Des Moines Savings Bank v. Arthur

143 N.W. 556, 163 Iowa 205

• Court: Supreme Court of Iowa
• Decided: October 25, 1913
• Status: Published

Opinion

Ladd, J.

This is an action to recover judgment against Montana Duff, on a promissory note of $1,800 given October 6, 1900, and payable ten years thereafter, given by herself and husband to A. B. Shriver, and to foreclose a mortgage on one hundred and one aeres of land executed by them to secure its payment. E. O. Arthur, who had acquired the land, was made defendant, as also was A. B. Anderson, who held a note of $3,000 given by Edwin Trester to Shriver February 10, 1906, payable five years after date and secured by a mortgage on the same land. Plaintiff prayed that the lien of this mortgage be decreed inferior to that sued on. Other parties were brought in as defendants to cross-petitions, and S. H. Arthur by amendment to the petition.

1. Appeal : title of cause statuse. I. In printing the abstract, all parties other than plaintiff were designated appellees without indicating their relation to the case other than as defendants or appellees, and this is one of the grounds of the motion of dismissal. It will be noted that the parties defendant were correctly named, but others who were defendants in cross-petitions were included as though parties to the main action. The statute exacts that the cause be docketed as in the court below (section 4108, Code), and this should have been done. But the section, being remedial, is directory, and, inasmuch as.the identity of the action has been preserved and the relation of defendants to the case disclosed in the abstract, there could have been no prejudice and there should not be a dismissal on this ground.

2. Same : time for taking appeals. The judge presiding filed an opinion with the clerk November 23, 1911, and service of notice of appeal was not acknowledged until August 7, 1912. As more than six months had intervened, dismissal on this ground is demanded. As time for the purposes of appeal is computed from the entry of decree which occurred February 24, 1912, instead of the announcement of the decision, service of the notice of appeal was in time. Martin v. Martin, 125 Iowa 73; Sievertson v. Paxton-Eckman, 160 Iowa 662. The record does not bear out the suggestion that there was delay in the final entry because of the trials of issues raised on the petitions of intervention, and, as the record does not disclose that the same attorney represented plaintiff and Anderson, the issuance of execution on the decree of the latter cannot be construed as a waiver of the right of appeal, even were appellee’s theory to be adopted. The motion to dismiss the appeal is overruled.

II. The note of $1,800 executed by Montana Duff and husband to A. B. Shriver October 6, 1910, and payable ten years thereafter, was deposited by him with the Des Moines Savings Bank in the fall of 1909 as collateral security, of his note of $1,600 payable in 90 days and the mortgage executed by the Duffs to secure payment of their note duly assigned to said bank. It advanced the face of the note less $28, interest for the period until maturity, and the president of the bank, who negotiated the loan,'testified that before making it he ascertained that the mortgage was a first lien on land eonstituting ample security for its payment and that he was without knowledge that the note and mortgage had been paid.

3. Mortgages :foreclosure: defenses. The note and mortgage had been paid by the execution of a note of $3,000 to Shriver by Trester and wife, the former of whom having acquired the land, and a mortgage on the land securing the same. Though the $1,800 note and mortgage were not then in Shriver’s possession, he procured the same subsequently;'but, instead of canceling the one and releasing the other, he negotiated the loan with the bank as stated. As it acquired these for value and without notice, the defense of payment must fail unless the note is found not to be negotiable, for under the decisions of this state foreclosure of the mortgage may not be defeated by a defense not available against the note. Preston Kean & Co. v. Morris Case & Co., 42 Iowa, 549.

The theory of defendants is that the mortgage and note are to be construed together and treated as one instrument, and the following clause contained in the mortgage renders the note nonnegotiable:

Said first party shall pay all taxes and assessments upon said property to whomsoever laid, or assessed, and including personal taxes, and should any reduction be made in the assessment'of taxes on said land by reason of this mortgage, and payment thereof required of the mortgagee or assigns, then said mortgagor shall pay the taxes on this mortgage and the debt hereby secured before delinquent; and said first party shall not suffer waste; shall keep all buildings thereon insured to the satisfaction of said second party in a sum not less than two hundred dollars, delivering all policies and renewal receipts to .said second party., and shall pay, in ease of suit, a reasonable attorney’s fee and expenses of continuation of abstract, and all expenses and attorney’s fees incurred by said second party or assigns by reason of litigation with third parties to protect the lien of this mortgage. A failure to comply with any one of the agreements hereof (including warranty of title) causes the whole debt to at once become due and collectible, if said second party or assigns so elect, and no demand for fulfillment of broken conditions nor notice of election to consider the debt due, shall be necessary previous to commencement of suit to collect the debt hereby secured, or any part thereof, or to foreclose this mortgage. . . . All money paid'by said second party or assigns for insurance or taxes shall bear interest at the rate of eight per cent, per annum, payable semiannually, and be a lien on said land under this mortgage.

