Opinion ID: 1411564
Heading Depth: 1
Heading Rank: 3

Heading: Coverage of the Mortgage

Text: Mortgages to secure future advances have been authorized by the legislature since 1939, S.L.H. 1939, Act 255. R.L.H. 1955, § 196-1 provides in part that a mortgage may secure ... a debt incurred for advances which may be made by the mortgagee subsequent to the execution of the mortgage even though the mortgagee is under no contractual duty to make such advances. The only mention of this provision in the legislative reports states that it will save the borrower the costs of the preparation of additional charge mortgages and the recording costs of such additional charge mortgages. Stand. Comm. Rep. No. 396, House J. 1939 at 1337. The statute may be read as authorizing the broadest form of mortgage for future advances, but we decline so to construe it. Mortgages to secure future advances may take many forms, see Blackburn, Mortgages to Secure Future Advances, 21 Mo. L.Rev. 209, 211 (1956). Significant benefits to the mortgagor, the mortgagee, and the economy may result from intelligent use of such mortgages. [4] Such mortgages, however, often fall far short of reaching a financial utopia. 21 Mo. L.Rev. at 211. In spite of the severe restriction the broader manifestations of the mortgage for future advances place on the mortgagor, we do not know of any court which has denied enforcement of such mortgages as contrary to public policy. [5] Many courts, however, have placed limits on the mortgages. [6] Several states have legislatively restricted their use. [7] We are prevented from holding a mortgage to secure future advances contrary to public policy by its statutory authorization and the undeniable benefits which it may engender. As a court of equity, however, we will construe such mortgages very strictly against the mortgagee. See First v. Byrne, 238 Iowa 712, 28 N.W.2d 509 (1947). Completely unrestricted enforcement of such mortgages would tend to reduce the borrower to the status of economic serf. One commentator has viewed this as a virtue since it would enable the lending institution to act as a check on the mortgagor to discourage excessive credit buying. [8] We cannot agree that a lending institution, any more than a state or the federal government, makes a desirable Big Brother. Under the ejusdem generis rule, the statute does not require us to enforce a dragnet, or anaconda, clause in a mortgage as to debts or obligations not of the same kind as the specific principal debt or obligation for which the mortgage is given. Unless the prior or subsequent advance relates to the same transaction or series of transactions, the mortgage must specifically refer to it for the advance to be secured. This court will not assist a lending institution in an attempt to captivate a borrower by inclusion in a mortgage of a broad all inclusive dragnet clause. Contracts requiring one party to deal exclusively with one supplier have been viewed with great suspicion under the antitrust laws. Standard Oil Co. v. United States (Standard Stations), 337 U.S. 293 (1947); R.L.H. 1955, as amended § 205A-3. To attempt to foreclose, for example, on the mortgagor's home for debts incurred in operating a business and which debts are not specifically covered by the mortgage would be unconscionable and contrary to public policy. Even were we to decide this case on the basis of the intention of the parties, the result would be the same. American Security recorded an additional charge mortgage to secure its subsequent loan of $105,000 to Akamine & Sons, Ltd. If any loan could be construed as within the terms of the clause of the original mortgage, it was that loan. As recognized by the legislature, the benefit of a mortgage to secure future advances is the elimination of the cost of additional charge mortgages. Nowhere in the record did American Security attempt to explain the reason for the additional charge mortgage. Furthermore, none of the other loan documents, allegedly secured by the mortgage, refer in any way to the mortgage as security. In every case, American Security received full security for each debt. American Security is entitled to receive proceeds from the foreclosure sale sufficient to cover the unpaid balances of the original loan of $250,000 and the subsequent loan of $105,000 with interest, costs, attorney's fees and other expenses properly chargeable to it. Hawaii National is entitled to the proceeds remaining to the extent that they may be required to cover its loan secured by its mortgage. Reversed and remanded for further proceedings.