Court Opinion

ID: 6905135
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:59:07.98776+00
Date Added: 2024-06-11T16:06:18.980868
License: Public Domain

Me. Justice Buenett
delivered the opinion of the court.
1. Substantially the only controversy of fact is upon the question of whether or not the Seaweards either primarily authorized or subsequently ratified the acts of the plaintiff in taking the deed from the Deans, surrendering to them their notes and satisfying the mortgage. A brief review of the testimony on this subject is apropos at the outset. The president, cashier and assistant cashier of the bank all testify that they consulted with the Seaweards about the intended action of taking the deed and surrendering the notes and mortgage, and they approved the same on the ground that it would be much cheaper for all parties concerned to avoid the expense of a foreclosure suit for the purpose of realizing on the mortgage at forced sale. The bank officials also said that within a short time after the execution of the Dean deed they told the Seaweards about it, and they expressed satisfaction over the result. The defendants introduced in evidence a letter of the bank, of date March 1, 1913, as follows:
“Seaweard Bros., Ontario, Ore.
“ Gentlemen: Tour notes are all due and some of them bear date of 1911. Please, call at your earliest convenience and make up new notes. We also want to talk over the deal for the Dean land. We now hold a deed for the land and same will be effective June 2nd., if Dean notes are not paid. [Signed by the president of the bank.] ”
One of the Seaweards testifies about the option given to the 'Deans and the successive option given to *577themselves to sell the land for the satisfaction of the amount due the bank. They admit knowing about the deed as early as March 1, 1913, and trying to sell the property under their option; but they plead in their answer that they knew nothing of the surrender of the notes or the cancellation of the mortgage until August 1st. They testify, however, that they did not acquire that knowledge until about September 1, 1913, and then only by first searching the records and finding the marginal satisfaction of the mortgage, and afterward inquiring from one of the makers of the Dean notes, who exhibited them to one of the Seaweards, marked “Paid.” It is not pretended on behalf of the defendants that the Seaweards ever expressed to the bank any dissatisfaction or dissent concerning these transactions. It is not disputed that' they waited until November 1st, when they offered the certified check, coupled with a demand for the return of the collateral. It is not stated that they even demanded the return of their own note or that the bank refused to receive the check. In the light of all this testimony we conclude that it preponderates in favor of the proposition that the Seaweards ratified the action of the bank in taking the deed and surrendering the notes.
2. Besides the actual statements of the witnesses, there are certain conceded circumstances which must affect the case. It is admitted that the Dean deed, dated February 21, 1913, and recorded February 28th of that year, was known to the Seaweards as early as March 1st. So far as the mere land itself was concerned, the situation was then the same as though the bank had foreclosed the mortgage and bought in the tract at the sale under the decree. This result was accomplished without the expense of such litigation and *578was advantageous to the Seaweards. They knew that the security had been changed in some manner, and it is a case where they were put upon inquiry, and are clearly to be charged with a knowledge of all they might have learned in March by making the slightest inquiry. It is within the principle of McLeod v. Despain, 49 Or. 536 (90 Pac. 492, 124 Am. St. Rep. 1066, 19 L. R. A. (N. S.) 276), holding that:
“A person who learns of unusual circumstances connected with a transaction in which he is about to be interested, or of such facts as would put a person of ordinary prudence upon inquiry, * * is bound thereby to a knowledge of what could have been discovered by investigation.”
3. Moreover, the defendants plead that the Sea* weards knew of the surrender of the notes and mortgage as early as August 1, 1913. They testify that they became aware of it by September of that year. Whether they discovered it in March or in September, they had the alternative of either adopting the transaction or of repudiating it, and it was their duty to act promptly in making their election. Writing on a kindred subject, Mr. Justice Wolverton, in McCourt v. Johns, 33 Or. 561, 569 (53 Pac. 601, 604), uses this language:
“When cause exists for rescission, the law requires the party seeking to take advantage of it to act without delay, so that the other party to the contract may be placed as nearly in statu quo as possible; and a nonobservance of the rule will generally constitute a waiver of the right to rescind” — citing Foley v. Crow, 37 Md. 51.
