Case Name: SHEPHARD v. VAN DOREN
Court: Supreme Court of New Mexico
Jurisdiction: New Mexico
Decision Date: 1936-08-11
Citations: 40 N.M. 380
Docket Number: No. 4068
Parties: SHEPHARD v. VAN DOREN.
Judges: BICKLEY and ZINN, JJ., concur.
Reporter: New Mexico Reports
Volume: 40
Pages: 380–397

Head Matter:
60 P.(2d) 635
SHEPHARD v. VAN DOREN.
No. 4068.
Supreme Court of New Mexico.
Aug. 11, 1936.
Rehearing Waived Sept. 15,1936.
J. C. Gilbert, of Roswell, for appellant.
H. C. Maynard, of Roswell, for appellee.

Opinion:
SADLER, Chief Justice.
This appeal is for review of a judgment in replevin. The plaintiff, who prevailed below, does business at Plainview, Tex., in the name of Shephard Chevrolet Company, conducting an automobile agency, selling new and used cars. He sold to one C. H. Little a certain used Chevrolet automobile, 1931 model, bearing engine number 2456779, under a conditional sales contract, duly filed with the county clerk in Lamb county, Tex., county of the purchaser's residence, so as to constitute constructive notice of plaintiff's contract. Under the laws of the state of Texas, the conditional sales contract was the equivalent of a chattel mortgage in plaintiff's favor on the automobile in question.
Little, original purchaser, placed the automobile in possession of one Leo Parks, who transported same to Roswell and there had the motor number changed from 2456779 to 1392476. Parks subsequently pleaded guilty before the district court of Chaves county to a criminal offense involving this alteration of the engine num bers and received a sentence which was suspended. After this change in numbers, the car came again into possession of Little, who returned it to Texas. While there the plaintiff checked same and finding it to be the identical car theretofore sold Little, but with the motor number changed, made notation of the change in motor number on his (plaintiff's) copy of the conditional sales contract and redelivered same into Little's possession. Little returned it into Parle's possession. The latter took the car to Roswell, where he sold it to one Carl Johnson, who in turn sold same to Elwood Van Doren, the defendant herein. Neither Johnson nor Van Doren had actual knowledge of plaintiff's lien at the time of their respective purchases.
Little having defaulted in meeting the payments due under his purchase contract, and the plaintiff's right to possession arising by its terms, he located the car with defendant and demanded its return to him. Possession being refused, he instituted this action in replevin. From a judgment in his favor, the defendant prosecutes this appeal.
While several points are presented and argued, only one of them need be considered, since it appears decisive. It is, in substance, that plaintiff's act, after regaining possession of the automobile bearing a false engine number, in restoring the automobile to the original purchaser still bearing such false and altered number, denied to any subsequent good-faith purchaser the intended means of connecting it with plaintiff's conditional sales contract; and that by reason thereof the plaintiff is estopped from asserting his lien against such a purchaser.
The trial court of its own motion made, findings as follows:
"On the date of the purchase of said automobile by C. H. Little, the plaintiff gave-to C. H. Little a bill of sale thereto and at the same time and a part of the same-transaction C. H. Little gave to the plaintiff the conditional sales contract heretofore mentioned which, under the .laws of the State of Texas is a mortgage.
"That the said C. H. Little turned the-said automobile over to one Leo Parks,, who brought the same to Roswell, New Mexico, and while in Roswell, New Mexico, had the motor number to said car-changed from 2456779 to 1392476.
"Thereafter, one Carl A. Johnson bought from Leo Parks the said automobile paying therefor a valuable consideration without actual knowledge of any interest oí: the plaintiff in and to said automobile.
"Thereafter the said Carl A. Johnson-sold to the defendant the automobile in. question and the defendant had no actual knowledge of any claim, right, title or in, terest of the plaintiff in and to said automobile. That both Carl A. Johnson and; the defendant were purchasers in good faith believing the said Leo Parks was the-owner of said car.
"That the conditional sales contract from the plaintiff to Little heretofore mentioned' was duly filed for record ini the. chattel; mortgage records of Lamb County, Texas, on the 21st day of June 1932.
"That under the laws of the State of Texas the filing of such conditional sales contract (or chattel mortgage as it is under the laws of the State of Texas) is constructive notice to all the world as to its contents."
