HENDRICKSEN ET AL v. STATE SUBSIDIARY LIMITED (1934)

This is an action brought by plaintiffs as mortgagees to recover possession of certain hogs and sheep and the increase thereof, or their value together with damages for the withholding thereof by defendant, who claims possession by virtue of ownership.

Plaintiffs took possession of the property at the commencement of the action and retained possession until some time after the trial, when, pursuant to stipulation, the property was sold and the proceeds therefrom substituted pending the final determination of the respective rights of the parties therein.

Judgment was entered in favor of plaintiffs for the value of the property, and from that judgment defendant now prosecutes this appeal.

Briefly the facts are that Fred B. Fox was the owner of a certain fruit and stock ranch in Madera county, commonly known as the Fox or River ranch. For many years Fox had been a representative of an affiliate company of defendant, and as such made and collected its loans and on its account bought and sold properties. In August, 1930, an accounting was had between Fox and his employer and it then developed that Fox was indebted in a considerable amount to his company. By agreement this liability was liquidated by Fox conveying to defendant certain of his property including the Fox or River ranch, together with the personal property thereon. Defendant claims that immediately upon the execution of the deed it took over the management and possession of the ranch and the live stock thereon. In this regard, however, the court found there was no actual or continued change of possession of the personal property from Fox to the defendant. The defendant retained Fox on its pay roll, granting him the exclusive right to sell on commission any real estate in the San Joaquin valley belonging to defendant, of which it wished to dispose, and also the duty of supervising its various properties, including the ranch here in question. Apparently no change was made after the sale from Fox to defendant in the outward management of the ranch. It was operated by the same foreman and continued to be known as the Fox ranch and seemingly in every way was carried on as formerly. It is true that Fox did not reside on the ranch, but neither had he prior to the transfer, but continued to visit the property and oversee its operations and bought and sold its products and supplies as he had while title vested in him.

In May of 1931, Fox took plaintiff to the ranch and exhibited to him the live stock on the ranch, claiming to be the owner thereof and executed the chattel mortgage here involved, as further security for a deed of trust then matured in the sum of $5,000. Plaintiff caused the records of the personal property transfers of Madera county to be examined, but found nothing of record except a chattel mortgage from Fox to Drew, which Fox caused to be paid off from proceeds from the ranch. Nothing pertaining to any rights of defendant in the stock was found of record, and upon inquiry both Fox and his foreman stated the property proposed to be included in the mortgage, consisting of certain sheep and hogs, belonged to Fox. This note and chattel mortgage not being paid at maturity plaintiff demanded payment thereof or possession of the live stock. This demand was apparently the first intimation to defendant that Fox had mortgaged the property as his own. Possession being refused, plaintiff commenced this action and no undertaking to retain possession being filed, plaintiff took the property which was later sold under stipulation as hereinbefore mentioned.

The action was tried upon the theory that where one of two innocent purchasers must suffer through the act or negligence of a third person, the loss shall fall upon the one who by his conduct created the conditions which enabled the third party to perpetrate the wrong or cause the loss. Civ. Code, § 3543. In other words, the defendant herein was estopped to dispute the claim of plaintiff. As is set forth in the case of Western States Acceptance Corporation v. Bank of Italy, 104 Cal. App. 19, 285 P. 340, 341: “It is well settled in this state that if personal property is delivered to a buyer who is engaged in the business of selling property of the same kind and, with knowledge of the seller, is placed on display for sale with such other property, the holder of the reserved title is estopped to assert it as against a bona fide subvendee for value. In such a case the rights of the innocent subvendee do not depend upon the actual title or authority of the party with whom he deals directly, but are derived from the act of the real owner, which precludes such owner from disputing, as against the innocent party, the existence of the title or power which, through negligence or mistaken confidence, he has caused or allowed to be vested in the party making the sale. Pacific Finance Corp. v. Hendley, 103 Cal. App. 335, 284 P. 736 [[[[285 P. 1048].”

So, also, does the case of Schumann–Heink & Co. v. U. S. National Bank, 108 Cal. App. 223, 291 P. 684, 686, 292 P. 547, support the contention of plaintiff. In that case the plaintiff, a corporation, engaged in buying and selling securities, furnished money to one Clare, secretary–treasurer of the corporation, for the purpose of buying certificates for the benefit of plaintiff, which were issued in the name of Clare. Clare subsequently represented these certificates to be his own personal property and pledged them with defendant as security for a past–due personal note of Schumann–Heink & Co. held by defendant. The plaintiff sought damages against defendant for the conversion of the stock, claiming to be the owner thereof at the date of the pledge. The trial court found plaintiff was the owner of the stock at all times from and after its purchase to date of sale. The appellate court, reviewing the issues, said:

“In our view, when what is really incidental is eliminated, there are two questions and only two to be here decided: First, whether, taking the case as a whole, appellant's conduct has been such as to subordinate its rights in the stock to those of a bona fide pledgee in the ordinary course of business, without notice of its claims, and for value; and, second, whether respondent was such a holder for value. It is, of course, the rule, with certain exceptions that do not here concern us, that a mere thief can pass no title to that which he has stolen. The same thing is not necessarily true where he who wrongfully undertakes to deal with property has been, by the act or neglect of the true owner, clothed with the indicia of ownership. The law is, generally, that ‘where one of two innocent persons must suffer by the act of a third, he, by whose negligence it happened, must be the sufferer.’ Civ. Code, § 3543. In National Safe Deposit & Trust Co. v. Hibbs, 229 U. S. 391, 57 L. Ed. 1241, 33 S. Ct. 818, 820, it was said:

