The complaint alleges that the Burt Motor Car Company was engaged in selling automobiles in Waterbury to purchasers at an agreed price, part of which was paid in cash and the rest by note or notes; and that as a part of the transaction each purchaser executed a conditional bill of sale, by the terms of which the title to the automobiles remained in the Company until payment of the purchase price, the last maturing note evidencing the final portion of the unpaid purchase price. *Page 212
The Company sold to the plaintiff a number of these notes, aggregating $22,000, and thereafter went into bankruptcy, and the defendant was appointed and qualified as its trustee. The trustee immediately made demand upon the makers of these notes for the payment of the debt remaining unpaid for the purchase of these automobiles, and collected from the purchasers and makers $5,000, which he refused to pay over to the plaintiff.
The defendant in his answer admits his collection of these amounts, and his refusal to pay them over. In a special defense he alleges that the usual method of the Burt Company of transacting its business of selling automobiles, was to accept part of the purchase price in cash, and to secure the balance by a conditional bill of sale containing the usual provisions for payment by instalments, and for the retention of title in the Burt Company until the balance was paid; and that at the same time, and as a further evidence of the debt and as additional security, the purchasers executed notes to the Burt Company in conformity with the instalment provisions of the conditional bill of sale. And he further alleges that although the plaintiff had knowledge of the method of this Company of doing business, it accepted by indorsement said notes without attempting to secure or securing from the Company an assignment of the conditional bills of sale or of the title secured thereby; that the plaintiff did not rely upon the bills of sale or the automobiles as security for the payment of the notes, and did not intend to hold the Company liable for the notes but one Holmes, who had secured the plaintiff from any loss by reason of its acceptance of the notes; that the title to the automobiles was in the Burt Company and is now in the defendant, and that all moneys so paid by purchasers to the defendant under such bills of sale are the property of the defendant. *Page 213
To this defense the plaintiff demurred because: (1) since the Burt Company transferred the notes evidencing the indebtedness for the purchase price and secured by the conditional bills of sale, it cannot collect this debt and hold it as its own upon the theory that it has title to the property secured by the bills of sale; (2) since the Burt Company received upon the discounting of the notes the purchase price, it cannot, nor can its trustee, collect under the bills of sale the purchase price a second time; (3) since the plaintiff was not obliged to acquire by assignment the bills of sale at the time it discounted the notes, its failure so to do does not give the trustee the right to collect the purchase price; and if, as alleged, the trustee has done this, he must repay to the plaintiff these moneys; and (4) since the plaintiff is the holder and owner of the notes and entitled to hold the makers therefor, the fact that the plaintiff did not intend to hold the Burt Company under the bills of sale but one Holmes, who had secured the plaintiff from loss by reason of its discount of the notes, would not justify it in collecting the purchase price from the makers of the notes.
The special defense states the method of the Burt Company in selling automobiles. It does not detail the terms of sale in the sales involved in this action. Strictly speaking, the failure to do this in the special defense must be taken, upon the demurrer to it, as an admission of the terms of sale as set out in the complaint. The defendant assumes that the statement of the method of sale is a statement of what in fact occurred in the sales under consideration, and as the plaintiff acquiesces in this, we shall make the same assumption. The defendant also assumes that there are substantial differences between this statement and that of the complaint. On the contrary, we think them practically alike. Both allege a sale and payment therefor, *Page 214 part in cash and the balance in notes, and the giving of conditional bills of sale by which the title to the automobiles sold remained in the Burt Company until the payment of the last maturing note given for such purchase price. Both allege a transfer by indorsement of these notes to the plaintiff. The special defense says, in addition, that both conditional bills of sale and notes were given as security for the payment of the balance of the purchase price. These additional allegations do not change the legal relations.
