Case Name: CULMER PAINT & GLASS COMPANY v. GLEASON et al.
Court: Utah Supreme Court
Jurisdiction: Utah
Decision Date: 1913-01-31
Citations: 42 Utah 344
Docket Number: No. 2373
Parties: CULMER PAINT & GLASS COMPANY v. GLEASON et al.
Judges: McCANTY, O. J., and STEAUP, J., concur.
Reporter: Utah Reports
Volume: 42
Pages: 344–352

Head Matter:
CULMER PAINT & GLASS COMPANY v. GLEASON et al.
No. 2373.
Decided January 31, 1913
(130 Pac. 66).
1. MECHANICS’ Liens — Foreclosure—Amount or Incumbeance— Evidence — Weight. In an action to foreclose a meclianic’s lien, evidence held to show that the mortgagee, under a mortgage for $12,390, given for the purpose of raising funds to construct the building involved, advanced only $10,407.60 thereunder. (Page 347.)
2. Moetgages — Mechanics1’ Liens — Peiobity. While a mortgagee, under a mortgage given for the purpose of raising funds to construct a building, has a lien prior to that of a subcontractor performing labor and furnishing materials for such building, such lien extends only to the amount actually advanced on the mortgage. (Page 349.)
3. Mortgages — Mechanics’ Liens — Priority. Where mortgages and the secured notes and bonds were made payable to a trust company, it was not a purchaser thereof; and hence was entitled to enforce its lien, as against a subcontractor furnishing materials and labor for the improvement of the property, only for the amount advanced, and not for the face value of the mortgages. (Page 350.)
4. Usury — Evidence—Stjeeiciency. Under Comp. Laws 1907, section 1241x3, providing that all bonds, mortgages, etc., whereupon or whereby there shall be reserved or taken or secured, or agreed to be reserved or taken, any greater interest than that prescribed by statute, shall be void, and section 1241x8, pro- Tiding that when it satisfactorily appears that any such instrument is usurious the court must declare it void and order it delivered up and canceled, the court could not declare a mortgage void where, if interest was computed by one method, there was no usury, although, if computed hy another method, there was usury, since forfeitures will he enforced only when the proof is clear and convincing. (Page 351.)
Appeal from District Court, Third District; Hon. T. D. Lewis, Judge.
Action by Culmer Paint & Glass Company against John T. Gleason and others.
Judgment for plaintiff. Defendant, P. W. Gorman, appeals.
REVERSED AND REMANDED WITH DIRECTIONS.
E. A. Walton, M. E. Wilson and G-oodivin & Van Pelt for appellant.
Edward McGurrin and Snyder & Snyder for respondent, Salt Labe Security & Trust Company.

Opinion:
PRICK, J.
The Culmer Paint & Glass Company commenced this action against John T. Gleason and Adell Gleason, as owners of certain real estate, which is described, and against one O. M. Engdahl, as contractor, to foreclose a mechanic's lien. The appellant, P. W. Gorman, and the Salt Lake Security & Trust Company, hereinafter called trust company, were also made parties; the former claiming a mechanic's lien, and the latter claiming a lien as mortgagee, upon the real estate aforesaid'. There were also other parties to the action; but all of those, as well as the Culmer Paint & Glass Company and the Gleasons, have either been dismissed from or have abandoned the case. Both Mr. Gorman and the trust company filed cross-complaints, in which they set up their respective liens; and the whole controversy on this appeal is between those two claimants.
The district court, in substance, found that on the 12th day of May, 1910, the Gleasons entered into a contract with O'. M. Engdahl, wherein said Engdahl agreed to construct and complete a certain building for said Gleasons upon certain real estate, duly described, for the sum of $12,390, which building was duly erected; that thereafter P. W. Gorman entered into a contract with Contractor Engdahl, wherein said Gorman agreed to furnish the material and perform the necessary labor to complete the plumbing, and to install a steam heating plant in said building, for the sum of $1400, which Engdahl agreed to pay Gorman for said material and labor; that said Gorman fully performed his said contract and completed the plumbing and installed the heating plant in said building, but received only the sum of $500, to be applied on the contract price, leaving a balance due him of $900; that Gorman had complied with all the provisions of our statute relating to mechanics' liens, and was entitled to a mechanic's lien on the building and real estate on which it stands; that Gorman also was entitled to $6.30 costs for filing his lien and twenty-five dollars as an attorney's fee for foreclosing the same, under the statute; that on the 21st day of April, 1910, said Gleasons "made, executed, and delivered to the Salt Lake Security & Trust Company" their two certain mortgages, one for $8000 and the other for $4390, both of which were duly recorded, and were liens on the real estate on which the building was erected, as aforesaid.
As conclusions of law, the court found that Gorman was entitled to a lien for the amounts found due him, as aforesaid, on the building and real estate; that the trust company also was entitled to a lien for the amount of its mortgages, to wit, $12,390; and that said mortgage liens were prior and superior to Mr. Gorman's lien.
A judgment or decree of foreclosure of appellant's lien Mras entered in accordance with said findings and conclusions of law. Mr. Gorman alone appeals. He assails both the findings of fact and conclusions of law.
