Court Opinion

ID: 7894676
Source: CourtListenerOpinion
Date Created: 2022-09-08 21:51:46.487971+00
Date Added: 2024-06-11T16:32:02.031602
License: Public Domain

The opinion of the court was delivered by
Johnston, C. J. :
The principal .question presented here is whether the facts in the case justified the decision of the trial court denying a recovery to the bank of the proceeds of mortgaged property' which the Taylors applied to the satisfaction of their verbal mortgage. There was no substantial dispute as to the existence and validity of the several mortgages involved nor in regard to their relative positions as to seniority, except as to the unwritten mortgage from Reed to the Taylors. Reed gave a first mortgage to the Taylors on sixty-four head of cattle to secure an indebtedness of $1866.92. He gave to McGee, Zooks, Whitford & Go. a first mortgage- on thirty-two head of other cattle to secure a debt of $1349.25.’ Later he *36gave a mortgage to the bank to secure a debt of $2370, which covered the property previously mortgaged to the Taylors and to McGee, Zooks, Whitford & Co., on which it was a second mortgage, and it also covered a lot of horses, cows, hogs, farming implements and harvested and growing corn, upon which it was a first mortgage. Subsequently Reed gave another, mortgage to the bank on substantially the same property that was covered by the one last mentioned, to secure' an indebtedness of $600. That the debts secured by both of the mortgages executed by Reed to the bank were bona fide was not questioned, nor could there be any doubt that the mortgages were valid and created liens which were superior to that claimed by the Taylors under the verbal mortgage. It was also conceded that when the stock was shipped to the Taylors they paid themselves the debt secured by both their written and verbal mortgages, and only forwarded to the bank $2372.91, which left unpaid on the bank's indebtedness the sum of $633.19.
There is a contention as to the status of the claim of the Taylors for $642.57, and whether "it was in any sense a lien on the sixty-four head of cattle. It was not in writing and had never ¿been reduced to judgment. There was an agreement, however, that the cattle should stand as security for that debt. It was part of the consideration for the larger and later loan obtained to purchase the cattle, and the" money was advanced by the Taylors to Reed upon the condition that the cattle, after being fed and fattened by him, should be returned to the Taylors, who would then sell them and take out of the proceeds of the sale the amount of the claim. Under this agreement they obtained an equitable lien on the cattle which was certainly binding as between themselves and Reed, and *37under our decisions the contract constituted a verbal chattel mortgage as to the parties and those having actual notice of , the contract about the legality of which there can be no doubt; at least, after the possession of the cattle was delivered to the Taylors in'pursuance of the contract. (Bates v. Wiggin, 37 Kan. 44, 14 Pac. 422, 1 Am. St. Rep. 234; Weil v. Ryus, 39 id. 564, 18 Pac. 524.) The court was, therefore, warranted in treating the oral agreement as a lien, binding upon the contracting parties, and one which could not be ignored by those having knowledge of its existence.
In determining the rights of the parties the court was not only authorized, but also required, to apply equitable principles.
“The general rule enforced in equity is that, where one creditor is secured by mortgage on several pieces of property while another creditor is secured by a junior mortgage on only a part of the property, the prior creditor, when chargeable with actual notice of the rights of the junior creditor, is bound to exhaust his security on the property not covered by the junior lien, and that he must account to the junior lien-holder if. he releases his security on, or pays over to the mortgagor, the proceeds of the property not covered by the lien of the junior mortgagee, after actual notice of the junior lien.” (Burnham v. Citizens’ Bank, 55 Kan. 545, 551, 40 Pac. 912. See, also, M’Lean, Assignee, v. Lafayette Bank, 4 McLean [C. C.] 430, Fed. Cas. No. 2889; Dunlap v. Dunseth, 81 Mo. App. 17; Aldrich v. Cooper, 8 Ves. 382; Turner v. Flennikin, 164 Pa. St. 469, 30 Atl. 486, 44 Am. St. Rep. 624; 2 Jones, Mortg. § 1628.)
After the sale of the stock by the Taylors and the payment by them to the bank of $2372.91, it had full knowledge of the junior lien of the Taylors under their verbal mortgage. It was also well acquainted *38with the fact that there was abundant property covered by its mortgage alone to satisfy the balance of its debt. There remained at that' time mortgaged property to the value of $1900 to secure a debt of only $633.19, which the junior mortgage did not cover. The attention of the bank was specially called by the 'Taylors to this unexhausted security, with the request it avail itself of that property to satisfy its debt. The bank then promised to look to that property or fund to discharge the balance due under its mortgage. If it had done as it agreed to do it would have found available property which in value was treble the amount of the mortgage debt.
Again; some of the property mortgaged to the bank and not to the Taylors was shipped to market with the knowledge of the bank, and the proceeds of the sale were returned and deposited in the bank. It had notice of the character of the deposit and the source from which it was derived, and, although promptly advised by the Taylors to protect itself from this deposit, the funds so placed in its hands were surrendered and paid out by it. The deposit was $700, which was more than sufficient to discharge its mortgage debt. Reed's purpose was to use this deposit fo,r the payment of his debts, and, while he placed it to the credit of his daughter, there was nothing to show that she had any claim against him or any lien upon the property sold. The bank, therefore, had abundant opportunity to protect itself. It promised to do so, and the loss of the sum which was available to it alone was due to its wilful neglect.
When the bank agreed with the holders of the junior lien to pursue the property covered by its mortgage alone, which was accessible and sufficient, and to apply the same on the balance of its debt, it in effect *39elected to rely only on that fund, and it would be inequitable now to allow it to change its position. This agreement, together with the surrender of the fund which was in its hands and which was not available to the junior creditor, constituted a waiver of any right to the security taken by the Taylors, and, under the general principles of equity, defeats a recovery from them.
We think there was sufficient testimony to sustain the findings of fact made by the court, and the judgment which was entered on those findings should be affirmed.
All the Justices concurring.