ATLAS FIN. CO., INC., v. CREDIT CO., INC., et al

Messrs. C.T. Graydon and Augustus T. Graydon, of Columbia, for Appellant, cite: As to there being no evidence to show consent to sale of personal property by mortgagee as would waive the lien of his mortgage: 111 S.C. 507, 98 S.E. 796; 14 C.J.S. 878; 15 S.C. 88; 51 S.C. 42, 27 S.E. 747; 45 Idaho 340, 262 P. 514; (Tex.) 207 S.W. 973; 187 A. 676, 122 Conn. 1001; 139 S.E. 113; 3 F.2d 52. As to the rule that the contents of a written instrument cannot be varied, altered, contradicted or added to by parol evidence: 2 Jones on Evidence 819; 161 S.C. 107, 159 S.E. 503; 183 S.C. 147, 190 S.E. 515; Thayer, Preliminary Treaties on Evidence 390, et seq.; 5 Wigmore on Evidence 2466; 110 F.2d 483; 14 C.J.S. 879, 880; 106 S.W.2d 1067 (Tex.). As to it being well settled that any question of fact must be determined by the jury: 111 S.C. 507, 98 S.E. 796. Messrs. Cooper Gary, of Columbia, for Respondent, cite: As to the trial judge properly directing a verdict for the defendant on the grounds that the said defendant's mortgage was prior to that of the plaintiff: 111 S.C. 507, 98 S.E. 796; 15 S.C. 88; 51 S.C. 42, 27 S.E. 747. Order of Judge Legare Bates follows: This case came to be heard before the Court and jury by way of claim and delivery proceedings brought by the plaintiff Atlas Finance Company, Inc., against the defendants for the possession or in the alternative, the value of an automobile. The defendant, H.G. Kirkland, trading as Kirkland's Used Cars, and the defendant, J.W. Augustine, defaulted and therefore the only defendant before the Court was Credit Company, Inc. The testimony, briefly stated, was as follows: The defendant, J.W. Augustine purchased the 1940 Chevrolet Sedan from the defendant, hereinafter referred to as Kirkland's Used Car lot, for $600.00; he paid $200.00 by way of cash and an old automobile and executed a mortgage to Kirkland's Used Car lot for the balance of the purchase price; on the same day of the purchase the plaintiff bought the Augustine mortgage from Kirkland's Used Car lot and it was duly assigned to the plaintiff. The sale to Augustine occurred on June 9, 1948, but the mortgage given by Augustine was not recorded by the plaintiff until June 11, 1948. Kirland's Used Car lot was admittedly dealing in the sale of used cars, which were displayed openly on the lot to the public generally. Kirkland's Used Car lot came into possession of the automobile in question in the following manner: The defendant, Credit Company, Inc., re-possessed the automobile from one of its borrowing customers and in turn put it in the hands of Kirkland's Used Car lot for sale to the public and took a mortgage covering the car from Kirkland's Used Car lot. This mortgage given by Kirkland's Used Car lot to the defendant Credit Company, Inc., was recorded on June 9, 1948, the same day the Augustine mortgage was assigned to the plaintiff. It appears from the testimony that it was the custom of the defendant, Credit Company, Inc., to turn re-possessed cars over to a used car dealer (in this case, Kirkland's Used Car lot) for sale, taking from the dealer a mortgage, but not recording it. Also, that the Credit Company, Inc., kept close check on used car dealers to see when these cars were sold and upon getting knowledge of a sale or contemplated sale, the defendant, Credit Company, Inc., would record the mortgage. In this instance, the mortgage of the defendant Credit Company, Inc., was recorded on the day of the sale of the automobile by Kirkland's Used Car lot to Augustine. After Kirkland's Used Car lot sold the automobile to Augustine, the defendant Credit Company, Inc., called upon Kirkland's Used Car lot for the amount of money represented by the mortgage held by the defendant and upon failure of Kirkland's Used Car lot to pay the amount, the defendant Credit Company, Inc., re-possessed the automobile from Augustine. Thereupon Augustine defaulted in the mortgage given by him to Kirkland's Used Car lot and duly assigned to the plaintiff, by reason of which default Augustine's title to the car vested in the plaintiff. Plaintiff then instituted the claim and delivery proceedings against the defendants. The defendant Credit Company, Inc., instead of delivering the car, posted bond as authorized by the Statute and kept possession of the car. In these circumstances the case came on for trial. Credit Company, Inc., admitted that it turned the automobile over to Kirkland's Used Car lot for sale to the public and knew that the same would be offered to the public at large and would be sold to a member of the public. The uncontroverted testimony also showed that Mr. Augustine was not aware and was not informed by Kirkland's Used Car lot or anyone else that the automobile being offered to him for sale was already mortgaged. The evidence established the value of the car at $400.00. At the close of the evidence both the defendant and the plaintiff made a motion for direction of verdict. After considering both motions this Court directed a verdict for the defendant, Credit Company, Inc., on