87 Kan. 221 | Kan. | 1912
The opinion of the court was delivered by
On June 6, 1901, the Holden Land and Live Stock Company executed to the Mutual Benefit Life Insurance Company a mortgage for $90,000, due in five years, upon a tract of land in Shawnee county, containing about 5603 acres, of which it was the record owner. On July 1, 1901, the Holden company executed a note to Howard M. Holden for $82,000, secured by a second mortgage on the same tract. This note and second mortgage, with other security, Holden at once transferred to the National Bank of Commerce of Kansas City, Missouri, to secure his note to that bank for $80,000, bearing the same date, due in one year and drawing eight per cent interest, which was subsequently renewed. Holden had personally purchased a tract of land in Missouri, borrowing a part of the amount necessary for the purpose from the bank. To secure the bank the deed was made to one W. H. Winants. Afterwards it was agreed that he should hold the title as further security for Holden’s note to the bank. In May, 1904, Holden caused to be executed to the Inter-State Trading Company deeds covering the tracts in Kansas and Missouri, less parts of the former that .had been sold, most of the proceeds having been applied to cutting down the incumbrances. On February 13, 1908, Holden and the Holden company brought an action against the bank and the Inter-State Trading Company, alleging in substance that the deeds had been given by way of security for the indebtedness owing to the bank, and asking,-if this should be found to have been
The plaintiffs complain of some of the findings of fact made by the referee and approved by the court. The objections have been examined, and are found not to be well taken. The findings will therefore be spoken of as the established facts. The details of the transactions will be stated no further than is thought necessary to present the questions of íáw that are regarded as controlling. ■
The flood of 1903 rendered a part of the Kansas land temporarily unproductive, and occasioned loss to
The contract of May -12 was made between the InterState Trading Company and Holden. This company was a corporation organized, owned and operated by the bank, for its own convenience, and for practical purposes the bank and the corporation were the same. The Holden company sustained the same relation to Holden. The contract recited that Holden had caused to be conveyed to the Trading company the absolute title to the lands in question, and had transferred to it various stocks, bonds and notes, which were held as collateral security for the same indebtedness; that in consideration thereof the Trading company had paid Holden’s note to the bank for $77,873.90, and also the sum of $6253.30 advanced by the bank to keep down the taxes and the interest on the first mortgage; provision was then made that Holden, until November 9 following, was to have the right to sell the property, as the agent of the Trading company, for not less than the sum of the amounts named, with interest, he to retain as commission .anything in excess of that sum. At the time of the execution of this contract the Holden company executed the deed to the Kansas land, which was delivered to the Trading company, and Holden
A mortgagor may,- of course, sell the mortgaged property to the mortgagee, although the transaction will be scrutinized closely to determine its fairness— being almost as much open to suspicion, it is said, as a purchase by a trustee from his beneficiary. (Villa v. Rodriguez, 79 U. S. 323.) It is also said that a conveyance of the mortgaged premises from the mortgagor to the mortgagee, will be regarded as a mere change in the form of security, unless it clearly and unequivocally appears that both parties intended otherwise. (Ennor v. Thompson, 46 Ill. 214; Skeels v. Blanchard, [Vt. 1911] 81 Atl. 913, 915.) It may be assumed that this contract on its face contemplated an actual sale, leaving Holden with nothing but a right to repurchase within a fixed time for a stated price.' But so far as there is any inconsistency between the two, this contract must yield to that .of May 14, which was executed by the bank, the Trading company, Holden and the Holden company. The second contract recited that the bank had deposited with James A. Patton (an agent of the bank) Holden’s note to the bank for $77,873.90 (with some collateral security), and a demand note for $6253.30 which Holden had given the bank May 12 .(being for the taxes .and interest on the first mortgage) ; that the Trading company had deposited with Patton its note to the bank for $83,675.32, due November 9, 1904; that Holden had deposited with Patton a bill of sale, transferring to the Trading company the bonds, stocks and notes securing Holden’s note, and deeds to the Trading company for the Kansas land, executed by the Holden company, and for the Missouri land, executed by Winants; the provision was made that if Holden’s notes were paid by July- 9, 1904, Patton should deliver to Holden the notes, the collateral and
Plainly the second contract superseded- the first. It recited the delivery in escrow by Holden to Patton of documents which.the first contract represented him as already having delivered to the Trading company. The first contract recited that Holden’s note and his obligation for $6253.30 had been paid, while the second one showed them still to be in full force. The case must, be determined by the effect of the second contract. What it in substance amounts to is’this: Holden, the mortgagor, and the bank, the mortgagee, agree that Holden is to have until July 9 to pay his debt; if he fails to do so he is to relinquish all claims to the land and the bank is to become the owner. The Trading-company’s function is merely to provide a method for carrying the property in the guise of commercial paper if the bank should become its owner. The deposit of' the instruments in escrow does not affect the character of the transaction. It is but a device to insure performance. The important question is, what rights did the law give the parties under this arrangement, rather than what did they conceive their rights to be.
