Court Opinion

ID: 3221148
Source: CourtListenerOpinion
Date Created: 2016-07-05 15:57:55.191643+00
Date Added: 2024-06-11T13:35:23.761667
License: Public Domain

The phase of the case now material and for further consideration is the effect of the statute (section 6890, Code) on the claim for damages for conversion of mortgaged property during the intervening time from the taking over of the execution of the work by the surety company and the record of the bank's demand note and chattel mortgage. The two instruments adverted to are: That to secure the indebtedness of L. C. Pearson and J. B. Whitaker to the bank for $5,750, due "on demand without grace," and dated July 7, 1920, recorded September 24, 1920; and that to provide indemnity to the surety company as part of the consideration for making contractor's bond, dated September, 1919, and not recorded. Each instrument is within the terms of the statute, providing, as it does, the —
"conveyances of personal property to secure debts, or toprovide indemnity, are inoperative against creditors andpurchasers without notice, until recorded."
The property in question and embraced in the mortgage was taken over from the grantor, Pearson, by the surety company, or was surrendered to it by Pearson, on September 2, 1920, under or by virtue of its bona fide claim of right and duty in the premises, to proceed with the contract, and on which date it undertook the execution of the contract, and at said time, in furtherance thereof, drew its draft for about $2,000, that was cashed or collected through appellant bank. We will set out later the written notice of such action and advancement by the surety to said bank.
Conceding that the exact terms of the indemnity agreement by Pearson to the appellee were not known to appellant, or were inoperative by reason of its non-record, as one dealing with Pearson in good faith of his ownership and parting with value and without actual notice, when the chattel mortgage note was executed, would such unrecorded mortgage be inoperative as to the appellees? The statute declares the general rule that conveyances of personal property to secure debts or provide indemnity are inoperative against creditors and purchasers for value and without notice, until recorded. Section 6890, Code of 1923; Finney v. Dryden, 214 Ala. 370, 108 So. 13. The history of this statute as to a mortgage of personal property as aconveyance of property is traced in Patterson  Co. v. Jones,89 Ala. 388, 8 So. 77; Fort v. State, 1 Ala. App. 195,55 So. 434; and the rights of him who parts with value without notice of an unrecorded mortgage as a purchaser or a subsequent creditor, is the subject of Mathis v. Thurman, 143 Ala. 558,39 So. 360; Diamond Rubber Co. v. Fourth Nat. Bank, 171 Ala. 420,425, 55 So. 100; Donahoo Horse  Mule Co. v. Durick, 193 Ala. 456,69 So. 545; Hill v. Rentz, 201 Ala. 527, 528, 78 So. 881; *Page 396 
Grimmer v. Nolen, 146 Ala. 466, 40 So. 97; Scott v. Thomas,211 Ala. 420, 100 So. 778; Clark v. McMurray, 214 Ala. 670,108 So. 586; Birmingham v. Collier, 212 Ala. 655, 103 So. 839.
These record statutes, in pertinent respects, have come to us unchanged from the Code of 1852. The word "creditors" without notice under (section 6887 of the Code of 1923, or sections 1287, 1288, Code of 1852) the recording statute, as affecting conveyances of land, is held not to be creditors at large, but "judgment creditors." Ohio Life Ins.  Trust Co. v. Ledyard,8 Ala. 866; Center v. Planters'  Merchants' Bank, 22 Ala. 743,752; Richards v. Steiner Bros., 166 Ala. 353, 52 So. 200. On the other hand, the statute for record of personal property (section 1291, Code of 1852, and section 6890, Code of 1923) is held to protect general subsequent creditors. Mr. Chief Justice Walker said of this:
"The word 'creditors' is not to be taken with a qualification, and understood to mean 'judgment creditors.' The decision that the phrase, 'bona fide creditors,' occurring in the redemption statute, means judgment creditors, is grounded upon reasoning altogether foreign to the question here. Thomason v. Scales, 12 Ala. 309." Hardaway v. Semmes, 38 Ala. 657,659, 660.
See Birmingham News Co. v. Collier, 212 Ala. 655, 656, 657,103 So. 839; Jackson v. Wilson, 201 Ala. 529, 78 So. 883; Hill v. Rentz, 201 Ala. 527, 78 So. 881; Finney v. Dryden, 214 Ala. 370,371, 108 So. 13.
