Belcher v. Young

• Decision Date: 17 March 1916
• Docket Number: 12677.
• Citation: 155 P. 1060,90 Wash. 303
• Parties: BELCHER et al. v. YOUNG et al.
• Court: Washington Supreme Court

155 P. 1060

90 Wash. 303

BELCHER et al. v. YOUNG et al.

No. 12677.

Supreme Court of Washington, En Banc.

March 17, 1916

Appeal from Superior Court, Skamania County; W. I. Darch, Judge.

Action by C. T. Belcher and others against F. A. Young and others. Judgment for the defendants, and plaintiffs C. T. Belcher United States National Bank, and J. C. Ainsworth, trustee appeal. Affirmed.

Arthur P. Tifft, H. K. Sargent, Ed. Mendenhall and J. N. Pearcy, all of Portland, Or., for appellants.

W. H Wilson, of The Dalles, Or., and Raymond C. Sly, of Roscommon, Mich., for respondents.

CHADWICK J.

This is an action to determine the rights and priorities of several mortgages to certain property in Skamania county known as the Collins Hot Springs. The material facts are not in dispute, and, as the appeal presents but two questions of law, both of which may be stated without detailed reference to the particular circumstances out of which they arise, we shall refer to the evidence only when necessary in the discussion of the questions of law.

The first question arises thus: The respondents F. A. Young and Eliza Young purchased the buildings and other personal property on a leased tract of land and gave a note and mortgage to Belcher, the vendor, to secure a part of the purchase price. This mortgage lacked the affidavit of good faith required by Rem. & Bal. Code, § 3660, which is as follows:

'A mortgage of personal property is void as against creditors of the mortgagor or subsequent purchaser, and incumbrancers of the property for value and in good faith, unless it is accompanied by the affidavit of the mortgagor that it is made in good faith, and without any design to hinder, delay, or defraud creditors, and it is acknowledged and recorded in the same manner as is required by law in conveyance of real property.'

Subsequently, the respondents Young gave notes and a second mortgage on the same property to other persons to secure a prior indebtedness. Still later they gave a note to the Eastern Oregon Banking Company to cover a prior indebtedness, and procured an assignment by the second mortgagees of their notes and mortgage to secure the note given to the bank. In due time the bank proceeded to foreclose this second mortgage, ignoring the first mortgage, and the precise question is whether the first mortgage is void as to the holders of the second mortgage by reason of the absence of an affidavit of good faith.

The appellant Belcher, the first mortgagee, contends that it is not, because the second mortgagees took their mortgage with knowledge of the first mortgage, and they are therefore neither creditors nor incumbrancers in good faith within the meaning of the statute, and, not being persons whom the statute protects, they may not take advantage of the insufficiency of the prior mortgage. He contends that under our holdings in Mendenhall v. Kratz, 14 Wash. 453, 44 P. 872, Hicks v. National Surety Co., 50 Wash. 16, 96 P. 515, 126 Am. St. Rep. 883, and Thomas v. Grote-Rankin Co., 75 Wash. 280, 134 P. 919, the insufficiency of the first mortgage does not invalidate it as to incumbrancers or purchasers, except they become such in good faith and without notice of the pre-existing mortgage, and that this interpretation of the statute has established a rule of property which will protect vested rights acquired in reliance on that interpretation, and that they have such vested rights which are affected. But whatever the merits of this contention, it will apply in this case only if the second mortgagees are incumbrancers with notice as in the Mendenhall Case. In that case Judge Anders noticed the distinction between the effect of an insufficient mortgage as to incumbrancers and as to creditors, saying:

'As to the former [creditors], it positively declares that chattel mortgages are void unless they are accompanied by the specified affidavit and are acknowledged and recorded as required by law.'

We have previously noted that the second mortgage was given to secure a debt owing to the mortgagees by the mortgagors. At the time the mortgage was given, the mortgagees were creditors of the mortgagors, and by the express terms of the statute the first mortgage was void as to them because of their status as creditors. But the appellant Belcher contends that they cannot occupy the position of creditors as to whom the mortgage is void, and that of subsequent incumbrancers with notice as to whom it is valid, enjoying the privileges of both classes without sharing the burdens incident to either. As creditors, he argues they would only be entitled to collect their debt in the ordinary manner of obtaining a judgment and execution thereon, and, as second mortgagees with actual knowledge of the first mortgage, they are not entitled to the protection of the statute, and their mortgage is inferior to the insufficient mortgage.

To reach this conclusion, however, we must find that the second mortgagees lost their status as creditors when they accepted the mortgage as security for the debt. This question was before us in Smith v. Allen, 78 Wash. 135, 138 P. 683, Ann. Cas. 1915D, 300. In that case Allen was a creditor of the mortgagor, and we held that by accepting a mortgage as security for his debt he did not lose his right as a creditor and become an incumbrancer against whom the prior defective mortgage was valid, but that he became an incumbrancer 'for value and in good faith' as to whom the defective mortgage was void. We are satisfied that that ruling fully meets the contentions of appellants in this respect. The bank, assignee of the second mortgage, occupies the same position as Allen did, and as to it the appellants' mortgage is void.

The second question arises out of the following state of facts On May 11, 1911, F. A. Young and Eliza Young were indebted to the appellant bank in the aggregate principal sum of about $21,000 evidenced by promissory notes. These notes were assembled and a new note payable on demand for $25,000, the amount then due, was signed by F. A. Young and Eliza Young. On May 4, 1911, L. B. Young and George A. Young, parents of F. A. Young, made a warranty deed to a quarter section of land in Skamania county, to J. C. Ainsworth, trustee, for a recited consideration of $10. The deed is, in form, a common-law deed with full covenants of warranty. After these transactions, F. A. Young and Eliza Young made a mortgage upon the same property to secure a note in favor of the mother and father. This note and mortgage was thereafter assigned by them to respondent banking company, and it is now held by it as collateral to its debt. The appellant bank brought...