Cunningham v. G. F. C. Corp.

CourtCourt of Appeals of Tennessee
Citation244 S.W.2d 181,35 Tenn.App. 237
PartiesCUNNINGHAM et al. v. G. F. C. CORP.
Decision Date05 March 1951

Davis & Davis, Memphis, for plaintiff in error.

Taylor & Quick, Memphis, for defendant in error.

ANDERSON, Presiding Judge.

This was a replevin suit involving the right to the possession of three automobiles. A trial before the judge without a jury resulted in a judgment for the original plaintiff, G. F. C. Corporation, and the defendants, Roy Manley, Gus Manley and Tom Smith, were granted an appeal in error. Though named in the writ as a party defendant, Lon Cunningham was not served with process; nor did he enter an appearance or participate in the trial. However, his deposition was taken and read by the defendants.

The plaintiff, G. F. C. Corporation, a Delaware corporation doing business as a finance company in St. Louis, Missouri, claims the right to possession by virtue of a breach by the mortgagor, Lon Cunningham, of a chattel mortgage on the cars, in which it was named as mortgagee and which was executed and duly recorded in the state of Missouri. The defendants other than Cunningham claim that they are bona fide purchasers for value; that if the plaintiff ever had any mortgage lien on the cars, it was waived by the fact that the mortgagor was allowed to retain possession and sell them in the usual course of business and by a course of conduct on the part of the mortgagor.

Lon Cunningham, for a number of years had a used car business in St. Louis, Missouri. The defendant, Roy Manley, conducts a used car business in Kennett, Missouri, and the defendants, Gus Manley, a nephew of Roy Manley, and Tom Smith, conduct similar businesses in the city of Memphis.

For some two and a half years the plaintiff had financed Cunningham in the purchase of automobiles. This was done under what is known as a floor-plan arrangement. Under this plan, Cunningham bought cars for resale inside and outside the state of Missouri. Upon completing a purchase, or purchases, he would draw a draft on the finance company for the amount needed to defray the purchase price. Later mortgages on the vehicles were executed by Cunningham to secure the amount thus advanced. Frequently, a number of automobiles were scheduled in one mortgage. Under this arrangement Cunningham had a line of credit with the plaintiff up to $40,000, and had a substantial business in St. Louis, buying and selling some 200 to 300 cars per year.

The mortgages including those involved in the present case, permitted the mortgagor to keep the vehicles at his place of business where they were displayed for the purpose of being sold. But they contained a provision that the 'mortgagor * * * covenants and agrees not to remove the property from the place of business indicated above (mortgagor's place of business), nor use it illegally, improperly or for hire, nor transfer any interest therein without prior written consent of the mortgagee or without accounting to the mortgagee for the proceeds of any transfer; * * *'

There is, or was at the time, what is called a car auction block or car auction lot in DeSota County, Mississippi, near Memphis, Tennessee, where an auction for the sale of automobiles was held on Thursday of each week. Only automobile dealers could put cars in the auction to be sold, but others as well could make purchases. This seems to have been a well established and well known enterprise, and each sale was largely attended by car dealers from several states. Both Cunningham and Roy Manley appear to have been regular patrons of the auction.

On or about Tuesday, June 7, 1949, Cunningham removed six mortgaged cars from his lot in St. Louis, among them being the three in question, and caused them to be transported to the auction car lot in Mississippi. It was his purpose to put them through the auction to be held on June 9, 1949. Before the auction began, however, he sold five of the cars to the defendant, Roy Manley, who was present for the purpose of attending the auction along with a number of other dealers. The aggregate amount paid for the cars was $7800, and there is no contention that this was not an adequate price.

Following his purchase, Manley caused the five cars to be put through the auction. One was sold to a resident of Greenwood, Mississippi, and so far as the record reflects, is still in that town. Another was sold to a resident of Arkansas and so far as appears has not been taken from the purchasers. Neither is involved in the present litigation. One of the remaining three was sold to the defendant, Gus Manley, who as said, conducts a used car business in Memphis, and the other two were sold to the defendant, Tom Smith, who is engaged in a similar business in the same city. Roy Manley's net profit on the whole transaction was $110.