The situation is thus a common one, — the seller receives notes in part payment of the purchase price, and retains title in the subject of the sale until the last note is paid. The seller sells the notes by indorsing them to the plaintiff, who knows that conditional bills of sale were taken when the notes were given, but does not require an assignment of them. The indorsement of the notes was not "without recourse," so that the Burt Company by its indorsement was liable to the plaintiff for these notes. The plaintiff as purchaser of the notes had its remedy upon maturity of, or default upon, the notes, against the makers of the notes and against the indorser, the Burt Company. The defendant, as trustee of the Burt Company, succeeded to its rights and obligations, and one of these obligations was a liability upon this indorsement. When the notes matured, or were about to mature, the trustee of the Burt Company notified the makers of the notes to make payment to him, and thus collected upward of $5,000, which he refuses to pay over to the plaintiff.
The position of the defendant is novel. Liable as an indorser of these notes, he has secured payment from the makers to himself. The notes were given to complete payment of the purchase price of the automobiles, and having received such payment from the plaintiff bank when those notes were indorsed over to it by the *Page 215 Burt Company, the trustee of the Company secures from the makers of the notes the payment of the debt they owe upon the purchase price. The trustee and his principal have thus been twice paid; and unless the plaintiff can maintain this action, it has lost the benefit of the indorser upon the notes and is limited in remedy to an action against the makers. They, having no defense to the plaintiff's action, must again pay the notes. If the legal situation led to this result it must be pronounced unconscionable.
Appreciation of this, no doubt, led the defendant's counsel to suggest that the plaintiff should seek the remedy provided by law, by presenting its claim against the bankrupt estate, and in case it was not paid in full, by proceeding against Holmes, who had secured to it the payment of these notes. The claim against the bankrupt estate could not be allowed unless the estate held moneys which belonged to the plaintiff; and the way in which the trustee obtained such moneys must be found to be improper. Under such circumstances the most direct remedy is that which the law most favors.
The defendant's admission that the plaintiff has a claim against the bankrupt estate, puts an end to his contention that because the plaintiff had the right to sue the makers, and had failed to procure assignments of the conditional bills of sale, and the payment of the note had been guaranteed by a third party, the defendant had the right to appropriate moneys which by right belonged to the plaintiff. The trial court well said: "Defendant has unjustly enriched his estate by this appropriation, and ought not to retain the money."
If we determine the legal relation of the plaintiff to the conditional bills of sale, we shall find that it succeeded to all the rights which the Burt Company had in and over these bills of sale. The transfer of the notes *Page 216 by indorsement to the plaintiff left the Burt Company liable upon its indorsement, but left the legal title to the bills of sale in the Burt Company. Three theories of the law have developed from such a situation. One, that the transfer of the notes is an election to treat the obligation as a debt, and to vest in the purchaser the title to the property sold him on conditional sale. Two, that the transfer of the notes transfers automatically the security of the conditional bill of sale and vests in the holder of the notes the title to the property. Three, that the transfer leaves the legal title in the vendor.
If the transfer of the notes had been absolute and without recourse, and nothing further appeared, it might well be held to be an election to rely on the debt, but in any case the intent of the vendor is the factor which determines whether there has been an election between the two remedies; and this is a fact to be found upon consideration of all the circumstances. Truax v.Parvis, 7 Houst. (Del.) 330, 32 A. 227; Meriden Trust Safe Deposit Co. v. Miller, 88 Conn. 157, 163,90 A. 228; 35 Cyc. 674, and cases cited. In this case the transfer was by indorsement merely, leaving the Burt Company still liable to the plaintiff on the notes as an indorser. So that the situation, so far as an election is concerned, is not essentially different from the transfer of the notes as collateral to a loan. Winton MotorCarriage Co. v. Broadway Automobile Co., 65 Wash. 650,118 P. 817, was the case of a transfer of notes as collateral to a loan. In an elaborate opinion the court holds, as matter of law, that the transfer was an election to treat the note as an absolute debt, which vested title to the property held under conditional sale in the purchaser. We can understand the logic of a holding that an absolute transfer must be held to indicate an intent to make choice of the remedy to pursue the debt. But the transfer of the notes by hypothecation intends *Page 217 a return of the security to the pledgor, and from that fact alone it cannot logically be held that a choice of the remedy of looking to the debt was made. The pledgor may pay the debt, and if he does, he should be in as good a position as before he hypothecated the notes. The title to the notes should again be in him, and the title to the property which was vested in him until the notes were paid, should continue in him.Ensley Lumber Co. v. Lewis, 121 Ala. 94, 98,25 So. 729; McDonald Automobile Co. v. Bicknell, 129 Tenn. 493,167 S.W. 108; Winton Motor Carriage Co. v.Broadway Automobile Co., 37 L.R.A. (N.S.) 71 note, and cases cited. The theory that the transfer of the notes by indorsement carries with it the remedy of the conditional bill of sale vested in the seller, and by the transfer vested in the holder of the notes, leads, we think, to a sounder result than either of the other two theories of the authorities.
