Central Finance Corp. v. Norton-Morgan Commercial Co.

• Decision Date: 05 April 1922
• Docket Number: Civil 1948
• Citation: 23 Ariz. 517,205 P. 810
• Parties: CENTRAL FINANCE CORPORATION, a Corporation, Appellant, v. NORTON-MORGAN COMMERCIAL COMPANY, a Corporation, Appellee
• Court: Arizona Supreme Court

205 P. 810

23 Ariz. 517

CENTRAL FINANCE CORPORATION, a Corporation, Appellant, v. NORTON-MORGAN COMMERCIAL COMPANY, a Corporation, Appellee

Civil No. 1948

Supreme Court of Arizona

April 5, 1922

APPEAL from a judgment of the Superior Court of the County of Cochise. Alfred C. Lockwood, Judge. Affirmed.

STATEMENT OF FACTS.

This is an action by the second mortgagee of certain chattels for an accounting by the first mortgagee of the moneys received by the latter in excess of its debt, upon sale of the property under foreclosure. The mortgagor is the Circle A Cattle Company, hereinafter referred to as the cattle company; the first mortgagee is the Central Finance Corporation hereinafter referred to as the finance corporation, or appellant; and the second mortgagee is the Norton-Morgan Commercial Company, hereinafter referred to as the commercial company, or appellee.

The complaint of the commercial company alleges that the mortgage to it was executed by the cattle company on June 29, 1920, to secure the sum of $4,829.77 and interest, evidenced by a note due six months thereafter. The security described in the mortgage was the same property theretofore mortgaged by the cattle company to the Texas Bank & Trust Company to secure payment of a note for $16,000 and interest, dated October 30 1919, and due June 15, 1920. This property consisted of 1,025 head of Hereford cattle, branded Y-Cross. (For convenience we shall refer to these mortgages as the Y-Cross mortgages.) On June 17, 1920, the bank assigned this note and mortgage to the finance corporation. The complaint further alleges that this property was sold under said mortgage on July 10, 1920 by the finance corporation and that after applying the sale money and certain other credits a sum in excess of the mortgage debt due the finance corporation came into his hands. To this fund the commercial company made claim, praying for an accounting as to such surplus and for judgment against the finance corporation accordingly. The cattle company and certain purchasers of the cattle at the foreclosure sale were made parties defendant to the suit, but no question arises concerning their rights.

The amended answer of the finance corporation sets forth, amongst other matters, the following: On January 22, 1920, the cattle company mortgaged directly to the finance corporation 1,163 head of cattle in various brands, being stock not included in the Y-Cross mortgage, to secure payment of the sum of $13,610, payable June 15, 1920, with interest. (This mortgage, which included stock branded Circle A, for purpose of convenience may be referred to as the Circle A mortgage.)

The answer further alleges that the cattle company defaulted in the payment of both said mortgages on the due date, to wit, June 15, 1920, and after demand for the cattle covered by the mortgages, and failure by the cattle company to deliver the same, the finance corporation, on the twenty-second day of June, 1920, brought actions to replevy the property, and the sheriff, under such writs, did on June 30, 1920, deliver all such cattle he could find to the finance corporation. Thereafter, and on the tenth day of July, pursuant to notices of sale duly given, the properties were sold under said mortgages as follows: The property under the Circle A mortgage was sold to various purchasers for the sum of $6,372, and the property under the Y-Cross mortgage was sold to various purchasers for the sum of $15,153. The total amount realized upon the Circle A stock by such sale, with a credit derived from the sale of certain of the property before that time, amounted to the sum of $7,789.28, leaving a deficiency due the finance corporation under the Circle A mortgage of about $6,500. Upon the Y-Cross mortgage, however, the sale price on foreclosure, together with a payment theretofore made on the note and the cash derived from another sale of the property under the mortgage by an intermediate agreement, amounted to the total sum of $23,666.22, a sum much in excess of the amount due on the Y-Cross mortgage to the finance corporation.

Both the Circle A and the Y-Cross mortgages, held by the finance corporation, contained the following clause:

"It is expressly agreed that if mortgagor shall own more cattle, horses, or other property of like kind with those mentioned in this mortgage, then the mortgagee, in case of default, shall have the right to pick from the whole number so owned by mortgagor the number equal to that specified in this mortgage, and to hold, sell and dispose of the same as though the same was specifically included herein."

Paragraph 8 of such answer reads as follows:

"That the total amount received by this defendant from the sale of the cattle delivered to this defendant by the said sheriff as aforesaid under the said 'Circle A' mortgage was the sum of $7,789.28; that there remained a deficiency under said mortgage after the sale of said cattle, a sum in excess of $6,500; that under the provisions of the said last-mentioned mortgage it was expressly provided that if the mortgagor should own more cattle, horses, or other property of like kind to those mentioned in said mortgage, then the mortgagee in case of default should have the right to pick from the whole number so owned by mortgagor the number equal to that specified in said mortgage, and to hold, sell, and dispose of the same as though the same were specifically included therein; that under the provisions of said clause in said mortgage this defendant did, immediately upon the default of the said 'Circle A' mortgage, pick from the cattle of like kind to those covered by said 'Circle A' mortgage owned by the said 'Circle A' Cattle Company a number less than that specified in said mortgage, which cattle so picked by this defendant were covered by the said 'Y-cross' mortgage, and were a part of the cattle gathered by said sheriff and sold as above alleged, and did sell and dispose of the same under said clause in the manner and at the time above set forth, and did apply the proceeds of the sale thereof to the satisfaction of said 'Circle A' mortgage; that there still remains a deficiency on the said 'Circle A' mortgage of an amount in excess of $3,500 after applying the proceeds of the sale of the cattle described in said 'Circle A' mortgage and the cattle picked from other stock of like kind, as aforesaid."

The answer does not deny that the note and mortgage to the commercial company were based upon the consideration recited in the note. It is likewise unquestioned that the mortgage to the commercial company was made prior to the sale had on July 10, 1920.

The court sustained a demurrer to this answer, and, upon the refusal of the finance corporation to amend, entered judgment on the pleadings that the finance corporation account to the plaintiff commercial company for the proceeds of the sale under the Y-Cross mortgage, and that the commercial company have judgment against the finance corporation for the amount due under its note and mortgage. From this judgment the finance corporation has appealed.

Mr. Richard E. Sloan, Mr. C. R. Holton and Mr. E. G. Scott, for Appellant.

Mr. Francis M. Hartman and Mr. John C. Gung'l, for Appellee.

OPINION

FLANIGAN, J.

(After Stating the Facts as Above.) Notwithstanding that the answer of the appellant specifically alleges that the Circle A cattle were sold under the Circle A mortgage, and the Y-Cross cattle were sold under the Y-Cross mortgage, the suggestion is made that the allegations in paragraph 8 of the answer which we have quoted, are sufficient upon which to predicate some legal or equitable right in the appellant to apply the surplus proceeds in its hands, derived from the sale of the cattle under the Y-Cross mortgage, to the deficiency due under the Circle A mortgage. For the purpose of this discussion we may assume that by virtue of the selection clause of the Circle A mortgage, the...