It is a familiar and undisputed proposition that no force will be given to a stipulation in a mortgage (or in a deed, intended as a mortgage) by which the mortgagor agrees that if he fails to make payment by a stated time the mortgagee shall become the absolute owner of the property. (27 Cyc. 1098.) It is equally well settled that no effect will be given to such an agreement made separately from the mortgage, but at, the same time. (11 A. & E. Encycl. of L. 243.). This
“There is no principle-in equity better settled,«.'than that every contract for the security of a debt, by the conveyance of real estate, is a mortgage; and all agreements of the parties-, tending to alter, in any subsequent event, the original nature of the mortgage, and prevent the equity of redemption, is void. If the conveyance, or assignment, was a mortgage in the beginning, the right of redemption is an inseparable incident, and can not be restrained or clogged by agreement.” (Henry v. Davis, 7 Johns. Ch. 40, 42.)
“The maxim, once a mortgage always a mortgage, does not cease to be applicable on the execution of the instrument, and will, on the contrary, invalidate a subsequent agreement tending to preclude the exercise of the right of redemption.” (Leading Cases in Equity, White & Tudor, p. 1984, note.)
“Once a mortgage always a mortgage, may be regarded as a maxim of the court. Equity is jealous of all contracts between mortgagor and mortgagee, by which the equity of redemptipn is to be shortened or cut off. The mortgagor may release the equity of redemption to the mortgagee for a good and valuable consideration, when done voluntarily, and .there is no fraud, and no undue influence brought to bear upon, him for that purpose by the creditor. But it can not be done by a contemporaneous or subsequent executory contract, by which the equity of redemption is to be forfeited if the mortgage debt is not paid on the day stated in such contract, without an abandonment by the court of those equitable principles it has ever acted on in relieving against penalties and forfeitures.” (Batty v. Snook, 5 Mich. 231, 239.)*229 and the grantee gives the debtor a written agreement to convey the land on payment of the debt, the conveyance will be a mortgage only, and its character will not be changed by giving a new note and taking a new agreement to convey, in which time is made of the essence of the contract, and which provides that in case of failure to pay on the day named, ‘the intervention of equity’ shall be forever barred; — the relation of mortgagor and mortgagee will still exist.” (Tennery v. Nicholson, 87 Ill. 464, syl. ¶ 1.)
