Case Name: Citizens Savings Bank vs. Guaranty Loan Company et al.
Court: Supreme Court of Rhode Island
Jurisdiction: Rhode Island
Decision Date: 1939-06-06
Citations: 62 R.I. 448
Docket Number: 
Parties: Citizens Savings Bank vs. Guaranty Loan Company et al.
Judges: Present: Flynn, C. J., Moss, Capotosto, Baker and Condon, JJ.
Reporter: Rhode Island Reports
Volume: 62
Pages: 448–470

Head Matter:
Citizens Savings Bank vs. Guaranty Loan Company et al.
JUNE 6, 1939.
Present: Flynn, C. J., Moss, Capotosto, Baker and Condon, JJ.

Opinion:
Flynn, C. J.
This action in assumpsit was brought by the Citizens Savings Bank, as mortgagee, to recover from the Guaranty Loan Company, which was not the mortgagor, the balance of an alleged mortgage indebtedness due to the plaintiff, after crediting the proceeds of a foreclosure sale held under the power of sale contained in a mortgage of certain real estate. The other two defendants are the duly appointed receivers of the defendant company.
By agreement of the parties, the case was tried in the superior court together with a petition in equity whereby the Citizens Savings Bank sought, in the receivership proceedings, to be subrogated to the preference of the city in relation to certain taxes assessed against the realty, which the bank had paid merely to protect its security under the mortgage. The trial justice rendered a decision in the law case in favor of the defendants, and it is before us upon the plaintiff's exception to that decision, which is the only exception pressed.
We shall consider the instant case as if it were tried separately, because it is an action at law and is to be determined according to principles of law and not of equity. Unless otherwise stated, the plaintiff will hereinafter be referred to as "the bank''; the Guaranty Loan Company as "the company''; and the two other defendants as "the receivers".
The declaration is substantially in two counts. The first specially alleges the making and delivery by the defendant company to the bank of a promissory note in the sum of $25,000; the terms of the note and the making of several partial payments of principal and interest thereon; a default thereafter in payments of principal and interest; and a refusal by the defendant company or its receivers to pay the amount of the alleged indebtedness then due, to wit, $18,125.
The first paragraph of the second count is also based upon the promissory note as described in the first count. The second paragraph of the second count is based entirely on an alleged indebtedness of the defendant company to the plaintiff in the sum of $12,000 "for so much money before that time had and received for the use of the plaintiff, and also for so much money before that time paid, laid out and expended to and for the said defendant at its instance and request. . ." Attached to the declaration was a copy of the original mortgage note.
The defendants' demurrer called attention to the fact that defendants were not the makers of the mortgage or note as alleged. Being overruled, they filed a plea of general issue. Upon defendants' motion the plaintiff filed a bill of particulars amplifying the claim for "money had and received" in the second paragraph of the second count, by giving an accounting of the mortgage foreclosure sale "leaving a deficiency balance due of $8779.57."
From the evidence in the transcript the following facts clearly appear. On February 27, 1924 Guaranty Loan Company Incorporated (which was not the defendant company) executed and delivered to the bank a promissory note in the sum of $25,000, secured by a mortgage on certain of its real estate. Subsequently the mortgagor conveyed the mortgaged real estate by deed to the defendant company, but the latter did not expressly or otherwise assume or agree to pay the mortgage or note. Some time later, on March 10, 1931, a temporary receiver was appointed for the defendant company and on August 10, 1931 its affairs were placed in the hands of duly appointed permanent receivers, whose successors were joined herein as defendants.
Neither the defendant company nor its receivers paid the taxes assessed against this realty by the city of Providence for the years 1930, 1931, 1932 and 1933; but all of these taxes were paid by the bank solely by virtue of the covenants in the mortgage and to protect the security of the mortgage debt. The bank on several occasions requested the receivers to seek permission of the equity court to reimburse the bank, out of the general receivership fund, for the payments of such taxes. However, the receivers made no such request to the court; and no payment to the bank on account of such taxes was ever ordered by the court or made by the receivers.
The bank did not, as it alleged in the declaration, pay any of these taxes "at the instance or request of" the defendant company or its receivers; nor did it pay them as a result of any agreement with defendants or through any previous permission or order of the equity court, or by any mistake or as a result of misrepresentation by defendants. The bank later, by motion within the receivership proceedings, sought and obtained permission to foreclose the mortgage upon the company's real estate; a sale thereof was duly held under the power of sale in the mortgage, at which the real estate was purchased for the sum of $20,000 by the Bay Realty Company, which was controlled by the bank and was admittedly its nominee; and possession thereof passed from the receivers to the bank's nominee..
