In re Diamond T. Truck Sales Agency of Oregon, Inc.

WOLVERTON, District Judge (after stating the facts as above). The question for decision turns upon whether the claim of petitioner was discharged by the agreement of the parties thus entered into; it being understood that the agreement has been fully executed and the $5,000 paid into the hands of the trustee. The bills of sale held by the mortgage company are, in effect, chattel mortgages to secure payment of the advances made to the bankrupt. It is obvious that the $5,000 was paid to the trustee as a consideration for the transfer of his title and interest in the automobiles and trucks. His interest was simply the equity which he held in the machines, subject to the mortgage company’s liens thereon. Much contention is indulged in here with respect to whether the machines were at the time worth more than the amount of the liens. The simple fact that the mortgage company was willing to pay the trustee $5,000 for his equity affords a very strong inference that it so considered them, for why should it pay anything if they were worth less? In order to be sure of its ultimate title, the mortgage company required of the trustee that he quiet the same by the suit which the trustee prosecuted, and with success. There was a dispute' which it was manifestly intended by the agreement to settle, namely, [875] whether the mortgage company had a valid Hen on the machines; the trustee claiming that there was some irregularity in allowing the vendor to retain possession of the cars with authority to dispose of them. But neither party seems to have considered this seriously, and manifestly it cut but little figure in inducing the agreement. Previous to the agreement, the trustee had been selling the cars and accounting to the mortgage company for the amount of its lien against each particular car. The sales slackening, however, in number, the mortgage company became desirous of handling the business for itself. The only way it could do this without the consent of the trustee, unless by foreclosure, was to purchase the trustee’s equity, which it did in the manner stipulated in the agreement. When the legal title becomes vested in the mortgagee of that title, presumptively the lesser estate is absorbed by the greater, and what is termed a merger takes place, and the lesser estate ceases to exist, unless it be that it. was the intention of the parties concerned to keep the estates separate, or justice requires it to be done. Such is the case whether the mortgage is in character real estate or chattel. Hull v. Cronk, 55 App. Div. 83, 84, 67 N. Y. Supp. 54; Keel v. Levy, 19 Or. 450, 453, 24 Pac. 253. Says the court in Hull v. Cronk, quoting from Pomeroy: “Under like circumstances a merger will take place in equity, where no intention to prevent it has been expressed, and none is implied from the circumstances and the interests of the party; and a presumption in such a, case arises in favor of the merger.” Now, turning again to the agreement, the purpose thereof, as expressed in the preamble, was to settle all differences and claims in respect to the automobiles and auto trucks. The mortgagee paid for the trustee’s equity a considerable sum, which inferentially indicates that it believed the cars to be worth that amount above the aggregate of its liens. Otherwise, it could have obviated such payment by simply resorting to the process of foreclosure for relief. As a further consideration for the payment of $5,000 for the trustee’s equity, there was the covenant of the trustee to quiet the title to certain of the cars against the claim of Lebb, Walling, and Waller. But this was by no means the sole consideration for the payment of that sum. It was a means employed by the parties for settling their differences and claims, so that the mortgage company might be assured of the title to the cars, and the trustee might obtain the agreed value to which he was entitled for his equity. There is neither in all this, nor from the circumstances present, any expression or implication of intention to obviate a merger. Nor does justice seem to require that the estates be kept separate; the mortgage company having apparently received property of value in excess of the aggregate of its liens. The debt, as well as the mortgage, has been extinguished by the merger. The referee’s order is affirmed.