Fogarty v. Hunter

162 P. 964 | Or. | 1917

Mr. Justice Bean

delivered the opinion of the court.

It is the contention of plaintiff and Healy that the land was conveyed and the latter’s interest in the Spanton contract was assigned to the insurance company and that the same was accepted in payment of his stock subscription; while it is maintained by the receivers for the insurance company that the real estate was transferred by a deed in trust executed by Joseph M. Healy to Frank T. Hunter, trustee, as security for the payment of the stock.

We will first consider the contract of July 27, 1910. In so far as material to the controversy, its phraseology is as follows:

“Whereas, the party of the first part [Healy] is the owner in fee simple of the following described land in the county of Multnomah, state of Oregon, to wit: [Description follows] — subject to a first mortgage thereon for $30,000 to Realty Associates of Portland, Oregon;, * * Now therefore, this agreement witnesseth: In payment for said subscription of thirteen thousand five hundred (13,500) shares of the capital stock of the party of the second part, the party of the first part has caused Frank T. Hunter, of Seattle, county of King, State of Washington, as trustee, to execute and deliver to the party of the second part, his promissory note, payable to the order of the party of the second part, for the sum of two hundred seventy thousand ($270,000)- dollars, drawing interest at six (6%) per cent per annum, from the date of the issuance of said stock, and delivery to him of the stock certificates of the party of the second part representing the same, and as security for said note has executed and delivered contemporaneously herewith, to said Frank T. Hunter, as trustee, a trust deed covering all of the above-described real property, subject to said mortgage for $30,000, drawing interest at eight (8%) per cent per annum from July 28, 1910, and subject to the terms and conditions of said contract, ‘Exhibit A/ between tbe party of tbe first part and Spanton Company.

“II. The party of tbe second part [tbe Empire Life] agrees to and witb tbe party of the first part that it will cause Frank T. Hunter, trustee as aforesaid, to make conveyance of said lands from time to time as tbe same shall be sold, said sale to be at prices to be agreed upon between tbe party of tbe first part and said Spanton Company, in accordance witb tbe terms of ‘Exhibit A’; tbe terms of sale to be likewise in accordance witb the provisions of ‘Exhibit A, ’ or for cash.

“III. Tbe party of tbe second part further agrees that tbe first thirty thousand ($30,000) dollars derived from tbe sale of said lands in excess of tbe commission thereon going to said Spanton Company, and tbe said moneys necessary to keep said property free and clear from liens, together witb eight (8%) per cent interest on said thirty thousand ($30,000) dollars to tbe date of payment, as provided in said mortgage, shall be used to fully liquidate and pay off said first mortgage of thirty thousand ($30,000) dollars, with interest, as aforesaid; it being understood and agreed that all payments, thereafter derived from the sale of tbe property, after deducting said fifteen (15%) per cent and said moneys necessary to pay taxes and assessments and all other amounts necessary to beep said property free from liens, shall be paid to tbe party of the second part, as above provided, until tbe full sum of two hundred seventy thousand ($270,000) dollars, together witb six (6%) per cent interest thereon, as above provided, has been paid to tbe party of tbe second part.

“IV. Upon the said sum of two hundred seventy thousand ($270,000) dollars having been fully repaid, in manner aforesaid, to tbe party of the second part, tbe party of tbe second part agrees to cause said Frank T. Hunter, trustee as aforesaid, to convey all of tbe balance of said land, and turn over all tbe securities then on band representing tbe land theretofore sold to Spanton Company, and its receipt shall be a full discharge to the party of the second part hereunder.

“V. It is mutually understood and agreed that all notes, mortgages and contracts for portions of said land sold on deferred payments shall be made payable either to the order of said Frank T. Hunter, trustee, or to the order of the party of the second part, and the party of the second part may either hold the same as collateral security for said two hundred seventy thousand ($270,000) dollars, or such portion thereof as then remains unpaid, or, by making a credit thereon, it may become the sole owner thereof, freed from said trust.

“VI. It is mutually understood and agreed that said Frank T. Hunter, trustee, as aforesaid, will execute and deliver to the party of the second part his trustee’s note for two hundred seventy thousand ($270(000) dollars, drawing six (6%) percent, interest from the date of the delivery of said stock certificates, payable to the order of the party of the second part.

