Court Opinion

ID: 3505422
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:15:32.663826+00
Date Added: 2024-06-11T13:44:55.374269
License: Public Domain

There has been a reargument of this case, not because of any objection of counsel to what was in the former opinion, but because of their view that it did not go far enough. They ask a decision which will dispose of the case finally. Our further consideration has led us to the conclusion that we should comply. The issues of fact remaining are apparent rather than real and to be solved by reference to controlling facts already established and largely by mere computation. Our further conclusions in the case are really matters of law. Counsel are right in saying that, in the interests of the litigants and a speedy end of the case, we should obviate the necessity for very much in the way of further proceedings below. *Page 78 
4. The retained bonuses were usurious and forfeited by the lender pursuant to the Illinois law construed in our former opinion. Their amount was never received by the borrower, and so they must go in reduction of the loan as made rather than in payment of it afterwards. The bonus on the $30,000 loan was $4,650 and that on the $14,000 loan, $2,030. Applying them in reduction of the loans. puts the latter at $25,350 and $11,970, respectively. That reduction of principal probably should have gone to the lessening of all the instalments pro rata. The debtor could have asked no more favorable disposition. The bonuses were not a payment, and so there was no right to elect how they should be applied.
But the next question is one of application of payments. Nine monthly instalments were paid, as called for, on the $30,000 note. They were without allowance for any reduction by reason of the bonus. So each payment was more than was due at the time. Were the question before us of what application to make of the excess, the parties themselves having made none, the most we could do for the debtor would be to apply it in reduction of the payment next maturing. That would comply with the general rule that payments will be applied by the law to the items which are earliest in point of time. 21 R.C.L. 103; 5 Dunnell, Minn. Dig. (2 ed.) § 7458. Furthermore, it would be logical and consistent with what good business sense probably would have required at the time in the interest of the debtor. We are not at liberty to make an arbitrary and unreasonable application of such payments simply to help the debtor.
These questions we mention only to indicate the utmost extent to which we might go in an effort to negative the existence of default on April 24, 1924, when the pledged bonds were sold. However the situation may be considered, there is no escaping the conclusion that there was a default which, under the contract of pledge, justified the sale. No proper method of computation escapes a default on the $30,000 note. No payments had been made on the $14,000 note. Even as reduced by the bonus, payments were due thereon which had not been made. That was enough under the collateral contract to authorize the sale. That contract did not require notice *Page 79 
or that notice if given should state the amount due or claimed to be due. It is therefore immaterial, in the absence of fraud or prejudice, that the sale was made upon a claim excessive as to the amount due. Kerfoot v. Billings, 160 Ill. 563,43 N.E. 804; Fairman v. Peck, 87 Ill. 156; Hamilton v. Lubukee, 51 Ill. 415,99 Am. D. 562. The sale was for substantially less than the amount due, and there is no suggestion that the borrower was prejudiced by the creditor's erroneous and exaggerated assumption as to the latter. The implications of both record and argument are to the contrary. The right of the pledgee to sell the bonds was conferred not by law but by the contract. Peacock v. Phillips, 247 Ill. 467, 93 N.E. 415,32 L.R.A.(N.S.) 42; Palmer v. Mutual Life Ins. Co. 114 Minn. 1, 8,130 N.W. 250, Ann. Cas. 1912B, 957. We cannot find that the contract was broken. The law of Illinois is controlling and we find nothing therein to invalidate the sale.
