158 A. 557 | Pa. | 1931
Argued April 22, 1931. This case involves the validity of a mortgage to secure future advances and its priority in lien as against a judgment creditor whose judgment attached after the advances were made. The mortgage was executed by Louise S. Jurist and her husband on June 7, 1917, and covered certain property in Philadelphia and Montgomery Counties. The mortgagee was Florentine S. Sutro. The initial obligation secured by the mortgage was a demand note for $5,000 with interest at 5%. The mortgage contained the following provision: "Whereas, the said party of the second part may hereafter, during the continuance of these presents, make further advances to the said Louise S. Jurist, one of the parties of the first part, and it is intended that the same, with interest, shall be secured thereby." Between September 14, 1917, and May 21, 1920, Mrs. Sutro made ten additional advances to Mrs. Jurist aggregating $15,000 for which she took notes. All the properties subject to the mortgage, except the property at 1308 North Broad Street, Philadelphia, were subsequently released from this mortgage lien by Mrs. Sutro as an act of friendship to Mrs. Jurist. The North Broad Street property was, before the mortgage to Mrs. Sutro was executed, encumbered with a first mortgage for $13,000 given to Henry G. Freeman, *68 Jr., and subsequently assigned to Joseph A. Batten, who instituted the foreclosure proceedings which constituted the basis of the present action. In 1922 Mrs. Jurist made a statement in writing to the Northwestern National Bank Trust Company, hereafter referred to as the bank, to the effect that the entire mortgage indebtedness on the North Broad Street property was $18,000 including the $13,000 first mortgage. This statement accompanied an application for a loan. Credit was thereafter extended to Mrs. Jurist from time to time until her indebtedness to the bank amounted to more than $41,000 evidenced by a consolidated note, upon which judgment in foreign attachment proceedings was obtained against Mrs. Jurist for $44,133.99. Execution was issued on this judgment and a sale by the sheriff was had and the premises were bought by the attorney on the writ for $34,000. After paying the first mortgage and interest and costs, there was a balance in the hands of the sheriff of $16,339.76. The bank claimed that Floretine Sutro as the holder of the mortgage of June 7, 1917, was not entitled to more than the specific amount stated therein, $5,000, plus interest. Florentine Sutro claimed the balance in the hands of the sheriff in liquidation of the advances made by her subsequent to the execution and recording of the mortgage and all of which she declared remained unpaid. Interest had been paid on these advances by Mrs. Jurist until March 20, 1922. The balance in the sheriff's hands was paid into court and an auditor appointed to make distribution. The issue was between Mrs. Sutro and the bank.
The auditor found as a fact that Mrs. Sutro advanced a total of $20,000 to Mrs. Jurist, including the original $5,000. The auditor negatived the contention of the bank that the evidence supported the inference that the loan had been repaid and held that the mortgage in question was a lien which as to all advances made was prior to a judgment which attached after the advances *69 were made. The court below dismissed the exceptions filed to the auditor's report, confirmed that report, and decreed that the fund of $16,339.76 should be paid Florentine S. Sutro, subject to the auditor's fee of $500 and the costs of the audit.
The judgment of the court below should be affirmed. As to the first question, that is, the alleged inference of repayment of the advances, the testimony of Mrs. Sutro and her banker-husband that the money had not been repaid and the corroborating fact that they had in their possession the notes given for the advances was not overcome by any fact or inference of facts to the contrary. Nor could the statute of limitations be successfully pleaded though it is true that the last interest payment was made on the notes in March, 1922. A creditor may hold and realize on collateral pledged to recover a debt although action on the principal obligation is barred by limitation: 37 Corpus Juris, page 701; Sproul v. Standard Plate Glass Co.,
The appellant's chief contention is that a mortgage to secure a specific sum and also to secure further advances unlimited as to time and amount is not valid against subsequent lien creditors for an amount exceeding the specific sum named and interest thereon.
While much may cogently be said about the impolicy of legally recognizing such mortgages and some states have by statute denied them legal recognition, such mortgages have long received judicial sanction in Pennsylvania.
In Garber v. Henry, 6 Watts 57, a mortgage for future advances was upheld. It is true that there the mortgage *70 referred to articles of agreement in which the future indebtedness to be secured by the mortgage were specifically set forth. But this agreement was not recorded and one about to become a junior creditor would have to exercise diligence to ascertain the extent of the then existing encumbrance.
In Land Title Trust Co. v. Shoemaker,
In Moats v. Thompson,
The appellant contends that Moats v. Thompson is not controlling authority in this case, saying, "The dispute [there] was between codebtors or their privies in the same transaction, and did not involve outside parties." This distinction is without merit. If the mortgage for "future advances" did not bind Thompson's land in that case, the proceeds from the sale of that land could not have been legally applied to the liquidation of those advances. But this court held that it did bind the land and that the proceeds from the sale thereof could be so applied. That question is therefore settled. If the mortgage for uncertain future advances bound the land in that case it bound the land in the case now before us and equally here as there the proceeds from the sale of the land can legally be applied to the liquidation of the "future advances" the mortgage secured. This court said in the Thompson Case that "there is no doubt but that mortgages may be made to cover future advances and that they are valid and binding." This court, however, in the same case recognized the rule that "advances relate in lien to the actual date of the advancement instead of the date of the mortgage and are subsequent to all intervening encumbrances." A mortgagee cannot make voluntary additional advances after knowledge of an intervening claim and then have priority as to such advances. "Actual notice to the mortgagee will cut off his priority as to all optional future advances thereafter made": Menzier v. Lightfoot, 9 H. L. 11 Eq. 459 (Eng. 1871); Hopkinson v. Rolt, 9 H. L. Cas. 514 (Eng. 1871). However the rule thus variously stated had no application in the Thompson Case and has none here.
The judicial recognition accorded in Pennsylvania to mortgages for unlimited future advances as exemplified in the Thompson Case just reviewed and in the case now before us, is in harmony with the weight of American *74
authority. See Robinson, Receiver, v. Williams, Receiver,
There is much logic in the argument that the judicial recognition accorded mortgages for unlimited future advances offends the spirit of our modern Recording Acts. For example, the Act of April 29, 1909, P. L. 289, section 1, provides that the recorder shall deliver at stated intervals to the board of revision of taxes or other officials charged with the assessment of state tax a list of the mortgages recorded, assignments, etc., with the names and residences of the mortgagees, assignees or persons entitled to interest, with the amount and date of the mortgages, etc. A mortgage given for future advances would put the recorder to the trouble of ascertaining the amount of such advances and this information might be withheld from him. However, the act quoted would not in itself justify us in departing from the judicial precedents long established in cases like this and in cases of cognate character. At present the question whether or not mortgages for unlimited future advances are in harmony with the spirit of our Recording Acts, is legislative and not judicial, and if public policy is to condemn such mortgages it must find statutory expression, as it has in Maryland and New Hampshire (Maryland: section 2, article LXVI, Code of Public General Laws, edition of 1924; New Hampshire: section 4, chapter 215, Public Laws of 1926).
The judgment of the court below is affirmed. *75