“VII. It is further mutually understood and agreed that all rights that the party of the first part has against Spanton Company and control over it, as provided in ‘Exhibit A,’ shall, upon the execution thereof, and deeding of said land to said Frank T. Hunter, as trustee, be transferred to and conferred upon the party of the second part, and for that purpose, the party of the first part hereby sells, assigns, transfers and sets over to the party of the second part all his rights, title and interest in and to said contract, ‘Exhibit A,’ with said Spanton Company.

“VIII. It is further mutually understood and agreed that the two (2%) per cent for collection services and two and one half ($2.50) dollars per deed in said contract with said Spanton Company directed to be paid to Realty Associates of Portland, Oregon, as compensation for its services, shall be equally divided between said Realty Associates, of Portland, Oregon, and said Frank T. Hunter, trustee, and it is mutually understood and agreed that said Realty Associates of Portland, Oregon, will attend to the collection of the moneys flowing from the sale of said lands, the bookkeeping connected therewith, and the reporting and accounting therefor to the parties entitled thereto, and that the other duties contemplated in said contract with said Spanton Company to be performed by said Realty Associates of Portland, Oregon, shall be performed by said Prank T. Hunter, trustee.

“IX. The party of the second part agrees to and with the party of the first part that at any time after the payment of said sum of thirty thousand .($30,000) dollars, and the release of said mortgage securing the same, it will cause said Prank T. Hunter, trustee, to convey to the party of the first part, or as he shall direct, four (4) blocks, aggregating thirty-two (32) lots, out of said property, as the same shall be platted and dedicated, without receiving compensation therefor and pursuant to the reservation contained in said contract between the party of the first part and said Spanton Company.

“X. The party of the second part further agrees to and with the party of the first part that it will cause said Prank T. Hunter, trustee, to dedicate, as by law required, the said premises above described, and to execute a proper instrument of. dedication, whenever called upon to do so by said Spanton Company.

“XI. The party of the second part further agrees to and with the party of the first part that if said thirty thousand ($30,000) dollars, with eight per cent (8%) interest thereon, as above provided, due said Realty Associates of Portland, Oregon, or any part' thereof, shall not be fully liquidated by sales of said property at the time of the maturity thereof, and an extension of time for the payment thereof cannot be obtained from the said mortgagee, it will take up and pay off the same to said Realty Associates of Portland, Oregon, and shall thereupon be subrogated to all the rights of said Realty Associates of Portland, Oregon, either by an assignment of said note and mortgage, or by the terms of this instrument, and thereafter shall be first repaid from the subsequent sales of said property, the same as though it had been the original mortgagee named in said mortgage in the place and stead of said Realty Associates of Portland, Oregon.

“XII. The party of the second part agrees within six (6) months on and after the date hereof, to resell, for the party of the first part, seventy-five hundred (7.500) shares of the said capital stock at not less than a price of ten ($10) dollars per share and ten ($10) dollars surplus, aggregating one hundred fifty thousand ($150,000) dollars, and in settlement of the sale thereof, to either account to the party of the first part in cash or in negotiable paper of good and solvent makers. It is understood and agreed, however, that in making this agreement to sell said seventy-five hundred (7,500) shares of its capital stock for account of the party of the first part, the party of the second part does not agree to pay any interest thereon.

“XIII. The party of the second part agrees that, if at the expiration of said six (6) months on and after the date hereof, it has not resold for account of the party of the first part all of said seventy-five hundred (7,500) shares of said capital stock of the party of the second part, it will forthwith instruct said Prank T. Hunter, trustee, to pay over to the party of the first part from all moneys or the proceeds of securities then on hand or thereafter received from the sales of said property such sum or sums, which, taken with the proceeds of any portion of said seventy-five hundred (7,500) shares theretofore or thereafter sold and accounted for to the party of the first part, shall amount to one hundred fifty thousand ($150,000) dollars, together with interest on the unpaid portion of said one hundred fifty thousand ($150,000) dollars at the rate of six (6%) per cent per annum, from the expiration of said six (6) months’ period, and the party of the first part agrees, as fast as said payments shall he made, to turn over to said Prank T. Hunter, trustee, the balance of said seventy-five hundred (7.500) shares of stock, free and clear of any claim on behalf of the party of the first part.