Our law is solicitous that all just debts shall be paid, and this rule promotes that end. If the title is left in the seller under the conditional bill of sale, no purpose will be met. He has transferred the evidence of the debt given for the purchase price. He has no further interest in collecting the purchase price. If it is carried on to the transferee of the notes, no burden is placed on the makers of the notes which they did not place on themselves. All that is done is to continue, in another, the remedy which they gave the payee of the notes and the seller to them of the personal property. This rule, as it seems to us, works for justice. It is supported by respectable authority, whether by the more numerous authority we cannot say, but by the better reason and by the better result. A vendor who sells a chattel, reserving the title until the purchase price is paid, retains the general property therein, not as the absolute owner, "but as collateral security, not differing materially *Page 218 from security by way of mortgage or other lien"; and a transfer of the debt carries with it, as an incident, his interest in the chattel, "in the same manner as the assignment of a mortgage debt would carry with it the mortgage." Esty Green v. Graham, 46 N. H. 169,170. In Ross-Meehan Brake Shoe Foundry Co. v.Pascagoula Ice Co., 72 Miss. 608, 615, 18 So. 364, Chief Justice Cooper said: "But the reservation of the title is but as security for the purchase price, and if the property is recovered by the seller, he must deal with it as security, and with reference to the equitable rights of the purchaser. . . . Being but a security for the payment of money, the benefit thereof follows the debt when assigned, as an incident thereof."
Cases are frequently cited to this point which involve purchase-money notes wherein the title was retained in the seller until the purchase price was paid. This agreement thus becomes a part of the note and of necessity goes with the note, hence the cases are not exactly in point. Townsend v. Southern Product Co., 127 Ga. 342,343, 56 S.E. 436; Spoon v. Frambach, 83 Minn. 301-304, 86 N.W. 106; W. W. Kimball Co. v. Mellon,80 Wis. 131, 48 N.W. 1100.
The analogy between notes secured by conditional bills of sale and notes secured by chattel mortgages, or notes secured by mortgages, is marked. And the rule that the mortgage is an incident or accessory of the debt is universal. "A mortgage of either real or personal estate is but an accessory or incident of the debt, or the security which is given as the evidence of the debt. The assignment of the security passes the interest in the mortgage." Langdon v. Buel, 9 Wend. (N. Y.) 80, 84. In Carpenter v. Longan, 83 U.S. (16 Wall.) 271, 274, the United States Supreme Court says: "The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment *Page 219 of the note carries the mortgage with it, while an assignment of the latter alone is a nullity." And in the late case of National Live Stock Bank v. First NationalBank, 203 U.S. 296, 306, 27 Sup. Ct. 79, the same court says: "The indorsement of the note and its delivery before maturity to the defendant by the payee of the note transferred its ownership to the defendant bank. This transfer also transferred, by operation of law, the ownership of the mortgage which was collateral to the note."
There is no error.
In this opinion the other judges concurred.