Byrne v. Ft. Smith National Bank

Springer, C. J. (after stating the facts.) Counsel for appellants assign as error the'overruling of their demurrer to appellee’s petition. As will be seen from the statement of the case, the petition alleged a mistake in the description of the. mortgaged property, and prayed the court to reform the same, so as to correct said mistake, and that its rights might be determined according to the terms of the mortgage as it would stand when so reformed. To this petition appellants demurred, for the reason that, if the matters stated were true, they do not entitle the petitioner to the relief prayed for. The court overruled the demurrer, and permitted the petitioner to introduce testimony, over the objections of the appellants, showing the mistake in drafting the mortgage. The testimony having been conclusive as to the mistake, the court entered a decree reforming the mortgage, and allowing the appellee the proceeds of the sale of the cattle which the — 684 — mortgage, when so reformed, included. The admission of this testimony and the entering of this decree are the only errors assigned by the appellants. To sustain their contention, appellants quote the following from Mr. Cobbey’s work on Chattel Mortgages: ‘‘The description itself is conclusive as to what it is. Outside evidence is only admissible to apply the description to the proper articles. . The mortgage ' itself is the only competent evidence of the contract between the mortgagor and the mortgagee, and shows the particular property covered by it. It is competent to prove that the property in question is the identical property, but not to go further than this. Air understanding between the parlies that certain after-acquired property should be embraced in the mortgage is only good between the parties. As to Third parties, who have acquired an interest before themorigagee has taken possession of the new property, it is the same as if there was no understanding. The recitals of the mortgage must govern. Parol evidence is permissible to aid — not to make — a description in a chattel mortgage. It is only when the mortgage suggests inquiry which will result in identification of the property that parol evidence is competent to point out and identify it. There can be no substitution of other property which will be bound by the agreement. Thus, where a mortgage was made of one horse, the mortgagor at that time owned a sorrel horse, which, with the consent of the mortgagee, he exchanged for a bay horse. Held, that the record imparted a notice of a lien upon the first, and not upon the second, horse; upon inquiry, a person would have found that the mortgagor then owned the sorrel horse, and not the bay horse. And the description cannot be enlarged, so as to cover property not fairly within its scope, because it refers to a schedule attached, which schedule, besides particularly describing the property referred to in the mortgage as machinery and fixtures, also described a stock in trade of brass and iron ware.” See 1 Cobbey, Chat. Mortg. p. 184, § — 685 — 158, and cases cited. The law as laid down in this section from Mr. Cobbey’s work on Chattel Mortgages is unquestionably correct in all cases where the mortgage is introduced in evidence, in a proceeding to foreclose it, or for the purpose of proving its contents. But the rule is otherwise in a proceeding in equity to reform a contract or mortgage so as to make it express the intention of the parties who executed it at the time it was executed. Courts of equity have not hesitated to entertain jurisdiction to reform all contracts where thei’e has been an innocent omission or insertion of a material stipulation, contrary to the intention of both parties, and under a mutual mistake. 1 Story, Eq. Jur. § § 154, 155. In such case parol evidence must, of necessity, be received; otherwise, no relief could be obtained. In case of written instruments, the relief will be granted only where there is a plain mistake, clearly made out by satisfactory proof. Id. § 157. But, in all cases of mistakes in written instruments, equity will interfere only as between the original parties, or those claiming under them in privity, such as personal representatives, heirs, devisees, legatees, assignees, voluntary grantees, or j udgment creditors or purchasers from them with notice of fie facts. Id. g 165. As against bona fide purchasers for valuable consideration without notice, courts of equity will grant no relief. Id. § 166. In the case at bar it was clearly established, by satisfactory proof, that there was a mistake in the description of the cattle covered by the mortgage. It is also conclusively shown that the court reformed the mortgage,.so as to make it express the intentions of the parties who executed it. We are therefore of the opinion that parol evidence was admissible in this case, and that the court had the right to reform the mortgage, so as to make it express the intentions of the parties to it. Reformation of written in strumont. Parol evidence. The further question, however, arises in the case, whether the rights of third parties have intervened. The — 686 — defendant, Byrne, is the assignee of