“XIV. It is specially understood and agreed that the party of the first part shall in no event be held personally responsible or liable for the payment of said sum of two hundred seventy thousand ($270,000) dollars, or any part thereof, but the party of the second part expressly covenants and agrees to look only to said security placed in the hands of said trustee, as above set forth, for the payment of said two hundred seventy thousand ($270,000) dollars. * * ”

All the several contracts are set forth at length in the record. It would occupy too much space to fully portray them here. This contract became effective in the State of Washington where it was delivered. We should look, therefore, to the laws of that state in construing the same.

1. As we construe the contract in question, Healy traded the real estate described therein subject to the $30,000 mortgage and subject to the conditions of the Spanton contract to the insurance company for 13,500 shares of the capital stock of that company. The real property, together with the 4 acres, or 32 lots reserved by Healy in the Spanton contract, and in the contract of exchange of July 27, 1910, was conveyed by Healy to Frank T. Hunter, as trustee, who was to dispose of and convey the land so exchanged under the direction of the insurance company.. Except for the shares of stock and the 32 lots which he held for Healy, Hunter held the title to the land for and as the trustee of the insurance company. It appears that in no évent' and under no circumstances contemplated by the contract was the land (except the part reserved) to revert to or be reconveyed to Healy, nor was the insurance company stock to revert to that company. There was no right of redemption of the land in Healy under the terms of the several contracts or as shown by the evidence in the case. According to the specific terms of the contract providing therefor, the note of the trustee for $270,000 given to the insurance company was a mere form. Hunter, the trustee, was not personally liable thereon, Healy did not sign the same, and it was expressly stipulated that the latter should in no event be held responsible or liable for the payment of the $270,000 or any part thereof. It appears to have been a convenient way to arrange for the carrying out of the Spanton contract to have the title to the land conveyed to Hunter as trustee instead of direct to the insurance company. All the proceedings indicate that it was then expected that sales of the land would be made, and that it was thought that conveyances of the different parcels could more conveniently be executed by Hunter at the direction of the insurance company than for the corporation to be burdened with those details. The note simply represented the real property and the proceeds that might be received therefor held by the trustee to which the insurance company covenanted to look solely for the payment of the $270,000. There was no debt from Healy to the insurance company to be secured. None was ever claimed by or on behalf of the insurance company prior to this suit. On the other hand the officers of the Empire Life Insurance Company recognized that it was indebted to Healy. The note was security only in name. In such a case a court of equity will look behind the mere form of the transaction and treat it in the light of its real character. Healy was not simply purchasing the stock but rather disposing of his real estate. The transaction was an absolute exchange or payment for the shares of stock in real property.

2. Under the decisions of the State of Washington a stock subscription to a Washington corporation may be made in property which is considered in good faith by the parties concerned as equivalent in value to such stock: Turner v. Bailey, 12 Wash. 634 (42 Pac. 115); Kroenert v. Johnston, 19 Wash. 96 (52 Pac. 605); Gold Ridge Mining & Dev. Co. v. Rice, 77 Wash. 384, 386 (137 Pac. 1001); Northern Bank & Trust Co. v. Day, 83 Wash. 296 (145 Pac. 182). Such a payment for stock is usual and lawful: 1 Cook on Corporations,-(7 ed.), § 18. The insurance company and Healy having made the lawful contract of July 27,1910, they and their successors are bound by it.

3. Passing to the agreement to resell the stock, the contract of July 27, 1910, relates to several transactions to take place in the future. As to that part of the memorandum agreement (paragraphs 12 and 13) where the insurance company agreed within six months to resell for Healy 7,500 shares of the capital stock at not less than $20 a share aggregating $150,000, and in the event of its failure to make such sale, it stipulated as follows:

“It will forthwith instruct said Prank T. Hunter, trustee, to pay over to the party of the first part from all moneys or the proceeds of securities then on hand or thereafter received from the sales of said property such sum or sums, which, taken with the proceeds of any portion of said seventy-five hundred (7,500) shares theretofore or thereafter sold and accounted for to the party of the first part, shall amount to one hundred fifty thousand ($150,000) dollars, together with interest on the unpaid portion of said one hundred fifty thousand ($150,000) dollars at the rate of six (6%) per cent per annum from the expiration of said six (6) months’ period.”

