Smith v. Moore , 112 Iowa 60 ( 1900 )

Deemer, J.

2 On December 4, 1890, J. W. Foreman, who held the legal title to the property in controversy, made a mortgage on the same to-secure a note of $4,000, of even date' therewith, to plaintiff. Allen Smith was the beneficial owner of the property, and on the same day Foreman executed a quitclaim deed to said Smith, therefor, by the terms of which he (Smith) assumed and agreed to pay the note and mortgage. This note and mortgage were executed for the purpose of enabling Allen Smith, to use them in paying for the property. The vendors refused to accept the same as payment. Allen Smith, to whom the plaintiff had. forwarded the note and mortgage for use in paying for the property, thereupon returned the same to plaintiff, who had at that time paid nothing therefor, and the papers remained in his possession unrecorded, until April of the year 1892, at which time Allen Smith borrowed of plaintiff the sum' of $5,000, executed his note therefor, and agreed that the $4,000 note and mortgage should be held as collateral security for the loan. The mortgage has never been recorded. Thereafter, and on October 5, 1892, plaintiff loaned Allen Smitli -another $5,000, taking his note therefor, and to secure the two loans Allen Smith executed, to plaintiff a deed and an assignment of his interest in certain lots in the city of Chicago. This deed was dated October 17, 1892, and was for the expressed consideration of $1,000,000. On October 11, 1897, Allen Smith and his wife executed to plaintiff another note for the sum of $501.85, and at the same time executed a second mortgage on the-property in controversy to secure the same. This mortgage was duly recorded. March 23, 1897, Allen Smith and wife-executed a note for the sum of $5,000 to the First National .Dank of Boone, Iowa, and at the same time made a mortgage on the property in controversy to defendant, Moore, to secure the said note. This mortgage was recorded on March-26, 1897. On August 27,. 1898, plaintiff obtained a decree of foreclosure of the deed and assignment of the Chicago property in an action brought by him against Allen Smith, and his wife and defendant, Moore, in the Cook county, Ill., courts. Smith and wife and Moore were residents of this state, and were personally served with notices of the proceedings in the Illinois courts, in this state. They did not appear to that action, and judgment and decree were taken, against them by default. The amount found due at that time was $16,620, and the property ivas ordered sold. The property was sold for $13,000, and of this amount $12.-721.95 was applied on the debt due the plaintiff. Plaintiff also paid $988.78 in redemption from tax sale of the property in controversy. This payment was made October 13, 1897, to protect his security, and he asks judgment for the amount so paid, with interest. Other facts that áre deemed material will appear as we proceed.

3 On behalf of appellant it is contended that the original $4,000 note and mortgage are of no validity. It is admitted that plaintiff paid no consideration therefor at the time they were executed. The purpose of their execution was to enable .Vilen Smith, the beneficial owner, to raise the money with, which to pay for the property. As soon as executed by Pore-man, they were delivered to Allen Smith, who, as we have seen, had agreed to pay the same, and he (Smith) received them from plaintiff for that purpose. When it was discovered that they could not be used for that purpose, they were returned to plaintiff, who, as we have seen, had not down to that time paid anything therefor. lie held them, however, for the period above stated, and, when making the $5,000 loan to Allen Smith, received them as collateral security for this loan. No rights or interests of third parties in or to the property intervened between tlie making of these instruments and the deposit of the same as collateral security. Defendant’s claim that the delivery of the note and mortgage to Allen Smith, who had agreed to pay the same, operated as a cancellation and satisfaction thereof, cannot be sustained - The papers were not delivered to Smith because they were satisfied. Plaintiff sent them to him for use for the purpose intended, and not because he had satisfied his obligation to extinguish them by payment. When the purpose for which they were executed failed, they were returned to plaintiff-who held them until he made the $5,000 loan, when it was agreed they should be retained as collateral security for that loan. Had the note and mortgage been paid, it is doubtless true that they could not be revived. Certainly they could notbcrevivodasagainstasubsecpientpurchaser in good faith. Put such is hot the situation here. Neither the note nor mortgage were extinguished, and neither party so understood it. Indeed, they were dormant until plaintiff advanced his money on the strength thereof. Allen Smith was under no obligation to pay them until they became effective, and that was not until some one had paid a consideration therefórWhen he received them from plaintiff, it was not because lie, had performed an obligation he was under with reference thereto, but because they had been executed for the purpose of enabling Allen Smith to use them in payment for the land, or to obtain money thereby with which to pay for the land. There was no satisfaction of the note or mortgageTlie doctrine of merger has no application, for it is apjiarent that it was the intention of all parties to keep the mortgage, alive, and, as there were no intervening rights of third, parties, they will be upheld. Byington v. Fountain, 61 Iowa, 512. The conduct of Allen Smith is such as to indicate that he intended at all times to negotiate the instruments, and not to satisfy them. See, as sustaining our conclusions, 1 Jones, Mortgages, sections 86, 611. As plaintiff’s $4,000 mortgage was not recorded, and defendant’s (Moore’s) was, plaintiff cannot recover without showing that Moore had notice or knowledge of the mortgage, or that he is not a subsequent purchaser. The evidence is in square conflict on this proposition. We are constrained to hold that •Moore had actual notice of the plaintiff’s mortgage at the time he received the one on which he relies. Nothing is to be gained by setting out the evidence that leads us to this conclusion, and we content ourselves by simply stating our conclusion. Moreover, defendant, Moore, while on the witness stand, stated that his mortgage was taken to secure an indebtedness existing from the maker of the-note to the First National Bank; that the note for $5,00Q which the mortgage was made to secure represented a part of that indebtodness. The fair inference from this evidence is that the mortgage was made to secure a pre-existing indebtedness to the bank. If that be true, and there was no other consideration, then defendant was not a purchaser for value, and cannot claim priority over plaintiff’s mortgage. Phelps v. Fockler, 61 Iowa, 340.

