Cheyenne Nat. Bank v. Citizens Sav. Bank

• Decision Date: 07 May 1964
• Docket Number: No. 3209,3209
• Citation: 391 P.2d 933
• Parties: CHEYENNE NATIONAL BANK, a corporation, Appellant (Defendant below), v. CITIZENS SAVINGS BANK, a corporation, Appellee (Plaintiff below).
• Court: Wyoming Supreme Court

Page 933

391 P.2d 933

CHEYENNE NATIONAL BANK, a corporation, Appellant (Defendant below), v. CITIZENS SAVINGS BANK, a corporation, Appellee (Plaintiff below).

No. 3209.

Supreme Court of Wyoming.

May 7, 1964.

Walter B. Phelan, of Guy, Phelan, White & Mulvaney, Cheyenne, for appellant.

David D. Uchner, of Henderson, Godfrey & Kline, Cheyenne, for appellee.

Before PARKER, C. J., and HARNSBERGER, GRAY, and McINTYRE, JJ.

Mr. Justice McINTYRE delivered the opinion of the court.

We have been asked to resolve a controversy between two banks with respect to the priority of their respective liens on identical motor vehicles. Action was brought under the provisions of the Uniform Declaratory Judgment Act, §§ 1-1049 to 1-1064, W.S.1957. There is no material dispute as to the facts and the question involved is primarily one of law.

Parties agree that H. B. Bryan, as an accommodation maker and without having any interest, ownership or possession whatsoever, executed and gave to Jack O'Dell, the true owner and holder of two Mack dump trucks, a note and purported chattel mortgage in the amount of $28,000 covering such trucks. On the same day, March 27, 1961, O'Dell who actually owned the vehicles assigned the note and mortgage to Cheyenne National Bank, defendant. Within five days this purported mortgage and the assignment thereof were filed in the office of the County Clerk of Laramie County. No endorsement of the encumbrance thus held by Cheyenne National Bank was placed on the certificates of title for the trucks involved.

O'Dell caused payments to be made on the assigned note for several months. Then, on October 27, 1961, about seven months after making the assignment to defendant-bank, O'Dell borrowed $25,000 from Citizens Savings Bank, plaintiff, at Denver. As security therefor he gave a chattel mortgage covering the same two trucks which were described in the mortgage instrument previously assigned by him to the Cheyenne bank.

Before paying the proceeds of its loan over to O'Dell, the Denver bank caused its mortgage to be filed in the office of the County Clerk of Laramie County, Wyoming, and caused the lien to be endorsed on the respective certificates of title for each of the trucks. The certificates of title were then held by the Denver bank. No other liens had been endorsed thereon.

The district court held the October 27, 1961 mortgage held by Citizens Savings Bank to be a first and prior lien and superior to that of Cheyenne National Bank. Judgment was rendered accordingly and the defendant-bank of Cheyenne has appealed.

Section 31-37(f), W.S.1957, which was in effect when appellant took its assignment from O'Dell, provided that the owner of a motor vehicle who had a certificate of title and who encumbered the vehicle should deliver the certificate to the holder of such encumbrance. Within five days the lienholder was required to file or record his lien in the office of the county clerk and to 'concurrently' deliver the certificate of title to the county clerk. The clerk was required in such a case to endorse a notation of the lien on the certificate of title.

Counsel for appellant offers no excuse for the failure of the Cheyenne bank to comply with this provision. He argues instead that it makes no difference because the law did not at the time in question provide that the encumbrance must be noted on the certificate of title, in order 'to put a buyer on notice of such encumbrance.'

We do not consider the argument of counsel tenable for these reasons: (1) The recording or filing of an instrument never constitutes constructive notice unless the statutes pertaining to recording and filing are complied with; and (2) although the purported mortgage given by Bryan (without ownership or possession) may have been good as between the parties to that transaction and all persons having knowledge of such transaction, it was not binding on bona fide purchasers and encumbrancers.

Constructive Notice

There is no contention that Citizens Savings had actual knowledge of the lien claimed by Cheyenne National. We are therefore concerned only with the question as to whether it had constructive notice by reason of the filing of the Bryan mortgage.

At the time the Bryan instrument and assignment were filed, which was within five days after their execution, Cheyenne National was the only party which could possibly claim to be a lienholder. The law then in effect (§ 31-37(f)) required the holder of an encumbrance to file or record such encumbrance within five days. There was also a further provision requiring that the lienholder 'shall concurrently' deliver the certificate of title to the county clerk, who then had the duty to endorse on the face of the certificate appropriate notations concerning the encumbrance.

