Court Opinion

ID: 9857047
Source: CourtListenerOpinion
Date Created: 2023-09-24 07:13:14.618094+00
Date Added: 2024-06-11T09:37:55.850350
License: Public Domain

SPEAR, Justice
(dissenting).
By permitting themselves to be led down the primrose path of “conversion” the trial judge and my colleagues, who either authored or concurred in the majority opinion, have transformed a relatively simple relationship between the Adairs, the Brushes, the Freemans, the Eglands and Kenneth Poe into something filled with complexities.
In August 1965, when the Brushes purchased the personal property involved from the Adairs and borrowed $10,000 from the Freemans to make the down payment on such purchase, the relationship of these parties was as follows: the Brushes held the legal title to the property, the Freemans held a first chattel mortgage against this legal title, and the Adairs held a junior or secondary chattel mortgage on the property. The only thing unorthodox or peculiar about this arrangement and these relationships was the provision in Free-mans’ first mortgage in which the Free-mans agreed that before foreclosing such mortgage against the property they were to serve the Adairs, personally or by mail, a written notice specifying the default of the Brushes, and in “requiring compliance with the terms of this mortgage within 30 days * * If the Adairs complied with the notice and the terms of the mortgage, the default would be deemed corrected; but if they failed to comply within the 30-day period, it was agreed the Free-mans could proceed with the foreclosure. The Brushes became financially embarrassed to the extent that default on the Freeman note and mortgage was imminent, so on August 31, 1966, they sold to the .Freemans, for the purchase price of $1.00 “and other good and valuable consideration,” all of their legal interest in the property. At this time the equitable interest; of Freemans by reason of their first mortgage became merged with the legal title to the property, and the first mortgage, together with the indebtedness it secured, became extinguished and paid — it no longer existed. This undoubtedly was the intent of the parties, i. e., the Brushes and Freemans. See Westheimer v. Thompson, 3 Idaho 560, 32 P. 205 (1893); Toston v. Utah Mtge. Loan Corp., 115 F.2d 560 (9th Cir. 1940); Johansen v. Looney, 31 Idaho 754, 176 P. 778 (1918); Investors’ Mortgage Security Co., Ltd. v. Hamilton, 51 Idaho 113, 4 P.2d 347 (1931); Jaussaud v. Samuels, 58 Idaho 191, 71 P.2d 426 (1937).
The agreement between these parties shows this sale and transfer was made for the purpose of avoiding the foreclosure by Freemans against the Brushes under the August 25, 1965 first chattel mortgage. It also specifically recognizes that the Adairs still hold a second mortgage on the same property, and also provides that:
“IT IS FURTHER AGREED by Brush that by this instrument he relinquishes any right, title, interest or equity that he may have in said personal property.”
Thus the status between Freemans and Adairs, after this transaction between Brushes and Freemans, placed Freemans as the legal title owners of the personal property subject to what has now become a first mortgage in favor of Adairs, with the Adairs having the further option of bringing the mortgage from Brushes to Free-mans to life or reinstatement by paying the defaulted payments on said mortgage within the 30-day period. This they failed and refused to do. By their inaction the Adairs consented to any reasonable course of action on the part of the Freemans which would not be in derogation of their rights or interests. See A. J. Knollin & Co. v. Jones, 7 Idaho 466, 63 P. 638 (1900). Nothing was attempted in derogation of the equitable interest of the Adairs in the sale of the assets by the Brushes to the Free-*782mans. To the contrary, the conveyance specifically recognized that the assets were subject to the Adair mortgage. Additionally, the Adairs were informed of the sale and requested to take action to protect their interests. The rule appears to be:
“Where a mortgagor is rightfully in possession of the property before a forfeiture has occurred, he may sell his interest in it subject to the mortgage; but if he attempts to dispose of the property absolutely to one not affected with notice of the mortgage, and thereby prejudices or defeats the mortgagee’s rights, he is liable to the latter in trover. Of course, if the mortgagee consents, the mortgagor may sell the property free from the incumbrance. The consent operates as a waiver of the lien.” L. Hammon, A Treatise on Chattel Mortgages, 203-204 (1901).
The majority opinion reaches the conclusion that the sale by the Brushes to the Freemans constituted a “conversion” by relying on I.C. § 45-1117. In my opinion this section is inapplicable to the cause at hand, because (1) by its terms this statute does not apply to a mortgagee; and (2) this is a criminal statute providing, in part, that a mortgagor who sells the property or any part thereof without the consent of the holder of the mortgage is guilty of larceny and voids any such sale or transfer. The violation of any criminal statute, requires a mens rea, i. e., the act must be wilfully or fraudulently committed with the intent to unlawfully deprive a mortgagee of his rights or interests in the mortgaged property. No such intent is disclosed in the cause on hand, as hereinbefore mentioned, for the Adairs were completely informed of the entire transaction and their rights as holders of a second mortgage protected in every manner.