Thereafter, the bank, alleging itself to be a creditor of the defendant company by virtue of the mortgage deficiency, sought and received permission to file its claim with the receivers for the balance due upon the whole mortgage indebtedness after crediting the proceeds from the foreclosure sale. This claim was apparently filed April 24, 1935 and included, as a part of the entire mortgage deficiency, the amounts paid by the bank to the city of Providence for taxes plus interest, as well as certain other foreclosure expenses. The claim thus filed was promptly disallowed by the receivers on April 26,-1935. The bank then, within the • time limit fixed by the decree of the equity court for plaintiff to begin suit on this disallowed claim, commenced the instant action at law to establish its claim as filed.
The evidence further shows that no claim for any taxes was ever filed in the receivership proceedings by or on behalf of the city; and that the bank, as an alleged successor to the city's statutory right of preference, filed no specific claim solely for the taxes paid by the bank.
No charge of any kind was ever made, and no account was ever set up by the bank on its books, against the defendant company or its receivers. On the contrary, the bank's accounts and records were carried in the name of the real mortgagor. These payments for taxes were entered by the bank on its records of the original mortgage account, and were intended by the bank to be added to, and were actually made a part of, the entire mortgage indebtedness. It also appeared that, after the purchase of the property by the bank's agency at the foreclosure sale, the value of the property was written down by the bank on its books to about $18,000; that the taxes paid by the bank were written off on the expense account or "to profit and loss." However, they were included as part of the mortgage "deficiency" claim as filed.
The trial justice found among other facts that neither, the defendant company nor its receivers had executed or assumed or otherwise agreed to pay the mortgage or mortgage note; and that the "plaintiff has failed to satisfy us by a fair preponderance of the evidence that the defendant Guaranty Loan Company or its receivers undertook and promised as set forth in its declaration. Decision for defendants for their costs."
We have examined the pleadings, transcript of evidence and the rescript of the trial justice's decision and we cannot say that such decision was clearly wrong. The sole contention in the brief for the bank is that the trial justice was clearly wrong in refusing to give it a decision for the amount of the taxes, plus interest, under the common counts. The brief concedes that there is no evidence to justify a finding of liability against the defendants for the mortgagor's debts; its one contention is: "We only claim liability in the action at law under the common counts by reason of the payment of the taxes at the instance of and for the benefit of the debtor or its receivers, who are also parties-defendant in the action at law."
The sufficient answer to this contention is that the bank's claim, declaration, bill of particulars and evidence show clearly, in our opinion, that the bank never based its claim or action upon any such theory. On.the contrary, all of these together show that the bank deliberately elected to bring this action at law to recover the whole mortgage deficiency as an entirety, in all respects as if the defendants were bound by the covenants of the mortgage or some other agreement. Upon the pleadings and evidence the question of subrogation was not before the trial justice; and he found that the bank did not establish, by a fair'preponderance of the evidence, the claim as alleged in the declaration. The great weight of the evidence, in our opinion, supports that conclusion.
However, if counsel for the bank, by the argument in his brief, above quoted, would contend that mere payment of taxes by the mortgagee to protect its own security would, under any and all circumstances, necessarily require the court to render a decision therefor in an action at law brought, independently of the mortgage, against strangers to the mortgage, we would be disposed to disagree. No authority to support such a contention has been cited.
There is authority perhaps for the proposition that the law may, in a proper case, imply a promise by the defendant to pay certain kinds of obligations, even where no such promise has been proved in fact. But that is far from holding that such a promise must necessarily be implied in every case, even where taxes are involved and where the pleadings and evidence lead, in justice, to an opposite conclusion. Moreover, the question before us is not whether'a trial justice might have been justified in implying in law such a promise in a proper case; rather it is whether, on the pleadings and evidence in this case, the trial justice was clearly wrong in failing to imply in law a promise by these defendants, who are not bound by the mortgage.
In that connection, the supposed contention of the bank would overlook the undisputed evidence which shows, among other facts, that the bank had foreclosed the mortgage and thereby obtained ownership of the property which was its original security; that the proceeds of the foreclosure sale were more than enough to satisfy the lien for taxes which was entitled to priority over all other liens ; that the bank also had a claim for the entire mortgage deficiency (including these taxes) against the real mortgagor ; and that, notwithstanding these important considerations, the bank nevertheless filed its claim for the entire mortgage deficiency and elected to bring this action therefor, not against the receivers of the real mortgagor, but against these defendants, who were strangers to the mortgage.