the ground that its mortgage was recorded two days prior to the mortgage held by the plaintiff and therefore constituted a lien on the automobile prior to the lien of the Augustine mortgage held by the plaintiff. The plaintiff thereafter moved the Court for judgment non obstante veredicto or failing in that for a new trial. The motions were heard in due time and counsel for both parties submitted briefs in support of their contentions. The plaintiff's motion for a judgment non obstante veredicto, or for a new trial in the alternative, were upon three grounds: (1) That this Court erred in holding that a prior recorded chattel mortgage takes priority over a subsequent mortgage on the same chattel, where the first mortgagee expressly or impliedly consented to the sale of the mortgaged chattel to the public by a dealer displaying publicly and selling to the public; (2) That this Court erred in directing a verdict for the defendant, Credit Company, Inc., because defendant Augustine had acquired title to the automobile free of any encumbrance, and has passed such clear title to the plaintiff by default on his mortgage to the plaintiff; and (3) That there was a jury question as to the time the sale was consummated, plaintiff contending that the sale was closed and the second mortgage agreed to before the first mortgage was recorded. The third ground may properly be dispensed with first. The testimony by both Mr. Augustine and the used car salesman was that the "skip" or knock was to be taken out of the engine before he would accept the car. To the direct question, "If you had come back that afternoon and the skip had still been in the motor, you would not have accepted that car?" Mr. Augustine replied, "I don't know whether I would or not." No money was passed and no papers signed that morning. Mr. Augustine called plaintiff and was told plaintiff would finance the transaction, but there is no evidence of an agreement sufficient to constitute a mortgage at that time. There is no other reasonable inference to be obtained from the evidence than that the sale was not consummated until that afternoon, after the Credit Company had recorded its mortgage. The first two grounds stated above may be considered together. As I have determined that my previous holding as to this point at the trial was erroneous, and that the plaintiff is entitled as a matter of law to a judgment non obstante veredicto for the possession of the car or its value, I shall review the matter at some length. It appears that the rule of law with respect to this question is well settled and may be stated as follows: "When a mortgagee expressly or impliedly consents to the sale of the mortgaged property, he waives his lien of the mortgage." See 11 C.J. 624; 14 C.J.S., Chattel Mortgages, § 262, also Martin v. Jenkins, 51 S.C. 42, 27 S.E. 947; Flenniken v. Scruggs, 15 S.C. 88; Mauldin v. Milford, 127 S.C. 508, 121 S.E. 547; General Motors Acceptance Corp. v. Hanahan, 146 S.C. 257, 143 S.E. 820; and Cudd v. Rogers, 111 S.C. 507, 98 S.E. 796, 797. The last case cited is a perfect example of the operation of the rule. There Cudd took a mortgage on the car in question from one Johnston, who was a car dealer, which mortgage secured money loaned to Johnston to pay for the cars. Johnston, in the course of business, sold the car to one Crimm. Crimm in turn sold the car to Rogers. Cudd, on default by Johnston, the car dealer, sought to repossess the car from the defendant Rogers. Judgment was that Rogers should keep the car and the Supreme Court affirmed that judgment. The close parallel to the present case is readily seen. In the Cudd case the Court said: "But, if Cudd did so authorize the sale, then he waived his right to claim lien upon the thing sold. Waiver and estoppel are close akin; but their likes and unlikes are not now material. The instant conduct more favors waiver than estoppel; but the conduct is effective without any nomenclature. "No argument is needed to prove that if a mortgagee permits his mortgagor to engage in trade, and to sell the encumbered property to whoever comes to buy, then the buyer takes his goods free from the lien of the mortgage. The charge only stated so much, but in different words. * * * "The mortgage lien is lost, because the lienee consents to a transaction betwixt lienor and the buying public which implies the lienee's consent to the transaction and consent to the loss of the lien. And the consent by the mortgagee to a sale by the mortgagor to the buying public may be imputed to the mortgagee, without the inference that to conclude otherwise would operate as a fraud on the buyer. * * * "In such instances the incumbered property is, as it were in a state of fluid; all the circumstances indicate that the mortgagor and mortgagee intended that it should move out into the channels of trade. The only way such a mortgagor can get his money is from the proceeds of sale of the incumbered property. The mortgagee in such cases consents to the sale, and trusts to the debtor to apply the proceeds thereof to the mortgage debt." (Italics added.) The