This was, in effect, an agreement to pay Mr. Healy out of the proceeds of its own property a certain amount of money for some of its own stock in the event that it did not sell such stock within a fixed period of time. The statute of Washington provides that no such life insurance company shall invest any of its funds in its own stock, and it is a familiar principle of law that a corporation may not do indirectly what it is prohibited from doing directly. It was in effect an attempted underwriting of the sale of property. This was in direct contravention of the Washington statute. We also note that this is purely a speculative feature contemplated by the memorandum. If a sufficient amount of the real estate should not be sold so as to make such transfer, no forfeiture, nor any other arrangement to carry out the proposed deal is provided for. The insurance company did issue the designated instructions to Hunter, but they were of no avail. Healy was to assist in the sale of the lands by fixing the price at which the lots were to be sold, but he did not guarantee that the lands would be sold at any particular price or at all. A kind of working program seems to have been mapped out. As to the provision for the resale of the stock unless actually made it would amount to no more than a “puffing” of the price of the same. However this may be, the statute of Washington provides, among other things, as follows:

“Nor shall such life insurance company invest any of its funds in its own stocks, or in the stock of any other insurance companies. * * No such company shall subscribe to or participate in any underwriting of the purchase or sale of securities or property.”

The courts of the State of Washington hold that a corporation cannot traffic in its own stock: Brenaman v. Whitehouse et al., 85 Wash. 355 (148 Pac. 24). If sales of the land had been made so that finances would have permitted the insurance company to repurchase the stock that company was inhibited by the laws of the State of "Washington from trafficking in its own stock: Kom v. Cody Detective Agency, 76 Wash. 540 (136 Pac. 1155, 50 L. R. A. (N. S.) 1073), and cases there cited; 1 Morawetz, Private Corporations (2 ed.), §112.

We are of the opinion that the contract and the dealings in regard thereto, including the security given to the Merchants’ National Bank, were made with reference to the laws of the State of Washington; that the stipulation contained in paragraphs 12 and 13 and in the contract of June 6, 1911, relating to the resale of the stock traded for was ultra vires the powers of the insurance company and void, and should be eliminated in construing the contract. This holding is in accordance with the plea of the defendant receivers.

4. In Central Transp. Co. v. Pullman’s Car Co., 139 U. S. 24, 60 (11 Sup. Ct. 478, 488, 35 L. Ed. 55), after a thorough discussion of the law as held in many cases, Mr. Justice Gray said:

“A contract ultra vires being unlawful and void, not because it is in itself immoral, but because the corporation, by the law of its creation, is incapable of making it, the courts, while refusing to maintain any action upon the unlawful contract, have always striven to do justice between the parties, so far as could be done consistently with adherence to law, by permitting property or money, parted with on the faith of the unlawful contract, to be recovered back, or compensation to be made for it.”

The invalid covenant being disposed of, the other provisions of the contract of July 27, 1910, are left unimpaired. It does not follow that the stipulation for the resale whether it was for show or whatever its intended purpose, would vitiate the contract of exchange which had largely been executed; nor is such a claim made by the plea of the receivers: See Quartz Glass & Mfg. Co. v. Joyce, 27 Cal. App. 523 (150 Pac. 648, 650); White Mountain R. R. Co. v. Eastman, 34 N. H. 124; Kom v. Cody Detective Agency, supra.

The land was conveyed by Healy to a trustee for the insurance company which has for a long time had complete dominion and control over the same; and the shares of stock were issued to Healy and were disposed of with his consent and approval.

The finding and decree of the trial court went further than as claimed by the pleadings of the defendant receivers and held the entire contract of exchange void, not, however, for the reason that it was ultra vires but on account of what it considered an overvaluation of the real property. We do not find any issue raised by the pleadings in regard to such an overvaluation. It, however, may be said that the evidence shows that the value of the real estate at that time was in excess of the par value or real value of the stock traded for.

