Union National Bank of Oshkosh v. Moline, Milburn & Stoddard Company

• Decision Date: 10 December 1897
• Court: North Dakota Supreme Court

73 N.W. 527

7 N.D. 201

UNION NATIONAL BANK OF OSHKOSH v. MOLINE, MILBURN & STODDARD COMPANY, et al

Supreme Court of North Dakota

December 10, 1897

Appeal from District Court, Ransom County; Lauder, J.

Action by the Union National Bank of Oshkosh against the Moline Milburn & Stoddard Company, James Morrison, Harriet J Morrison, and others to foreclose a mortgage, and establish the same as a first lien upon the property mortgaged. From a decree awarding priority to plaintiff, the Moline, Milburne & Stoddard Company appeal.

Reversed.

Judgment entered in favor of the plaintiff against the defendant James Morrison for $ 10,700.22, with interest.

George D. Emery and L. A. Reed, for appellant.

Respondent held personal property taken by it in claim and delivery from 1888 until 1894, claiming that the property could not be sold under its mortgage while the suit was pending. When it took possession to satisfy its lien, it assumed the implied obligation to proceed without unreasonable delay and with due regard for the rights of the mortgagor. Murray v Loushman, 66 N.W. 413. The mortgagee is bound to account for any surplus left after satisfying his lien and if he keeps the property and fails to sell it in the manner provided by law, he becomes liable for its market value at the time of the taking. Denny v. Faulkner, 22 Kan. 83; Miller v. McElwain, 52 Kan. 94; First Nat. Bank v. Wilbur, 26 P. 777; Stewart v. Long, 44 N.E. 63; Craig v. Tappin, 2 Sandf. Ch. 78. When a creditor has security upon two pieces of property, upon one of which only another has security. The creditor having two securities must first resort to and exhaust that security upon which the other creditor has no lien. And where such creditor takes possession of personal property upon which he has one of the securities and neglects to foreclose his mortgage, the value of the chattels at the time of taking will be applied upon his debt. 2 Jones on Morts. 1628-9, 1630; Jones on Chat. Morts. 773-774; Moody v. Haseldon, 1 S. C. (N. S.) 129, Straub v. Screven, 19 S.C. 445; Wygal v. Bigelow, 42 Kan. 477; In re Haake, 2 Sawy. 231; Stoddard v. Denniston, 7 Abb. Pr. N. S. 309; Craig v. Tappin, 2 Sandf. Ch. 85; Olcott v. Tioga, 40 Barb. 179; Drayton v. Chandler, 53 N.W. 558; Des Moines v. Harding, 53 N.W. 99; Linninger v. Herror, 36 N.W. 481; Rockford v. Mainfold, 55 N.W. 236; Everett v. Buchanan, 6 N.W. 439; 2 Dak. 249, 8 N.W. 31; Brong v. Brown, 3 N.W. 291; Lee v. Fox, 14 N.E. 889.

Ball, Watson & Maclay, for respondent.

The machine company never brought itself within § 5051, Rev. Codes. It never required the bank to first exhaust the personalty before resorting to the real estate. Richards v. Spicer, 23 Minn. 212. Independently of statute it was bound to notify the bank to first exhaust the personal property security. Ross v. Duggan, 9 Colo. 85; Harnings Appeal, 90 Pa.St. 388. While appellant was contesting with the bank for a paramount lien upon the personal property, the bank was not required to sell this property. Evertson v. Booth, 19 Johns. 486. The equitable rule as to marshalling does not apply where the validity of the attachment lien depends upon the invalidity of a transfer of the property attached. Schaff v. Meyer, 34 S.W. 858; Coburn v. Stephens, 36 N.E. 132.

OPINION

CORLISS, C. J.