4. Same : bills ana notes: construction: negotiability. It is settled, in this state at least, that the note and mortgage, having been executed at the same time and as a part of the same transaction, are to be construed together. Iowa National Bank v. Carter, 144 Iowa, 715; Swearingen v. Lahner, 93 Iowa, 147. And such appears to be the general rule. Brooke v. Struthers, 110 Mich. 562 (68 N. W. 272, 35 L. R. A. 536 and note); 1 Jones on Mtgs. section 71. This is but the application of the familiar doctrine concerning the construction of agreements contemporaneously executed.

But how far under this rule are the collateral agreements contained in the mortgage to be imparted into the note ? On the margin of the note were these words: “This note is secured by first mortgage on one hundred and one acres in Madison Twp., Madison county, Iowa.” This may have advised the transferee of the security, but did not purport to load the note with any of its particular provisions. The note was complete in itself and, as usual, was given as evidence of the debt and to fix the time and terms of payment. The purpose of the mortgage was to afford security for the payment of the note, and all the conditions in the part quoted, except one, relate to the protection and preservation of the security. These have no bearing on the engagements contained in the note. While the note and mortgage are to be construed together whenever the nature of the transaction becomes material, this does not mean, that the provisions of the mortgage are thereby incorporated into and become part of the note. As said in Thorp v. Mindeman, 123 Wis. 149 (101 N. W. 417, 68 L. R. A. 146, 107 Am. St. Rep. 1003).

Construing together simply means that if there be any provisions in one instrument limiting, explaining, or otherwise affecting the provisions of another, they will be given effect as between the parties themselves and all persons charged with notice, so that the intent of the parties may be carried out, and that the whole agreement actually made may be effectuated. . . . The promise to pay is one distinct agreement, and, if couched in proper terms, is negotiable. The pledge of real estate to secure that promise is another distinct agreement, which ordinarily is not intended to affect in the least the promise to pay, but only to give a remedy for failure to carry out the promise to pay. The holder of the note may discard the mortgage entirely and sue and recover on his note; and the fact that a mortgage had been given with the note, containing all manner of agreements relating simply to the preservation of the security, would cut no figure. A pleading alleging such facts would be stricken out as frivolous or irrelevant.

In Garnett v. Meyers, 65 Neb. 280 (91 N. W. 400, 94 N. W. 803), Sedgwick, J., in speaking for the court concisely states the rule:

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 compels 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 cannot be 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 be 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, cannot be held to render the note nonnegotiable.

See, also, Kendall v. Selby, 66 Neb. 60 (92 N. W. 178, 103 Am. St. Rep. 697); Frost v. Fisher, 13 Colo. App. 322 (58 Pac. 872); Hunter v. Clarke, 184 Ill. 158 (56 N. E. 297, 75 Am. St. Rep. 160).

It will be observed that the mortgage contains no promise on the part of the mortgagor to repay mortgagee taxes or premiums for insurance which may have been advanced by him. These are to be a lien on the land and, of course, may be recovered upon foreclosure of the mortgage. The maker of the note does not thereby become liable for payment thereof save as he may be required to pay to redeem his land from the proceedings in foreclosure of the mortgage. The obligation of his note was in no manner enhanced or otherwise affected either as to time or amount of payment. As observed in Hunter v. Clarke, supra, “the provisions of the mortgage for the allowance of costs, taxes, assessments, insurance, and attorney ’s fees apply only in case of foreclosure and do not add to the amount of the note. ’ ’

5. Same : separate actions : election. A separate action could have been maintained on the note (section 3428, Code) or on the mortgage, unless this is prevented by some stipulation in one or the other, as that execution shall not issue against property other than that mortgaged (Kennion v. Kelsey, 10 Iowa 443); but actions on each cannot be prosecuted in the same county at the same time, for, if undertaken, the plaintiff will be required to elect which he will maintain (section 4288, Code). And as'the maker of the note "did not agree to pay the items of taxes, insurance, and the like in his note, the amount payable thereon has not been rendered uncertain by the terms of the mortgage.

6. Same : nesotiabiiity of note, As intimated, one clause in the mortgage was not inserted to protect the security but to place a burden on the mortgagor: “Should any reduction be made in the assessment of taxes on said land by reason of this mortgage and payment thereof required of the mortgagee or assigns, then said mortgagor shall pay the taxes on this mortgage and the debt thereby secured before delinquent.” This merely exacted payment by the mortgagor of taxes assessed on the credits owing the mortgagee which, but for this, the latter must have paid. But as pointed out, if not paid by the mortgagor and discharged by the mortgagee, there is no condition entitling him to recover the same as a part of the indebtedness evidenced by the note or otherwise save by enforcing the lien specifically stipulated against the land mortgaged.