During the six months subsequent to July 27, 1910, the insurance company sold for Healy 1,138 shares of the capital stock held by him for the sum of $22,760, and turned over this sum to him. Healy delivered the stock, which in so far as the record discloses has passed beyond recall and is held by parties not interested in this case. This sum was not paid out of the funds of the insurance company and did not belong to it. The only equity that the insurance company could possibly have in this transaction would be a commission or compensation for making the sale. It is not shown what exertion was made or expense incurred in making the deal. The Circuit Court decreed that this amount should be paid by Healy, not to the parties who had purchased the stock, hut to the receivers of the insurance company. This stock belonged to Healy. It was not owned by the insurance company and in equity the money should not be paid to that company nor to its receivers.

The mushroom capital stock of the Columbus Securities Company was accompanied by an income certificate from that company guaranteeing to plaintiff Healy interest at the rate of 7 per cent per annum for a period of 20 years upon the exchange value of stock. Apparently in order to keep the stock afloat and before the bubble burst and the securities company became insolvent, that company paid interest thereon to Healy amounting to $17,306.80. This is all the benefit Healy ever received from such stock. The decree of the lower court provided that this sum should be paid to the insurance company. According to our construction of the contract herein indicated, this should not be required. This money did not belong to the Empire Life Insurance Company.

5. We come next to the consideration of the $30,000 mortgage. It is contended on behalf of the receivers, under the provision in the contract of July 27, 1910, that the insurance company should turn over to the Spanton company all property remaining after the payment of the $270,000, and the provision in the Spanton contract to the effect that, if the Spanton Company did not perform its contract, all its rights should terminate, and that perforce the land would revert to Healy, that, as the Spanton contract was never performed, but was forfeited, therefore the rights thereunder reverted to Healy, that the legal ownership of the real property in question has at all times remained in Joseph M. Healy, that when defendant Healy as such owner paid the $30,000 mortgage he was paying Ms own indebtedness and the mortgage became extinguished. This contention in regard to the Span-ton contract leaves out of consideration the stipulation in the contract of July 27, 1910, to the effect that the insurance company should succeed to all rights that Healy had against the Spanton company by virtue of the Spanton contract, which was assigned by Healy to the insurance company. When the Spanton Company failed to acquire the right to all the land and the proceeds . thereof over and above the payment of the $300,000, such right passed to the insurance company.

As we have before indicated the title to the land in question was transferred by Joseph M. Healy to Frank T. Hunter, trustee, by an absolute deed of conveyance, which was made subject to the mortgage given by Healy to the Realty Associates to secure his note for the sum of $30,000. The mortgage was given to secure a bona fide debt owing to that concern by Healy. The contract of July 27, 1910, evidencing the right of the insurance company to the real property plainly recogMzed the validity of tMs mortgage and provided that the rights of that company were subject to it. The eleventh paragraph of the contract contains an agreement on the part of the insurance company to pay said mortgage from its own funds in case it should not be paid from the proceeds of the sales of the property in Healy Heights. The courts and the text-book writers recognize and announce the principle governing in such a case as stated in 3 Pomeroy’s Equity Jurisprudence (3 ed.), Section 1205, as follows:

“Where a mortgagor conveys by a deed which states simply that the conveyance is ‘subject to’ a certain specified mortgage, or words to that effect, the grantee takes the land burdened with the lien. As between himself and the grantor mortgagor, the land is the primary fund out of which the mortgage debt should be paid; he cannot claim that the mortgagor should pay off the mortgage and thus exonerate the land. * * A grantee who thus takes a conveyance subject to a mortgage is presumed to have included the mortgage debt in the purchase price, and is not, therefore, permitted to dispute the validity of the mortgage ; in this respect he is in the same position as one who expressly assumes the mortgage.”

See Title etc. Co. v. Wrenn, 35 Or. 62 (56 Pac. 271, 76 Am. St. Rep. 454); Bronson v. La Crosse etc. Co., 2 Wall. 283, 310, 311 (17 L. Ed. 725); Jerome v. McCarter, 94 U. S. 734, 736 (24 L. Ed. 136); Horton v. Davis, 26 N. Y. 495; Pratt’s Exr. v. Nixon, 91 Ala. 192, 198 (8 South. 751, 753); Central Bank v. Hazard (C. C.), 30 Fed. 484, 486; Miss. Val. Trust Co. v. Washington etc. R. Co. (D. C.), 212 Fed. 776.

