Federal Land Bank of Berkeley v. Salt Lake Valley Sand & Gravel Co.

I concur in the results. The opinion of Mr. Justice MOFFAT does not consider a number of the points urged by the parties and necessary to the decision of the case. As hereinafter pointed out, I think the solution depends on whether the defendant has the right to urge the defense of ratification of the release of the whole mortgage by the sale of the Mercers et al., with knowledge of the mistake, when said defendant was never a party to the original transaction in regard to which ratification might be claimed.

Furthermore, I think the constructive notice which the record would ordinarily give to the Bank cannot in this case be urged because the Bank did show diligence in engaging an abstractor and the defendant cannot be said to have changed his position by reason of the Bank's transactions with the Reservoir Company. InMartin v. Hickenlooper, 90 Utah 150, 59 P.2d 1139, we considered the authorities which more and more show a development toward not permitting a windfall to one person because of the mere negligence of another where he has not been injured by the negligence. It requires gross negligence before another may fortuitously and vicariously benefit by that negligence. But in this case it is not shown that the bank was negligent. If the abstractor was negligent and if the abstractor may be considered as the agent of the bank, the negligence of the agent cannot be imputed to the principal for the sake of benefiting a third party. The doctrine of imputed negligence is to give one injured by the acts of a servant or agent acting in the business of the master the right to recover against the superior for damages suffered. It cannot be invoked in order to give someone not injured a windfall or benefit he did not expect and would not have had but for the negligence of the agent. Furthermore, whether negligent or not, the Bank must lose here for other reasons.

I do not think it necessary to determine whether the action here sought is for reformation or rescission. I hardly think, in any case, it can be reformation because it is not shown that there was any agreement intended by the parties to which the actual agreement entered into by mistake can be reformed. Both parties intended what they did. It was only because the facts were not as they thought that the agreement as they intended was sought to be avoided. The Reservoir Company intended to convey all the land contained in its warranty deed to the Bank, including the 15.63 acres; the Bank intended, in exchange therefor, to give release to the full indebtedness. Reformation requires an agreement to which the agreement reformed may conform. What is really sought in this case is partial rescission. Is the Bank entitled to such rescission? I think it is not entitled under the facts of this case to the rescission, and I do not think it really makes any difference in this conclusion whether the Reservoir Company had been joined with the defendant or whether cancellation had been asked for as to the whole release, rather than as to the part affecting the defendant. In what follows I shall attempt to so demonstrate.

I think the reader may better understand the analysis if taken in several steps. The first of these steps will be to consider the rights of the parties as they would have been had the Bank not sold the property to the Mercers and to Smith.

If the Bank had retained all the property, it really obtained from the Reservoir Company (the 15.63 acres omitted), it could have, after it discovered the mistake, brought a suit in equity for rescission of the whole release, joining the Reservoir Company and the Gravel Company in that suit. A decree cancelling the release upon the Bank's reconveying to the Reservoir Company all the property the latter had received would have been entered. This would put the parties back just where they were before the mistake.

After this the Bank would have been free to do one of three things: (a) It could have accepted all of the land really owned by the Reservoir Company and given a release of the whole debt. In such case the defendant's 15.63 acres would have been cleared; (b) it could have taken the land really owned by the Reservoir Company and credited the fair value on the whole indebtedness and foreclosed the defendant's 15.63 acres for what remained of the indebtedness. There is nothing which prevents a mortgagee from releasing one parcel of land from a mortgage and foreclosing on the other parcels so long as he only brings one action for the foreclosure and credits the fair market value of the parcel released. Blood v. Munn, 155 Cal. 228, 233, 100 P. 694;Woodward v. Brown, 119 Cal. 283, 294, 51 P. 2, 542, 63 Am. St. Rep. 108; Jones on Mortgages, 8th Ed., Secs. 894, 1258; 18 California Jurisprudence, 179, 219; or (c) the Bank could have foreclosed all of the land covered by the mortgage by joining the Reservoir Company and the defendant. In such case the defendant could have redeemed his portion or all of the land covered by the mortgage. R.S. Utah, 104-37-30. The defendant could also under such foreclosure sale have required the sheriff to sell the Reservoir Company's land first because that company was liable for the debt. The defendant could have protected itself by bidding the land up at the sale to a price where the Bank would have had to pay a price beyond which no party would have redeemed. That price would be the fair market value, it being presumed no one would pay more than the fair market value.