The defendant requested, and the trial court made, the following findings touching the issue under discussion, to wit:
"That subsequent to the original sale of said automobile by plaintiff to C. H. Little, and prior to the purchase of said automobile by the defendant, the engine therein had been changed or the numbers on the engine therein had been changed from 2456779 to 1392476 of which fact plaintiff had full knowledge, and that plaintiff after such change in engine or numbers had been made, had said automobile in his or its possession and noted on the original conditional sales contract, which he had in his possession such change in numbers, and thereafter allowed said automobile to go out of his possession and back to the possession of said C. H. Little, and that at the time of the purchase of said automobile by the defendant there was no record in any county in the State of Texas that plaintiff had a conditional sales contract with anyone on an automobile with an engine in the same numbered 1392476, and that defendant had no knowledge constructive or otherwise of such engine change or number changes.
"That at the time of the purchase by defendant of the automobile in question from Carl Johnson, the engine in said automobile was numbered 1392476, and that the plaintiff had knowledge that the engine in said car had such number, and that he had no conditional sales contract on record in the State of Texas with anyone upon an automobile bearing engine number 1392476."
The two findings just quoted stand before us unchallenged by any exception on plaintiff's part. Read in connection with other findings of the court, it must be taken as the fact that no substitution of the engine occurred, only the identifying numbers thereof being changed. Indeed, Parks, charged with having altered the motor numbers, pleaded guilty to having done so and received a suspended sentence therefor.
We have then this situation: The plaintiff, by instruments duly executed and filed for record in Lamb county, Tex., has a lien on a certain 1931 model Chevrolet automobile, bearing engine number 2456779. We may assume for purposes of our decision, as contended by the plaintiff and held by the trial court, that pursuant to the holding in Hart v. Oliver Farm Equipment Sales Company, 37 N.M. 267, 21 P.(2d) 96, on the facts here shown and under ordinary conditions, this lien would be recognized and enforced in New Mexico. Subsequent to reservation of the lien the automobile comes back into possession of the mortgagee bearing a false engine number. With knowledge that such is the case, the mortgagee, after noting the false number on his copy of the contract or mortgage, redelivers the car into original purchaser's possession, and thereafter it passes into the hands of one who pays value without actual knowledge of any claim, right, title, or interest of the plaintiff in and to said automobile.
Is the mortgagee under such conditions in position to assert the lien of his mortgage against said good-faith purchaser? We hold him estopped from doing so.
For purposes of identification in chattel mortgages and conditional sales contracts, the make, model, and engine number of automobiles are almost universally employed in describing the property mortgaged.
"A description of mortgaged automobiles by the make and engine number completely and absolutely identifies them, since that is all that is necessary to impart constructive notice to subsequent purchasers." 7 Blashfield's Cyclopedia of Automobile Law and Practice. (Permanent Edition) § 4684, p. 314.
"It is common knowledge, and the uncon-tradicted evidence shows, and the jury would have been warranted in finding, that automobiles of various mechanical designs, made by numerous manufacturers under multiform- trade-names, are constantly in the market for purchase and sale, and that cars of any one of the makers can be distinguished with reasonable certainty from other automobiles of the same class, only by the number by which each car is designated." Wise v. Kennedy, 248 Mass. 83, 142 N.E. 755, 756.
It is well settled that "where the descriptions given are intrinsically false and misleading, the mortgage given thereon is not valid." 7 Blashfield Cyclopedia of Automobile Law and Practice (Permanent Edition) § 4684, p. 312; McQueen v. Tenison (Tex.Civ.App.) 177 S.W. 1053; First National Bank v. Gardner, 222 Mo.App. 858, 5 S.W.(2d) 1115; Shearer v. Housch, 32 Ga.App. 663, 124 S.E. 356; First Mortgage Loan Co. v. Durfee, 193 Iowa, 1142, 188 N.W. 777; Becker v. Dalby (Iowa) 86 N.W. 314.
One of the chief objects of particularity in description is to enable a prospective purchaser or incumbrancer to identify the tendered property-as that previously mortgaged. If this purpose is to be fully served, the description in the mortgage and that borne by the property should be found in continuous reconcilement throughout the life of the mortgage. To say the least, this purpose is wholly defeated if the identifying marks on the property are so altered or changed that a comparison of same with the description in the mortgage not only fails to establish it as the same property, but leads to the false conclusion that it is different property.
