Court Opinion

ID: 6654614
Source: CourtListenerOpinion
Date Created: 2022-07-20 20:56:52.086327+00
Date Added: 2024-06-11T15:59:50.780983
License: Public Domain

Sedgwick, J.
In the former opinion in this case {ante, page 280) it was held that the provisions there quoted from the note and mortgage did not destroy the negotiability of the note. A rehearing was allowed mainly for the consideration of that question. The oral arguments on this hearing were largely devoted to two propositions:
1. Should the conditions of the mortgage as distinguished from those in the note itself be held to affect the negotiability of the note? Upon this question we are entirely satisfied with the views expressed in the former opinion. If the terms and conditions of the mortgage are limited to the proper province of the mortgage — that is, to provide security for the indebtedness — its provisions relating solely to the security will not affect the negotiability of the note. If the holder of the note is compelled to pay the taxes or insurance on the mortgaged property to protect the security, and is afterwards allowed to recover the amount so paid in addition to the principal indebtedness, this does not affect the amount of the indebtedness itself. The mortgagee has no interest in the mortgaged property except a collateral and contingent one. The liability for these expenses is upon the mortgagor. If he shirks this responsibility and comiséis the mortgagee to assume it, equity allows the mortgagee to add the payment so made to his mortgage. This right has long been established as an essential element of the mortgage itself. It can not he held to destroy the negotiability of the note, unless the fact that the execution of the note is accompanied by the execution of a.mortgage securing it is to have that effect. This principle applies to all agreements of the mortgagor to preserve the collateral security. It does not affect the rule that the two instruments when executed at the same time must he construed together. The provisions contained in the mortgage to protect the’ securities, which would be implied and enforced upon settled principles of equity whether expressed in the mortgage or not, can not *289be held to render the note non-negotiable. As shown in the former opinion, provisions as to the indebtedness itself should properly be, and generally are, expressed in the note. If agreements in regard to the indebtedness are inserted in the accompanying paper executed at the same time with the note, and as a part of the same transaction, they must be construed with the note. If such agreements render the amount that the holder of the note can demand on the indebtedness itself uncertain, the note is non-negotiable in the hands of one Mho takes it Avith notice. The reasonableness of this rule would probably not be doubted in case the accompanying paper was not a mortgage, but was executed for the sole purpose of modifying the terms of the note, or to make its payment depend upon conditions expressed in the accompanying paper. The reason seems to be equally apparent when modifications of the terms of the note or limitations imposed upon the collection of the indebtedness itself are inserted in the accompanying mortgage. Such provisions in the mortgage are to be construed with the note. If the contract, so construed, renders the amount that may be demanded upon the indebtedness itself uncertain, one Mho takes the note, Avith notice of the limitations in the mortgage, is not entitled to protection as an innocent holder.
It is said by the plaintiff that there are two causes of action — “one at law upon the bond, seeking personal liability regardless of the lien; the other a proceeding to enforce the security regardless of the personal liability.” This is true, but in an action at lasv upon the note, and Avitbout seeking to enforce the security, the plaintiff no doubt might allege that in a writing executed with' the note, and as a part of the same transaction, it was agreed that the maker'of the note should pay taxes that might be assessed against the holder of the note by reason thereof, and that such taxes Avere assessed and had been paid by the note-holder; and there is no doubt that such taxes so paid might, in such an action, be included in the recovery. If such recoArery could be had Mhen the agreements to pav *290such taxes were in an accompanying paper executed for that purpose alone, no reason is perceived why recovery might not also be had in the same manner if such agreements were contained in a mortgage executed at the same time with the note and as a part of the same transaction.
2. Do the provisions of this mortgage relating' to the indebtedness itself render the amount that may be demanded thereon by the holder uncertain? Upon this hearing we have been assisted by a strong brief and able argument upon this question. We quote from the brief:
“It is said in the body of the opinion that tire provision was ‘plainly intended to meet the conditions which obtain in some jurisdictions, where the taxes chargeable against lands are assessed against both mortgagor and mortgagee in proportion to their several estates in the land.’ By what process of reasoning is this made so plainly to appear? The mortgagoi’s had already positively agreed in the following language: ‘The said parties of the first part hereby agree to pay all taxes and assessments levied upon said premises’ — meaning the real estate covered by the mortgage. Whis provision seems to be as broad as language can make it, and certainly would be construed to cover any part of the taxes against the real estate that the mortgagee might become liable for. All can not be construed to mean less than the vitóle. It ivould seem, then, to be the duty of the court to give some meaning and force to the further agreement to pay all taxes and assessments levied upon the holder of the mortgage for and on account of the same. It serms perfectly plain to the writer that the latter provision was intended to cover the tax for which the holder of the mortgage would thereafter become liable on account of the ownership of the credit represented by the mortgage and note.”
This reasoning seems to us to be sound. To construe the " provisions in question to mean that the mortgagor should pay all taxes levied on the premises including taxes charged against the holder of the mortgage on account of the mortgaged property, is not so obvious and natural as. *291to treat the word “same” as relating to the word “mortgage,” as its nearer position in the sentence would indicate, rather than to the more remote “premises.”- If the former meaning were intended, the expression “including all taxes levied,” etc., would have been more apt than the expression used. Giving the ordinary and natural meaning to all the words used in the provisions, it seems to us, upon further consideration, that- the intention was that the mortgagor should not only pay the taxes assessed against the mortgaged property, but also the taxes that the mortgagee might become liable for as the owner of the credit represented by the paper. Such credits are taxable under the laws of this state, and therefore presumably so in other jurisdictions. When levied they are not a lien upon the mortgaged property, but are collectible from the holder of the credit as any other personal taxes. The amount, then, that may be demanded upon the note would depend upon uncertain conditions “that can not be controlled by the holder of the paper,” and as pointed out in the former opinion, would destroy the negotiability of the paper. The note not being negotiable, the plaintiff, who purchased and took the mortgage with the note, must be held to have had notice of its conditions, and is not an innocent purchaser. Under such circumstances, payment to the original payee by the mortgagor, who had no notice of the transfer of the papers, would satisfy the mortgage.
The former judgment of this court is vacated and the judgment of the district court
Affirmed.