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

• Decision Date: 07 December 1950
• Citation: 36 Cal.2d 406,224 P.2d 713
• Court: California Supreme Court
• Parties: BOWDEN v. BANK OF AMERICA NAT. TRUST & SAVINGS ASS'N. L. A. 21618.

Page 713

224 P.2d 713

36 Cal.2d 406

BOWDEN v. BANK OF AMERICA NAT. TRUST & SAVINGS ASS'N.

L. A. 21618.

Supreme Court of California, in Bank.

Dec. 7, 1950.

Hago A. Steinmeyer, Robert H. Fabian, Los Angeles, Samuel B. Stewart, Jr., San Francisco, Freston & Files and Ralph E. Lewis, Los Angeles, for appellant.

Craig, Weller & Laugharn and Thomas S. Tobin, Los Angeles, for respondent.

CARTER, Justice.

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.

The bankrupt, Dunlap Trucking Company, bought trucks, trailers and other automotive equipment for use in its business. In three instances it bought under conditional sales contracts payable in installments; in seven cases the purchases were financed by loans from defendant bank for which installment notes and chattel mortgages on the vehicles were given. The conditional sales contracts were assigned to defendant. Copies of all the mortgages were deposited with the Department of Motor Vehicles and the bank was registered as 'legal owner' of all the vehicles pursuant to § 195 of the Vehicle Code. The last mortgage was dated February 1, 1947, and was 'recorded' (copy deposited with the department) on February 4th. This brought the bankrupt's total indebtedness to 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. The payments aggregated $2,470 per month.

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 semi-monthly 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 § 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 and recordation. The trial court found that defendant bank held title to three vehicles under conditional sales contracts, that it held title to three others under a mortgage dated February 1, 1947, and that the balance were covered by six separate mortgages executed and recorded in 1946; and that the consolidated mortgage was delivered to defendant 'for the purpose of superseding' the prior chattel mortgages and contracts held by the bank and consolidating the existing indebtedness into one debt, to be paid in consolidated installments; that, at the time of the execution of the consolidated mortgage and as security for the balance of the indebtedness, the defendant held legal title to all the vehicles, was registered as the legal owner and held the ownership certificates. The court concluded that defendant's mortgage was not valid security as against creditors whose claims arose prior to its recordation and that defendant's seizure of the chattels constituted a conversion of them for which plaintiff is entitled to judgment, without prejudice to defendant's right to establish its unsecured claim. The judgment entered for plaintiff was in the sum of $40,000.

As one ground for reversal, defendant contends that the consolidated mortgage is valid; that, under a reasonable interpretation of § 195 of the Vehicle Code, a delay in depositing a copy of a mortgage on vehicles does not render the mortgage void. ¹

The second argument advanced by defendant is that, even if the consolidated mortgage were invalid and subject to attack by the trustee, the original security rights created by the several separate mortgages and conditional sales contracts remained in effect, and those instruments were properly recorded.

We have concluded that the second argument advanced by defendant is sound and that the trial court erred in holding that defendant had lost its lien on the motor vehicles in question as the result of the execution of the consolidated mortgage.

The general rule is that the taking of a new note and mortgage or deed of trust as a renewal of, or substitution for, a prior note and mortgage or deed of trust does not of itself operate as a payment of the debt or as an extinction of the prior lien, in the absence of an agreement that the renewal instruments shall have that effect. Easton v. Ash, 18 Cal.2d 530, 116 P.2d 433; Schwartzler v. Lemas, 12 Cal.2d 54, 82 P.2d 419; Parker v. Tout, 207 Cal. 590, 279 P. 431; Honore v. Lemm, 181 Cal. 420, 184 P. 664; Bridge v. Connecticut Mut. Life Ins. Co., 167 Cal. 774, 141 P. 375; Savings & Loan Soc. v. Burnett, 106 Cal. 514, 39 P. 922; Steinhart v. National Bank of D. O. Mills & Co., 94 Cal. 362, 29 P. 717; McArthur v. Wellman, 20 Cal.App.2d 379, 66 P.2d 1226; 2 Jones on Chattel Mortgages (6th Ed.), § 644; Walsh on Mortgages, p. 180; 1 Glenn on Mortgages, § 50.5; 14 C.J.S., Chattel Mortgages, § 340, pages 988, 989.

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. Agricultural 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. Dowling, 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 agreement of the parties.' Savings & Loan Soc. v. Burnett, supra, 106 Cal. 514, 531, 39 P. 922, 926.

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. Gnarini 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 necessarily established by evidence, standing alone, that the old mortgage has been released of record, Copp v. Millen, 11 Cal.2d 122, 77 P.2d 1093; Pacific Nat. Agricultural Credit Corp. v. Wilbur, supra; White v. Stevenson, 144 Cal. 104, 77 P. 828; Van Sandt v. Alvis, 109 Cal. 165, 41 P. 1014, although the release recites that the debt has been paid. Palmer v. Emanuel, 77 Cal.App. 766, 247 P. 609. Neither will the consolidation of several notes and mortgages into single instruments ordinarily furnish evidence of an agreement to relinquish the prior rights. Savings & Loan Soc. v. Burnett, supra; Tolman v. Smith, supra; Swift v. Kraemer, 13 Cal. 526. Indeed, it is indicated in some decisions that the party alleging payment and discharge must prove an express agreement that the renewal note and mortgage should so operate. Pacific Nat. Agricultural Credit Corp., supra, 2 Cal.2d 576, 585, 42 P.2d 314; Bonestell v. Bowie, supra, 128 Cal. 511, 515, 61 P. 78; Steinhart v. National Bank of D. O. Mills & Co., supra, 94 Cal. 362, 367, 29 P. 717; see Comptoir D'Escompte de Paris v. Dresbach, 78 Cal. 15, 20, 20 P. 28; 2 Jones on Mortgages (8th Ed.), p. 666. In this case the president and principal stockholder of the Dunlap Company, the mortgagor, testified that there was no discussion between himself and the representative of the bank at the time the consolidated mortgage was signed. It is evidence from the foregoing principles that the execution of the consolidated mortgage did not of itself have the effect of extinguishing the pre-existing separate mortgages and contracts of defendant.

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, p. 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...