rule as set out in the above cited cases has been followed consistently. In Manufacturer's Finance Co. v. Boyd. 128 S.C. 339, 343, 122 S.E. 496, the Supreme Court reversed the lower court which had stricken defendant's answer in an almost identical case to the Cudd case. The defendant, in an action for claim and delivery, answered that he had bought the encumbered truck from a dealer in due course of business. The Court held that the rule in Cudd v. Rogers applied, and that the answer was sufficient. In International Agricultural Corp. v. Lockhart Power Co., 181 S.C. 501, 507, 188 S.E. 243, 246, the Court held that the rule in the Cudd case would not apply because there was no allegation of a sale to the public in the complaint. There is no question that the rule of Cudd v. Rogers is the majority rule in the United States: with 33 states holding so directly, and the Federal rule being the same. See the lengthy annotation in 97 A.L.R. at page 646 et seq. "The rule is well established that the consent of a chattel mortgagee that his mortgagor sell the mortgaged property and receive the proceeds, when acted upon, constitutes as to the purchaser a waiver of the lien of the mortgage * * * the correct conclusion from the cases as a whole seems to be that full knowledge of the purchaser as to the agreement under which the mortgagee's consent to sale was obtained does not prevent his acquiring clear title to the property, 97 A.L.R. 650, 660." (Citing Flenniken v. Scruggs; Mauldin v. Milford; Martin v. Jenkins and Cudd v. Rogers.) To the same effect see 11 C.J. 624; 14 C.J.S., Chattel Mortgages, § 262, citing Martin v. Jenkins, and Flenniken v. Scruggs; this being the rule cited in Mauldin v. Milford. See also 14 C.J.S., Chattel Mortgages, § 243, p. 857, citing the above cases and Cudd v. Rogers. The same rule is recited as the "undoubted" rule in 10 Am. Jur. 847. Therefore, my holding at the trial as to the legal problem involved was erroneous as a matter of law if the circumstances place this case under the rule, and it is clear that they do. Mr. Augustine testified, in answer to a question by plaintiff's counsel: "Q. He (Kirkland) has a used car lot for sales to the public there? A. Yes, he has a used car lot for sales to the public." Mr. C.W. Cooper, defendant's assistant manager testified: "Q. You don't want this Court and jury to believe that this is the only transaction you ever had with Kirkland? A. Several of our repossessions we have sold to Kirkland's Used Car lot * * * we sold him several cars under the same circumstances. "Q. But you keep a close check on them to see if they dispose of it to the public? A. Yes. Q. You know that they are going to do it sometime, and you want to know exactly what time, is that right? A. Yes." Then Mr. Kirkland himself testified: "Q. And you did business with the Credit Company? A. Yes, they would repossess an old car and bring them to the lot and they would take a mortgage on them and let me have them to sell for what I could get out of them. "Q. They would take a mortgage on them and give them to you for display and sale to the public? A. Yes, sir." There being no testimony to contradict this unanimous view of the transaction, the only reasonable inference to be drawn from the evidence is that the automobiles were transferred to Mr. Kirkland for sale to the public, with full knowledge and intent by the defendant Credit Company that they be so sold. While the verdict directed at the trial, based on the priority of the two recorded liens, was correct as to priority and notice by recording, that question does not control here. The Credit Company, having allowed Kirkland's Used Cars to retain possession of the car for the purpose of sale to the public, waived the lien of its mortgage upon the same and must look to the mortgagee for reimbursement. Mr. Augustine acquired title to the car free of the lien of the previous mortgage. This title passed to plaintiff upon default by Mr. Augustine. It follows that the verdict should have been directed for the plaintiff as a matter of law. The very reason for the rule is illustrated exactly by the situation here. Nothing was said to Mr. Augustine about there being a mortgage upon the car and there is no reason for the general public to suspect that there would be on chattels put up for sale by a dealer. At one point Mr. Augustine was asked: "Q. Before Kirkland sold you the car off his public lot, did Kirkland tell you anything about a mortgage being on it? A. No, sir, he didn't. "Q. You thought you were buying the car free of mortgage, is that right? A. Yes, sir. I sure wouldn't have bought one with a mortgage on it." Now, therefore, it is Ordered, Adjudged and Decreed that the plaintiff Atlas Finance Company, Inc., have judgment against the Credit Company, Inc., notwithstanding the verdict directed at the trial of this action, for the possession of the said 1940 Chevrolet sedan, Motor No. 3349648, or the value thereof, being the sum of $400.00, if possession cannot be had, and the costs of this action. Let the judgment be entered accordingly.