Priddy v. Miners' and Merchants' Bank
| Decision Date | 08 June 1908 |
| Parties | FRANK PRIDDY, Respondent, v. MINERS' AND MERCHANTS' BANK, Appellant |
| Court | Kansas Court of Appeals |
Appeal from Jasper Circuit Court.--Hon. Hugh Dabbs, Judge.
REVERSED AND REMANDED (with directions).
H. H Bloss for appellant.
(1) Agreeing to pay a debt in a deed which the grantee accepts makes a contract and the relation of principal and surety then exists between the mortgagor grantor, which was Paul in this case, and the grantee, Mr. Priddy. Nelson v Brown, 140 Mo. 580; Pratt v. Conway, 148 Mo 291; Orrick v. Durham, 79 Mo. 174; Greenwell v. Heritage, 71 Mo. 459; Bank v. Petit, 85 Mo.App. 508; Bank v. Edwards, 84 Mo.App. 470; Dickison v. Fisher, 137 Mo. 342; Sloan v. Campbell, 71 Mo. 387. (2) We have here a principal, Mr. Priddy, claming that the property of Mr. Paul, his surety, should be held to the payment of the debt that Mr. Priddy had agreed to pay, while the latter retains the real estate that he received as a consideration for the assumption of this debt. (3) A person defrauded, has a right to reclaim the goods out of which he was defrauded from the fraudulent grantee or his trustee in bankruptcy, who simply steps in the fraudulent grantee's shoes in respect to the right to retain such property so acquired. Montgomery v. Machine Works, 92 U.S. 257; In re Cavegnaro, 143 F. 668; Donaldson v. Farrell, 93 U.S. 631. (4) The same rules of law obtain in Missouri as decided by our courts as those applied by the Federal and United States courts. Hence Paul being insolvent at the time he purchased this stock from Mr. Hawkins and having induced the sale by means of fraudulent representations as to existing facts as shown by this offer, which must be considered as true for the purposes now before the court, the title to this property did not pass to Paul. Mfg. Co. v. Troll, 77 Mo.App. 345; Stein Block & Co. v. Hill, 100 Mo.App. 28; Reid & Co. v. Lloyd, 67 Mo.App. 513; Elsass v. Harrington, 28 Mo.App. 432; Leedom v. Ward, 38 Mo.App. 95; Dry Goods Co. v. Jacobs, 66 Mo.App. 362. (5) Equity deals with the substance of transactions and treats their forms as of secondary importance. Railway v. Gracy, 126 Mo. 485; Baird v. Given, 170 Mo. 302; Pomeroy v. Benton, 57 Mo. 551. (6) Expressing this same principle in another way the courts have held that even if the proceedings have been irregular, yet, if the substantial rights of the parties have not been violated, they cannot complain. Warder v. Supervisors, 14 Wis. 618; Buck v. Railway, 86 Ill. 360; Taylor v. Secor, 92 U.S. 575; Railway v. Scammon, 45 Kan. 481.
James A. Potter and Edw. J. White for respondent.
(1) The judgment of the trial court was proper and it was the only judgment that could have been rendered under the evidence in this case. (2) It is well-settled law in this State that a mortgage is at most merely a security for the payment of the debt. Kennett v. Plummer, 28 Mo. 145; Ward v. Hildebrand, 46 Mo. 284; Land Co. v. Zeitler, 182 Mo. 268. (3) And when the debt which the mortgage is given to secure is paid, the mortgage, ipso facto, becomes void and the lien is thereby extinguished. McNarr v. Picotte, 33 Mo. 71; Durette v. Briggs, 47 Mo. 356; McClure v. Logan, 59 Mo. 234; Baker v. Halligan, 75 Mo. 435; Johnson v. Johnson, 81 Mo. 331; Pease v. Iron Co., 49 Mo. 124; Huber v. Pickler, 94 Mo. 382; Wells v. Estes, 154 Mo. 299; Kempf v. Ins. Co., 41 Mo.App. 31; Brown v. Bank, 66 Mo.App. 431; Seeser v. Southwick, 66 Mo.App. 670; 3 Pomeroy, Equity (2 Ed.), secs. 1212-13. (4) Foreclosure of a mortgage by whatever method, operates as a payment of the mortgage debt to the extent of the value of the property sold. 9 Encyc. Pl. & Pr., pp. 125-6; 4 L. R. A. (O. S.), note, page 205, and the cases there cited. (5) Proceeds derived from mortgage security must be applied on the payment of the mortgage debt. Jones on Pledges & Securities (2 Ed.), sec. 632; Jones on Chattel Mortgages (3 Ed.), sec. 640; Jones on Mortgages (2 Ed.), secs. 904-12; Saffer v. Lambert, 111 Ill.App. 410; Lyon v. Bass, 89 S.W. 849; Berner v. Bank, 101 N.W. 156. Money realized on a sale under a mortgage must first be applied on the notes first due, and then only on the others. Print. Co. v. Reeder, 44 Mo.App. 329; Clarkson v. Mullin, 62 Mo.App. 622; Moore v. Ryan, 31 Mo.App. 474. (6) Where chattels are mortgaged to secure a debt, a taking and retaining them, without a foreclosure, will operate as a payment of the mortgage debt to the amount of the value of the property. Loudon v. White, 101 Ind. 249; Hunt v. Nevers, 15 Pick. Mass. 500; Wright v. Storrs, 32 N.Y. 691; Dismukes v. Wright, 3 Dev. & B. L. N. Car. 78; Groh & Son v. Tildman, 40 Misc. N. Y. 303; Babcock v. Wells, 25 R. I. 23; 18 Am. and Eng. Ency. of Law, pp. 155-6; Bank v. McKenney, 78 Me. 442; Matheson v. Thompson, 20 Fla. 790; Ledyard v. Chapin, 6 Ind. 320; Marriott v. Handy, 8 Gill. 31; Cohn v. Souders, 175 Mo. 455; Friend v. Ward, 126 Wis. 291, 104 N.W. 997. (7) The court committed no error in excluding the evidence offered by appellant to show that Paul practiced a fraud on one Hawkins in securing part of the chattel mortgage property.
