Opinion
July 30, 1929.
1. NOTE: Delivery: Intention. Actual manual delivery and change of possession of a note are not required in order to constitute an effectual delivery; whether there was a valid delivery is to be determined by the intention of the parties and the particular circumstances of the case. If the purpose of the maker was to treat the note as delivered, and the acts of the holder show an acceptance, the deed of trust given to secure it is not invalid for lack of delivery. The cashier of a bank, whose board of directors made an assessment upon the stockholders for the purpose of obtaining money to restore its impaired capital, made application to a loan company for money to pay the assessment against his stock, and signed a note for the amount and a deed of trust securing it, and kept them in his private desk in the bank, but in writing requested the company to pay the proceeds of the loan to the bank, to which he was heavily indebted. Two days later the bank suspended and went into the hands of the representative of the State Finance Commissioner, and the cashier left it, leaving the note and deed of trust in the bank. After some delay the loan company declined to make the loan, but indorsed the note without recourse, and both the note and deed of trust came into the possession of said representative, who induced the cashier to apply the loan he was expecting on his indebtedness to the bank, and the cashier agreed that the company might indorse the note to the bank and that the bank might take the note and deed of trust in lieu of the proceeds of the loan, and the company thereafter disclaimed any interest in either, and the cashier treated both the note and deed of trust as having been delivered to the bank. Held, that there was a valid and effectual delivery of both to the bank, and an acceptance by the bank, though neither was ever manually delivered to the loan company.
2. ____: Consideration: Discharge of Indebtedness. The release and discharge of the maker's indebtedness to a bank in an amount equal to the amount named in a note, naming a loan company as payee and by the payee indorsed and by the maker delivered to and accepted by the bank, is a sufficient consideration for the note and the deed of trust securing its payment.
3. ____: No Delivery to Payee: Title: Indorsement. If there was no delivery of the note and deed of trust to the payee, he had no title, and none passed by his indorsement. But if the instruments thus indorsed are delivered by the maker to a bank, for a valuable consideration moving to the bank, namely, the payment of an indebtedness due from its maker to the bank, the bank has title both to the note and deed of trust, and both are subsisting obligations.
4. JUDGMENT: Erroneous Findings: Right Conclusion. If the judgment in the suit in equity, in so far as it is operative on the rights of the parties, is correct, it will be affirmed, where its erroneous findings and conclusions of law cannot possibly result in prejudice to the appellant.
Corpus Juris Cyc. References: Bills and Notes, 8 C.J., Section 367, p. 231, n. 58. Mortgages, 41 C.J., Section 202, p. 386, n. 58; Section 292, p. 426, n. 85; Section 298, p. 429, n. 48; Section 686, p. 673, n. 85.
Appeal from Platte Circuit Court — Hon. Guy B. Park, Judge.
AFFIRMED.
Terrence Riley and Eastin McNeely for appellant.
(1) Gabbert and his wife executed a note for $2500 payable to Bartlett Brothers Land Loan Company and a deed of trust on the property in controversy to secure said note. The loan was not made and the deed of trust was not delivered. After the bank closed, West, finding the note and deed of trust on Gabbert's desk, sent the note to Bartlett Brothers Land Loan Company for indorsement without recourse. Bartlett Brothers Land Loan Company made the indorsement as requested without consideration and returned the note to West. West caused the deed of trust to be filed as a first lien on the property. A second deed of trust was executed covering the same land and other property containing a recital that it was subject to the prior deed of trust and filed the same for record four minutes later. The second deed of trust was foreclosed and plaintiff in this action became the purchaser. The whole case shows that Bartlett Brothers Land Loan Company did not close the loan and that the note was indorsed without consideration. The note and deed of trust were never delivered by the makers to the payee. (2) The note to Bartlett Brothers Land Loan Company was dead when it was indorsed. It amounted to no more than if a blank piece of paper had been sent to the bank indorsed "without recourse." (a) The whole case shows that Bartlett Brothers Land Loan Company did not close the loan. Neither the note nor the deed of trust was ever delivered by the payor to the payee. "No contract arises on a bill or note until the delivery of the instrument; and until such delivery, it remains revocable and unenforceable." 