Grayson Bros., who executed the mortgage. There can be no doubt of the fact that the assignee stands in the place of Grayson Bros. He takes the property in this case in trust for the benefit of their creditors, and in order to execute their wishes in the premises. Swofford Bros, and others, who are made defendants, are the preferred creditors of Grayson Bros, in their assignment, and claim under them. Hence, the case at bar is between the original parties to the mortgage, the Ft. Smith National Bank and those claiming under Grayson Bros, in privity. The assignee, Byrne, and the preferred creditors of Grayson Bros., stand in Grayson Bro's.’ place, and take the property assigned subject to all the equities that might be urged against the assignors. They are not in the position of bona fide purchasers for value. The preferred creditors of Grayson Bros., by their acceptance of the terms of . the assignment, acquired no greater right to the property of, the assignors than the assignors themselves had. They took only that which the assignors might rightfully grant, and subject to all the equities to which they were subject. The preferred creditors had not advanced any money or credit upon the faith of the description of the property as it stood in the mortgage before it was reformed. They cannot claim any loss or extension of credit on account of the reforming of the mortgage. They would undoubtedly have accepted the benefits of their preference as creditors if the mortgage had been reformed before the assignment. The acceptance of the assignment certainly put them in no worse position than they would have been if they had refused to take under it. Whether the mortgage was reformed, or in its original form, could not have influenced their acceptance of the assignment. They were preferred as creditors, and were to be paid in full before other creditors could participate. Their acceptance was an agreement to take ail they — 687 — could possibly get, — all they were in law or equity entitled to take. Assigneo and creditors not purchasers. Bank not guilty o£ laches. Counsel for appellants insist that the appellee should have asserted its claim to the cattle not covered by the mortgage in its original form at the time the assignment was made or before the appellants accepted the preference given them; that appellee knew the defect in the mortgage at the time of the assignment, and that it should then have asserted its claim, and made known its rights; and, not then having asserted its rights, it is now, after other rights have intervened, • estopped from so doing. An examination of the testimony in the case will disclose the fact that the appellee was not guilty of any laches in the matter. The president of the Ft. Smith Bank, the appellee, testified that he told Mr. Byrne, the assignee, in the first and only conversation he ever had with him, his (the president’s) understanding of the matter. Mr. Byrne testified that, when he rounded up and sold the cattle, which was in May, 1896 (the assignment having been made in December, 1895), he sent a copy of the report of sales to the appellee. This report showed the brands of the cattle, and how much the cattle of each particular brand brought. He was not notified, until after the sale, that the appellee claimed more of the cattle than were covered by the terms of the original mortgage. But appellee informed him that it reserved all its rights, and Mr. Hutchings, the attorney for appellee, told him what the bank claimed. It seems that the appellee had no means of ascertaining, at the time of the making of the assignment, whether the number of cattle it claimed were covered by the mortgage or not. When the cattle were rounded up and sold, and a report of sales furnished to appellee, it was discovered by Mr. Byrne and appellee that there was a mistake somewhere, and the assignee was then notified that the bank claimed other cattle than those mentioned in the original mortgage. The petition to reform the mortgage was filed in — 688 — the United States Court at Muskogee on June 25, 1896. On the 15th day of June, 10 days previous to the filing of ap-pellee’s petition, Mr. Byrne, the assignee, filed his report in court of the sale of the cattle. In this report he stated that the Ft. Smith Bank had a mortgage on 500 head of cattle, to secure its claim of-$4,000, but that he could find only “164. head of cattle of the ages and brands said mortgage covered, and that, at the prices said cattle were sold for, the 164 head covered by said mortgage only brought $2,964. ” This was the first authentic information that the appellee could have obtained. If che 164 head of cattle mentioned had brought a sum sufficient to pay off the bank’s demand, there would have been no necessity for reforming the mortgage, even if the descriptions were erroneous. The bank, having learned all the facts, at once filed its petition in court to reform the mortgage. We cannot see wherein the bank could have acted more promptly than it did. Entertaining these views, we are of the opinion that there is no error disclosed by the record in this case. It is therefore affirmed. Clayton, Thomas, and Townsend, JJ., concur.