4. Again, conceding, without deciding, that the bank really was guilty of a conversion of the collateral, for which an action of trover would lie, yet the Seaweards had the alternative of repudiating the same and bring*579ing an action at law for damages, or they might adopt the same and hold the hank as a trustee for their benefit, and enforce the trust: Kelly v. Mattock, 85 Cal. 122 (24 Pac. 642). Under all these circumstances, even from the admitted viewpoint of the Seaweards, the two or three months’ delay in calling upon the plaintiff for a surrender of the collateral counts strongly as showing a waiver of their rights in that particular, and they must be considered in fact as having ratified the action of the bank by not expressing their disapproval when they had knowledge of all the circumstances. Their duty to speak arose at once when they became aware of the whole transaction, and taking them at their word, aside from their denials of knowledge, which are disputed by witnesses for the plaintiff, they must be bound by the situation, in which they did not dissent for more than two months after obtaining a full knowledge of it. As a necessary corollary to this the bank is exonerated from the charge of having converted to its own use the property of the Seaweards.
5. Further, if the bank in truth converted the securities of the Seaweards to its own use, the transaction would give rise to an action at law in trover for the tort thus committed. This being a suit in equity to subject the land in question to the payment of indebtedness, we may well doubt that it was permissible to interpose as a counterclaim the chose in action for the tort of conversion, especially at the suit of both the Seaweards and the Deans, the latter of whom profited by the transaction. It is said in Section 401, L. O. L.:
“The counterclaim of the defendant shall be one upon which a suit might be maintained by the defendant against the plaintiff in the suit; and in addition to the cases cited, specified in the subdivisions of Sec*580tion 74, it is sufficient if it be connected with the subject of the suit.”
We cannot conceive that an original suit in equity would lie for the tort of conversion, especially without an allegation that the plaintiff here is insolvent and unable to respond in damages for the wrong alleged.
6. It remains to consider the nature of the transaction as respects the defendants Dean. As already stated, they took a written option giving them the privilege of repurchasing the land upon payment of an amount equivalent to the principal and interest of their notes. The rule is thus laid down by Chancellor Kent, as quoted in Kramer v. Wilson, 49 Or. 333, 341 (90 Pac. 183, 187), by Mr. Commissioner Slater, in distinguishing between a conditional sale -and a deed absolute on its face, and intended as a mortgage:
“The test of the distinction is this: If the relation of debtor and creditor remains, and a debt still subsists, it is a mortgage; but if the debt be extinguished by the agreement of the parties, * * and the grantor has the privilege of refunding, if he pleases, by a given time, and thereby entitle himself to a reconveyance, it is a conditional sale.”
In view of the fact that the Deans did not assert any right to redeem and have in possession their notes, and the mortgage securing the same has been satisfied, the transaction must be held to be a conditional sale as affects them. Under all the circumstances, the substance of the situation is that the form of the security for the Seaweard indebtedness was changed from that of the Dean notes and mortgage to the deed for the land. On the face of the record the plaintiff holds the property; nevertheless not actually as its owner, but subject to redemption on payment of the debt.
*581. 7. As distinguished from an action at law, the plaintiff had no cause of suit directly against the Seaweards upon their notes. Their direct liability to the bank accrued solely by virtue of their promissory notes, upon which only an action at law would lie; and this suit is not properly one to recover the amount due upon those instruments. It is purely a proceeding in rem against the land, to realize upon it as collateral for the payment of the Seaweard debt. The plaintiff, seised as it is of the legal title, comes into court and calls upon the Deans to assert or abandon their option to buy the land, and upon the Seaweards to offer anything showing a reduction or discharge of their indebtedness, to the end that a decree may be entered adjusting the rights of the parties in the realty. On the refusal of the bank to accept a proper tender of the amount due to it on their obligations, the Seaweards could have brought suit to redeem the land. On the other hand, in default of payment of the Seaweard notes, the plaintiff here has the corresponding right to carry on this proceeding in the nature of strict foreclosure to compel redemption or sale of the premises. That this is a suit to enforce the collateral, and not a proceeding to recover the original debt of the Seaweards, is shown in State Bank v. Casaccia, 103 Cal. 641 (37 Pac. 648), and MacArthur v. Magee, 114 Cal. 126 (45 Pac. 1068).