8 C.J. 203; Sec. 803. R.S. 1919; Carter v. McClintock, 29 Mo. 464; Allen Grocery Co. v. Bank, 192 Mo. App. 476; Norris v. Butler, 138 Mo. App. 378; Chitwood v. Hatfield, 136 Mo. App. 688. (b) There is and can be no question in this case involving the negotiability of this note. Nor can there be a pretense that the bank is a holder in due course. The note did not come from the payee to the bank by indorsement in due course. The facts forbid such a contention. (c) The deed of trust was never delivered, and delivery is essential to the validity of such an instrument. Hammerslaugh v. Cheatham, 84 Mo. 18; Powell v. Banks, 146 Mo. 620. (d) There being no debt, there could be no mortgage. Finnerty v. Realty Co., 276 Mo. 338; Donovan v. Boeck, 217 Mo. 87; Sheppard v. Wagner, 249 Mo. 433; Brant v. Robertson, 16 Mo. 143; Babb v. Wolff, 148 Mo. 344. (3) The plaintiff, purchaser at the foreclosure sale, has the right to contest the validity of the alleged prior incumbrance. Harwood v. Toms. 135 Mo. 225; Brooks v. Owen, 112 Mo. 260: Stewart v. Loan Trust Co., 283 Mo. 381. (4) There can be no novation or substitution in this case because: (a) There was no valid, existing legal debt. (b) There was no debt between Bartlett Brothers and Bank of Dearborn. In order that a contract of novation may be effected there must be a previous obligation to be released. This previous obligation, which is to be released, to be within the rule, must be a valid one. If the original debt is conditional, and the condition is not performed there can be no novation, because there is no original debt for which the new one can be substituted. 29 Cyc. 1130, 1131; Linneman v. Moross Estate, 98 Mich. 178, 57 N.W. 103, 39 Am. St. 528; Murphy v. Hanrahan. 50 Wis. 485, 7 N.W. 436; Gaston v. Owens, 43 Wis. 103; Milling Co. v. Probosco, 64 Ind. 406; Clark v. Billings, 59 Ind. 508; Spycher v. Werner, 74 Wis. 456, 43 N.W. 161, 5 L.R.A. 414, note; Elliott v. Qualls, 149 Mo. App. 487; Babbitt v. Railroad, 149 Mo. App. 455.
James H. Hull and German, Hull German for respondents.
(1) Gabbert admits the execution of the note and deed of trust, admits trying to negotiate the loan through the Bartlett Brothers Land Loan Company, admits authorizing that company to pay the proceeds thereof to the Bank of Dearborn. And the most that can be said on the question of failure of delivery of the note and deed of trust is that they were left in the Bank of Dearborn in a desk which was the property of that bank, when the bank and all of its assets were placed in the hands of the State Finance Commissioner for the purpose of liquidation or reorganization. Even if there were a proper contest shown by this record over the delivery of the note and Bartlett Brothers deed of trust, under the above facts Gabbert would be estopped to deny that the note and deed of trust were properly delivered. Where a person signs checks in blank and they are stolen by someone in his employ who fills in the blanks, and the checks are later negotiated, the maker thereof is estopped to deny delivery. Allen Grocery Co. v. Bank of Buchanan Co., 192 Mo. App. 476, 182 S.W. 777. Gabbert himself admits that these papers were executed as a part of his effort to make good his stock assessment. And we assert that it does not lie in his mouth to question the validity of these papers under the facts in evidence. A brief reference to our answer will convince the court that it is sufficient to support a verdict of estoppel. 21 C.J. 1245. par. 254. (2) Appellant's point as to whether or not the three-cornered transaction between Bartlett Brothers Land Loan Company, the Bank of Dearborn and W.H. Gabbert constituted novation, is of no moment. It is not contended by appellant that Bartlett Brothers owed any money or duty to the Bank of Dearborn. The facts with reference to that particular transaction are these: The $2500 loan was attempted to be negotiated through Bartlett Brothers. If the loan had been consummated it was the intention that the cash should be used to pay that much of Gabbert's acknowledged indebtedness to the Bank of Dearborn. Bartlett Brothers refused to make the loan and they were requested to turn the paper over to the Bank of Dearborn, or rather, to West, the State Bank Examiner in charge, which was done and accepted by West, for the newly organized bank, as a payment of that much of Gabbert's indebtedness. So it resolves itself into a transaction between the Bank of Dearborn and Gabbert alone, Bartlett Brothers waiving whatever right they might have had to the paper by endorsement. We are not contending that we are holders in due cause. It is our position that we are the original holders and one of the original parties to the transaction. And whatever defense Gabbert had, if any, would have been available to him to defeat recovery on the note or the deed of trust. Gabbert is asserting no right or interest to the property. (3) the deed under which appellant claims title is sufficient within itself to preclude him from recovery in this action. (4) It is not contended that the transaction is tainted with fraud. The charge is that because the negotiations with Bartlett Brothers Land Loan Company did not result in effectuating the loan with that company, there was no consideration, no delivery, and consequently the loan papers were of no validity. The facts point unerringly to the contrary, and if there were a question about it. Kirby could not be heard to question the validity of the prior encumbrance, subject to which he bought the property. To so hold would be to permit him to obtain this property, free and clear of all encumbrance, for $10.