If it were not for the sale to the Mercers and Smith, it might be urged with much force that defendant is now in exactly the same position he would have been in had the Bank done (b) above. In such case the fair market value would have been credited on the debt, and the Bank would have resorted to the defendant for the balance. And while defendant would not have as under (c) above the right to redeem the whole of the land, if it could be shown in the foreclosure suit against the defendant above that the Bank had really credited the fair value of the Reservoir Company's land on its indebtedness, it might be difficult for the defendant to show where it had been damaged. But what the situation and rights of the defendant might have been had the Bank not sold the land to the Mercers and to Smith need not be considered except to make more clear what its rights now are under the facts as they really are.

The land really owned by the Reservoir Company cannot now be returned to it in return for a cancellation of the release of the mortgage because the Bank no longer has control of it. It was conveyed away with knowledge of the fact that the defendant had title to 15.63 acres. We pause a moment to consider this last statement. Finding No. 8 of the lower court held that the Bank did not have actual knowledge of the fact that the Reservoir Company had conveyed the 15.63 acres at the time it sold "partially under contract of sale and partially through warranty deed all of the said property at the full value thereof except the said 15.63 acres." (Italics added.) We think the inevitable inference from the finding to be that at the time the Bank did sell under contract and warranty deed, all except 15.63 acres, it must have had actual notice that it did not own said 15.63 acres. It would be too much to suppose that just by coincidence the Bank sold all except 15.63 acres. The inference is impelling that the reason it did not sell that small parcel was because it had actual knowledge of the fact that it did not own that parcel. Hence the Finding No. 8 of the court must be construed to mean what its inevitable inference would make it mean, which is contrary to the other statement in the finding that the Bank did not have actual knowledge that the defendant had acquired the 15.63 acres. I hardly think it requires a cross assignment of error by the defendant to attack this finding. The finding stands attacked on its face as being consistent only with actual knowledge.

Having, therefore, concluded that the findings actually show that the Bank did have actual knowledge of the fact that the Reservoir Company had conveyed 15.63 acres to other parties before it made a conveyance to the Bank and that in view of that knowledge the Bank nevertheless conveyed partially under contract and partially under deed the land really conveyed by the Reservoir Company to Mercers and to Smith (a fact borne out by the letters in the evidence), we now proceed to determine what the rights of defendant are under such knowledge. Defendant's rights may be clearly comprehended by first determining what the rights of the Reservoir Company would be under such situation. The Reservoir Company in an action to rescind could undoubtedly have defended on the ground that by the Bank's action in selling the land with knowledge of the mistake, it chose to and did ratify the release of the mortgage of all the land in exchange for a conveyance of all the land, less the 15.63 acres. Can the defendant who was not a party to the original transaction between the Reservoir Company and the Bank also plead such ratification as a defense against this suit? I think it can. In the first place, if the Reservoir Company could have pleaded it in a suit to rescind brought by the Bank, in which the defendant would also have been a party, the defendant in that suit might have compelled the Reservoir Company to plead it, because the Reservoir Company was under duty to pay off the whole debt which would have released the defendant's property. The defendant, therefore, in such suit could have compelled the Reservoir Company its co-defendant to plead ratification or pleaded that defense itself.

If either could have been done, the defendant cannot now be put in a worse position than it would have been had a suit for rescission against it and the Reservoir Company been brought by the Bank. Hence, it may now plead the ratification as a defense, since it would otherwise be prejudiced by the fact that the plaintiff Bank had not joined the Reservoir Company and brought an action to rescind the release of the whole mortgage.

For the above reasons I think the district court was correct in dismissing the suit against the plaintiff, although no reasons were given by it and although it seems to have intended to find every fact in favor of the Bank. And for the reasons stated in this opinion I concur in the results of the opinion of Mr. Justice MOFFAT.