Northwestern Bank v. Freeman, 171 U.S. 620 (1898)

U.S. Supreme Court

Northwestern Bank v. Freeman, 171 U.S. 620 (1898) Northwestern Bank v. Freeman

No. 18

Argued April 15, 18, 1898

Decided October 24, 1898

171 U.S. 620

APPEAL FROM THE SUPREME COURT

OF THE TERRITORY OF ARIZONA

Syllabus

A description in a chattel mortgage of a given number of articles or animals out of a larger number is not sufficient as to third persons with acquired interests, but such a mortgage is valid against those who know the facts.

Page 171 U. S. 621

A purchaser of personal property which is mortgaged is charged with

knowledge of every fact shown by the records, and is presumed to know every other fact which an examination suggested by the records would have disclosed.

Under the rule that the incident covers the principal, a mortgage of domestic animals covers the increase of such animals, though it be silent as to such increase.

The appellees recovered judgment in the district court, which was affirmed on appeal to the supreme court of the territory, from which an appeal has been taken to this Court.

The facts found by the territorial supreme court are as follows:

"On July 10, 1890, Harry Fulton, one of the defendants in the court below, executed an alleged chattel mortgage for $7,500, payable in one year, in favor of the Arizona Central Bank, one of the appellees herein and plaintiffs in the court below. That the description in said mortgage of the property purporting to be covered by it is as follows:"

"1,200 lambs, marked: Ewes with hole in left ear and split in right; wethers, hole in right ear and split in left ear; 1,600 ewes marked hole in left ear and split in right ear; 2,200 wethers marked hole in right ear and split in left ear; making 5,000 sheep in all with the Fulton brand."

"That on said day, said Fulton executed another alleged mortgage for $4,000, payable in ninety days, in favor of John Vories, one of the appellees herein, and one of the defendants in the court below. That the description in said alleged mortgage is as follows:"

"Wethers and dry ewes to the number of 1,000; the wethers marked with a split in the left ear and a hole in the right; ewes marked with a hole in the left ear and a split in the right."

"That on said day, said Fulton owned and possessed 6,200 sheep that were herded and run together, and this was all he owned, said sheep being marked as follows: 'Ewes and ewe lambs split in the right ear, hole in the left; wethers and wether lambs reverse,' and both of the said appellees had knowledge of this fact at the time they accepted their alleged mortgages, the one on 5,000 head and the other on 1,000 head,

Page 171 U. S. 622

200 head not being included in either of said mortgages, all of said sheep having the same mark and running in the same herd, and none of them being capable of identification, save only by the ear mark put on them as aforesaid, and that therefore there was no way by which any of said sheep could be distinguished from any of the others."

"That said Fulton continued in the ownership and possession of all of said sheep, save only such as died, were sold by him, consumed, or lost, until the 18th December, 1893. At no time did appellees, or either of them, ever take or ever have possession of said sheep, or any of them, or of the increase thereof, nor were any of said sheep or the increase thereof ever by anyone identified, designated, or in any way segregated, apportioned, or substituted to the or on account of the said pretended mortgages or of either thereof. From date of said mortgages (July 10, 1890) to January 4, 1893, said Fulton from time to time sold of said sheep as follows: 1,700 head at $3 per head, that were by said Fulton accounted for, and the proceeds of which he deposited with the appellee Arizona Central Bank. That both of said appellees knew of these sales, and consented to them."

"On January 4, 1893, said Fulton executed a mortgage for $8,885 in favor of Arizona Lumber and Timber Company, one of appellants herein, and one of the defendants in the court below, covering, among other property, the following described sheep:"

"About 3,000 ewes, 1,000 wethers, and 2,000 lambs, same being all the sheep now owned by mortgagor, and including all wool and increase which may be produced by said sheep marked: ewes, split in right ear, hole in left; wethers, reverse."

"At the instance of appellees, said appellant Arizona Lumber and Timber Company permitted the following recital to be inserted in said last-mentioned mortgage, namely:"

"This being subject to a mortgage on 5,000 of above sheep to Arizona Central Bank, and one on 1,000 head, and the residence property to John Vories; said number, as described in mortgages, to be kept good out of increase."

"There was consideration for the foregoing recital in the mortgage of January 4, 1893, namely that the appellees should forbear

Page 171 U. S. 623

to foreclose their mortgages, and should release their claim on the wool clip of 1893, the wool at that time not having been shorn."

"That to August 30, 1893, $3,000 of the amount claimed to be due on the mortgage of January 4, 1893, was paid out of wool proceeds, and that, on said day, said Fulton, for the purpose of securing a $500 advance, and applying the remainder as a payment on said mortgage of January 4, 1893, executed his promissory negotiable note, payable in ninety days, securing the same by a chattel mortgage for the sum of $6,000 to the Arizona Lumber and Timber Company."

