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District Court of Appeal, Third District, California.

BANK OF CALIFORNIA et al. v. McCOY, Sheriff, et al.†

Civ. 5719.

Decided: July 02, 1937

Rich, Weis & Carlin, of Marysville, for appellants. Ray Manwell and Ivan C. Sperbeck, both of Marysville, for respondents.

On October 31, 1928, Sidney V. Smith, Jr., made, executed, and delivered a promissory note payable on demand, to the plaintiffs herein; on June 1, 1930, Sidney V. Smith, Jr., made, executed, and delivered a second and separate promissory note payable one day after date to the plaintiffs herein. On this latter date, namely, June 1, 1930, to secure the payment of the two notes, the said Sidney V. Smith, Jr., made and executed a chattel mortgage which was duly recorded in Yuba county, Cal. The property described in said chattel mortgage was as follows: “1 Willys Knight automobile truck, bearing the motor number 38188 and serial number 36027; 1 Star Roadster automobile, bearing the motor number 14L22181; 50 head of horses, together with the increase of said horses, and all ranch and farming implements, household furniture, kitchen utensils, dairy utensils and equipment and other livestock and other personal property now or hereafter belonging to the mortgagor, and now or thereafter situated on the real property in the county of Yuba, State of California, more particularly described as follows, towit: the South Half of the South Half of Section 14, and the North Half of Section 23, Lot 1 of the Southeast Quarter, and the Northeast Quarter of the Southeast Quarter of Section 23, all in Township 16 North, Range 5 East, Mount Diablo Base and Meridian, Yuba County, California.”

That on the 17th day of September, 1932, the plaintiffs herein and said Sidney V. Smith, Jr., entered into an agreement in writing extending the time of payment of the note dated October 31, 1928, and on the 27th day of April, 1934, the plaintiffs herein and the said Sidney V. Smith, Jr., entered into an agreement extending the time of payment of the note dated June 1, 1930. Neither of these agreements was ever acknowledged before an officer authorized to administer oaths, and neither of these agreements was ever recorded.

Subsequent to the execution of the chattel mortgage the said Sidney V. Smith, Jr., in an independent transaction and without using any of the funds mentioned in the chattel mortgage, purchased approximately 200 head of sheep, which were thereafter taken by him onto the lands and premises mentioned in the chattel mortgage. These sheep were not paid for in full until in the year 1933.

On the 6th day of May, 1935, the defendant Charles J. McCoy, as sheriff of the county of Yuba, at the instance and request of defendant Byron Burris, a judgment creditor of said Sidney V. Smith, Jr., levied a writ of execution against the sheep and took them into his possession. The plaintiffs thereafter demanded the release of said sheep from the sheriff, which demand was refused. Thereafter, the defendants Byron Burris, Annie Burris, and Evelyn Wright delivered to defendant Charles J. McCoy, as sheriff, an undertaking guaranteeing to save the sheriff harmless from any claim of the plaintiffs herein by reason of the levy of the execution above mentioned. This undertaking was given pursuant to the provisions of section 2969 of the Civil Code. Thereafter, and on the 29th day of May, 1935, the sheriff sold the sheep at execution sale to the defendant Byron Burris and delivered the possession of said sheep to the said Burris.

This action was brought by the plaintiffs herein upon the bond given by the defendants to the sheriff, seeking to recover from said defendants the value of the sheep so sold under execution. At the time of the levy of the execution, the recorded mortgage indicated that the notes had been barred by the statute of limitations. No notice was given the judgment creditor of the extension agreement between plaintiffs and Sidney V. Smith, Jr., relative to these notes.

Two questions are herewith presented for our determination:

First. Is the wording of the mortgage, “and other livestock * * * now or hereafter belonging to the mortgagor, and now or hereafter situated on the real property,” described in the mortgage, sufficiently comprehensive and effectual to cover after–acquired livestock having no actual or potential existence at the time of the execution of the chattel mortgage, as against a subsequent lienholder or a judgment creditor?

Second. Is an agreement between a mortgagee and a mortgagor extending the time of payment of a promissory note, secured by a chattel mortgage, beyond the time prescribed by the statute of limitations, and which agreement is not acknowledged nor recorded, binding upon subsequent lienholders or a judgment creditor?

We will discuss these questions in the order in which they are hereinabove presented.

It is conceded that there is no California case which squarely settled the first question here in controversy.

The primary purpose of a chattel mortgage is to transfer the title of personal property to another as security for the payment of money or the performance of contracts or other obligations. It is a contract by which specific property is hypothecated for the performance of an act, without the necessity of a change of possession, Civ.Code, § 2920.