Counsel for appellant contend that there is no evidence to support the finding that the. trust company is entitled to. a prior lien for the sum of $12,390 as against Gorman, nor that the contract price for the construction of the building was that amount. They insist that the evidence is undisputed that the contract price for the construction of the building was $9250 and no more. Further, that the evidence shows that the trust company, and not Engdahl, was the real contractor. We remark that the evidence does not sustain the last contention.
While it is true that the nominal contract price for the construction of the building was $12,390, yet the undisputed evidence is to the effect that the actual amount to be paid the contractor was $9250, and that only that sum was actually paid to him for the construction and completion of said building. The evidence, therefore, does not sustain the finding' that the contract price to construct and complete the building was $12,390. Nor can the finding or conclusion, as against Gorman, be sustained that the trust company had a prior lien on the building and lot on which it stands for the sum of $12,390. With regard to what the actual amount was that was advanced by the trust company, the testimony of the president of said company leaves no room for doubt. His testimony, as set forth in the printed abstract, and which is not disputed by anyone, is as follows:
"Exhibit G is a transcript of our ledger account of O. M. Engdahl. Exhibit F is a true and correct transcript of the Gleason account. In the fourth line the entry of A. H. Birrell, $590, is one of the disbursements on account of the purchase price of this bond and mortgage. My understanding is that the next item is for. the services of Mr. Cahoon. The item of $2210 is the difference between the price at which we purchased these bonds and mortgages and their face. I would like to say that $250 should come out of that, making a net amount of $1960; That item is the difference between what we paid for the bond and its face. We purchased these bonds and mortgages at eighty-four per cent. of tbeir face, and this represents tbe difference between that eighty-four per cent, and the face value. • We purchased from Mr. Birrell."
Eighty-four per cent, of $12,390 amounts to the sum of $10,407.60. The president's testimony, to our minds, is corroborated by the amounts that the trust company claims were actually paid out for the construction of the building. The amount paid to Contractor Engdahl, as shown by the vouchers, is $9263.70, or $13.70 more than the contract price; and the amount paid to the architect is $706.10. These two items amount to $996.80, or $437.80 less than the eightv-four per cent, advanced on the mortgages. There is evidence to the effect, however, that out of the $437.80 there were various sums paid for other purposes, so that it is probable that the trust company did in fact advance upon the mortgages the full eighty-four per cent, of the $12,390, the face value thereof. While the evidence is not as clear upon the latter point as it might be, yet we think the evidence clearly supports a finding that the eightv-four per cent, was in fact advanced for the benefit of the Gleasons. There is therefore a discrepancy between the amount stated in the mortgages and the amount advanced on them, amounting to $1982.40. The president of the trust company, in his testimony, admitted this discrepancy to be $1960. He, however, claims that various amounts were paid out as commissions. Eor example, there is one item of $2210, of which the president claims the $1960 is a part, which he said was paid as a commission to Mr. Birrell. Mr. Gleason, however, testified that he knew nothing about commissions, "except the architect's fee." Again, it is not easy to perceive how the trust company could pay a commission of either $2210 or $1960 out of $437.80, the amount remaining of the eighty-four per cent., after the contractor and the architect were paid. There is therefore nothing upon which the trust company can base its claim for the $1982.40, except we say, as the district court found, that the contract price for the construction of the building was $12,390. Such a finding, however, cannot be sustained, for the reason that the con tractor positively states tbat bis contract for tbe construction of tbe building was for only $9250, and tbe voucbers 'introduced in evidence show tbat be was paid $9263.70, or only $13.70 in excess of tbe contract price. There is no claim tbat be was paid for extras, unless tbe $13.70 represented extras. Tbe only theory upon which tbe trust company's claim can be sustained would be tbat it entered into a contract to construct tbe building for tbe sum of $12,390, and then bad sublet tbe construction thereof to Engdabl for tbe sum of $9250, and tbat tbe difference between tbe two amounts constituted profits upon tbe contract belonging to tbe trust company. This theory, however, fails, because tbe trust company positively denied tbat it bad entered into tbe contract with tbe Gleasons to construct tbe building, and tbat it was tbe original contractor. We have already said tbat tbe record would not support a finding that tbe trust company was tbe contractor. There is therefore no basis for the trust company's claim to tbe surplus of $1982.40 as against Mr. Gorman's lien.