If the bank had sued upon the Dean notes and foreclosed the mortgage securing the same, it could have recovered attorney’s fees provided for in those securities; but it has surrendered the only instruments authorizing an attorney fee in a suit to realize upon the collateral. It cannot recover such a charge upon the Seaweard notes, because this suit is not directly upon them. It was necessary to allege the amount and *582nature of the indebtedness of the Seaweards to enable the court to make a proper decree disposing of the collateral; but the direct recovery upon the Seaweard notes is not here involved as a matter of law, although the plaintiff is demanding a decree directly upon them. The bank never had a direct cause of suit in equity upon the Seaweard notes, for the reason that they were personal obligations, to enforce which the remedy at law was plain, speedy and adequate. The only equitable relief that ever accrued to the bank had its origin in the Dean collateral notes and mortgage. In legal effect the present suit is an effort to realize upon the collateral in its changed form, and while the relief to be granted may be narrowed, as it is by the surrender of the personal obligations of the Deans, it can never be expanded beyond its original scope. It is plain that, if the Dean collateral had not been given up in exchange for the deed, the bank could not have sued in the same proceeding on both the Seaweard notes and the Dean notes and recovered attorney’s fees on both at once. In this effort to realize upon the collateral the relief to be granted cannot rise higher than its source, and if in'an original suit to foreclose the Dean mortgage an attorney fee upon the Seaweard notes could not have been allowed, it cannot be permitted here. We are not; unmindful of the provisions •of Section 422, L. O. L., reading thus:
“A lien upon real or personal property, other than that of a judgment or decree, whether created by mortgage or otherwise, shall be foreclosed, and the property adjudged to be sold to satisfy the debt-secured thereby by a suit. In such suit, in addition to the decree of foreclosure and sale, if it appear that a promissory note or other personal obligation for the payment of the debt has been given by the mortgagor or other lien debtor, or by any other person as princi*583•pal or otherwise, the court shall also decree a recovery of the amount of such debt against such person or persons, as the case may be, as in the case of an ordinary decree for the recovery of money.”
The debt mentioned there means nothing but the obligation for which the mortgage is directly given. It •does not refer to an obligation for which a mortgage and its principal debt are merely collateral. In other words, the complaint in this suit does not state facts sufficient to authorize the direct recovery of the Seaweard debt to the bank, for there has always existed a plain, speedy and adequate remedy at law for such relief. The complaint is potent only for the purpose of applying the proceeds of the Dean collateral to the payment of the Seaweard notes, and there can be no personal decree against the Seaweards in this suit. We conclude, therefore, that plaintiff cannot recover its alleged compensation for attorneys.
8. We pass to the consideration of the effect of the Seaweards offering a check coupled with the demand for the return of the Dean notes. As already stated, the Seaweards knew at the time they offered the check that the bank did not have custody of the original collateral and could not deliver it. They appended to their so-called tender an impossible condition, and having, as we have seen by preponderance of the testimony, ratified the act of the bank in surrendering the notes, they had no right to annex that proviso to the offer of the check. To be available for stopping-interest on the demand, the offer to pay must be without restriction, except such as the one making the tender has the right to impose.
“A tender must not be coupled with any other conditions than those which it is the clear legal duty of the mortgagee to fulfill on receiving payment or satisfaction”: 27 Cyc. 1407.
*584If the Seaweards had applied to the bank to pay their debt before the surrender of the Dean notes, they would have had the right as a condition of paying the debt to demand, not only their notes, but the collateral securing the same. Having waited until after the form of the collateral had been changed, in which the preponderance of the testimony shows they acquiesced, the Seaweards had no right to demand the impossible from the bank. The tender as a stoppage of interest must be disregarded, because it was coupled with the wrongful condition that the collateral must be surrendered.
All this leads to a modification of the decree of the Circuit Court in the following manner: The plaintiff is entitled to a decree of this court to the effect that if, within 90 days after the filing of our mandate in the Circuit Court, the Seaweards shall pay into that court for the plaintiff the balance of principal and interest at 10 per cent per annum of their notes to the date of payment, less the amount of the tender and the balance of $334.24 derived from the farming operations, both to be credited as of June 28, 1915, the date of the decree in the court below, the plaintiff bank and its president, who holds the legal title to the premises, shall convey the same to the Seaweards by good and sufficient deed, duly executed and acknowledged, so as to entitle the same to record, and shall thereupon, and not otherwise, be entitled to the money so paid into court. Further, that if the plaintiff shall fail to execute and deliver the deed to the Seaweards, or to the clerk of the Circuit Court for them, as thus required, the decree shall stand and operate as such deed. If the Seaweards fail so to redeem the land, the same shall be sold in the manner provided by law and the proceeds applied to the payment of the balance so com-
*585Jan.’16.] Haul v. Catherine Creek Development Co. puted, with interest at 10 per cent per annum to the day of sale, together with the expenses of sale, the remainder, if any, to he paid to the Seaweards, and that all the defendants and each of them be otherwise barred and foreclosed from asserting any interest or title in or to the property involved.
Modified. Rehearing Denied.