In this action, instituted to foreclose a mortgage, a contest for priority of lien has arisen between the plaintiff and the defendant the Milburn & Stoddard Company. The mortgage was executed by James Morrison, the owner of the land. It was delivered November 26, 1887. Morrison was at that time indebted to the plaintiff on several notes, and was also liable to it as indorser upon the notes of others. Simultaneously with the execution of this mortgage, he borrowed from the plaintiff $ 4,000. The mortgage was given to secure his indebtedness to the plaintiff, and his contingent liability on the notes referred to, and also as security for future advances. At the same time Morrison executed and delivered to plaintiff as further security a chattel mortgage on a large amount of personal property situated at that time in this state, the property being located on the farm covered by the real estate mortgage, and being stock and farming implements and machinery used by Morrison in the operation of such farm. A few days after the delivery of these two mortgages, the defendant Milburn & Stoddard Company attached the land and chattels in an action against Morrison as guarantor on a bond signed by him guarantying the fidelity of Hughes & McDonold as agents of the defendant Milburn & Stoddard Company. On the 27th of February, 1891, judgment was rendered in that action in favor of Milburn & Stoddard Company and against Morrison for $ 17,658.18. While the sheriff was holding the chattel property under the attachment, it was taken from him by the coroner in claim and delivery proceedings in an action of replevin instituted by plaintiff, the mortgagee in the chattel mortgage thereon, plaintiff claiming priority of lien over the attachment. The defendant in that action, the sheriff, having failed to rebond, the coroner delivered the property to the plaintiff, and such property remained in the possession of the plaintiff during the pendency of the replevin action, or rather until it was lost to the plaintiff, and to the defendant as well, part of it being sold by Morrison, who had the custody thereof as agent for the plaintiff, part of it being destroyed by fire, and some of it (the live stock) dying of old age, or being killed by accident. For six years--i. e. from May 1888, when it was delivered to plaintiff in the claim and delivery proceedings, until July, 1894, when plaintiff attempted to foreclose its mortgage, and found only a trifling amount of property, from which it realized on foreclosure only $ 5.50--the plaintiff suffered the property covered by its mortgage to remain in the possession of its agent, James Morrison, who was the owner of such property; and during all this time it is apparent that plaintiff took no steps to protect its interests under such mortgage, but, on the contrary, permitted Morrison to deal with the property as owner, without any reference to the rights of the plaintiff as mortgagee. While the litigation involving the question of priority was pending, the plaintiff does not pretend that it ever looked after the property, or in any manner attempted to exercise any control over it as mortgagee in possession. While it is said that the possession of Morrison was that of a mere agent, the facts of the case indicate very strongly that plaintiff allowed such possession to become that of an owner. It would almost seem that the object of instituting the replevin action was to secure possession of the property for the purpose of helping Morrison in his financial trouble, and that the purpose from the beginning was to hand the property right over to him as mortgagor and owner. But we shall adopt the theory of the learned trial judge that the litigation was an honest one on the part of the plaintiff, the sole object of the plaintiff being to settle the question of priority between these two liens. After a protracted contest in the courts of this state (the law of the case being declared by this court in Bank v. Oium, 3 N.D. 193, 54 N.W. 1034,) the plaintiff was successful in its claim of priority, and secured judgment confirming its right to the possession of the property already in its possession under the claim and delivery proceedings before referred to. Without further discussing at this time this phase of the case, we now turn to another complication.

The mortgage on the real estate, given by Morrison to the plaintiff, was a mortgage to secure future advances. On its face it secured $ 20,000, according to a bond executed at the same time. And the bond discloses the fact that one of the objects of the transaction was to protect the plaintiff by this lien not only as to present indebtedness, but also with respect to the future liability of Morrison to it. At the time the defendant's attachment became a lien on the real estate, there was due on the plaintiff's mortgage a certain sum. Subsequently a portion of this was paid. The amount of that indebtedness still unpaid is $ 7,000, with interest thereon from December 31, 1890. Taking up our position at this period of time to ascertain the relative rights of the parties, we find that plaintiff then held a first lien on the real estate for $ 7,000 and interest, and the defendant a second lien thereon, which would be defeated by its failure to recover judgment on its claim against Morrison, but which would become a fixed second lien as of the date of such attachment if it succeeded in establishing in court the justice of its claim. Were it not the fact that plaintiff's mortgage secured future advances as well as present indebtedness, we would have no further trouble with this branch of the case. But it appears that the plaintiff, relying on its lien for future advances, loaned Morrison the further sums of $ 1,000 on November 17, 1891, and $ 1,600 on January 5, 1891. A portion of the $ 1,000 note has been paid, but there is still due on these two notes a large amount of principal and interest, and the question is whether, as to this amount also, the plaintiff's mortgage is a first lien on the real estate. That a mortgage to secure future advances is lawful as between the parties, and also with respect to third persons who deal with the land or secure liens thereon, has become an elementary principle. 3 Pom. Eq. Jur. § § 1197, 1198, and cases cited. See also, the decisions subsequently cited in the opinion on this branch of the case. To the extent that advances are made under it before another lien attaches to the property,...