We are not' to be understood -as intimating that a mortgagee, as the price of preserving his lien, is an insurer of the continuing sameness of the description in the mortgage and that borne by the prop erty. It would be a harsh, rule which imposed any such duty, particularly where, as in most instances, he is not in possession of the property and changes or defacement of descriptive marks on the property most often would be made for the very and fraudulent purpose of defeating his lien. Where he is in no sense responsible for the continued circulation in channels of trade or commerce of the property bearing false identification marks, his rights will be wholly unaffected by subsequent dealings in such property, no matter how good or strong the faith of him'.who deals in reliance upon the truth of false descriptive marks.
It is only where some act of the mortgagee or conditional vendor, as in the instant case, aids in destroying the intended purpose of registration or recording acts, that the consequences of estoppel will attach. Let us apply this statement to the present facts. We assume that defendant, under doctrine of Hart v. Oliver Farm Equipment Sales Company, supra, stood charged constructively with notice of plaintiff's lien upon the automobile in question. The harshness of this rule as operative against subsequent purchasers without actual knowledge is tempered by the legal fiction that kndwledge of the prior mortgage is present in the purchaser's mind, and having this constructive notice, by mere comparison of descriptions he is in legal contemplation forewarned of danger in dealing with the property. But even the theory of liability based on constructive notice fails if the descriptive and identifying marks on the property are changed.
And so, according defendant's mental processes to the theory of constructive notice, the comparison of descriptions presupposed by such theory, instead of warning that he is purchasing the mortgaged car, will prove quite satisfying that he is not.
Or, if we assume knowledge of facts sufficient to have prompted an inquiry of the recorder's office in Lamb county, Tex. (an assumption contradicted by the court's finding that defendant was a good-faith purchaser without knowledge "constructive or otherwise" of the change in engine numbers), the result does not vary. An actual search of the records there would have disclosed no lien on a 1931 model Chevrolet coupé with engine number 1392476, the false number borne by the engine in question at the time of defendant's purchase and which in good faith he relied upon as the true number.
Under authorities hereinabove cited, the use in the original contract of this false description of the mortgaged automobile would have rendered the mortgage invalid in its inception as against a subsequent purchaser in good faith. Does it operate less effectively to this end against such a purchaser where the mortgagee having possession of the automobile, with knowledge of the false and fraudulent change in engine number, and without removing the false and restoring the true number, redelivers possession to the pur chaser in whose hands it may become the subject of sale, barter or exchange? We hold it does not.
The defendant, citing Harrison v. Auto Securities Co., 70 Utah, 11, 257 P. 677, 679, 57 A.L.R. 388, relies upon the principle there applied in the following language in favor of an innocent purchaser of a mortgaged automobile, to wit: "The trial court was of the opinion that it appears from this record that one of two innocent parties must suffer from the wrongful act of a third person, and that the loss should fall upon the one who by his conduct created the circumstances which enabled the third party to perpetrate the wrong and cause the loss, and determined the case on that principle of law. The rights of the parties, in our judgment, could well be ruled upon this general principle of law, and, so ruled, would entitle plaintiff to recover."
This well-known rule is stated under the text treatment of the subject of Estoppel in 21 C.J. 1170,'as follows: "Whenever one of two innocent persons must suffer by the acts of a third, he who has enabled such third person to occasion the loss must sustain it."
In the Harrison Case from Utah from which we have just quoted, the court was dealing with a question upon which there is some conflict of authority, viz., whether the purchaser of an automobile from the place of business of a retail automobile dealer where it is mingled with the stock for sale from the showroom of such dealer is constructively charged with notice of a prior recorded lien upon such automobile. Without indicating a preference for one or the other of these conflicting views, since no such case is before us, we may say that we consider the reasoning which Mr. Blashfield urges in support of an es-toppel in favor of the innocent purchaser in such situation to apply with particular force in the case before us. He writes: "There is thus a conflict between decisions resting on the letter of the statute on the one hand and decisions resting largely upon considerations of substantial justice and public policy on the other. There can be no question that the rule of estoppel, in cases in which the one relying on the statute has himself afforded the opportunity to a dealer to sell the automobile in controversy in the regular course of trade, will better accord with fundamental ideas of justice. The Gordian knot has been cut in some jurisdictions by holding that there can be no conditional sales of automobiles to dealers where they are to be resold." 7 Blashfield's Cyclopedia of Automobile Law & Practice (Permanent Edition) § 4595, p. 240.