We have previously held constructive notice by recording to be a matter entirely dependent upon statute. Torgeson v. Connelly, Wyo., 348 P.2d 63, 66; Dame v. Mileski, 80 Wyo. 156, 340 P.2d 205, 208. Therefore, when appellant's counsel argues that filing of the Bryan mortgage constituted constructive notice because the law failed to provide the encumbrance must be noted on the certificate of title to put a buyer on notice, he has his logic in reverse.

It is compliance with recording and filing statutes which causes constructive notice to be effective and not a statutory declaration of that legal effect. The controlling statute at times pertinent to this case provided for concurrent delivery of the certificate of title when a chattel mortgage on a motor vehicle is filed, and appellant failed to comply with that requirement. As we pointed out in the Torgeson case and in Thomas v. Roth, Wyo., 386 P.2d 926, 930 the legislature makes the laws pertaining to recording, and constructive notice flows therefrom. There can then be no constructive notice by recording until the recording statutes are fully complied with.

A very good reason for this rule is apparent in the instant case. We know of no statutory provision for the giving of a chattel mortgage by one other than the owner or holder of personal property. Section 34-242, W.S.1957, as it existed at the time of the transactions here involved, provided that it was lawful for a person to mortgage personal property 'owned, occupied or in possession' of the mortgagor. Section 34-249, W.S.1957, further provided (in 1961) that upon the filing or recording of such a mortgage it should be indexed in the chattel mortgage index, with the name of the mortgagor being entered.

Inasmuch as Bryan was not the owner and was not in possession of the property, nothing but a fraudulent and fictitious name could be entered as mortgagor. Thus the purpose, or at least one of the purposes, of filing with the county clerk was defeated. As expressed in Hawkins v. Stoffers, 40 Wyo. 226, 276 P. 452, 278 P. 76, 77, the design of the recording laws is to prevent fraud in transactions, and such laws should not be construed so as to produce fraud, but so as to prevent it.

In Thomas v. Roth, supra, at 386 P.2d 930, we reviewed the fact that Chief Justice Parker in Torgeson v. Connelly, supra, at 348 P.2d 67, had held on good authority to the effect that if acknowledgment is required before an instrument is recordable, then recordation without an acknowledgment does not afford constructive notice of the existence and contents of the instrument. It is just as reasonable and proper to say that when concurrent delivery of the certificate of title to a motor vehicle, for appropriate notation thereon, is required in connection with the filing or recording of a chattel mortgage on such vehicle, then a filing without such delivery would not afford constructive notice of the mortgage.

Validity of Mortgage

Appellant seems to suggest that, even if Bryan was not the owner of the two trucks in question, such fact would not render his mortgage and the assignment thereof invalid. There is, of course, authority for the statement made in 14 C.J.S. Chattel Mortgages § 23, pp. 615-616, which is cited by appellant, to the effect that such a mortgage, if made with the consent of the true owner, may be valid 'as between the parties and as against all persons having knowledge of the transaction.' However, the Citizens Savings Bank was not a party to the transaction and it had no knowledge thereof.

Thus, the rule stated at 14 C.J.S., supra, p. 614, is wholly applicable. It is to the effect that a chattel mortgagor can convey by mortgage only that interest which he possesses in property, and ordinarily a mortgagor cannot give a valid mortgage on property which he does not own or in which he possesses no interest. See Butin v. Rothman, 135 Colo. 477, 312 P.2d 783, 784; Standard Motor Co. v. American Loan System, Inc., 120 Colo. 311, 209 P.2d 264, 265; Hale v. Fornea, La.App., 79 So.2d 124, 126; Stanley v. Ellis, 77 Ga.App. 12, 47 S.E.2d 776, 778.

For purposes of our case it is sufficient to say that a mortgage on property which the mortgagor does not own or in which he possesses no interest is not valid as against a bona fide purchaser or encumbrancer for value, irrespective of which transaction is prior in time. See Bank of Kennett v. Clayton, 241 Mo.App. 487, 245 S.W.2d 678, 683; Wasatch Livestock Loan Co. v. Lewis & Sharp, 84 Utah 347, 35 P.2d 835, 841-842; and 14 C.J.S. Chattel Mortgages § 294, p. 932.

It being clear in the instant case that Bryan did not own and did not have possession of the vehicles which he purported to mortgage, and additionally that Cheyenne National Bank did not comply with the statutory requirement of delivering the certificates of title to the county clerk for appropriate notations thereon, we are compelled to hold that plaintiff became a bona fide encumbrancer for value with neither actual nor constructive notice of a prior lien. The mortgage held by defendant-Cheyenne National was therefore invalid as to such bona fide encumbrancer, and the judgment of the district court...