' BANK OF HARDIN.

163 S.W. 529

177 Mo. App. 100

BEAVERS v. FARMERS' & TRADERS' BANK OF HARDIN.

Kansas City Court of Appeals. Missouri.

February 2, 1914.

1. CHATTEL MORTGAGES (§ 211)—TRANSFER—EQUITIES AND DEFENSES—"HOLDER IN DUE COURSE."

While a chattel mortgage securing a note passes to the transferee of the note free from equities between the original parties in the same manner as the note itself, the transferee is charged with notice of a warranty in the mortgage, so that, where the mortgage provided that the mortgagee "by accepting this mortgage" guaranteed the jack for which the secured note was given, the transferee of the mortgage could not enforce the note and at the same time claim that he was not bound by the warranty in the mortgage, notwithstanding Negotiable Instruments Act (Rev. St. 1909, §§ 10022, 10026), defining a holder in due course as one who takes the instrument in good faith without notice at the time it was negotiated of an infirmity in the instrument, and providing that, to constitute notice of such infirmity, actual knowledge must exist or knowledge of such facts as will make the taking of the instrument amount to bad faith.

2. CHATTEL MORTGAGES (§ 104)—NOTE AND MORTGAGE.

While a note and mortgage securing it, if executed contemporaneously, are usually considered parts of one transaction, they are in many ways treated as separate transactions.

3. CHATTEL MORTGAGES (§ 211)—TRANSFER—NOTICE OF EQUITY.

The equity in favor of the mortgagor under a provision in a chattel mortgage securing a note given for a jack that the mortgagee by accepting the mortgage guaranteed the jack existed when the chattel mortgage was executed; and hence existed when it was transferred, so as to charge the transferee with knowledge thereof.

Appeal from Circuit Court, Carroll County; Arch B. Davis, Special Judge.

Action by W. R. Beavers against the Farmers' & Traders' Bank of Hardin, Mo. From a judgment for plaintiff, defendant appeals. Affirmed.

Jones & Conkling, of Carrollton, for appellant. Lozier & Morris, of Carrollton, for respondent.

TRIMBLE, J.

This is a suit in equity wherein the plaintiff prays the cancellation of two notes of $400 each and a chattel mortgage given to secure same, or, if the court will not cancel said notes, but finds that plaintiff owes anything thereon, that then the sum due thereon be ascertained, so that plaintiff may pay same, and that such other and further relief may be granted as will be meet and just.

The chancellor heard the evidence, and, refusing to cancel the two notes, rendered judgment against plaintiff on them in favor of the defendant bank as an innocent holder for value, but directed the cancellation of the chattel mortgage. The bank appealed.

Plaintiff brought the suit against the defendant bank and one Jeff Gentry. The material facts out of which it grew are these: Gentry sold plaintiff a jack, and received in payment therefor the two notes in question, and, to secure said notes, took a chattel mortgage on said jack and on other personal property owned by plaintiff. The notes and chattel mortgage were given March 15, 1911, and the chattel mortgage was duly recorded March 28, 1911. On May 12, 1911, before either of the notes were due, Gentry assigned them to the defendant bank as collateral security to secure the payment of a note of $800 which he gave the bank on that date. After the two notes in controversy fell due according to their terms, by reason of the nonpayment of interest, the bank began pressing plaintiff for payment, and was threatening to foreclose the chattel mortgage and sell the jack in question and plaintiff's other property therein described. Whereupon plaintiff brought this suit.

The chattel mortgage contained the following provision: "Said Gentry by accepting this mortgage does hereby guarantee said jack to be a reasonably sure foal-getter, and also guarantees said jack to be capable and willing and able to cover mares that may be brought to him for service. This mortgage is given to secure the purchase price of said jack."

It was pleaded in the petition that Gentry, the payee in said notes, warranted and guaranteed said jack to be a good foal-getter, and to be capable and willing to serve mares that might be brought to him for service, and that all of said facts were fully set forth in said chattel mortgage, but that there is and was a breach of said guaranty and warranty, in that said jack was not a reasonably good foal-getter, and was not capable, willing, and able to serve mares that might be brought to him for service, and was wholly worthless for any purpose whatever, and the decree of the chancellor specifically found these facts to be true. No complaint is made of this finding.

Defendant contends, however, that the chattel mortgage was merely incident to the notes and partook of their negotiability; and, inasmuch as the court found that the defendant bank took said notes discharged of any equities to which they were subject while in the hands of Gentry, the bank also took said chattel mortgage free from such equities. Consequently, defendant argues that the court erred in destroying the chattel mortgage. The soundness or unsoundness of this contention, and the consequent disposition to be made of the case, hinge upon the question whether or not the chattel mortgage in this case, which on its face, and as one of its express conditions, asserts and carries equities between the mortgagor and mortgagee, so far partakes of the negotiability of the notes that the bank took it discharged of all such equities the same as the notes were.

It is undoubtedly true that the rule is that a chattel mortgage or deed of trust given to secure a negotiable promissory note is incident to the note, so that, when the latter is assigned to an innocent holder for value before maturity, the chattel mortgage or deed of trust so far partakes of the negotiability of the note as to pass to the assignee as free from equities existing between the original parties as the note. And the following, as well as other cases so hold: Crawford v. Aultman, 139 Mo. 262, 40 S. W. 952; Jennings v. Todd, 118 Mo. 296, 24 S. W. 148, 40 Am. St. Rep. 373; Hagerman v. Sutton, 91 Mo. 519, 4 S. W. 73; Merchants' National Bank v. Abernathy, 32 Mo. App. 222; Mayes v. Robinson, 93 Mo. 114, 5 S. W. 611; Logan v. Smith, 62 Mo. 455; Bank v. Frame, 112 Mo. 502, 20 S. W. 620; Bank v. Rohrer, 138 Mo. 369, 39 S. W. 1047; Borgess Inv. Co. v. Vette, 142 Mo. 573, 44 S. W. 754, 64 Am. St. Rep. 567. But all of these cases deal with mortgages or deeds of trust which, on their face, disclose no equities. None of them hold that the doctrine contended for by appellant is applicable to a case like the one at bar, or applicable to any case where the mortgage contains warranties or guaranties, or, on its face, suggests or reserves defenses. In none of the cases cited has it been held that the assignees of a negotiable promissory note can enforce the mortgage lien in violation of the express provisions of the mortgage, or that such an assignee can claim the benefits of the mortgage and at the same time repudiate its burdens and obligations. An examination of the above authorities will disclose that they all are cases in which no equity is expressed on the face of the mortgage or deed of trust, or else are cases dealing solely with negotiable paper and involving no other instrument. The case of Hagerman v. Sutton, supra, is a sample of the former, wherein the defenses relate to equities not suggested or disclosed by the mortgage, the court saying (91 Mo. on page 532, 4 S. W. 79): "No hidden lien, undisclosed priority, or secret trust, between Downing and any third person, could affect his interests or prejudice his claim to full satisfaction out of the mortgaged premises." The case of Link v. Jackson, 158 Mo. App. 63, 139 S. W. 588, is a sample of the latter, where the rights of a purchaser of negotiable paper only are involved.

In the case before us, the bank can claim no title to, or lien upon, the mortgaged property except through the chattel mortgage; and, as this contains an express provision in regard to...