Does it not follow that the chattel mortgage, given after the purchase of the outfit, without knowledge or notice of that mortgage on the part of the surety company, becomes inoperative until the record of the mortgage on September 24, 1920? The property was never theretofore pledged for the bank's loans, until security by way of the chattel mortgage or demand note of July 7, 1920, for all past loans aggregating $5,750, and for "any other sum I or we may owe the payee before this note is paid." The demand note was executed by L. C. Pearson and J. B. Whitaker. When Pearson became unable to proceed with his construction contract, the surety company, under agreement with Pearson, advanced for him several sums with which to prosecute the work, of which were those of August 21, 1920, for $715, and September 2, 1920, for $1,975, and took over the construction contract, and on September 18th, $2,375, aggregating $5,060, and purchased a drill and other equipment. This was done without knowledge or notice of Pearson's unrecorded mortgage or demand note to the bank. The cost price of the crusher outfit is fixed by Pearson as $1,401, and its actual value stated by him to be $2,000 or $2,500. If the unrecorded chattel mortgage or demand note was inoperative against appellees, without notice, the latter cannot be held in damages for taking the property, or for its conversion and destruction, in its due subjection to its debt so presently contracted, since with Pearson's assent it was taken and used before the chattel mortgage was recorded. This results from the fact that, to the time of its record, the rights of each party rested upon the statute that gave immunity, as we have indicated.
In this connection, it is well to note that on September 2, 1920, Pearson had the legal right, contemporaneously with the delivery to appellee of the crusher outfit, under the latter's bona fide claim and without its knowledge of the bank's claim, to procure from appellee the $1,975 for the owners' or mortgagors' benefit. This was done, and the draft collected by and through appellant bank. Thus a new relation or pledge by. Pearson with the surety company was created (without notice of mortgage): The $1,975 advanced, aside from the original contract relations, the mortgaged property taken over, a new right as creditor under the statute is presented.
From this it is apparent that the bank, under its unrecorded mortgage, has no standing in this suit, under the general rule that the mere withholding of a chattel mortgage from record does not invalidate it as between the parties (11 C. J. 532, 5 R. C. L. 416, § 44), though it does postpone its effect to intervening rights of purchasers (Teat v. Chapman  Co., 1 Ala. App. 490,56 So. 267), or creditors (Hardaway v. Semmes,38 Ala. 656), and after-acquired lienholders (Lehman, Durr  Co. v. Van Winkle  Co., 92 Ala. 443, 450, 8 So. 870; Rike v. Ryan,147 Ala. 497, 41 So. 959). In Dixie Grain Co. v. Quinn,181 Ala. 208, 61 So. 886, it was declared:
"The recording of a mortgage containing a power of sale operates as notice to the world of such power, and of any title acquired by a purchaser thereunder, and hence would deprive subsequent judgment creditors and purchasers of the protection of the registration statute, though they had no actual knowledge of the foreclosure and sale under the power, although the foreclosure deed was not recorded prior to the rendition of their judgment."
The power contained in the demand note or lien is:
" * * * And empower said payee or his indorsee to take possession of and sell the same whenever he deems himself insecure, after five days' notice of time, place, and terms of sale, by posting."
The record does not disclose any execution of this power before the date of the record of the chattel lien note, and it was only after appellees had taken over the property and advanced the $1,975, and other sums, before said record, and without notice.
The question recurs: How can there have been a conversion, and resulting recoverable *Page 397 
damages to the bank, unless the latter had the superior title and right and that of immediate possession? The right or title and that of immediate possession in the surety company was by virtue of its advancements for Pearson, on surrender, of a sum or sums of money of more than the stated value of the property and contemporaneously with the surrender of its possession and before record of the mortgage.
In Davis v. Erwin, 214 Ala. 341, 343, 107 So. 903, 905, the suit was at law for damages for the conversion of building material taken from a house alleged to have been wrongfully moved by defendant. The court said:
"This was the conversion count. There was evidence that plaintiff owned this lot and this house thereon, and that she had the right to the immediate possession of the house at the time of its conversion, and that the defendant converted it to his use by wrongfully taking it and removing it to his premises. This, if believed by the jury, would entitle plaintiff to recover under this count A. Booker v. Jones,55 Ala. 266; Beall v. Folmar, 122 Ala. 419, 26 So. 1; Zimmerman v. Dunn, 163 Ala. 274, 50 So. 906; Moebes v. Garth, 210 Ala. 201,97 So. 703."
And in Beall v. Folmar Sons  Co., 122 Ala. 414, 419,26 So. 1, 2, is the declaration:
" 'To support an action of trover, the right of property, general or special, and possession or an immediate right of possession, must concur in the plaintiff at the time of the conversion; and to constitute a conversion, there must be a wrongful taking or a wrongful detention, or an illegal assumption of ownership, or an illegal user or misuser.' Booker v. Jones, 55 Ala. 266."
See, also, Pinckard v. Cassels, 195 Ala. 353, 70 So. 153, on conversion.