4 II. Again, it is insisted that plaintiff’s notes were merged in the judgment recovered in Cook county, and that the action of plaintiff, if he has any, is on that judgment. Had the judgment been in personam, it is likely true that defendant’s contention should be sustained, although we are not to be understood as indicating that that would defeat plaintiff’s right to foreclose his mortgage. But the judgment was in rem. Moore and his co-defendants in that suit were residents of this state, were served with notice in this jurisdiction, and did not appear in the Illinois court. That court had no jurisdiction to render a personal judgment. If the record disclosed a personal judgment, it could not be enforced in this state, for the foreign court had no jurisdiction to render it. Action must be on the note, the original evidence of indebtedness; and the amount received on the judgment in rem is material only to the determination of the question of the amount due. The judgment was not a merger or a bar. It simply amounted to the payment of so much oi the claim. The cases relied on by the appellant all relate to personal judgments. See Lawrence v. Beecher, 116 Ind. Sup. 312 (19 N. E. Rep. 143) ; Banlc v. Wheeler, 28 Conn. 433. As sustaining our conclusions in this branch of the case, see Freeman Judgment, sections 218, 221; Bank v. Peabody, 55 Vt. 492, which is directly in point. As already indicated, there is no occasion to determine the question of the validity of this defense, even if it appeared the judgment was in personam., It may be that under our statute (Code, sections 3428, 4288) the foreclosure suit might proceed independent of the action on the note. Indeed, we have already held that a general judgment on a note does not merge the mortgage secured thereby. Matthews v. Davis, 61 Iowa, 225; Morrison v. Morrison, 38 Iowa, 73. See, also, Shearer v. Mills, 35 Iowa, 499.

5 • III. Further, it is claimed by appellant that the amount received from the sale of the Chicago property should be applied in satisfaction of the first note, which is the one sued on herein, or pro rata on all the notes the deed or assignment was made to secure. This contention involves the doctrine of application of payments. The judgment in the Illinois court on its face was for the total amount of the two $5,000 notes, with interest, and included the taxes paid by plaintiff. The decree provided for the sale of the property to pay this indebtedness, no other direction being made as to the application thereof. Plaintiff receipted for the net proceeds of the sale, “on account of the debt and interest due to said complainant under said decree.” In bringing this suit on the first $5,000 note, plaintiff allowed credit thereon of the balance remaining of the sum received from the sale of the Chicago property, after satisfying the second $5,000 note and the taxes paid on the Chicago property that were included in the judgment, leaving the amount due thereon at the time of trial $4,892.25. The authorities seem to be in conflict on the rule for the application of involuntary payments. The doctrine that seems to bo sustained by the weight of authority is that if payment is coerced by process of law, and the fund derived is not sufficient to pay all of two or more claims in suit, application will generally be to all ratably. See Browning v. Carson, 163 Mass. 255 (39 N. E. Rep. 1037) ; Bank v. Brown, 12 N. II. 320; Bank v. Moore, 112 N. Y. 543 (20 N. E. Rep. 357, 3 L. R. A. 302) ; Jones v. Benedict, 83 N. Y. 79; Sheldon v. Bennett, 44 Mich. 634 (7 N. W. Rep. 223). We have not adopted this rule, however. Thus, in Small v. Older, 57 Iowa, 326, involuntary payments insufficient to pay all claims were so applied by the courts so as to pay the unsecured rather than the secured ones, and the doctrine of pro rata payments was repudiated. Again, in Hanson v. Manley, 72 Iowa, 48, involuntary payments were so applied by the court as to satisfy the unsecured, rather than the secured debts. See, also, Banl v. Whinery, 110 Iowa, 390. This rule is not without support in other jurisdictions. See Nichols v. Knowles, C. C., 17 Fed. Rep. 494; Wilson v. Allen, 11 Or. 154, 2 Pac. Rep. 91; Bank v. Ginly, 108 Cal. 148 (41 Pac. Rep. 38) ; Mathews v. Switzler, 40 Mo. 301; President, etc., v. Brown, 22 Me. 295. As we are not alone in our holdings, and as the'result of the rule appears to be equitable, we do not feel like changing it at this time, although it may not be in accord with the numerical weight of authority.

6 IV. Complaint is made of the taxation of attorney’s fees. The exact point is that, as attorney’s fees were allowed in the suit in Illinois, they should not be taxed here. As the action was properly brought on the note, which pro-Added for attorney’s fees, there Avas no error. Moreover, the mortgage that AA'as foreclosed expressly provided for attorney’s fees, as did the $4,000 note, neither of which were involved in the Illinois suit. Attorney’s fees were propertly taxed.

The parties have filed a stipulation relating to defendant’s right of redemption. Pursuant to this stipulation, it is ordered that defendant have three months from the filing of this opinion within which to make redemption from the sale, if he is so advised. The' decree of the district court allowing the plaintiff the amount due on his $5,000 note, and for the taxes paid, with interest, directing a sale of the mortgaged premises for the amount found due, and decreeing that the lien of plaintiff’s mortgage is superior to that held by defendant under his mortgage, is in all respects arriemed.

Granger, C. J., not sitting.