This is a suit to set aside and cancel a deed of trust, alleged to constitute a cloud on plaintiff's title to twenty acres of land, situate in or adjoining the town of Dearborn, in Platte County.
The deed records of Platte County purport to show the following facts with reference to the title in question. On February 22, 1922, William H. Gabbert and wife, he being then the owner of the title in fee simple, executed a deed of trust on the land to secure to the Bartlett Bros. Land Loan Company the payment of a note of even date for $2500. On March 16, 1922, Gabbert and wife gave a deed of trust on the same and other land to secure to one Drais the payment of a note for $15,000. This latter deed of trust recited: "This deed is made subject to a first mortgage, dated February 22, 1922, to Bartlett Bros. Land Loan Company to secure a note for $2500." Both deeds of trust were filed for record on the 27th day of March, 1922, the one first mentioned being filed four minutes earlier than the other. On May 12, 1924, the land in question was sold at a foreclosure sale had under the deed of trust given to the use of Drais. Plaintiff was the purchaser; upon the payment of the amount of his bid, $10, the trustee executed to him a deed of conveyance which recited: "This deed is made subject to a first mortgage, dated February 22, 1922, to Bartlett Bros. Land Loan Company."
By this proceeding plaintiff seeks to have annulled the deed of trust purporting to have been given to the use of the Bartlett Bros. Land Loan Company on the grounds that it was without consideration and its execution was never completed by delivery.
The Bank of Dearborn (hereinafter called the Bank) closed its doors March 9, 1922. The controversy as to the validity of the $2500 note and deed of trust grows out of transactions had in connection with its attempted reorganization. Two or three months before it was compelled to suspend business the directors passed a resolution assessing the stockholders fifty per centum of their holdings for the purpose of securing enough new capital to continue. Gabbert, who had been cashier for twenty years, owned stock of the par value of $8,000. His assessment, consequently, was $4,000. Of this amount he paid $1500 in cash: for the purpose of securing the funds with which to pay the remainder he applied to the Bartlett Bros. Land Loan Company (hereinafter called the Loan Company) for a loan of $2500 on the twenty acres of land.
In connection with the negotiations for the loan he signed the note, and he and his wife signed and acknowledged the deed of trust in controversy. These papers had not been delivered but were still in Gabbert's possession at the time the Bank suspended, though the negotiations for the loan were still pending.
An audit of the books disclosed that Gabbert was indebted to the Bank in a considerable sum. Mr. William E. West, a State Bank Examiner, who as representative of the State Commissioner of Finance was in charge of the Bank and endeavoring to effect a reorganization, induced Gabbert to agree to apply on his indebtedness to the Bank the proceeds of the loan he was expecting to obtain from the Loan Company. Gabbert accordingly wrote the Loan Company on March 7, 1922: "Please pay the proceeds of loan being negotiated through you for the sum of $2500 and dated February 22, 1922, to the Bank of Dearborn, Dearborn, Missouri. Said loan having been negotiated for the benefit of said Bank." After some delay the Loan Company declined to make the loan. Thereafter it indorsed without recourse the $2500 note which had been drawn payable to it, and both the note and the deed of trust purporting to secure it came into the possession of the Bank or rather the State Commissioner of Finance who was at that time, and still is, in charge of its affairs and acting for it. The Bank claims to be the holder of the note and deed of trust, and that they constitute a valid and subsisting lien on the twenty acres of land.
With respect to the indorsement of the note and the Bank's subsequent possession of it and the deed of trust the evidence is conflicting: Gabbert testified that his indebtedness to the Bank was ascertained to be $15,000, for which he gave the note and deed of trust to Drais as trustee for the Bank; that West, who had found the $2500 note and deed of trust among the papers in the Bank, requested his consent to conclude the negotiations for the loan and apply the proceeds thereof when obtained on his, Gabbert's, indebtedness to the Bank; that he gave such consent, but with the distinct understanding that the proceeds of the loan were to be credited on his $15,000 note; that he gave no further directions with respect to the $2500 note; and that he did not know until long afterward that the Loan Company had indorsed it over to the Bank.
According to the testimony of West, the facts were as follows: Gabbert's liability to the Bank was in excess of $23,000. In his efforts to discharge this liability he agreed, among other things, that the then pending negotiations for the $2500 loan should be pressed to a conclusion and the proceeds of the loan paid to the Bank. In addition he and his wife gave a note for $15,000 and a deed of trust (to Drais as trustee) to secure the same, covering all of his property, including the twenty acres of land involved in this proceeding. The $15,000 note was also signed by thirty persons residing in the community, as sureties. To further aid Gabbert in effecting a settlement $5209 in cash was raised by popular subscription and paid to the Bank. When the Loan Company finally declined to make the loan, Gabbert agreed with West that the Loan Company might indorse the $2500 note to the Bank, and that the Bank should take the note and deed of trust in lieu of the proceeds of the loan, as at first contemplated, and this was done. By the greater weight of the credible evidence in the case the facts were as detailed by West, and we so find. Mr. Gabbert on the witness stand said that, owing to the deplorable condition of the Bank's affairs and his own personal involvement therein, he was suffering such great mental distress that many of the things which then took place were inexplicable to him when he afterwards attempted to recall them. That explanation no doubt accounts for the many inaccuracies found in his testimony.