Further it seems that, because of the pleadings and evi dence here, the trial justice refused, in effect, to allow the bank to split its cause so as to permit it to recover, in an action independent of the mortgage, the amount of taxes. Obviously the bank had the right to pay these taxes only because of the mortgage and its covenants. Without relying on the mortgage, the bank was a mere volunteer in paying them, as there was no other agreement.
Apparently the trial justice applied here a principle of law similar to that stated in Horrigan v. Wellmuth, 77 Mo. 542. In that case the defendants were the real mortgagors and yet the court said: "The law is well settled that when a mortgagor fails to pay the taxes upon land which he has mortgaged, the mortgagee may, for the protection of his interest in the land mortgaged, and in order to preserve the same as an available security for his debt, pay the taxes, and claim the benefit of the lien of the mortgage for the amount so paid . But this claim must be enforced as a part of the mortgage debt, and cannot be made the basis of an independent action against the mortgagor, as for money paid to his use ." Later on the court stated as a reason for the rule: "The right to pay the taxes is one which enures to the creditor as a mortgagee, and it can only be enforced by him, therefore, in his capacity as mortgagee. Outside of the relation of mortgagor and mortgagee, the payment of. the taxes of one man by another without some request, express or implied, would be such a voluntary payment as would not support an action."
A similar statement of the rule appears in 10 L. R. A. (N. S.) 679 thus: "The general rule may be stated to be that, as the amount paid for taxes, together with the amount due upon the mortgage, constitutes but a single and indivisible demand, existing only by virtue of the mortgage, and being collateral and subordinate thereto, it cannot be separated and collected in several action; therefore, a mortgagee who has paid taxes upon the encumbered property, either before or after the foreclosure of his mortgage, to protect his in terest therein, cannot, after the foreclosure of the mortgage, maintain an independent action against the mortgagor to recover the amount so paid, as such payment does not create a lien or liability apart from that of the mortgage . . . ." To the same effect see Vincent v. Moore, 51 Mich. 618; Young v. Brand, 15 Neb. 601; Stone v. Tilley, 100 Tex. 487; 1 Wiltsie on Mortgage Foreclosure (4th ed.) § 542; 3 Cooley, Taxation (4th ed.) § 1263; 41 C. J. 638. Several other cases also seem to recognize the underlying principle of the above rule, or at least reach a similar result. See 84 A. L. R. 1387, et seq.
However, in the instant case, we do not have to go so far as some of these cases, because the defendants here are strangers to the mortgage. If the above rule be well recognized and considered applicable in an action by a mortgagee against a mortgagor, we think it should apply logically for a stronger reason where, as here, the defendants are not obligated to the mortgagee on the note or by the mortgage, or by any agreement, or other circumstance to be implied, in fact or law. There perhaps are other authorities contra but the logic of the above-cited cases impresses us as applicable here, especially since the mortgagee, in effect, seeks to recover in an action at law, independently of the mortgage, the amount of taxes which it had no right to pay except for the mortgage, and where the defendants are not obligated under the mortgage or other agreement.
This reasoning and conclusion would not he inconsistent with the law expressed in Willits v. Jencks Mfg. Co., 54 R. I. 164. That was a suit in equity for subrogation and not an action at law; and the complainant mortgagee was suing the mortgagor in receivership, and not a stranger tó the mortgage, as here. It does not appear that the mortgagee in that case was suing to recover taxes independently of the mortgage. Naturally, therefore, the above-cited cases would not be considered as in point or controlling upon the court in the circumstances of that case.
Moreover, the Willits case does not go so far as to hold that the mere payment of taxes by a mortgagee will necessarily require the court, in all cases, to imply in law a promise by the defendants to repay such taxes regardless of circumstances. Nor does it hold that a mortgagee who pays such taxes may in every case recover them under the common counts in an action of assumpsit, independent of the mortgage, where the defendants are strangers thereto.
Both the Willits case, and Equitable Trust Co. v. Kelsey, 209 Mass. 416, upon which it strongly relies, were dealing in equity with matters of subrogation involving the mortgagee and mortgagor relationships and their pleadings and facts are vitally different from the pleadings and evidence in the instant case.
The plaintiff's exception is, therefore, overruled and the case is remitted to the superior court for entry of judgment on the decision.