Civil Code, § 2883, provides: “Lien on future interest. An agreement may be made to create a lien upon property not yet acquired by the party agreeing to give the lien, or not yet in existence. In such case the lien agreed for attaches from the time when the party agreeing to give it acquires an interest in the thing, to the extent of such interest.”

Section 2930 of the Civil Code provides: “Subsequently acquired title inures to mortgagee. Title acquired by the mortgagor subsequent to the execution of the mortgage, inures to the mortgagee as security for the debt in like manner as if acquired before the execution.”

The common law required the actual transfer of possession of chattels to make a mortgage thereon effectual; the Code, however, substitutes, instead of the actual possession previously required, the recording provisions of the Civil Code. There have been further substitutions and deviations to include property in esse or having a potential existence at the time of the execution of the mortgage, but these latter matters are not involved in the instant case as it is conceded that the property sought to be covered by the chattel mortgage in question was not in esse and did not have a potential existence at the time of the execution of the mortgage.

It must be conceded that an individual has a perfect right under any and all circumstances to enter into any contractual relations or agreements with a party that he might desire so long as that contractual relationship does not interfere with the rights of innocent third persons. It must therefore follow that, as between the parties to the mortgage, and in view of the Code provisions hereinbefore specified, a mortgagor has a right not alone to mortgage property that is in esse or that has a potential existence, but may make an agreement to include within the mortgage any after–acquired personal property. Undoubtedly, in the case at bar the mortgage is effectual as between the parties thereto.

Section 2957 of the Civil Code (as amended by St.1935, p. 2225) specifies the incidents upon which a chattel mortgage is void as to third persons, and it seems clear that any chattel mortgage, which conforms to the requirements of said section, is not void as to third persons. It must, therefore, follow as a natural consequence that, if the mortgage is valid as between the parties thereto and if there is no prohibition making said mortgage void as to third persons, the terms thereof must be binding upon those who take with notice; if a mortgage is properly recorded, it is binding upon subsequent lienholders or a judgment creditor to the same extent that it would be binding upon the original mortgagor, and any property included in said mortgage could not be levied upon by attachment or execution. The lien of the creditor could not attach until the levy of the writ of execution of attachment has been made, which would of necessity be after the recordation of the mortgage. The description of the property mortgaged was sufficient. Ramsey v. Furlott, 14 Cal.App.(2d) 145, 57 P.(2d) 1007.

While this court is not in any way bound by the decisions of the federal courts, nevertheless the reasoning and logic of the learned justice, as set forth in the case of Mason v. Citizens' National Trust & Savings Bank (C.C.A.) 71 F.(2d) 246, a case which arose in this state and in which the facts parallel the facts in the instant case, are deserving of our approval. After a thorough discussion of the Code provisions of California pertaining to questions of this particular kind and character, and after reviewing all of the California decisions applicable thereto, the court in concluding its opinion states at page 255: “To recapitulate, then, we conclude that the California statutes are sufficiently general to include chattel mortgages in their provisions authorizing liens on after–acquired property. We further believe that those provisions do not contain, either specifically or inferentially, any exceptions in favor of subsequent purchasers, creditors, or incumbrancers, provided that the mortgages are properly recorded. Finally, the decisions of the California courts and the Supreme Courts of other states, as well as the United States Supreme Court and a number of other federal tribunals, have upheld the validity of chattel mortgages on after–acquired property, even as against subsequent lien creditors.

“In the instant case, we see no reason why the decided trend of American jurisprudence should not be followed.”

The second question presented relates to the recordation of mortgages and extensions thereof.

Civil Code, § 2957, provides: “Void as to third persons. A mortgage of personal property * * * is void as against creditors of the mortgagor * * * after a lapse of four years from the last recording or re–recording thereof, and unless:

“1. It is acknowledged, or proved and certified, in like manner as grants of real property.”

The lien of the mortgage expired June 1, 1934. Plaintiffs attempted to extend the lien by an instrument that was not acknowledged nor proved nor certified as required by the Code section above specified. Obviously, therefore, the agreement was void as to the judgment creditor and, being void, the levy of the execution by the sheriff upon the property in question was legal and binding. There was, therefore, no liability upon the bond given by defendants to the sheriff.

The judgment is affirmed.

MAXEY, Justice pro tem., delivered the opinion of the court.

We concur: PULLEN, P. J.; PLUMMER, J.

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Docket No: Civ. 5719.

Decided: July 02, 1937

Court: District Court of Appeal, Third District, California.

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