Missoula Trust & Savings Bank v. Boos

R.R. Jones and wife on September 28, 1911, executed and delivered a note for $1,075, maturing two years after date. A real estate mortgage was executed and delivered by them, of even date, to secure the payment of the note. Theresia Boos thereafter purchased the note. The interest was paid up to September 26, 1935, but no payments were made on the principal sum. Mrs. Jones died and thereafter her husband died on April 2, 1936. Theresia Boos filed a petition as a creditor of the estate of R.R. Jones, deceased, on July 3, 1936, requesting the appointment of Herbert W. Steiger as administrator of the estate, and he was appointed on July 14, 1936. He qualified by giving a bond in the sum of $100, and letters were issued to him on July 15, 1936.

Theresia Boos filed action for the foreclosure of the mortgage, naming the administrator and the plaintiff herein as defendants. As to the interest of the plaintiff herein, it was alleged in the complaint that it "claims some interest or lien upon said property but the same, if any, is inferior and subsequent to the claim of this plaintiff." The prayer of the complaint was for a judgment for the principal, interest, attorneys' fees, cost of suit, foreclosure of the mortgage, and all other proper relief. The administrator admitted service of process in the action on the date of its filing, and the plaintiff was served the following day. No appearance in the action was made by either defendant. Decree was entered on August 18, 1936. The property was sold on September 9 thereafter for the full amount of the judgment and all costs. The day preceding this sale plaintiff commenced this action against Theresia Boos and the administrator, seeking to set aside the decree of foreclosure upon the ground that it was procured through extrinsic constructive fraud as against this plaintiff, as a general creditor of the estate, and on behalf of all other creditors similarly situated. After issue was joined a trial was had before the court, resulting in findings, conclusions, and judgment in favor of the plaintiff. The appeal is from the judgment.

No affidavit of renewal of the mortgage had been filed within eight years and sixty days after the maturity of the debt secured by the mortgage, in the office of the county clerk and recorder as required by section 8267, Revised Codes; nor was there any renewal or extension agreement filed or recorded within the provisions of section 8264. Plaintiff was a general creditor of the estate, possessing no lien against the property described in the mortgage. The failure to file the renewal affidavit within the provisions of section 8267 occurred long before the section was amended in its present form in 1933; hence, what we are about to state is said with reference to that section prior to its amendment, and is not to be understood as a construction of the section as it now exists.

The debt here was not barred by the general statute of[1, 2] limitations as between the mortgagor and the mortgagee. If the debt be kept alive, the mortgage is good even after the expiration of the eight years from the maturity of the note (Leffek v. Luedeman, 95 Mont. 457, 27 P.2d 511, 514, 91 A.L.R. 286, and cases therein cited), and one who accepts a conveyance of the mortgaged property from the mortgagor while the mortgage is good and valid is subject to the same rule. (Hillsdale College v. Thompson, 99 Mont. 400,44 P.2d 753, and cases there cited.) But the mortgage, even though the debt is alive, is invalid where there was no compliance with section 8264 or 8267 as against a creditor who is in a position to assert the invalidity of the mortgage, or others who are similarly situated.

It is the theory of plaintiff's case that, as a general[3] creditor, it was in no position to assert the invalidity of the mortgage, for it could not fasten a lien on the mortgaged property, and since the estate was insolvent it was the right and duty of the administrator to assert the invalidity of the mortgage, and in the circumstances of the case the failure of the administrator to set up the defense was constructively in fraud of its rights. Hence it is urged that the judgment was obtained as a result of constructive fraud, and therefore the plaintiff is entitled to relief from the judgment in the foreclosure proceeding.

It is said that the proof fails to establish the insolvency of the estate. Plaintiff filed a claim against the estate for $22,747.91. The defendant Boos signed the petition for the appointment of an administrator, wherein she recited that the property of the estate consisted of an undivided one-half interest in and to forty acres of land, which is the same land as was described in her mortgage and which did not exceed in value $1,075. In filing the application for the appointment of an administrator, defendant Boos was duty bound by statute to state the value and character of the property of the estate. (Sec. 10074, Rev. Codes.) Evidence appears in the record that a contract for the sale and purchase of a placer mining claim or claims was outstanding, wherein the purchaser agreed to pay $4,500, which was held by the bank as collateral security to its indebtedness; also a block of mining stock is likewise so held. Nothing is found in the record giving the slightest intimation as to the value of this stock. No notice to creditors was ever given. Counsel who, on cross-examination, elicited the proof as to the land contract and the mining stock, had been the attorney for the deceased in his lifetime. He prepared the petition for the appointment of the administrator. He was the attorney for the plaintiff in the foreclosure proceeding and at one time had been the attorney for the bank. He made no effort to offer any proof which would indicate the value, if any, of this mining stock. A fair conclusion from the evidence is that the estate was prima facie insolvent.

One seeking relief in equity from a judgment procured through[4] constructive extrinsic fraud need only show that he has a prima facie meritorious defense. (Stocking v. Charles BeardCo., 102 Mont. 65, 55 P.2d 949; Bullard v. Zimmerman,82 Mont. 434, 268 P. 512; Id., 88 Mont. 271, 292 P. 730;Kirby v. Hoeh, 94 Mont. 218, 21 P.2d 732.)