These statements of principle control the rights of the parties in the case before us. Strictly speaking, it is difficult to think of plaintiff as wholly innocent. Not that he became particeps criminis to the unlawful act of changing the motor number. But rather because with knowledge that the unlawful act had been done, and with opportunity at hand to avoid its consequences by effacing the false and restoring the true number, he mistakenly and carelessly thought it best or was content himself to adopt the false number as a future means of identifying the mortgaged car. He thereby sent it out bearing known false insignia and is thus estopped to dispute the title of one purchasing in reliance upon the false as genuine.
As to degrees of innocence, the case is more like that of Kearby v. Western States Securities Co., 31 Ariz. 104, 250 P. 766, 769, where the court said: "The other proposition presented by appellant is, to our minds, also applicable. While it is true that the Securities Company and Kear-by may both be regarded as innocent, they are not equally so, in view of the fact that the former, after becoming the ownér of the car through the assignment, permitted a condition to exist that made it possible, if appellee's contention should prevail, for Baumgardner and the Motor Company to defraud appellant." (Italics ours.)
In reaching the .conclusion we have, importance is attached to the fact of plaintiff's possession of the car after knowledge of the fraudulent change in numbers and his release of same to Little still bearing the false engine number. It is suggested that, contrary to the language of the trial court's finding, the plaintiff's possession of the car was nothing more than storage for a short period such as might have been had of any stranger's car, without the control carried by repossession of mortgaged property.
It may in fact have been so, but we are controlled by the finding actually made. Little did not testify and the plaintiff's testimony was equivocal. He stated, "The car was returned to us"; that he (Little) brought it to plaintiff's garage and "turned it over" to the plaintiff. On the other hand, he stated just following the testimony last quoted: "I never did take pos--session of it; he just brought it in there, said he had found his car and he had it back."
Plaintiff testified that the car was in Plainview about half a day when Little returned it, and that during such period he and his employees removed various parts from the engine in the search for secret numbers carried by the car, which they discovered, thereby establishing it to be the same and not a substituted engine. Under the terms of the conditional sales contract, plaintiff was entitled to possession not only for default in making payments called for by the contract or removal of the property without seller's written consent from county of purchaser's residence, but also if "the seller deems the property in danger of misuse or confiscation."
In view of these considerations and the acts done in reference to the car while in his possession, it was for the trial court by its findings to characterize the nature of plaintiff's possession. Having found that after the fraudulent change in engine numbers and with knowledge thereof the plaintiff had the car in his possession and "thereafter allowed (italics ours) said automo bile to go out of his possession and back to the possession of C. H. Little," we must give the word "possession" the meaning which the language of its context plainly implies.
. [6] Nor — in view of the trial court's finding that defendant was a good-faith purchaser "believing the said Leo Parks was the owner of said car," without "actual knowledge of any claim, right, title, or interest of the plaintiff in and to said auto-bile," and "without knowledge constructive or otherwise of such engine change or number changes" — are we permitted to inquire whether notwithstanding the change in numbers, there were other facts sufficient to excite inquiry which pursued would have disclosed knowledge of plaintiff's lien.
A person cannot be a "bona fide purchaser" who has brought to his attention facts which should have put him on inquiry, an inquiry which, if pursued with due diligence, would have led to knowledge of a lien on or adverse interest in the property. Wafer v. Harvey County Bank, 46 Kan. 597, 26 P. 1032; Mangum v. Stadel, 76 Kan. 764, 92 P. 1093; Manwaring v. O'Brien, 75 Minn. 542, 78 N.W. 1; Williamson v. Brown, 15 N.Y. 354, 362; LaBrie v. Cartwright, 55 Tex.Civ.App. 144, 118 S.W. 785; Harvey E. McHugh, Inc., v. Haley, 61 N.D. 359, 237 N.W. 835; Wilkins v. McCorkle, 112 Tenn. 688, 80 S.W. 834.
It follows that the judgment of the trial court must be reversed, and the cause will be remanded, with a direction to the trial court to set aside the judgment heretofore entered and to render judgment in defendant's favor upon the issues joined and for his costs. It is so ordered.
BICKLEY and ZINN, JJ., concur.
BRICE, J., did not sit in this case and does not participate in the decision.