"That said mortgage was a conveyance, as a security for the payment of said note, of sheep, the same being in said mortgage described as follows, namely:"

"About 3,200 ewes, more of less; about 1,300 wethers, more or less; about 1,400 lambs, more or less, being all the sheep now owned by mortgagor, including all the wool and increase which may be produced by said sheep, marked: ewes and ewe lambs, split in right ear, hole in left; wethers and wether lambs, reverse."

"That in said last mentioned mortgage, no recital or reference was made in any way nor in any manner to the existence of any other mortgage or mortgages whatsoever."

"That on the 29th day of September, 1893, and prior to the maturity of said last-mentioned note of $6,000, said appellant Arizona Lumber and Timber Company, representing that said mortgage was a first and prior lien on said described sheep, and by means thereof sold, assigned, endorsed, and delivered said note and mortgage to the Northwestern National Bank, one of the appellants herein, and one of the defendants in the court below; said Northwestern National Bank becoming an innocent purchaser for value."

"That on December 18, 1893, said Fulton being then indebted to Riordan Mercantile Company, one of the appellants herein, and a defendant in the court below, in the sum of $810.91, it brought its action in said district court against said Fulton whereby to collect the same, and at the same time caused to be issued out of the clerk's office of said court a writ of attachment, which was then levied on the property following,

Page 171 U. S. 624

namely:"

"All the right, title, and interest of the defendant Harry Fulton in and to the following described sheep: 2,926 ewes, marked hole in left ear, split in right; 900 wether sheep, marked hole in right ear, split in left ear; 1,287 lambs -- ewe lambs marked hole in left ear, split in right; wether lambs marked hole in right ear, split in left; 118 rams,"

"same being all of the sheep then owned by said Fulton."

"That on 16th March, 1894, judgment was rendered in said suit in favor of said plaintiff company and against said Fulton for said amount, and said attachment lien was foreclosed. That on the 31st day of March, 1894, the Sheriff of said County of Coconino, by virtue of and pursuant to said judgment, sold said property and delivered the same to the appellant Riordan Mercantile Company, who then entered into the possession thereof, was so in the possession thereof when this cause was tried in the lower court, and is still in possession thereof."

"That by virtue of said writ of attachment, the sheriff attached all the sheep then owned by said Fulton, and that, on said day, to-wit, on the 18th day of December, 1893, there were of said sheep only 1,000 head of ewes remaining out of all the sheep that existed on July 10, 1890, the date of said alleged mortgages to appellees. That the remainder of said ewes, all the male sheep, and the lambs had by that time died, been consumed, sold or lost."

"That subsequent to the making of said alleged mortgages to said appellees, an oral agreement between them and the said Fulton was made that the securities of appellees were to be kept good out of the increase by substitution, the consideration therefor being that said Fulton might sell and dispose of the said sheep without interference from appellees."

"That Sisson, a witness for appellants in this case, is and was during all of said transactions the treasurer of both the Riordan Mercantile Company and the Arizona Lumber and Timber Company, appellants herein, and that these two corporations have practically the same officers."

"That in said district court, said Arizona Central Bank brought its suit as plaintiff against said Fulton, Vories, Donahue as sheriff, the Arizona Lumber and Timber Company, the

Page 171 U. S. 625

Riordan Mercantile Company, and the Northwestern National Bank, as defendants, asking for a foreclosure of its said alleged mortgage, the same being the above-entitled cause."

"That said action was tried, and judgment was rendered foreclosing said alleged mortgages of both of appellees herein, and also the said mortgage dated January 4, 1893, of said Arizona Lumber and Timber Company, and the mortgage owned by said Northwestern National Bank, as aforesaid, in which said judgment said court adjudged that appellees have a prior and first lien on said property, viz., the Arizona Central Bank upon 5,000 sheep of the Fulton mark, by reason of its said mortgage, and the said Vories on 1,000 sheep of the Fulton mark, by reason of his said mortgage, and said court decreed and ordered that an order of sale issue for the sale of all of said property to the sheriff of said county, and that the proceeds arising therefrom be divided by the sheriff and applied as follows, namely at the ratio of five dollars to said Arizona Central Bank and one dollar to said Vories; that, in case anything should be left after the payment of said two mortgages to said bank and Vories, the same should be applied to the payment of the judgments of said Northwestern National Bank and said Arizona Lumber and Timber Company and Riordan Mercantile Company in the order named."

There are seventeen assignments of errors, which are somewhat confused. They are grouped and presented by counsel under seven heads, as follows:

"First. In the first assignment of error, it is set forth that the trial court erred in adjudging, and the territorial supreme court erred in affirming said judgment, that the mortgages of the appellees were prior liens on all of the sheep owned by defendant Fulton at the time of the execution of said mortgages, even though said mortgages had been good and prior liens on the sheep specified therein."