Tbe Gleasons are not here complaining, but Mr. Gor-man does complain, and, as against him, tbe trust company cannot recover more than it has advanced to tbe Gleasons, and, under tbe undisputed evidence in this case, no more than $10,407.60. Moreover, it is clear from tbe evidence tbat tbe mortgages were given to tbe trust company for tbe express purpose of raising funds to construct tbe building. Tbe trust company apparently retained the money in its possession as mortgagee, and paid it out from time to time upon voucbers issued by tbe contractor. In this case, therefore, tbe material furnished and tbe labor performed by Gorman and tbe money advanced by tbe trust company were intended and used for tbe same purpose, namely, tbe construction of tbe building upon tbe real property owned by tbe Gleasons, and upon which tbe mortgages were given as a first lien. Tbe equities, as between tbe trust company and Gorman, were therefore entirely equal in time; and were it not for our statute, which gives tbe mortgagee tbe preference, they would be equal in right. Tbe statute, however, does not permit the mortgagee to claim a lien for more than he has advanced to the mortgagor, as against any other lien claimant. Equity and good conscience both forbid the enforcement of such a claim, especially as against another lien claimant who has furnished material and performed labor upon the building, and has thus enhanced the value of the mortgaged property. The-real estate upon which the building is erected, and which is necessary for the use thereof, together with said building, constitute a fund out of which the lien claimants, including-the mortgagee, are to be paid. The fact that the mortgagee is given priority under our statute does not permit him to reduce the fund by fictitious claims; but his claims must be-limited, at least as against other tona fide lien claimants, to the amount he has actually advanced on the mortgage which he claims to be a first lien.
Nor is the claim advanced by the .president of the trust: company permissible that said company purchased the notes- and bonds secured by the mortgages at less than the face value thereof, namely, for eighty-four per cent, of that value. The notes and bonds, as well as the mortgages, are all made-payable to the trust company or its order. The notes and bonds and the mortgages therefore belonged to' the trust company as soon as they were signed and delivered to it. Indeed, the court expressly found, as we-have seen, that the notes and mortgages were made, executed, and delivered to said company. No one, therefore, could have owned the paper and then sold it to the trust company' at a discount. In our judgment, such a claim cannot be sustained, and is advanced for the purpose of claiming the $1982.40.
In view of the whole record, we can arrive at no other conclusion than this:
That when the Gleasons had expressed a- desire to erect a building on the real estate the matter was by some one (no matter by whom) submitted to the trust company; that the company agreed to advance sufficient money to construct the building, not to exceed the sum of $1-2,890; that two mort gages, one for $8000 and tbe other for $4390, were at once executed and delivered to the trust company; and that company was to pay out the money as the building progressed, and until it had paid out the aggregate amount specified in the two mortgages, if it required that sum to complete the building. It, however, did not require that sum; and since it did1 not the trust company did not pay out that sum, and hence cannot claim a lien for that amount, .as against other tona fide lien claimants.
Counsel for Mr. Gorman vigorously contend that the claim of the trust company is usurious under our statute. After carefully considering all of the facts, and circumstances, we, however, entertain a serious doubt with respect to the usury elaim. Our statute (Comp. Laws 1907, sec. 1241x3) provides as follows:
"All bonds, bills, notes, assurances, conveyances, mortgages, deeds of trust, all other contracts or securities whatsoever, and all deposits of goods or other things, whatsoever, whereupon or whereby there shall be reserved or taken or secured, or agreed to be reserved or taken, any greater sum or greater value for the loan or forbearance of any money, goods, or other things in action than is above prescribed, shall be void; but this title shall not affect such contracts as have been made previous to the time it shall take effect."
Section 1241x8, in substance, provides that whenever it satisfactorily appears by the admission of the party, or by proof, that any bond, bill, note, assurance, pledge, conveyance, mortgage, deed' of trust, contract, security, etc., is usurious, the court must declare the same void and order it delivered up> and canceled, and enjoin any prosecution thereon. This is a most drastic statute, since it forfeits the creditor's entire claim. The statute authorizes more than confiscation for public use. It, in effect, permits it for private use, since the debtor seems to be entirely relieved from his obligation to pay, in case usury is established. Courts always abhor forfeitures, and this is especially true of courts of equity. Forfeitures, therefore, especially such as have the effect of taking property from one and giving it to another, should be enforced only when the proof is clear and convincing, if not beyond a reasonable doubt. Counsel for appellant practically concede that by computing interest upon one method there is, perhaps, no usury, but that, if it be computed upon another, then there is usury in the transaction. This, to say the least, leaves the matter in doubt, and in view of such a doubt we ought not to enforce the forfeiture.
In view of the foregoing conclusions, we need not consider or pass upon the contention made by counsel for the trust company that Mr. Gorman, as a junior incumbrancer, is not in a position to raise the question of usury. Upon that point we express no opinion.
From what has been said, it follows that the findings of fact and conclusion of law, so far as they affect Mr. Gorman, and to the extent that they are in conflict with what we have said, must be vacated and set aside; that the judgment, so far as it affects Mr. Gorman, must be reversed and the cause remanded to the district court, with directions to vacate its findings with respect to the amount found- due on the two mortgages of the trust company, and to substitute therefor a finding that there is due on said mortgages, as against Mr. Gorman, the sum of $10,407.60, with interest as stated in the findings; to mate conclusions of law that, subject to said sum of $10,407.60, Gorman has a lien on the mortgaged premises for the sum stated in the court's findings; to enter a decree of foreclosure ordering a sale of the mortgaged property and a distribution of the proceeds of the sale as follows: $10,407.60, with accrued interest, to the trust-company; $900, with costs, attorney's fee, and interest, to Gorman; and the balance, if any, to the owner of the property. Except as modified above, the findings of fact, conclusions of law, and judgment are affirmed. Appellant to recover costs.
McCANTY, O. J., and STEAUP, J., concur.