The relations of the parties are thus told by Pearson:
"Mr. Cheek represented the state as an inspector and the bonding company as agent. Any information I wanted I went to him for it; he didn't give directions to the foreman on the job that I know of, not in my presence. He gave me directions, he gave me money with which to meet the pay rolls. From the time he came there he gave me all the money that was used in the carrying on of the work, and from that time on I did not furnish any money for the carrying on of the work. Mr. Jackson made out the pay rolls; when he made them out, he just made it out on a time book, and told me and Mr. Cheek both what it was. Mr. Cheek then got the money. I didn't take any steps to get it; Mr. Cheek turned the money over to me sometimes, and sometimes he would turn it over to Mr. Jackson himself; when he turned it over to me I gave it to Mr. Jackson. * * * I moved the rock crusher that I bought from the city of Huntsville over on this job in June or July, 1920. This was the first work Mr. Jackson did after he came on the job. I bought it from the city of Huntsville the day after I got the contract. This crusher was, and its equipment were, on the job in 1920; never moved from that place until now, so far as I know."
The time when Whitaker claimed to have chained and locked the rock crusher was indicated by witness Jackson to have been after Pearson went away in February, 1921. This was long after the bona fide transactions, delivery of property and parting with value, pertinent to this inquiry.
The claim to the mortgaged property was the demand note by which the mortgagor was given the possession of the mortgaged property until the bank had brought the demand note to maturity, or exercised its right to the immediate possession. Until such time Pearson (and his assigns without notice) had the better right. Such was the case to September 24, 1920. Before that time appellee had voluntarily received the possession from Pearson, and acquired the latter's superior right in the premises. There was, therefore, no conversion of the property in taking and receiving that possession on September 2, 1920, or thereafter.
There is another reason why appellant should not recover for the conversion — the acquiescence by the bank in the possession and use by the surety company's agents of the property mortgaged from September 2d to March, the time Pearson left the work. Assuming that Whitaker locked up the machinery after Pearson left in March, and that he so acted in pursuance of the bank's order, the fact of its acquiescence in the use from September to March gave opportunity for a set of circumstances to arise, and did arise, to prevent recovery for damages. All the while, from time to time, business relations were continued between the parties and large sums expended in prosecution of the work, on the assumption and relation of the parties, under the contract, and the use of Pearson's and the surety company's outfit in such work. This was sufficient to foreclose the bank's insistence for damages for conversion — use, wear, and tear to the mortgaged property.
All who dealt with Pearson had full knowledge that the relation of suretyship existed, or was chargeable with that notice under the circumstances and facts disclosed by the record. That relation, under the law, was inherent in the contract. The bank was specifically informed by Findley in December, 1919, or January, 1920. The bank's claim is predicated upon the assignment of date of February 18, 1920, and its unrecorded mortgage of July 7, 1920. It knew that Pearson was in financial difficulties; sought to cover its past, present, and future loans on July 7th, by the demand note of $5,750. The surety was notified July 9, 1920, of annulment for failure of prosecution of the work, found the same not progressing by reason of the lack of funds, agreed to furnish the same, and did so provide through appellant bank by draft *Page 398 
collected or cashed by it. The president of the bank admits knowledge of the presence of the surety company's agent coming there in connection with said delayed or defaulted contract; that representative was to see its cashier, Williams, who was the local representative of the surety company. With this knowledge, Williams and Zettler failed to tell such agent of its security by the unrecorded chattel note or mortgage, or of its alleged lien or claim on the crusher outfit. The surety company's agent drew $715 on such construction, on the principal, which draft was cashed and collected through appellant bank. And of this, on September 18, 1920, the alter ego of the bank wrote the surety company:
"We cashed a draft [on August 21st] on you drawn by your representative, Mr. Love, for $715 on account of the L. C.Pearson contract bonds."
There was no statement to the agent of information or warning given by the bank of its loans secured by the unrecorded mortgage. When the contract was taken over, the surety company's representative wrote the bank on September 2, 1920, as follows:
"Citizens' Bank, Guntersville, Alabama — Gentlemen: Re: L. C. Pearson. Arrangements have been made to have Mr. W. T. Cheek supervise the work being done by Mr. L. C. Pearson on the highway north of the river. It will probably be necessary for Mr. Pearson to have funds with which to pay off on Saturday, and I have instructed Mr. Cheek to give Mr. Pearson a draft on us for whatever amount may be necessary. Will you have the kindness to cash for Mr. Pearson any draft, not exceeding $2,000 in amount, when properly signed by Mr. Cheek, and drawn on William A. Smith, manager, Atlanta, Ga. This authorization holds good only for the current pay roll, as I expect to be able to return to Guntersville and arrange for later payments. Thanking you for your kind attention, I am yours very truly,
"Will Love, Associate Manager."
The letter was specific — that the surety was acting, making large payments, would arrange for other or "later payments," and not one word about the unrecorded mortgage or lien securing the previous loans to the bank, or any future loans it may make to Pearson or Whitaker. This silence precluded recovery for the taking over, conversion, and use of the mortgaged property by and with the assent or acquiescence of Pearson. That is to say, when all the evidence is duly considered, there was no conversion and no wrongful taking of the mortgaged property.
ANDERSON, C. J., and SOMERVILLE, J., concur. Mr. Justice BROWN prefers to rest his concurrence alone on the facts showing there was no conversion.
Rehearing granted; judgment of reversal set aside and affirmed.