Additionally, the cases which the majority relies upon, such as Adams v. Caldwell Milling, etc., Co., 33 Idaho 677, 197 P. 723 (1921), are inopposite to the Brush-Freeman sale. Cases such as Adams deal only with a sale by the mortgagor to a third person who is otherwise a total stranger to the mortgagor-mortgagee relationship. Consequently, these cases have no significance to the case at bar.
The rule in Idaho is, “conversion is any distinct act of dominion wrongfully exerted over another’s personal property in denial or inconsistent with his rights therein. * * *” Klam v. Koppel, 63 Idaho 171, 118 P.2d 729 (1941); Schlieff v. Bistline, 52 Idaho 353, at page 357, 15 P.2d 726 (1932). As previously indicated, nothing was done in the Brush-Freeman sale that could be deemed an action of dominion over Adairs’ personal property in denial or inconsistent with his rights — instead, Adairs’ rights were fully protected and he was fully informed concerning them — but the Adairs chose to do nothing about it.
Concerning the second sale, i. e., from Freemans to Eglands and Poe, technical conversion could have occurred under the Idaho case law cited by the majority. Again, however, these cases hold that in order for there to be a conversion the sale must be in derogation of the mortagee’s rights, such as a sale without giving actual notice of Adairs’ equitable rights as a mortgagee. The facts, however, conclusively show that Adairs’ mortgage was regularly recorded and therefore Eglands and Poe had constructive notice of those rights. The evidence further discloses that in fact these purchasers had actual notice of the existence of the Adairs’ mortgage. They bought this property, therefore, completely and fully subject to Adairs’ interest therein. In my opinion such notice is inherently inimical to any finding of wrongful domination in derogation of Adairs’ rights which is necessary to a conclusion that such sale amounted to a conversion. Eglands and Poe purchased this personal property subj ect to Adairs’ mortgage and upon refusing to comply with the terms of such mortgage Adairs could have foreclosed. This was the proper remedy to have been sought by Adairs instead of the conversion action.
The general rule is that:
“ * * * Where a sale is without a mortgagee’s consent, the purchaser is *783generally not liable for conversion solely because of the sale itself- — that is, he is not liable unless he does some act inimical to the rights of the mortgagee which endangers or destroys the mortgage lien. However, a purchaser with notice of an existing mortgage will be liable for conversion if he assumes entire dominion over the property, using it as his own in denial of the mortgagee’s rights, or does other acts which amount to an actual conversion, as where he refuses to surrender the property to the mortgagee on demand or comingles it with his own and thus puts it beyond the reach of the mortgagee.” (Emphasis supplied). 15 Am.Jur.2d, pp. 325-326 Chattel Mortgages § 156.
The evidence in the case at hand does not bring the Freemans, the Eglands or Poe within this rule as converters.
In my opinion, the reasoning of the majority opinion places an undue burden on business procedures which may reasonably be designed to alleviate the losses which are inherent in mortgage foreclosures. The majority requires foreclosure proceedings, exclusively, whenever a mortgagor is unable to maintain his payments on a mortgage. Under this interpretation of the law, a mortgagor is precluded from ever selling his interest to any third person, even a mortgagee, though such sale may be in the best interests of all concerned. Additionally, I feel the theory of conversion which is utilized in cases of this nature is both cumbersome and unduly restrictive of commercially accepted practices. Where, as here, a mortgage is regularly recorded, it cannot be denied. When a default occurs, the mortgagor can foreclose on the mortgaged property, no matter in whose hands it might then be. If the property has disappeared or cannot be regularly located, then and only then should an action for conversion lie against the purchaser from the mortgagor.
In any event, whether recovery by the Adairs be allowed on the theory of conversion or on the theory of mortgage foreclosure, they cannot recover judgment beyond the amount actually due or to become due the Adairs on the indebtedness secured by the mortgage when judgment is rendered. Bodenhamer v. Pacific Fruit & Produce Co., 50 Idaho 248, 295 P. 243 (1931); 15 Am.Jur.2d 326, Chattel Mortgages, § 156. In this case the recovery would be limited to $13,233.68 plus interest instead of the $13,500.00 granted by the trial court.
The judgment should be reversed and the cause remanded to the trial court for further proceedings consistent with this opinion.
McQUADE, J., concurs in this dissent.