The mortgage was not paid. The Realty Associates demanded its money and for his own protection Healy, who had assigned the note, was obliged to pay the debt which he did on August 3, 1912, two years after the conveyance to Hunter, as trustee, for the insurance company which agreed to take care of this mortgage debt. Healy manifestly intended to preserve his right to be subrogated to the rights of the Realty Associates by an assignment of the mortgage. Subsequently the note and mortgage were assigned to R. L. Donald, trustee, for Healy’s benefit. According to the principles of equity and fair dealing, the insurance company and its receivers should not be permitted to take advantage of their own default and secure an interest in the real estate in dispute free from the lien of the mortgage. Under the circumstances enumerated Healy or his trustee is entitled to enforce the mortgage.

It is stated in 27 Cyc. 1329, as follows:

“After a mortgagor has sold his equity of redemption in the mortgaged premises, the grantee taking subject to the mortgage or assuming and agreeing to pay it, or af ter it has been sold on execution such mortgagor may take an assignment of the mortgage without discharging it, and hold it as a valid lien against the property.”

1 Jones, Mortgages (6 ed.), § 861a, reads thus:

“If the mortgagor takes an assignment of a mortgage after the premises have been sold subject to the mortgage, the mortgage is not thereby discharged so that it cannot be enforced against the property. ‘When the estate was sold subject to the mortgage, the mortgage was left as a primary charge upon the land, although the grantee did not make herself personally liable for it by assuming it. The grantor, who was the maker of the mortgage note, was entitled to have the mortgaged property applied in payment of it. To protect her own interests she might take an assignment of the mortgage and the debt and enforce the mortgage by a foreclosure as effectually as if she was not the maker of the note.’ ”

The case of Pratt v. Buckley, 175 Mass. 115 (55 N. E. 889), is so strictly in point that we quote at length from the opinion:

‘ ‘ On March 3,1893, Alice M. Pratt was the owner in fee of the property in dispute, and she mortgaged it to one G-ould to secure the payment of $850. On March 7th óf the same year she conveyed the premises to one Robinson by a deed which recited that the land was conveyed subject to a mortgage, and which excepted the mortgage from the covenant of warranty and the covenant against encumbrances. Afterwards the mortgagee notified her that the note was unpaid, and that, if it was not satisfactorily arranged at once, she should foreclose the mortgage and hold her responsible for any deficiency in the payment of the note. Accordingly, to protect herself, she caused the amount- of the note to be furnished said Robinson on the execution of an assignment of the mortgage to one Swain, which, with the note, was delivered to her agent, she intending to preserve her rights as assignee of the mortgage. Afterwards Swain assigned the mortgage to her and she foreclosed it. * # The principal question in the case is whether the transfer of the note and the assignment of the mortgage to the original mortgagor after the premises had been sold subject to the mortgage constituted in law a discharge of the mortgage, so that it could not be enforced against the property. "We think it very clear that they did not. # * To protect her own interests she might take an assignment of the mortgage and the debt, and enforce the mortgage by a foreclosure as effectually as if she was not the maker of the note.”

The same principle was announced and applied in the following cases: Barker v. Parker, 4 Pick. (Mass.) 505; Baker v. Northwestern Loan Co., 36 Minn. 185 (30 N. W. 464); Stillman’s Executors v. Stillman, 21 N. J. Eq. 126; Gerdine v. Menage, 41 Minn. 417 (43 N. W. 91); Kay v. Castleberry, 99 Ark. 618 (139 S. W. 645, 648).

The transfer of the mortgage to Donald, as trustee for Healy, did not satisfy it. The land at that time was owned .by a third party and the mortgage was a valid encumbrance thereon. Healy stood in the situation of a surety on the note and in order to protect his own interest and credit could pay the debt and have the same and the mortgage securing it assigned to a trustee for his own benefit and have the mortgage enforced by a foreclosure as effectually as though he were not the maker of the note: Harris, Subrogation, § 651. Healy then had no title to that part of the land in dispute. The mortgage, therefore, did not merge with the legal title either under the rule stated in Katz v. Obenchain, 48 Or. 352 (85 Pac. 617, 120 Rep. 821), cited by counsel for the defendant receivers, or otherwise.

The insurance company in part performance of their agreement paid $7,000 interest on the mortgage to July 27, 1913. The evidence shows that the sum of $2,500 is a reasonable amount as attorney’s fees in this suit for foreclosing the mortgage.