“ ‘The qualification of the rule, as not applying when the instrument is stolen, is not based upon the name of the agent's crime, but upon the fact that, in the ordinary and typical case of theft, the owner has not intrusted the agent with the document, and therefore is not considered to have done enough to be estopped as against a purchaser in good faith. He certainly has not done enough if the estoppel is based upon the principle that when one of two innocent persons is to suffer, the sufferer should be the one whose confidence put into the hands of the wrongdoer the means of doing the wrong. But in a case like the present, the agent has been intrusted with the converted property, and it is totally immaterial whether, by a stretch which extends largely beyond the true field of trespass, his wrong has been brought within the criminal law or not. The ground of the estoppel is present and the estoppel arises. The distinction is not new.’ ”

Where as here the respondent bases his claim upon his belief that a man with whom he dealt was the owner of the property at the time of the mortgage, the case last cited holds: “Where the bona fide recipient of the property, in due course, and for value, grounds his claim to retain it, not on the apparent representation by the agent of the true owner, but rather claims estoppel of the latter to insist on his ownership because he has intrusted the property to the agent to enable the agent to deal with it for him, and thereby placed the agent in a position to deceive third persons as to its ownership, then, on proof of that, he has made out his case, regardless of whether he has known anything about the relation of the principal to the transaction or not.”

Not only does respondent claim estoppel by statements made by Fox, but also upon the surrounding circumstances and incidents of possession and ownership which appellant sanctioned and allowed to exist, which would, as the record discloses, have led a reasonably prudent man to believe Fox was the owner of the live stock mortgaged.

It is urged by appellant that there was no consideration for the note and the chattel mortgage in question, in that it was given as additional security for a note and mortgage then due, with no agreement as to an extension of time for payment of the original obligation, and therefore plaintiffs gave up no rights in acquiring the chattel mortgage and were not injured or prejudiced by relying upon the representations of Fox. It is, however, well established that an antecedent indebtedness constitutes not only a valuable consideration for a transfer in satisfaction and discharge of an indebtedness, but is also a valuable consideration, within the protection of the equitable doctrine of bona fide purchase, for a transfer merely as security for a pre–existing debt. 2 Pomeroy's Equity Jurisprudence (4th Ed.) § 749; Schumann–Heink & Co. v. U. S. National Bank, supra.

Appellant also claims that plaintiffs, knowing their claim must ultimately rest upon estoppel, should have pleaded it in the first instance. While it is the general rule that a party, who has an opportunity to plead an estoppel upon which his cause of action or defense depends, must do so, nevertheless if the party in whose favor the estoppel exists is without knowledge that his claim must ultimately rest upon it, he is then excepted from the rule.

“Since under simplified procedure the plaintiff's pleadings begin and end with a complaint, he may without pleading interpose evidence of an estoppel to overcome any affirmative matter set up in the answer. As he is not advised of the defense that may be pleaded, he is not required to plead the estoppel in the first instance.” 10 Cal. Jur. 655. It does not necessarily appear from the record here before us that plaintiffs knew their cause of action would depend upon an estoppel.

Appellant also urges that as the chattel mortgage here in question was not recorded in accordance with the provisions of section 2959 of the Civil Code, it is void as against any creditor or subsequent innocent transferee or mortgagee of the property. There can be no doubt that even if the chattel mortgage were not recorded nor executed in accordance with the formalities of the statute, it still was a valid and existing obligation as between the parties, and the court was not in error in refusing to sustain the objection to the chattel mortgage at the time of its introduction, and defendant is not in a position to urge the objection at this time. Washington Lumber & Millwork Co., a corporation, v. McGuire, 213 Cal. 13, 1 P.(2d) 437.

The appellant claims that the finding of the court in regard to the possession of the live stock involved is conflicting and not supported by the evidence, but as was said in Bunting v. Saltz, 84 Cal. 168, 24 P. 167, 169: “The possession which the law requires the vendee to have after a transfer to him of personal property is not sufficient if it amounts simply to constructive possession, or the mere possession which the law attaches to the ownership of land. Therefore, if the personal property so sold is located on land to which the vendee obtains a title then or thereafter, the mere transfer of ownership of the land is not sufficient to constitute a change of possession of the personal property so sold. The possession of the personal property must be in some way so changed as to indicate by the change that the former owner no longer owns it.” Mosgrove v. Harris, 94 Cal. 162, 29 P. 490.

Appellant also insists that the judgment is not supported by the evidence or the findings, but without setting forth the testimony to support the conclusions, we are of the opinion that this contention is without merit. Neither do we find that the court committed error in its rulings upon the admission of evidence, it being clear that the court awarded to plaintiffs the value of the property as of the commencement of the action; and the property having been sold in accordance with the stipulation, a judgment for its return would have been an idle act. 5 Cal. Jur. 201; Financial Insurance Corp. v. Brockton, 96 Cal. App. 179, 273 P. 829; Egan v. Parks, 111 Cal. App. 415, 295 P. 866; Peterson v. First National Bank, 101 Cal. App. 532, 281 P. 1104.

Appellant claims that respondents having possession of the personal property before judgment the court should have omitted any order as to value; but this cannot be, for respondents were entitled to possession or the value as of the date of trial, and not as of the date of judgment. Nelson v. Yonge, 73 Cal. App. 704, 239 P. 67. Here almost a year intervened between the trial and judgment and it is conceivable that the values may have changed in that time.

The judgment of the trial court is affirmed.

Mr. Presiding Justice PULLEN delivered the opinion of the court.

We concur: PLUMMER, J.; THOMPSON, J.