There is no evidence that Gabbert ever made manual delivery of the $2500 note and deed of trust to either the Loan Company or the Bank. He testified that these papers were in his private desk in the Bank when West took charge. As it does not Delivery. appear that he subsequently removed them or took them into his own personal possession, the inference is that they remained in the general custody of West. When Gabbert consented for West to complete the negotiations for the loan and receive the proceeds for the Bank, he clearly gave West the implied authority to deliver the note and deed of trust to the Loan Company upon its acceptance of the application for the loan. When upon the Loan Company's refusal to make the loan, he gave his consent that it indorse the note to the Bank, and that the Bank itself take the note and deed of trust in lien of the proceeds of the loan, he clearly intended that those instruments should then and there become effective as obligations to the Bank. It is immaterial whether he expressed such consent before, or after, the indorsement was actually made by the Loan Company: the consent was a continuing one and it operated as a delivery of the papers to the Bank the moment they were completed as purported obligations to the Bank by the entry on the note of the indorsement of the ostensible payee.
If West had procured the Loan Company's indorsement on the note and handed the note and deed of trust to Gabbert and Gabbert had then delivered it to West as the agent of the Bank, no question of delivery could have arisen. Such procedure, however, would have been a useless formality. "Actual manual delivery and change of possession are not required in order to constitute an effectual delivery. But whether there has been a valid delivery or not must be decided by determining what was the intention of the grantor, and by regarding the particular circumstances of the case." [I Devlin on Deeds (3 Ed.) sec. 269.] "It is well settled that actual manual delivery is not essential to the validity of the deed (citing cases), if the purpose of the grantor was to treat the instrument as delivered, and the acts of the grantee show an acceptance (citing cases)." [Sec. 269, supra, note 5. See also Rumsey v. Otis, 133 Mo. 85, 34 S.W. 551: Harvey v. Long, 260 Mo. 374, 168 S.W. 708: and Gillespie v. Gillespie. 289 S.W. 579.] The evidence leaves no doubt but that after the indorsement of the note by the Loan Company. Gabbert regarded and treated both the note and deed of trust as delivered to the Bank: the Bank's acceptance is not questioned. There was therefore a valid and effectual delivery.
The Bank's release and discharge of Gabbert's indebtedness to the extent of $2500 was of course a sufficient Consideration. consideration for the giving of the instruments in controversy.
The conclusions reached with respect to the questions of consideration and delivery render unnecessary the consideration of others which have been raised and discussed by counsel.
The Loan Company, the Bank and the State Commissioner of Finance, who was in charge of the Bank and winding up its affairs, were made parties defendant. The answer of the Loan Company disclaimed any interest in the subject-matter of the suit. The separate answer of the Bank and the Commissioner, after denying "each and every allegation" of the petition, averred that Gabbert and wife duly executed the $2500 note and deed of trust in favor of the Loan Company and that these instruments were thereafter, "for a valuable consideration, duly indorsed, transferred, assigned and set over to the defendant Bank of Dearborn, which, therefore, for value, became the owner and holder thereof:" it concluded with a prayer that the deed of trust be declared a first lien on the land described in it. The trial court made a general finding of the issues in favor of the defendants, Bank and Commissioner of Finance, and against the plaintiff. It then made specific findings following the allegations of the answer as above indicated. On such findings it decreed that plaintiff take nothing by his petition, and that the deed of trust in question is a valid and a first lien on the land therein described.
As we have seen the $2500 note and deed of trust were never "executed" to, or "in favor of," the Loan Company, because there was never at any time a delivery so far as it was concerned. Consequently it never had title to them as effective instruments, and not having title, it could pass none by its indorsement. On the contrary there was a delivery of the papers after their completion, including the writing of the Loan Company's name on the back of the note, to the Bank, in the manner and under the circumstances heretofore indicated. Having been so delivered upon a valuable consideration moving from the Bank, the deed of trust is unquestionably a valid and subsisting lien on the land. And it is the only lien so far as the record discloses, that of the 15,000 deed of trust having merged into the title acquired by the plaintiff at the foreclosure sale.
The judgment of the court below, so far as it is operative on the rights of the parties, is correct. Its erroneous findings of fact and conclusions of law can not possibly result in prejudice to the plaintiff. It is therefore affirmed. All concur.