If the deeds to the Trading company are conceived as taking effect at the time of their deposit in escrow, or at the time of their first delivery to the Trading company, then they amounted to mortgages under the usual test — the continued existence of the indebtedness. (McNamara v. Culver, 22 Kan. 661; 1 Jones on Mortgages, 6th ed., §§ 264, 265; 27 Cyc. 1010.) If the parties by the plan outlined in the first contract intended to carry out an arrangement the legal effect of which would be to pass the title to the land, leaving Holden only a right for its repurchase, they are shown by the. second contract not to have consummated their purpose, but to have voluntarily abandoned that course and adopted one of a radically different nature, which made the deed, which had been signed and acknowledged,, but not finally delivered, in effect a mortgage. The second contract distinctly recognizes the notes as subsisting obligations of Holden, and the loss of his title to the land is made to turn upon whether or not they are paid
Two Kansas cases are cited as supporting the view that the deeds to the Trading company passed an absolute title. They are Martin v. Allen, 67 Kan. 758, 74 Pac. 249, and Fabrique v. Mining Co., 69 Kan. 733, 77 Pac. 584. In the former Martin owned land subject to a mortgage and several other liens. He deeded it to Allen, who assumed the payment of all Allen’s indebtedness, and agreed to reconvey to Allen at any time" within three years, upon payment of the amount with interest. The transaction was held to be a sale and not a mortgage, because there was no indebtedness owing from Allen to Martin at any time. Allen continued to be indebted to the mortgagee and to. the holder of a
On October 12,1904, the deed to the Kansas land was recorded. Holden on learning of the fact filed for record (on November 7, 1904) his copy of the contract of May 12, to which he added an acknowledged statement that the deed, with the contract, constituted, if anything, only a mortgage upon the property. On February 16,1905, a lease for the Kansas land for that year was executed from the bank to the Holden company, the rental named being $10,000. Holden, who had been in continuous possession, paid to the bank the income of the property, amounting to $8300.57. No request was ever made for any further payment on that account. Holden continued in, possession until this action was begun. The lease was not formally renewed. He paid the income for 1906 to the bank — $5005.78. In 1907 it received from a wheat crop $472.95. It is argued that the making of the lease was a recognition by Holden of the bank’s ownership of the property. We regard it only as a circumstance to be weighed with other matters in determining the attitude of the parties. (Wright
We agree with the referee and the trial court, that whatever may have been the legal effect of the writings entered into by the parties, their subsequent conduct was such as to preclude the defendants from denying to the plaintiffs a right to redeem the property. It was worth at the time of the contracts $60,000 above the liens against it. Holden continued to negotiate sales of parts of it, incurring considerable trouble and expense. Commissions were paid by the bank to him, but he turned them over to the agents who had made the sales. With the consent of the bank he retained in two instances a part of the proceeds. In order to carry through one sale he included an unincumbered tract of his own, the bank knowingly receiving the benefit. The bank kept what it called the Holden Collateral Account, in which record was made of the amounts received and disbursed in connection with the property referred to. This, however, was a matter of convenience and in accordance with its usual plan of carrying real-estate assets. At the request of the federal banking officials a deed was made by the Trading company to the bank in the early spring of 1905. Holden expended considerable sums in permanent improvements on the property. No accounting was had or asked by the bank concerning these expenditures or the rent account for three years. As sales of parts of the Kansas land were made
Pending the litigation the rights of the defendants were transferred to the Terrace City Realty and Securities Company. Holden has died since the eaüse was submitted, and it has been revived in the names of the successors in interest. The issues are not in any way affected by these changes. The trial court having concluded that the plaintiffs had only an equitable right to redeem the property, rendered judgment accordingly. As this court concludes that the relations of the parties have at all times been in effect that of mortgagor and mortgagee, the appropriate remedy is a foreclosure and sale. In effect, at least, the indebtedness is now all extinguished except a part of the first mortgage, the precise situation depending upon the'application of payments. There would be no purpose in attempting to apportion the remainder between the first and second mortgage, and the order will be made for the sale of the property to pay the balance due.
Usury was charged and collected upon the Holden' note. By the national banking act the exaction of usury destroys the interest-bearing quality of a debt. The referee decided that the plaintiffs were estopped from claiming the benefit of that provision. Nothing was said about usury until the present action was begun. Whether or not an actual estoppel has arisen, it was proper under the circumstances, in view of the
“When the borrower appears in any capacity in a ■ court of equity asking affirmative relief against a usurious contract to pay money such relief will; in the absence of statute providing otherwise, be granted him • only' upon condition of his doing equity, that is, tendering the money actually due. . . . ' .The rule . . . applies when the relief sought is the reformation or •cancellation of a deed, or mortgage, or other instrument evidencing or securing a usurious debt, or an injunction ■ against threatened damaging action by the creditor, or in fact, whatever be the character of .the relief sought. . . . In case the usurious interest has -been reserved, or paid in advance, the amount equitably due is the principal debt less the usurious excess of interest paid. ■ In the absence of statute providing otherwise if the contract for the usurious interest is still executory the sum equitably due is the principal debt with legal interest thereon.” (39 Cyc. 1010-1012.)
The plaintiffs complain of the action of the trial court in dividing the costs, but that is a discretionary matter, not ordinarily subject to review (Civ. Code, §615), and there is nothing in the present case to suggest an abuse of discretion.
The judgment will be modified by requiring the lien upon the Kansas land to be enforced by sheriff’s sale, •subject to the statutory right of redemption. Otherwise it is affirmed.