5. There having been a default which justified a sale of all the collateral, and the sale being otherwise unimpeachable, it remains to determine what rights it gave appellant Baker. It matters not, as we have already observed, that he may have been the representative of Bloss, for the latter had the contract right to purchase the pledged bonds, had he so elected, on his own account. In that situation it would have been immaterial, for present purposes, had the pledgee himself been the purchaser. In re Waddell-Entz Co. 67 Conn. 324, 336, 35 A. 257. The question is whether Baker may now enforce his bonds, in the pending foreclosure of the underlying trust deed, on the basis of their full par value of $75,000 and interest, or whether they will stand only for the amount of the original debt for which they were security. Again the Illinois law is controlling, and it is that:
"There is an exception to the doctrine that one seeking to enforce in equity a mortgage security is subject to any defense which would have been good against the mortgage in the hands of the mortgagee. That is the case of corporation bonds * * * [which] are issued for the purpose of raising funds for the corporation and are intended to be thrown upon the market and to pass from hand to hand. *Page 80 
The mortgage or trust deed secures the holders of the bonds, and they can be enforced by such holders for the full face value, regardless of equities. To permit equitable defenses to be interposed would practically destroy such methods of raising money, and the corporation is properly estopped to deny its liability." Peacock v. Phillips, 247 Ill. 467, 474,93 N.E. 415, annotated, 32 L.R.A.(N.S.) 42.
That is controlling and disposes of this case. It makes no difference that the bonds were not negotiable. They were corporate obligations of the kind referred to in Peacock v. Phillips, 247 Ill. 467, 93 N.E. 415, 32 L.R.A.(N.S.) 42, and that is enough. That case follows the rule of the federal courts. Rogers Brown  Co. v. Tindel Morris Co. (D.C.) 271 F. 475; Turner v. Metropolitan Trust Co. (C.C.A.) 207 F. 495; Mississippi Valley Trust Co. v. Railway Steel S. Co. (C.C.A.) 258 F. 346. See also In re Woods, Weeks  Co. 52 Md. 520.
A contrary view is expressed in Dibert v. D'Arcy,248 Mo. 617, 643, 154 S.W. 1116, 1123, where the holding is (following In re Waddell-Entz Co. 67 Conn. 324, 35 A. 257) that, under such circumstances as we have here, the pledged notes or bonds "may be treated as collateral to the indebtedness so far as is necessary to give the creditor * * * the benefit, with respect to his indebtedness, of the lien upon the mortgaged property." Under that rule Baker could enforce his bonds only to the extent of collecting the amount due on the original debt to Bloss  Company, whereas, under the rule of Peacock v. Phillips, 247 Ill. 467, 93 N.E. 415, 32 L.R.A.(N.S.) 42, he will be entitled to enforce them regardless of the original debt and according to their own terms on the basis of their par value. The doctrine of Dibert v. D'Arcy, 247 Mo. 617,154 S.W. 1116, in practical result, disables a pledgee from selling the bonds of his debtor which have been pledged with him, although he has been given that right by a contract legally unobjectionable. That power, absolute and unconditioned as it is ordinarily, contemplates a sale and nothing less, and that good title shall be vested in the purchaser. But under the rule of Dibert v. D'Arcy, 248 Mo. 617, 154 S.W. 1116, there can be no power of sale in the real sense, *Page 81 
but only the power, although the form of a sale be resorted to, of a bare assignment by the creditor of his right to use the collateral for the purpose of collecting his debt. Therefore, while that rule may achieve equity and avoid harsh results in given cases, it does seem to thwart the plain purpose of a lawful contract and to be in opposition to current, lawful practices and purposes of business. Be that as it may, here it is the Illinois rule of Peacock v. Phillips, 247 Ill. 467, 93 N.E. 415, 32 L.R.A.(N.S.) 42, that must control. It follows that by their sale as a pledge appellant Baker got an unimpeachable title to the bonds and may enforce them accordingly.
The briefs indicate that there are outstanding $140,000 of the bonds, secured by the trust deed under foreclosure. Of them appellant holds $75,000, par value. Appellant is therefore entitled to a share in the security and the proceeds of foreclosure represented by the fraction, 75/140. His bonds will not be considered as having drawn interest previous to the making of the loan as security for which they were pledged. Otherwise the matter of interest will remain for adjustment agreeably to the judgment of the district court.
The case is remanded for further proceedings not inconsistent with our former opinion as supplemented by this one. *Page 82