6. During the progress of the litigation in accordance with several orders made by the trial court Healy paid the taxes on the property in dispute to protect the title thereof. The purport of the order passed on the 4th and 6th of November, 1914, is shown by the following excerpts therefrom:

“It is considered, ordered, and adjudged that the defendant Joseph M. Healy be, and he is hereby authorized and empowered to redeem the following described real property from the following described tax liens thereon, to wit: [Here follows a description of the tax liens]. * * It is ordered and decreed by the court that the advances made by the defendant Joseph M. Healy for the payment of taxes protected under an order and decree heretofore entered shall bear interest at the rate of 7 per cent per annum pursuant to the proposition contained in the petition of the said Joseph M. Healy, and that the interest shall be protected in like manner with the principal.”

On August 30, 1915, a portion of the order passed by the trial court reads thus:

“It is adjudged and decreed that the amounts expended by the said Joseph M. Healy in payment of the said taxes, together with 7 per cent interest thereon, are a first lien and encumbrance .on the real property described in the complaint and in the cross-bill of the defendant Joseph M. Healy, and that the said moneys be first paid to the said Joseph M. Healy out of the sale of the property described in the complaint and the cross-bill prior to any and all other claims set forth in the complaint and in the cross-bill.”

The mortgage given to the Eealty Associates dated July 27, 1910, contained a provision to the effect that the mortgagor would pay all taxes lawfully levied on the property, and that in case the mortgagor should fail so to do, the mortgagee might pay the same, and the amount so paid with interest at 8 per cent per annum thereon would be payable by the mortgagor at the payment of the next installment of interest and that the said land should be part of the debt secured by the mortgage and a lien upon the land. Pursuant to the several orders of the court Healy paid taxes lawfully levied on the property as follows:

November 7, 1914.........................$2,196.85

November 20, 1914........................ 1,005.85

January 7, 1915.......................... 335.99

August 31, 1915........................... 718.01

Aggregating ...........................$4,256.70

—which amount Healy is entitled to, with interest at 7 per cent per annum from the several dates of payment upon the respective amounts, and which he is entitled to have declared a first lien upon the real property in controversy.

7. It was provided in the agreement made by Joseph M. Healy with the Spanton Company that 4 acres of the land should be excepted from the sale. Pursuant to this reservation by the ninth paragraph of the contract of July 27, 1910, the insurance company agreed with Healy that at any time after the payment of the $30,000 mortgage it would cause the trustee to convey to Healy, or as he should direct, 4 blocks aggregating 32 lots out of the property as platted and dedicated without compensation pursuant to the reservation in the Spanton contract. In accordance therewith Healy selected the property as above stated. Hunter was a naked trustee for Healy of these tracts of land. While the lots are subject to the lien of the $30,000 mortgage the contract of July 27, 1910, plainly provided that this mortgage should be paid from the proceeds of the other portion of the real estate. Healy is entitled to a deed from Frank T. Hunter, trustee, conveying the 32 lots above described.

The claim of plaintiff assigned by the Merchants’ National Bank being for a portion of the amount agreed to be paid to Healy on account of a resale of the stock in the insurance company falls with the elimination of the contract for the resale contained in said paragraphs 12 and 13, and in the contract of June 6, 1911. The claim for the balance of such payment made by defendant Healy in his answer and cross-complaint falls for like reason.

The decree of the lower court will therefore be reversed, and one entered here in accordanc with this opinion: First, requiring Frank T. Hunter, trustee, to make, execute and deliver a deed of conveyance of the 32 lots described above to Joseph M. Healy, or as he may direct; second, foreclosing as a first lien the taxes amounting to $1,256.70, with interest as above stated; third, foreclosing the mortgage of $30,000, with interest from July 27, 1913, at 8 per cent per annum, and $2,500 attorney’s fees, as prayed for in the complaint. In the event of the payment by the insurance company, or its receivers, of the several amounts above specified, with interest, costs and expenses incurred, then Frank T. Hunter, trustee, is authorized to make, execute and deliver a deed of conveyance of the real property, excepting the 32 lots, to the receivers of the defendant insurance company.

Reversed. Rehearing Denied.

Mr. Chief Justice Moore, Mr. Justice Burnett and Mr. Justice Harris concur.