This action was brought by plaintiff to recover from defendant twelve hundred and sixty-five dollars alleged to have been paid to it by the mistake of plaintiff induced by false representations of defendant. There was a change of venue from Lawrence to Jasper county where plaintiff had judgment. It appears that G. A. Paul borrowed $ 1,200 from O. J. Wilson, giving his note therefor. And that to secure payment of the note he executed, on same day, a chattel mortgage on a livery stock and a deed of trust on real estate. The realty was owned by his wife, Ella Paul, who joined in the execution of the deed of trust. Afterwards the defendant bank bought the note of Wilson; the note, chattel mortgage and deed of trust being duly transferred to it. Afterwards plaintiff bought of the Pauls a greater part of the realty conveyed in the deed of trust and, as a part of the consideration, he assumed and agreed to pay the note aforesaid; such assumption being written in the warranty deed which he received from the Pauls.
Plaintiff charges in his petition that afterwards defendant foreclosed the chattel mortgage by advertising and selling the personal property therein described for $ 1,400, more than enough to pay the note and interest and that defendant thereby received said sum, which was full payment of the note. He further charges in his petition that defendant came to him and represented that Paul had been declared and adjudged a bankrupt and that the proceeds of the sale under the chattel mortgage had been taken from defendant by the trustee in bankruptcy under an order of the referee. That defendant then demanded of him that he pay the note he had assumed, threatening that if he did not it would proceed to sell his property under the deed of trust. That believing defendant's statements he paid the note, and he therefore asks judgment against defendant for the amount paid in such circumstances. The evidence shows that defendant sold a part of the personal property under the terms of the chattel mortgage, for which it received the net sum of $ 690; and that it sold the balance of the property at private sale.
When plaintiff accepted his deed from the Pauls which contained the clause wherein he assumed the payment of the note, he became bound as a principal to pay it to defendant and G. A. Paul, the maker, became his surety. [Nelson v. Brown, 140 Mo. 580, 41 S.W. 960; Pratt v. Conway, 148 Mo. 291, 49 S.W. 1028; Wayman v. Jones, 58 Mo.App. 313; Fender v. Hazeltine, 106 Mo.App. 28, 79 S.W. 1018; Wonderly v. Giessler, 118 Mo.App. 708, 93 S.W. 1130.] The note represented a part of the consideration which he was to pay for the land, and it became his obligation as fully as if he had signed it as a maker. Escaping payment, he would have the land without paying the purchase price. Such assumption of the note gave defendant the right to maintain an action against him.
But, while all that is true, it is apparent, on the mere suggestion, that when defendant sought to hold him to such obligation there must then have been in existence, as a subsisting claim, the indebtedness said to have been assumed. So, therefore if when defendant demanded payment of plaintiff, the note had been paid by the foreclosure of the chattel mortgage or a conversion of the property, defendant was left without any basis for its demand. And to that effect was a ruling of the circuit court in passing on an objection to evidence during the trial. The court remarked that "Of course, if the original debt was covered by chattel mortgage and also by mortgage on the real estate and by process of foreclosure (of the chattel mortgage) the debt was wiped out, there wouldn't be anything to assume." It is no answer to this to say that plaintiff obligated himself to pay the note and that if he does not pay it he rids himself of the obligation to pay for the land. For that would be no concern of defendant's; if the note has been paid to it, it has no excuse to meddle with the rights of others. The party concerned would be Mrs. Paul. Doubtless she could force plaintiff to pay to her direct what he had agreed to pay for her and did not. She could go to plaintiff and say to him In such manner would be avoided the inequitable state of affairs suggested by defendant of plaintiff getting the land without paying the purchase price.
It remains to inquire into the effect of defendant's...
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