Zumwalt v. Goodwin, 2588.

• Decision Date: 19 January 1943
• Docket Number: No. 2588.,2588.
• Citation: 133 F.2d 984
• Parties: ZUMWALT et al. v. GOODWIN.
• Court: U.S. Court of Appeals — Tenth Circuit

133 F.2d 984 (1943)

ZUMWALT et al. v. GOODWIN.

No. 2588.

Circuit Court of Appeals, Tenth Circuit.

January 19, 1943.

J. Benson Newell, of Las Cruces, N. M., for appellants.

W. C. Whatley and R. C. Garland, both of Las Cruces, N. M., for appellee.

Before PHILLIPS, BRATTON, and MURRAH, Circuit Judges.

MURRAH, Circuit Judge.

The appellee, Frank C. Goodwin, a resident of Texas, filed this suit against Jesse K. Morrison and wife, residents of New Mexico, to recover a judgement on a note for $4,800.00 (plus interest and attorney fees), which he and one Tom Gibson¹ had signed as sureties for the Morrisons to the State National Bank at El Paso, Texas, on January 28, 1941, and which he, the appellee, had paid upon default of the Morrisons. He also sought foreclosure of a first mortgage deed on eleven lots in Hot Springs, New Mexico, which the Morrisons had given him as security in the event of their default and his payment of the note. C. E. Henson, Nettie L. Henson, and Marie Zumwalt, also citizens of New Mexico, were named defendants as parties claiming some interest or lien upon the mortgaged real estate, but which he alleged was junior and inferior to his first mortgage lien. He prayed for judgment on the note and foreclosure of the mortgage as a first lien upon the property, to be applied in satisfaction of his judgment.

The Morrisons defaulted and judgment was rendered against them in favor of Goodwin. The Hensons and Marie Zumwalt answered, asserting a vendor's lien for the unpaid purchase price of the mortgaged real estate in the sum of $7,000.00, of which, they alleged, the appellee had knowledge at the time his mortgage was executed, and by reason of which they also allege the Morrisons were prevented from executing a mortgage in preference to the vendor's lien. The trial court sustained the mortgage as a first lien upon the property, rendered judgment on the notes, and ordered the mortgage foreclosed in satisfaction of the judgment. The Hensons and Marie Zumwalt have appealed.

From the sharply disputed evidence, the trial court found that early in May, 1940, Jesse K. Morrison made tentative arrangements with C. E. Henson and wife, and Tom Hobbs and wife, for the purchase of the eleven lots located in Hot Springs, New Mexico.² In order to secure the necessary down payment on the purchase price of the lots, Morrison induced the appellee, Goodwin, and Gibson to become sureties or guarantors on his note to the State National Bank of El Paso, Texas, for the sum of $5,000.00. According to the findings of the trial court, Morrison represented to Gibson and Goodwin that he could secure clear title to the lots upon the payment of $5,000.00, but that they knew at the time the total sale price for the real estate was $12,000.00. They did not rely upon the lots as security for becoming sureties on the note, but relied upon his representation that he would finance the construction of tourist apartments and filling station upon the lots, the revenues from which he would repay the loan to the bank, and in the event of his failure to finance the construction of the tourist apartments and filling station, he would give Goodwin and Gibson a first mortgage upon the lots as security for their guaranty on the note to the bank. The court further found that on the same date (May 8, 1940), Morrison paid the sum of $5,000.00 to Henson and Hobbs and received a warranty deed to the lots in question. At the same time, he executed and delivered separate notes to Henson and Hobbs, each in the sum of $3,500.00, payable on or before three years from the date of execution. He also agreed in writing to execute and deliver to Henson and Hobbs a second mortgage on the property when the contemplated buildings were constructed on the lots, or within one year from the date of the sale. This agreement in writing was filed of record in Sierra County, New Mexico, where the lots are located, on July 7, 1940. Morrison was unable to finance the construction of the tourist apartments and filling station as contemplated. Meanwhile, the note to the bank in El Paso matured on which there was a $4,800.00 balance. In accordance with his agreement with Goodwin and Gibson, and to induce them to join as sureties on the renewal note to the bank in the sum of $4,800.00, Morrison executed and delivered to Goodwin and Gibson a mortgage deed dated January 28, 1941, on the lots in question as security for the note in the event of default by Morrison, and payment by Goodwin and Gibson. The mortgage deed was filed of record in Sierra County, New Mexico on January 29, 1941. The court found that Goodwin had made no search of the records of Sierra County when he took the mortgage, nor did he have actual notice that the Hensons and Marie Zumwalt claimed a prior lien on the lots for the unpaid purchase price. On the due date, Goodwin and Gibson paid the note to the bank in El Paso and the same was endorsed to them.

Based on these facts, the court held that the written agreement executed by Morrisons to Henson and Hobbs (Marie Zumwalt), and filed of record in Sierra County July 7, 1940, obligated the Morrisons to give the vendors a second mortgage upon the lots in question to secure the payment of their notes, and that the said agreement did not operate to give notice to Goodwin that the vendors were claiming a prior and superior vendor's lien upon the said lots. The court gave the Hensons and Marie Zumwalt a lien upon the lots, subject and inferior to the Goodwin mortgage lien.

The appellants challenge the findings of the court on the vital issue of notice and knowledge, which they contend was imputed to the appellee, Goodwin, when he took his mortgage. They urge that Goodwin took the mortgage, which he now asserts, with actual knowledge that the purchase price for the lots was $12,000.00, that the $5,000.00 which the Morrisons borrowed at the bank was to be used as the down payment, leaving a balance of $7,000.00 unpaid, for which the vendors are accorded a superior vendor's lien, and with such knowledge, Goodwin is put upon notice of the lien and is charged with the duty to make inquiry concerning the true relationship of the parties. They further earnestly contend that the agreement to give the second mortgage on the property in the event no buildings were constructed thereon was filed of record on July 7, 1940, before the mortgage was given on January 28, 1941, hence Goodwin is charged with constructive notice of the agreement and all of the facts and circumstances surrounding the same; that Goodwin knew therefore that since no buildings were constructed on...