"Second. In the second, third, fifth, and eighth assignments of error, it is set forth that the trial court, and the territorial supreme court in sustaining its holding, erred in admitting in evidence the mortgages from defendant Fulton

Page 171 U. S. 626

to the appellees, marked Exhibits A and B, against the objections of the appellants, and in overruling motion of appellants to strike out of the evidence the said mortgages, and in holding that said mortgages were valid and subsisting liens on all of said property, and in holding and deciding that the description of said property in appellees' said mortgages was a sufficient description."

"Third. In the fourth and seventh assignments, it is set forth that the court erred in admitting, over the objection of the appellants, testimony concerning a conversation between J. H. Hoskins, John Vories, F. W. Sisson, and Harry Fulton, and evidence relative to an alleged agreement, and evidence tending to prove a breach of contract between the appellees and appellant Arizona Lumber and Timber Company."

"Fourth. The trial court erred, as set forth in the fifteenth and sixteenth assignments, in adjudging that on the date of its decree herein, the mortgage of said appellee bank covered five thousand head of sheep of the Fulton herd and mark, such adjudication attempting to substitute five thousand head of sheep after the making of said two mortgages to appellees. The trial court erred in attempting said substitution and then holding it good as to appellants Riordan Mercantile Company and Northwestern National Bank."

"Fifth. The trial court erred, as set forth in the eleventh assignment, in adjudging that said mortgages of appellees were mere securities for debts, the legal title to said sheep remaining in said Fulton, notwithstanding said mortgages, and in adjudging that said sheep should be sold and the proceeds paid to said Arizona Central Bank and said Vories in the proportion of five dollars to the former and one to the latter."

"Sixth. The trial court erred, as set forth in the seventeenth assignment, in adjudging that appellant Northwestern National Bank was bound by said pretended agreement of substitution, or was bound by said pretended mortgages of appellees, or that said mortgages were prior liens on said property, or on any of it, to the mortgage owned by said appellant."

"Seventh. In the sixth, ninth, tenth, twelfth, thirteenth,

Page 171 U. S. 627

and fourteenth assignments, it is set forth that the court erred in denying and overruling defendants' motion for a new trial of said cause and in deciding that the mortgage to said appellee the Arizona Central Bank conveyed five thousand head of sheep, marked ewes, with hole in left ear and split in right; wethers, with hole in right ear and split in left ear -- and that a thousand more of said sheep were conveyed by mortgage to said appellee Vories, with the same marks, and in adjudging that the property included in the said attachment lien of the said Riordan Mercantile Company, and sold and delivered to said company thereunder, was the same property that is conveyed, or attempted to be conveyed, by the mortgages of said appellees, and in adjudging that the rights, title, and interest obtained by said Riordan Mercantile Company by virtue of said attachment lien and sale were subject to the alleged rights of said appellees by virtue of their said pretended mortgages, and in adjudging that appellants Riordan Mercantile Company and Arizona Lumber and Timber Company had actual notice of the property conveyed by the said alleged mortgages of said appellees, and in adjudging that F. W. Sisson, as the treasurer of said Riordan Mercantile Company, agreed with said appellees that the number of sheep in said mortgages of appellees should be kept good out of the increase of said sheep, and that the wool was released by said agreement to said company, and that the consideration thereof was on alleged forbearance to foreclose said mortgages of said appellees."

MR. JUSTICE McKENNA, after stating the case, delivered the opinion of the Court.

The contest is for priority. The territorial supreme court awarded it to the mortgages of the appellees. The appellants

Page 171 U. S. 628

contend that this was error because of the fact that the mortgages, respectively, covered 5,000 and 1,000 head of sheep, and that Fulton owned 6,200 head, and that hence the mortgages were invalid on account of insufficient descriptions. The mortgages do not state that Fulton owned a greater number than those he mortgaged, but the fact is found by the court.

The rule is laid down that, as to third persons who have acquired interests, a description in a mortgage of a given number of articles out of a larger number is not sufficient. Jones on Chattel Mortgages, secs. 56 et seq., and cases cited.

But such a mortgage is valid against those who know the facts. Cole v. Green, 77 Ia. 307; Clapp v. Trowbridge, 74 Ia. 550.

The mortgage of January 4, 1893, executed by Fulton to the Arizona Lumber and Timber Company, was undoubtedly taken by the latter not only with actual notice, but it was expressly made subject to the prior ones to appellees. The finding of the court is:

"At the instance of appellees said appellant, Arizona Lumber and Timber Company, permitted the following recital to be inserted in said last-mentioned mortgage, namely:"

"This being subject to a mortgage on 5,000 of above sheep to Arizona Central Bank, and one on 1,000 head, and the residence property to John Vories, said number, as described in mortgages, to be kept good out of increase."