In Leffek v. Luedeman, supra, we said: "It is the contention of the plaintiff that, under the rule announced in the foregoing decisions of this court, section 8267 is without application in this case, as the administrator stands in no different position from that in which the mortgagor would have found himself, had he been the party defendant. The defendant contends that, the estate being insolvent, the administrator is the representative of the creditors and, as such, stands in the same position as a creditor who has secured a lien on the premises by process after the lapse of time specified in section 8267, and therefore in a position to attack the validity of the mortgage. As a general rule an administrator acquires no better title than the decedent had. It is also true, as a general rule, that without a judgment or other legal process, or without a right recognized by law to have the property of a debtor seized and sold for his benefit, a creditor is not in a position to assert his rights against a mortgage which is void as to creditors." We then reviewed the many statutory provisions relating to the administration of estates, and concluded as follows: "It is apparent from the foregoing provisions that a creditor, after the death of his debtor, is prevented from securing through legal process a specific lien upon decedent's property. The rights and interests of a creditor are to be determined and satisfied in the administration proceedings in the court. The legal effect of these statutory provisions is clearly to render the property of the estate bound for the payment of debts so far as it will go. The administrator of an insolvent estate represents the creditors, and only technically represents the heirs." After a review of many decisions, we then declared: "We therefore conclude that the executor or administrator of an insolvent estate may assert the invalidity of a real estate mortgage where no affidavit of renewal had been filed in accordance with the provisions of section 8267, and that the mortgage here under consideration was, as against the administrator, invalid and void."

It was conceded, in the briefs and argument in the Leffek[5] Case, supra, by counsel that a general creditor could not assert the invalidity of a mortgage unless he had fastened a lien on the mortgaged property. This court has long been committed to the rule, in cases where it was sought to set aside conveyances as fraudulent by a general creditor, that before any relief can be afforded such creditor must secure a lien by some process upon the property conveyed. (Westheimer v. Goodkind,24 Mont. 90, 60 P. 813; Wyman v. Jensen, 26 Mont. 227,67 P. 114; Bowen v. First State Bank, 69 Mont. 223,221 P. 527.)

It is here suggested that this rule does not obtain since the plaintiff was a party to the foreclosure suit. In 1 Wiltsie on Mortgage Foreclosure, fourth edition, at page 662, it is said: "It is well settled that a mere general creditor without any specific lien, although made a party defendant in a suit to foreclose a mortgage on the debtor's property, for the determination of a lien claimed by him, cannot question the validity of the mortgage. The mortgage cannot be legally questioned by such defendant, until he clothes himself with a judgment and execution, or some legal process against the debtor's property, for the reason that creditors cannot interfere with the property of their debtors without process." (See, also, Wolcott v. Ashenfelter,5 N.M. 442, 23 P. 780, 8 L.R.A. 691.)

A general creditor, without a lien on the mortgaged real estate, cannot intervene in the foreclosure proceeding. (19 R.C.L. 536; 3 Jones on Mortgages, 296; Wightman v. EvanstonYaryan Co., 217 Ill. 371, 75 N.E. 502, 108 Am. St. Rep. 258, 3 Ann. Cas. 1089, and note.)

The plaintiff, as a general creditor with no lien on the property of the estate, was in no position in the foreclosure proceeding to assert the invalidity of the mortgage.

Our attention has been called to the case of Equitable TrustCo. v. Great Shoshone Co. (D.C.), 228 Fed. 516, as announcing this rule. But under the facts in that case the rule there announced is in exact accord with what we said in Leffek v.Luedeman, supra, under a like situation. Our attention has also been called to a number of additional cases containing statements supporting a contrary view, but they all involve persons who had an interest or lien in or upon the mortgaged property and not a general creditor. These cases can be of no persuasive influence here, for if plaintiff was a creditor with a lien upon the mortgaged property, the rule then would be otherwise.

The defendant administrator was a friend of Theresia Boos, and[6] at her request he consulted with her counsel after the death of Jones, to see if the matter of the mortgage could not be settled. After discussing the matter with counsel, he consented to be appointed administrator of the estate of Jones. When he was served with summons as such administrator, he consulted with the same counsel, who then appeared for plaintiff in the foreclosure suit, and he advised him that all he could do was "to put my signature to whatever papers were necessary." He made no investigation of the facts set forth in the complaint. He consulted no other attorney aside from counsel for plaintiff in that suit. He testified: "I understood from my own knowledge that the mortgage itself was outlawed but the note was not." The administrator was advised that the heirs of the deceased were willing for the property to be foreclosed upon and desired no defense to the suit. He apparently gave no thought to his duty as to the other creditors.

The plaintiff here made no demand upon the defendant administrator that he interpose the defense of the statute of limitations. The trial court found that if such a demand had been made it would have been of no avail, and therefore was useless. No other findings on the subject can be reasonably inferred from the evidence in the record. It was the duty of the administrator to interpose the defense afforded by the statute (sec. 8267), and thereby assert the invalidity of the mortgage. (Pincus v.Davis, 95 Mont. 375, 26 P.2d 986.)

The conduct of the administrator in failing in any manner to determine whether the mortgage was a valid and enforceable lien and to make any effort to defend against the mortgage was constructively fraudulent as against the plaintiff and all other creditors similarly situated. This conduct on his part enabled the plaintiff in the foreclosure suit to secure judgment therein. Accordingly, this case comes within the ruling of the cases ofStocking v. Charles Beard Co., Bullard v. Zimmerman, andKirby v. Hoeh, supra.

Judgment affirmed.

ASSOCIATE JUSTICES STEWART and MORRIS concur.

MR. CHIEF JUSTICE SANDS, absent on account of illness, did not hear the argument and takes no part in the above decision.