Case Title: Madsen v. PRUDENTIAL FED. SAV. & L. ASS'N

Citation: 558 P.2d 1337

Docket Number: 

State: utah

Court: Utah Supreme Court

Date: 1977-01-14T00:00:00Z

Document:
558 P.2d 1337 (1977) Richard MADSEN and Nancy A. Madsen, his wife, Plaintiffs and Appellants, v. PRUDENTIAL FEDERAL SAVINGS & LOAN ASSOCIATION, Defendant and Respondent. No. 14530. Supreme Court of Utah. January 14, 1977. *1338 Robert J. DeBry, Salt Lake City, for plaintiffs-appellants. Joseph J. Palmer, Salt Lake City, for defendant-respondent. MAUGHAN, Justice: On appeal is a summary judgment granted to defendant, hereafter Prudential, against plaintiffs, hereafter Madsen or trustors. The action is founded upon terms of a deed of trust; and was brought to determine the status of the parties, and the legal consequences pursuant to such terms. We reverse the summary judgment, and remand for further proceedings. Costs are awarded to Madsen. Statutory references are to U.C.A. 1953. Madsens are trustors, and defendant is both the trustee and beneficiary under a deed of trust executed September 21, 1964, for the purpose of securing a promissory note in the sum of $16,800. The security conveyed was the home in which plaintiffs reside. To protect the security, the trustors further agreed: Madsen's appeal is predicated on the theory that the monthly budget payments under provision 4 of the instrument constitute a common law pledge. They alleged defendant had invested this pledged property, and earned a substantial profit. An accounting is sought on the ground the substantial profits from the investment of the pledged funds constitute an unjust enrichment, entitling them to restitution. The trial court ruled the funds accumulated, from the monthly budget payments, were not pledged property. Therefore, the law of pledge was not applicable. In Campbell v. Peter[1] this court stated: We further cited with approval the definition in the Restatement Security, Sec. 1, p. 5, which provides: Comment d. of Sec. 1, p. 10 states: A deposit of money as security for the performance of a contract has been recognized as a valid pledge.[2] In the current matter, plaintiffs, as the trustors, agreed to protect the security of Prudential by paying the insurance and taxes. Madsen agreed to pay the budget payments, and to pledge them to the beneficiary "as additional security for the full performance" of the deed of trust and the note secured thereby. The essential elements of a pledge are contained in the agreement, viz., the existence of a debt or obligation, a transfer of property to the pledgee, to be held as security and, if necessary, to be used to assure performance of the obligation. Furthermore, the payments accumulated, may, in the discretion of the beneficiary, be withdrawn for the payment of taxes, insurance premiums due, or any sum due under the deed of trust, or note. There is no contract right granted to Madsen to compel defendant to pay the insurance premiums or taxes. The payments accumulated may be retained as security or applied for the purposes stated. The primary obligation to pay the insurance, taxes, and any sum due under the deed of trust or note is Madsen's. The provisions of section 4 grant a security interest to Prudential, for the purpose of securing performance of trustors' obligations. Madsen cites Hoyt v. Upper Marion Ditch Company[4] to establish the legal consequences, under a common law pledge, wherein profits accrue to pledgee; as a result of the possession of a pledged chattel. We there said it is the duty of a pledgee to collect the accruals, from the security, and *1340 apply them to the debt. We there explained: when the property pledged is of such a character as not to be lessened by use, the pledgee does not incur liability by using it; but, if from the use of it profits are derived, pledgee must, in the absence of a special agreement, account for them to the pledgor. There cited as authority was 21 R.C.L. 665-666, Sec. 28; the relevant provisions of which are: The foregoing principles of the law of pledge are not new. Indeed, Madsen's counsel cites the Code of Manu and that of Hammurabi, for early examples.[6] These principles have not been discarded. In our Uniform Commercial Code we find: An excursus to 9-207, of the Uniform Commercial Code, illuminates the provision:[8] This principle is also set forth in the Restatement, Security, Sec. 27, p. 91: ELLETT and WILKINS, JJ., concur. CROCKETT, Justice (dissenting). I have no disagreement with the general proposition advocated by the plaintiffs, and as set forth in the main opinion, that where there is a simple pledge of property, which can be put to profitable use without lessening its value, and the pledgee uses it for a profit, the profit should inure to the benefit of the pledgor, unless the understanding of the parties is to the contrary. It is not my understanding that the position of the defendant or of the trial court is in disagreement therewith. That position briefly stated is this: That it is shown that both the plaintiffs and the defendant were fully aware of the manner in which this so-called monthly "budget payment" of one twelfth of the taxes and insurance for the year was to be made and handled to insure payments of those essentials; that even though plaintiffs were so aware and considered this to be unfair, they did not then so state, nor make any request that interest should be paid thereon, but voluntarily entered into the contract fully and clearly setting forth the rights and obligations of the parties, but without the contract containing any such covenant as to the payment of interest. There are some elementary principles of contract law that should be given consideration here: that when parties negotiate on a subject matter and reduce their agreement to writing, it should be presumed to consolidate their entire understanding as to mutual *1341 rights and obligations on that subject matter;[1] and further, that the contract should be enforced and enforceable against each party only in accordance with the covenants expressed therein.[2] Pertinent to the plaintiffs' demand for payment of interest on the "budget payment" it is to be noted that the documentary evidence shows that over the years of their contract that account had an average balance of $275.42, which at an interest rate of 5% would produce $13.70 per year; and that the estimated cost to the bank of the collecting, accounting and disbursing of such "budget payments" would be $16 + per account per year. When all of the foregoing is considered in the light of the principles of law set forth above, I think the trial court was justified in adopting the position essayed by the defendant: that if the plaintiffs had desired a covenant to pay interest on the "budget payment" they should have so stated and negotiated for such a covenant in the contract. But having failed to do so, they should not be permitted to stand by and make these payments for 11 years without expressing any expectation or making any demand for interest thereon, and then attempt to impose a new obligation upon the defendant, not provided for in the contract. I would affirm the judgment, leaving the parties to their rights as expressed in the covenants of the contract as made, or as may be made in the future with respect to interest on such payments. HENRIOD, C.J., concurs in the views expressed in the dissenting opinion of CROCKETT, J. [1] 108 Utah 565, 568, 162 P.2d 754, 755 (1945). [2] Anderson v. Pacific Bank, 112 Cal. 598, 44 P. 1063 (1896); United States v. Harris, USDC WD La. 1966, 249 F. Supp. 221, 224; 68 Am.Jur.2d, Secured Transactions, Sec. 58, pp. 886-887. [3] United States v. Harris, note 2 supra. [4] 94 Utah 134, 143, 76 P.2d 234 (1938). [5] See 69 Am.Jur.2d Secured Transactions, § 223, pp. 58-59. [6] I.A. Rocureck and J.S. Wigmore, Source of Ancient and Primitive Law, p. 401 (1915). [7] 70A-9-207(2), U.C.A., 1953. [8] 3 ULA, Uniform Commercial Code (Master Edition) § 9-207 P. 123. [1] Mawhinney v. Jensen, 120 Utah 142, 232 P.2d 769. [2] See Jones v. Acme Bldg. Products, 22 Utah 2d 202, 450 P.2d 743.