Farmers and Stockmens Bank of Clayton v. Morrow

Decision Date27 July 1970
Docket NumberNo. 9006,9006
Citation81 N.M. 678,472 P.2d 643,1970 NMSC 102
PartiesThe FARMERS AND STOCKMENS BANK OF CLAYTON, Clayton, New Mexico, a New Mexico Corporation, Plaintiff-Appellant, v. James MORROW, Jr., and James Morrow, Sr., Defendants-Appellees.
CourtNew Mexico Supreme Court

TACKETT, Justice.

This action was commenced in the District Court of Union County, New Mexico, to recover on two promissory notes and to foreclose a mortgage. After trial without a jury, judgment was entered in favor of plaintiff 'Bank' on the two notes against the defendant James Morrow, Jr., designated 'Jimmy.' The judgment denied foreclosure on the mortgage. The Bank appeals from the denial of the foreclosure.

The facts, briefly, as found by the trial court, are as follows: On February 20, 1962, Jimmy owed the Bank $56,326.51. He was the owner of an undivided one-third (1/3d) interest in certain lands. A mortgage was given to the Bank covering the one-third interest, which secured the recited indebtedness until maturity five years later.

On June 13, 1962, Jimmy and his wife conveyed, by warranty deed, their interest in the land to James Morrow, Sr., designated 'Morrow,' who, at that time, did not know of the mortgage to the Bank. When the five-year period expired, the Bank and Jimmy executed an extension agreement renewing the mortgage. Thereafter, the two notes in this action were signed by Jimmy. In April 1962, Jimmy borrowed an additional sum of $30,475 from the Bank, which was secured by a security agreement on 264 head of cattle. This amount was repaid with interest in October 1962, though never credited on Jimmy's account at the Bank, but rather was credited to an obligation owed the Commerce Agricultural Loan Company, designated 'Loan Company.' Here it is interesting to note that Rex Reeves was president of the Loan Company and also the Bank. The security agreement and mortgage were given to the Bank. After June 13, 1962, the Bank continued to loan additional sums of money to Jimmy.

The Bank relies on three points for reversal. Under points I and II, the Bank challenges the trial court's findings of fact Nos. 7 and 17, and conclusions of law Nos. 5, 6 and 4, flowing therefrom, as follows:

(Finding No. 7)

'From time to time after the execution of said collateral security agreement, the said James Morrow, Jr., borrowed additional sums of money from plaintiff, and executed promissory notes to plaintiff, as evidence thereof, all as more fully appears from Defendant's Exhibit 1 introduced in evidence in this cause.'

(Conclusions Nos. 5 and 6)

'The making of additional loans to James Morrow, Jr., by the plaintiff, after it had knowledge of the conveyance to the defendant James Morrow, Sr., invalidated the collateral security agreement as to the said defendant James Morrow, Sr.

'The making of the extension agreement between the plaintiff and James Morrow, Jr., was invalid to extend the lien of the collateral security agreement to loans thereafter made, as against the defendant James Morrow, Sr.'

(Finding No. 17)

'On October 23, 1962, the said James Morrow, Jr., paid to the plaintiff the sum of $31,395.30, to be applied upon the indebtedness owing from him to the plaintiff; the plaintiff failed to credit such sum to the account of the said James Morrow, Jr., secured by the collateral security agreement mentioned in Finding No. 4, and the land described therein.'

(Conclusion No. 4)

'The defendant James Morrow, Sr., was prejudiced by the failure of the plaintiff to apply the proceeds of the cattle secured by plaintiff's loan to James Morrow, Jr., to that loan.'

Under the Bank's point III, it alleges that:

'In Any Event, Defendant James Morrow, Sr., Could Not Have Been Prejudiced by the Actions of Plaintiff in Making Application of Payments.'

The transcript has been reviewed in its entirety and we hold that the challenged findings of fact and conclusions of law flowing therefrom have more than substantial support in the evidence. Thus, they will not be disturbed on appeal. Martinez v. Trujillo, 81 N.M. 382, 467 P.2d 398 (1970). Much of the argument concerning points I and II bears on the demeanor of the witness Reeves. The trial court is in a much better position to evaluate the demeanor of witnesses than are we, and we will not normally disturb that evaluation. Points I and II are ruled against the Bank.

Point III, above mentioned, is ruled against the Bank, as the trial court concluded, and correctly so, that Morrow was prejudiced by the failure on the part of the Bank to apply the payments against the Bank's loan, which would have satisfied the Bank's mortgage on Jimmy's one-third interest in the land. By its finding No. 9, the trial court found that the Bank had actual and constructive knowledge of the warranty deed, prior to the extension agreement entered into between Jimmy and the Bank. The Bank has not challenged that finding on this appeal. Those findings of fact not challenged are accepted by this court and are deemed true and controlling. Trinidad Industrial Bank v. Romero, 81 N.M. 291, 466 P.2d 568 (1970). The court further concluded that the Bank became aware of the deed of conveyance to Morrow and continued to loan money to Jimmy. Morrow was in the position of a junior lien holder as to the lien of the mortgage on the land, and he was certainly prejudiced by the failure of the Bank to apply the proceeds in such a way as to satisfy the Bank's loan, which was the basis of the mortgage. Heller v. Gate City Building and Loan Association, 75 N.M. 596, 408 P.2d 735 (1965); Conly v. Industrial Trust Co., 27 Del.Ch. 28, 29 A.2d 601 (1943); ...

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