In this respect, the mortgage differs from that considered in Garnett v. Meyers, 65 Neb. 287 (91 N. W. 400, 94 N. W. 803); Consterdine v. Moore, 65 Neb. 291 (91 N. W. 399, 96 N. W. 1021, 101 Am. St. Rep. 620), where it was provided that “the said party of the second part, or the legal holder or holders of said note, . . . may elect to pay such taxes, assessments, . . . and the amount so paid shall be secured by the mortgage and may be collected in the same manner as the principal debt hereby secured, with interest at the rate of ten per cent, per annum.” In holding that this provision rendered the note nonnegotiable, the court seems to have held that, under this clause, taxes so paid by the mortgagee might be recovered in an action on the note, and therefore the amount payable was uncertain. No one can anticipate precisely what the tax levies of the future will be, and for this reason such a stipulation when contained in a note, renders, it nonnegotiable. Farquar v. Fidelity Ins. etc., Co., Fed. Cas. No. 4,676; Howell v. Todd, Fed. Cas. No. 6,783; Walker v. Thompson, 108 Mich. 686 (66 N. W. 584); Carmody v. Crane, 110 Mich. 508 (68 N. W. 268). See, also, Brooke v. Struthers, 110 Mich. 562 (68 N. W. 272, 35 L. R. A. 536).

7. Same. As the provisions of the mortgage in the case at bar did not render the amount payable on the note uncertain, the note cannot be denounced as nonnegotiable on this ground. Nor did the clause giving the mortgagee on breach of certain conditions the election to declare the entire indebtedness due. Under the Negotiable Instruments Act, an instrument to be negotiable “must be payable on demand, or at a fixed or determinable future time.” Section 3060-la, Code Supp. This note was payable “on the 6th day of October, 1910.” It was certain that the time would arrive when the note would be payable, and the circumstances that it might become payable before that time upon the default of the maker in certain respects at the option of the payee or holder did not affect its negotiability. Charlton v. Reed, 61 Iowa 166; Chicago, etc., Equipment Co. v. Merchants’ Bank, 136 U. S. 268 (10 Sup. Ct. 999, 34 L. Ed. 352); Hunter v. Clarke, 184 Ill. 158 (56 N. E. 297, 75 Am. St. Rep. 160); Mackintosh v. Gibbs, 81 N. J. Law, 577 (80 Atl. 554, Ann. Cas. 1912D, 163); Merrill v. Hurley, 6 S. D. 592 (62 N. W. 958, 55 Am. St. Rep. 859); Taylor v. American Nat. Bank, 63 Fla. 631 (57 South. 678); Barker v. Sartori, 66 Wash. 260 (119 Pac. 611). See valuable note to Holliday State Bank v. Hoffman, Ann. Cas. 1912D, 1.

Decisions to the contrary may be found on both of the foregoing propositions, but our conclusion has the support of the great weight of authority. Appellant relies on Iowa National Bank v. Carter, 144 Iowa, 715; but the chattel mortgage securing the note there held nonnegotiable provided that the note should become due and payable at the election of the payee or holder. This, being independent of any default of the maker, left him without protection, and such a clause is gen-orally held to render the note when construed in connection with the mortgage nonnegotiable, as was decided in the-above case. See, also, Smith v. Marland, 59 Iowa, 545; First Nat. Bank v. Bynum, 84 N. C. 24 (37 Am. Rep. 604); National Bank v. Armstrong, 25 Minn. 531; Carroll County Savings Bank v. Strother, 28 S. C. 504 (6 S. E. 313). Note in which cases are collected, to Kimpton v. Studebaker Brothers Co., 14 Idaho, 552 (94 Pac. 1039, 125 Am. St. Rep. 185, 14 Ann. Cas. 1126). The point was not raised in Heard v. Dubuque County Bank, 8 Neb. 10 (30 Am. Rep. 811). Such a condition divests the note of the quality of certainty in time of payment,for this may be hastened at the option of the maker alone. We are of opinion that the note was negotiable, and, as plaintiff acquired it without notice and for value, that it was not subject to the defense of payment.

8. Negotiable : Instrument bona fide purchaser: notice: evidence. III. Only the president of the bank testified to the absence of notice that the note had been paid, and it is argued that, as the other officers might have been aware of this, purchase without notice was not proven. But, according to the witness, the transaction was . with him, and, though his evidence may not 770 J have established the absence of notice conclusively, it was sufficient to justify the finding that the bank was without notice in acquiring the paper. Arnd v. Aylesworth, 145 Iowa, 185; Bennett State Bank v. Schloesser, 101 Iowa, 571. Conceding then that Shriver negotiated the papers in breach of faith (see section 3060-a55, Code Supp.), and therefore that burden of proof to show want of notice was on plaintiff (section 3060-a59, Code), such burden was met, and plaintiff rightly held a holder of the note in due course. The cause is remanded for the entry of a decree in harmony herewith. — Reversed.

Weaver, C. J., and Evans, Deemer, Gaynor, Preston, and Withrow, JJ., concur.