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District Court of Appeal, Third District, California.

The PEOPLE of the State of California, Plaintiff and Respondent, v. Ed FARMER, Defendant and Appellant.*

Cr. 2641.

Decided: March 07, 1956

Robert R. Elledge, Modesto, for appellant. Edmund G. Brown, Atty. Gen., G. A. Strader, Deputy Atty. Gen., for respondent.

The appellant was convicted upon an amended information, wherein he was accused of having sold mortgaged cows without giving the mortgagee a prior notice in writing of the intended sale, a violation of Section 538 of the Penal Code. Appellant's wife, who was tried upon the same charge, was acquitted. This is an appeal from the judgment entered upon the jury's verdict, from the order denying the motion for a new trial and from the order denying the motion for a stay of execution. Appellant's brief, however, only attacks the judgment.

Appellant was a dairy farmer in the Merced area. The number of cows in his herd varied from time to time as he bought and sold in an attempt to dispose of dry cows and obtain productive ones. On June 23, 1953, appellant and his wife executed a chattel mortgage covering thirty branded cows, to secure a loan in the amount of $3,300 from the Acme Investment Company, a subsidiary of the Golden State Company. The manager of this company was Mr. Terkildsen, and his assistant was Miss Silva. Appellant and his wife did not meet either Mr. Terkildsen or Miss Silva until June or July of 1954, having negotiated the original loan through a field representative of the Acme Investment Company; their first meeting with the manager and his assistant was relative to a further loan which appellant and his wife were seeking. At that meeting they disclosed that on April 30, 1954, they had sold twenty-seven of the mortgaged cows for $4,300, but that the check that they had received therefor had proved to be worthless. Despite this fact, appellant and his wife were granted a further loan in the amount of $300 ‘on the strength’ of the prior mortgage. Appellant continued to make payments on that mortgage until October 2, 1954, when appellant discontinued his dairy operations.

The evidence is uncontradicted as to the foregoing facts and it is admitted that neither appellant nor his wife personally gave any prior notice, oral or written, to the manager or his assistant of the sale of the cows on April 30, 1954. Appellant and his wife, however, claim that prior to the April sale Mr. Nunes, a field representative for the company, purporting to act for Miss Silva, assured them that it would be agreeable for them to sell the cows and pay the balance of the secured loan which then amounted to some $2,310. Mr. Nunes admitted having a conversation regarding the amount of the loan, but denied having consented to any sale of the cattle. At the trial, the trial judge refused to allow appellant to prove that Mr. Nunes not only had consented to the sale, but had advised Mr. Terkildsen and Miss Silva that he had done so, on the ground that such evidence was irrelevant, immaterial and constituted no defense to the offense here charged. The trial court also rejected an offer of proof by appellant that, prior to the sale of the cows on April 30, 1954, he had arranged to purchase others in replacement in order to increase the milk production of his herd.

The court said that such offer of proof was ‘nothing more or less of an argument from your side that the person holding that mortgage consented to the sale and the transfer. He could consent to it, and could consent to the transfer and replacements and all of that, yet if you still failed to give notice, you violate the law. You violate the law of where and when. Now that is the whole question here. So I will have to reject your offer on the ground that it constitutes no defense, and it is immaterial here.’ The court further said, ‘the mortgagee can give consent to the sale, and yet if you do it without notifying him where and when, you are going to do it, you violate the law.’ The court also refused to give appellant's requested instruction that ‘should you believe from the evidence that oral consent to a sale of the dairy cattle was given to the defendants, Ed Farmer and Lorene Farmer, by Acme Investment Company, that you must find the defendants ‘not guilty’ of the offense charged.'

The court did instruct the jury that: ‘If you find that it has been established beyond a reasonable doubt as a fact that the defendant sold or transferred cows mortgaged to the Acme Investment Company without having informed the Acme Investment Company of the intended sale or transfer by a notice in writing, giving the Acme Investment Company the name and place of residence of the party or parties to whom the sale or transfer was being made, then the defendants are guilty of the crime with which they are charged.’ The appellant urges that these rulings of the trial court were prejudicially erroneous, and appellant further urges that there were other errors committed during the course of the trial: a reference to another crime and a statement by the district attorney to which the defendant takes exception.

Respondent contends that the provisions of Section 538 of the Penal Code make it impossible for a mortgagee to give consent to a sale of mortgaged property in such manner as to relieve the mortgagor of the duty therein specified, namely, to give written notice to the mortgagee of the time and place of intended sale and the name and address of the intended purchaser. The respondent cites People v. Iden, 24 Cal.App. 627, 634, 142 P. 117, for the proposition that the payment of a mortgage after an offense under Section 538 of the Penal Code has been committed, is no defense to a prosecution under this section. This is no doubt the law and is founded on good reason. An intentionally fraudulent mortgagor, having sold mortgaged property without notice, might escape just punishment by discharging the debt after discovery of his wilful crime, which is not the case here. The declaration in People v. Phillips, 30 Cal.App. 31, 34, 157 P. 1003, 1004, that ‘the giving of mere permission to sell does not work a waiver of the right to have notice of the sale’ is not binding upon this court for the reason that the Supreme Court, in denying a hearing in this matter, expressly stated, 30 Cal.App. at page 35, 157 P. at page 1005:

‘In denying the application we do not wish to be understood as holding that if permission to sell was given by the mortgagee it would not operate as a complete waiver of the requirement of the statute that notice of the sale shall be given to the mortgagee. We express no opinion upon that question. The complaint that error was committed in the giving of an instruction bearing on this question was sufficiently answered by what is said in the opinion of the District Court of Appeal that: ‘The information contained a twofold charge, to wit, not only that there was a failure to give notice to the mortgagee, but also a failure to give notice to the purchaser of the animals sold.’'

The sole purpose of the required written notice to the mortgagee under Section 538 of the Penal Code is to prevent alienation of the mortgaged property without the mortgagee's knowledge. If a mortgagee gives his prior consent to the sale of such property, the need for the written notice would not exist as such consent extinguishes the mortgage lien as to the property to which such consent is given. Reno v. A. L. Boyden Co., 115 Cal.App. 697, 700–701, 2 P.2d 214.

A mortgagee holds a property interest in the property mortgaged. This interest may be extinguished by his oral consent to a sale of the mortgaged property. See Reno v. A. L. Boyden Co., supra. Once this mortgage lien is extinguished, the mortgagee holds no property interest in the mortgaged property. In effect the mortgage obligation is extinguished as such and becomes merely a contractual obligation as between the mortgagor and the mortgagee, the mortgagee being relegated to a personal action against the mortgagor for any balance owing under the mortgage. If the mortgagee were the sole owner of the entire legal title to property, it could not be argued that he could not consent to another's taking thereof to the detriment of the People of the State of California, which is, in effect, what the argument of respondent here amounts to. If the owner of personal property consents to its taking by another, it is unthinkable that the owner could thereafter, in the absence of fraud or deceit, cause a criminal action to be commenced against the person taking such property after such consent.

In Kuehn v. Don Carlos, 5 Cal.App.2d 25, 27–28, 41 P.2d 585, 586, it is said:

‘A chattel mortgagee may waive his mortgage lien or be estopped to enforce it by conduct inconsistent with its existence, 11 C.J., p. 674; 5 Cal.Jur., p. 88. Thus, consent to sell under certain circumstances may constitute a waiver. 5 R.C.L., p. 458. A sale authorized by the mortgagee upon condition that the proceeds be deposited to his account operates to extinguish the mortgage lien. Maier v. Freeman, 112 Cal. 8, 44 P. 357, 53 Am.St.Rep. 151.’

In People v. Phillips, 27 Cal.App. 409, 412–413, 150 P. 75, the court, in considering that portion of Section 538 of the Penal Code here under consideration, as well as the provision therein contained that a purchaser must be given prior notice that property intended to be sold is subject to a chattel mortgage, held that that portion of the section does not make the intent with which the act is done an element of the offense. Also in People v. Phillips, 30 Cal.App. 31, 34, 157 P. 1003, 1005, the court again expressed the opinion that intent was not a necessary element of a violation of Section 538 of the Penal Code. These decisions give some weight to the argument which is here urged by respondent that the mortgagor has a full right to sell without permission provided he gives the notice prescribed by the statute, which we believe overlooks the fundamental nature of the mortgagor-mortgagee relationship.

A fair and inartificial reading of the provision of Penal Code Section 538 leads us to the conclusion that the holdings in the cases of People v. Phillips, 27 Cal.App. 409, 150 P. 75, and People v. Phillips, 30 Cal.App. 31, 157 P. 1003, 1005, are in error in their interpretation of the plain meaning of the code section. A full and fair reading of the section seems to us to indicate that it was the legislative object that the crime therein defined must contain the element of intent in all of its aspects, not only in those contained in the earlier portion of the section.

To hold otherwise makes the failure to perform a mere formality a crime. Furthermore, since the section contains the provision that an offense thereunder shall be treated as larceny, it would seem to be unduly artificial to eliminate the element of intent from the corpus of the crime therein set forth. It is also interesting to note that, in their original form, the two diverse offenses which are defined in Section 538 of the Penal Code, that is, the removal of mortgaged property from the state and the sale of mortgaged property without the requisite notice, were contained in separate sections which were subsequently reenacted as one section by the legislature. To state that by such revision of the code the legislature did not intend that all of the provisions of the new section should apply to all of the offenses therein defined is not, it seems to us, fair statutory construction.

We think that the evidence offered as to intent should have been admitted, and that the jury should have been instructed in accordance with appellant's submitted instruction. It, therefore, becomes unnecessary to consider the other errors urged by appellant in this matter as this in itself was prejudicial error.

The judgment appealed from is reversed.

McMURRAY, Justice pro tem.

VAN DYKE, P. J., and PEEK, J., concur.

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