"There was consideration for the foregoing recital in the mortgage of January 4, 1893, namely, that the appellees should forbear to foreclose their mortgages, and should release their claim on the wool clip of 1893; the wool at that time not having been shorn."

The court further finds that, on August 30, 1893, Fulton paid to the Arizona Lumber and Timber Company $3,000 out of the proceeds of the wool from the mortgaged sheep, secured from the company an advance of $500, and for that and the amount due on his note "executed his negotiable promissory note, payable in ninety days, securing the same by a chattel mortgage for the sum of $6,000." In this mortgage there was no recital, or reference to the existence, of any other mortgage. On the 29th of September, 1893, and prior to this

Page 171 U. S. 629

maturity, the

"appellant the Arizona Lumber and Timber Company, representing that said mortgage was a first lien, sold, endorsed, and delivered the note and mortgage to the appellant the Northwestern National Bank."

It is this note and mortgage that are in controversy, and which are claimed as prior liens to the mortgages of appellees. The bank is found to be an innocent purchaser for value. By this is meant that it had no actual notice of the prior mortgages. Did the law impute notice to it? Certainly not by the record of the mortgages to appellees. Did it by the record of the mortgage of January 4, 1893, to the Arizona Lumber and Timber Company? If the bank was charged with notice of that mortgage, it was charged with notice of its contents. "Notice of a deed is notice of its whole contents, so far as they affect the transaction in which notice of the deed is acquired." 2 Sch. & Lef. 315, cited and approved in Boggs v. Varner, 6 Watts & Sergeant 469, 473.

A purchaser is charged with notice of every fact shown by the records, and is presumed to know every other fact which an examination suggested by the records would have disclosed. Secs. 710 and 710a, Devlin on Deeds, and cases cited. The mortgage of January 4, 1893, to the Arizona Lumber and Timber Company was by the same mortgagor as that of August 30th -- the one sold to the Northwestern National Bank -- and covered the same sheep, and hence, under the rule announced, the bank was charged with notice of it and of its recitals. It was not given up or satisfied. It was preserved as an independent lien.

It was not satisfied, appellants say, because it covered other property besides the sheep. This is an insufficient reason. If the debt it secured was paid, there was no reason for retaining the lien on any property. But whatever the reason, it was retained, and affected the title. That is the material circumstance, and not in whose name it stood. It was in the chain of the title, and affected it. It would have been found if looked for, and would have notified the bank of the transactions which conducted to it, and caused it to be made subject to the mortgages of the appellees. We therefore think the

Page 171 U. S. 630

territorial courts committed no error where they assigned priority to those mortgages. Nor was it error to subordinate the attachment and judgment of the Riordan Mercantile Company to them. That company had, according to the finding of the court, actual notice.

The territorial court found that on the 18th of December, 1893, there were 1,000 head of ewes remaining out of all the sheep which existed on July 10, 1890, the date of the mortgages to appellees; that the remainder of the ewes, all of the male sheep, and the lambs had died, been consumed, sold, or lost. The findings are absolutely silent as to whether there were or were not other sheep in existence at that time, or at the time the decree was entered. We infer from the briefs of counsel that there were others -- the increase of those mortgaged -- and there is a contention as to whether these are covered by the lien of the mortgages.

Under the rule that the incident follows the principal, a mortgage of domestic animals covers the increase of such animals though it is silent as to such increase. This Court said in Arkansas Valley & Cattle Co. v. Mann, 130 U. S. 69, by MR. JUSTICE HARLAN: " . . . According to the maxim, partus sequitur ventrem, the brood of all tame and domestic animals belong to the owner of the dam or mother." 2 Bl.Comm. 390. See also Pyeatt v. Powell, decided by the Circuit Court of Appeals for the Eighth Circuit, 51 F. 551, and cases cited.

But whatever was doubtful or disputable in the mortgages of appellees as to the increase was resolved and settled by agreement between all who had interests, and was expressed in the mortgage of January 4, 1893. There is nothing in the record to show a substitution except by the increase, and therefore we are not called upon to pass upon some of the interesting questions argued by appellants. Nor are we embarrassed by considerations of the increase being in, or having passed out of, the "period of nurture." Such considerations are only important when a subsequent purchaser or mortgagee has taken without notice, actual or constructive, which we have seen the Northwestern National Bank did not.

Page 171 U. S. 631

The objections to testimony assigned as error in the fourth and seventh assignments of error were not well taken. The testimony showed the transactions, and the relations of the parties to them.

Decree affirmed.