Gus Manley and Smith took the cars purchased by them to Memphis, where they were taken from them under the replevin writ sued out in this case. Learning of this and feeling responsible to his vendees, Roy Manley, by stipulation with the plaintiff, deposited with the clerk of the lower court the sum of $4900 to stand in lieu of the cars. Upon the deposit being made, the vehicles were turned over, one to the defendant Gus Manley, and the other two to the defendant Smith.

Cunningham did not account to the plaintiff mortgagor for the proceeds of the sale. On the other hand, he seems to have decamped, abandoning his business in St. Louis and accepting employment with a firm in Ft. Lauderdale, Florida, where he was located at the time his deposition was taken.

It may first be noted that in Missouri a chattel mortgage creates merely a lien on the mortgaged property. The legal title, as well as the right to possession of the property, prior to a breach of any of the conditions of the mortgage, is in the mortgagor. Adamson v. Fogelstrom, 221 Mo.App. 1243, 300 S.W. 841.

While, in the view we have of the case, we do not think the question of whether the defendants were innocent purchasers is material in a determinative sense, it is well enough to say that neither of the defendants, Manley and Smith, knew or had any reason to know or suspect that the cars were encumbered by a mortgage or that Cunningham, being obligated to do so, did not intend to account to the plaintiff for the proceeds of the sale.

As succinctly stated in the brief, the plaintiff's contention is 'that the chattel mortgages under which it claims title to the automobiles here involved were regularly executed and recorded, and that they are in all things valid and enforceable instruments under the laws of Missouri; that when the automobiles in question were removed from the State of Missouri without the permission of plaintiff and sold without accounting for the proceeds of sale, the terms of said mortgages were violated, entitling plaintiff to possession of said automobiles'.

It may be conceded that, as the plaintiff contends, the rule supported by the weight of authority and resting on comity, is that a mortgage properly executed and recorded at the place where it was executed and the property is located, will, if valid there, be held valid, even against creditors and purchasers in good faith in another state to which the property is removed by the mortgagor, in the absence of any statutory prohibition or controlling principle of equity. Blashfield on Automobile Law and Practice, Vol. 7-a, Sec. 4710. The rule is followed in this jurisdiction. Newsum v. Hoffman, 124 Tenn. 369, 137 S.W. 490; Bankers Finance Corp. v. Locke & Massey Motor Co., 170 Tenn. 28, 91 S.W.2d 297. It also prevails in Missouri. Nat'l Bank of Commerce v. Morris, 114 Mo. 255, 21 S.W. 511, 19 L.R.A. 463; Finance Service Corp. v. Kelly, Mo.App., 235 S.W. 146.

With this rule in mind, the plaintiff insists that whatever may be the rule in this jurisdiction, that prevailing in Missouri is that, where the mortgage contains a covenant by the mortgagor to account to the mortgagee for the proceeds of a sale of the mortgaged property, said proceeds to be applied to the debt, then the fact that the mortgagor remains in possession of the property and is given the power to sell it in the ordinary course of business, does not render the mortgage fraudulent and void as against creditors or purchasers. For this statement of the rule we are referred by the plaintiff to the cases of Rock Island National Bank v. Powers, 134 Mo. 432, 34 S.W. 869; Rock Island National Bank v. Western Lumber Co., 134 Mo. 432, 35 S.W. 1132; Dunham v. Stevens, 160 Mo. 95, 60 S.W. 1064; State ex rel. Kennan v. Fidelity & Deposit Co., 94 Mo.App. 184, 67 S.W. 958; Embree v. Roney, 152 Mo.App. 257, 262, 133 S.W. 83; Osborn v. Standard Security Co., 222 Mo.App. 1186, 4 S.W.2d 503. We think none of them is in point. None holds that, in the circumstances stated, the mortgage lien can be enforced against a purchaser from the mortgagor where the mortgagee expressly or impliedly consents to the sale of the mortgaged property.

In our view, the law applicable to the determinative issue is the same in Missouri as it is in Tennessee and a majority of the other jurisdictions. This issue is not whether the mortgage is fraudulent and void per se as to the creditors of the mortgagor, but whether, as to a purchaser from him, the mortgagee, by the terms of the mortgage, express or implied, waived the lien of the mortgage. The two are quite different things and the plaintiff's difficulty lies in the fact that it has failed to make the distinction.

This is apparent from the cases it...

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