First Nat. Bank in Dalhart v. Flack
| Decision Date | 23 May 1949 |
| Docket Number | No. 5965.,5965. |
| Citation | 222 S.W.2d 455 |
| Parties | FIRST NAT. BANK IN DALHART v. FLACK et al. |
| Court | Texas Court of Appeals |
Appeal from District Court, Swisher County; C. D. Russell, Judge.
Action by E. T. Flack and Lowell A. Wier against First National Bank in Dalhart, Texas, and Robert Walton, for a determination of superiority of two chattel mortgage liens, wherein defendant bank filed a cross action against plaintiffs and against defendant Walton. From an adverse judgment, the bank appeals.
Judgment reversed and rendered for the bank.
Morgan, Culton, Morgan & Britain, Amarillo, and Jennings & Evans, Tulia, for appellant.
James W. Witherspoon and John D. Aikin, Hereford, and Dennis Zimmerman, Tulia, for appellees.
This case concerns the question of which of two chattel mortgage liens is the superior. It involves transactions whereby one of two innocent parties must suffer a loss by reason of the defalcation of a third party. E. T. Flack and Lowell A. Wier, appellees, and First National Bank in Dalhart (Texas), appellant, are the innocent parties. Robert Walton is the third party. In this opinion the appellant bank is sometimes referred to as appellant. Walton is referred to by name only.
On April 13, 1946, Walton borrowed $4,766.94 from appellant bank secured by a chattel mortgage on 43 head of registered Angus cattle. In connection with this loan Walton made a sworn financial statement in which he listed as assets the following livestock:
"30 head of cows Reg. Angus total cost $300. $9000.00
13 head of Bulls Reg. Angus " " 500. 6500.00
86 head of cows, Angus " " 150. 12900.00
6 head of horses " " 50. 300.00
__________
$28,700.00"
Among his liabilities Walton listed a loan of $5,600 from the First National Bank in Raton (New Mexico). This loan was secured, according to Walton's statement, by a chattel mortgage on 86 head of Angus cows and was due July 22, 1946.
Nine days later Mr. Charles C. Woods, appellant's president, inspected Walton's cattle located in Las Animas County, Colorado; and on the following day, April 23, Woods, acting for the appellant, made a second loan to Walton. This loan was in the amount of $12,390.65 and was secured by a chattel mortgage on 247 head of cattle, i. e., 86 cows, Angus; 65 calves, Angus; 70 cows, Hereford; 22 calves, Hereford; 3 cows, black; 1 cow, red — all branded Lazy G or RW. Appellant bank contends that only 78 Angus cows and 30 calves are involved in this suit. The purpose of this second mortgage was to purchase 74 head of Hereford cattle and to pay off a loan of $6,092.57 owed the Raton bank and secured by a chattel mortgage on the 86 head of Angus cows named in Walton's financial statement.
At the time of the second loan, the Dalhart bank did not take another financial statement from Walton but made the loan on the basis of the statement made April 13 and on Walton's representation that the Raton bank held a mortgage on 86 Black Angus cows and 65 calves securing three notes totaling $6,050. Woods called the Raton bank and asked how much Walton owed and if the bank would execute a release. Soon thereafter Walton paid the Raton bank, and its release was filed for record in Las Animas County, Colorado. The chattel mortgage of April 23 contains an affidavit of ownership executed by Robert Walton. Since the cattle were located in Las Animas County, the mortgage was filed for record there on April 24, 1946. The note and mortgage of April 23 were renewed by Walton on May 16, 1946, by note and mortgage, and this renewal mortgage was filed for record in Las Animas County. Thereafter, at the appellant's request, the county clerk of Las Animas County prepared an abstract which shows that the only unreleased mortgage against Walton was the one of May 16 filed by appellant. Walton at all times represented to the appellant that he owned the Black Angus cattle covered by mortgages of April 23 and May 16.
The record, however, reveals that Walton had never owned these cattle. They were the property of the appellees, E. T. Flack and Lowell A. Wier, of Galesburg, Illinois, who on February 1, 1946, at Clovis, New Mexico, in partnership with one Quincy Reeves, had purchased a herd of 114 cows and 23 calves, all Black Angus cattle. The appellees paid $12,427.50 as one-half of the purchase price of the cattle. Some of the cows were branded Lazy G. Reeves and the appellees sold a few of these cattle through the Clovis sales ring, and the remainder were loaded and shipped to a point near Raton, New Mexico, where an arrangement was made with Robert Walton to pasture them on a place Walton had under lease. Later, Reeves and Walton, who acted for the appellees, divided the cattle. Except for one inspection about a week after purchasing the cattle, appellee Flack did not see the cattle again until July 1, 1946, when he was surprised to find them branded RW. Walton had placed his brand on the cattle without appellees' knowledge or consent. Within a few hours after this discovery appellee Flack sold the herd to Walton — 87 Angus cows and 65 Angus calves, branded RW — for a consideration of $10,183.16. This price took into consideration the expense Walton had incurred in caring for the cattle since their delivery to him. The sale was on credit. To evidence the purchase of the cattle and the sale made by Flack, Walton executed a conditional sales note or contract due January 1, 1947. This conditional sales contract was never filed for record by the appellees. On November 24, 1946, Walton, with appellee Flack's assistance, moved the cattle to Swisher County, Texas. The record shows that Flack did not know that Walton had mortgaged the cattle to the appellant bank until a short time before this suit was filed.
While these transactions were taking place, Walton on November 30, 1946, on January 21, 1947, and again on February 26, 1947, renewed his original note of April 23, 1946, with the Dalhart bank. The note and mortgage of November 30 included additional money advanced to Walton: $325.60 for bundles; $453.35 for freight to Swisher County; $116.60 for trucking; and $185.35 for interest. About April 1, 1947, the appellant learned that the appellees were claiming an interest in the cattle, and a few days later this suit was filed in Swisher County by the appellees against the appellant and Robert Walton; and, still later, the appellant bank filed a cross action against appellees and Walton.
The record reveals that Walton was not present at the trial of the case; that except for a few sold to a Fort Worth concern and the cattle in controversy, the appellant was unable to find out what had happened to the cattle covered by the mortgages; that other than $100 paid by Walton on October 20, 1947, the appellant has received nothing on its notes; that nothing was paid by Walton to the appellees; that the mortgage of November 30 was filed for record in Swisher County; and that prior to the trial of this case, by agreement of the parties, the cattle in controversy were sold and the money was placed in escrow in a bank at Tulia, Texas.
The appellant contends that the only pertinent issue involved in this case is whether the Dalhart bank is a subsequent mortgagee or lien holder in good faith within the contemplation of Article 5490, Vernon's Revised Civil Statutes, or a purchaser for consideration without notice under Article 6645. The term "good faith," as employed in Article 5490, means, as applied to purchasers and mortgagees, the payment of value or other consideration and the absence of notice. 9 Texas Jurisprudence 102.
The only interest created by a conditional sales note or contract is the interest of a chattel mortgage. Article 5489, Vernon's Annotated Civil Statutes; Gardner v. Associates Inv. Co., Tex.Civ.App., 171 S.W.2d 381. The problem, therefore, is to determine which of the two chattel mortgages creates the superior lien on the cattle in controversy: whether it is the appellant's mortgage of November 30, 1946, filed for record in Swisher County, or the mortgage created by the unrecorded conditional sales note of July 1, 1946, held by the appellees. Obviously the mortgages executed by Walton at a time when he did not own the cattle would be without force or effect. If it can be shown that the Dalhart bank had notice, either actual or constructive, of the...
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