Kurtz v. Ogden Canyon Sanitarium Co.

108 P. 14, 37 Utah 313, 1910 Utah LEXIS 55

• Court: Utah Supreme Court
• Decided: March 11, 1910
• Docket: No. 2085
• Status: Published

Opinions

KRIOK, J.

The plaintiff brought this action against the Ogden Canyon Sanitarium Company, hereinafter styled “company,” and one O. D. Clark to foreclose a mortgage executed in the form of a trust deed in which said Clark was named trustee. The mortgage was delivered to plaintiff as collateral security, as will more fully appear hereafter. All of the other defendants intervened in the action as judgment creditors of said company, and claimed that their judgment liens were prior in right to the mortgage lien of plaintiff. The court found in favor of the plaintiff, declared said mortgage to be a prior and paramount lien, entered judgment and decree of foreclosure, and ordered the land described in said mortgage (which was all the land in which said company had any interest) sold, and the proceeds of sale to be applied firsfc on the debt secured by said mortgage, and the balance, if any, on said judgment liens. The defendants and inter-veners join in the appeal. The findings of fact fairly reflect the pleadings and the evidence. In view of the questions which are raised by the appeal, we deem it best to state at least the substance of the findings.

The court found: That the company aforesaid, in August, 1905, issued and delivered to one C. D. Clark, as trustee, fifty coupon bonds of one thousand dollars each, bearing six per cent interest, and that on said date, in connection with said bonds, and to secure their payment, said company also executed and delivered to said Clark, as trustee, a certain “deed of trust and mortgage” whereby said company conveyed to said trustee certain lands situated in Weber County, Utah; that said trust deed was duly filed for record, and, on October .13,- 1905, was duly recorded in the mortgage records of said Weber County;1 that said company at various times between December, 1905, and December, 1906, had duly executed and delivered to the Pin-gree National Bank of Ogden, Utah, certain promissory notes as evidences of loans made by said bank to said company, which together with interest, on August 30, 1906, amounted to the sum of $14,921.90; that said notes were given for money actually received from said bank, which money was used by said company in improving its property and to pay its debts; that said notes were also signed by certain individuals as makers who at the time were directors of said company, but no part of the money obtained as aforesaid was used by said individuals who signed the notes as aforesaid, but that said individuals, although apparently makers of said notes, were in fact sureties, and the debt incurred by the loans from said bank was tbe sole debt of said company; that thereafter, on or about the 15th day of October, 1905, to secure the payment of the notes and indebtedness aforesaid, said company directed said trustee to deliver to said bank said bonds and trust deed, and that the same were at said time delivered to said bank to secure the payment of said notes and indebtedness; that one T. J. Kurtz, who was a director of said company, personally signed the notes aforesaid, and that he died on the 18th day of November, 1905, and thereafter, on the 11th day .of December, 1905, the plaintiff, J. BL- Kurtz, a brother and heir of said T. J. Kurtz, was duly appointed administrator of the estate of said T. J. Kurtz, deceased, and that said J. H. Kurtz duly qualified as such administrator and continued to act as such until said estate was fully administered; that during the month of August, 1906, said bank presented its claim evidenced by said notes against the estate of said T. J, Kurtz, the signer thereof which claim was thereafter duly allowed by said administrator, and said allowance was approved by the district court of Weber County, Utah; that at the time of the death of said T. J. Kurtz said company was also indebted to him for moneys advanced by him to it which with accrued interest amounted to the sum of $1491.54; that on the 80th day of August, 1906, the directors of said company adopted a certain resolution, the substance of which is as follows: That whereas said company was at that time indebted to the Pingree National Bank in the sum of $14,921.90 for money borrowed by said company; and whereas the trust deed and bonds before mentioned had been delivered to said bank as collateral security for said indebtedness, and said bank now holds the same as security for the loans aforesaid; and whereas T. J. Kurtz during his lifetime, signed the notes held by said bank for the money borrowed from it by said company, and while said Kurtz appeared as a maker of said notes, he in truth was but surety for said company; and whereas said T. J. Kurtz has since died and J. BE. Kurtz (the plaintiff) has been duly appointed administrator of the estate of said- T. J. Kurtz, deceased, and tbe claim of said bank bas been presented for payment to said administrator and bas been allowed by him, wbicb allowance bas been approved by tbe district court of Weber County; and whereas said company at tbis time is without funds to pay the debt due tbe said bank, who is pressing tbe said administrator for payment, therefore it was resolved that if said administrator will pay tbe debt owing by said company to said bank tbe president and secretary of said company are instructed to execute and deliver to said J. H. Kurtz, as administrator, tbe promissory note of said company for tbe full amount paid by him to said bank, wbicb note shall be payable in six months from tbis date and bear eight per cent, interest; that tbe company consents that upon payment of tbe debt due to said bank by said administrator tbe mortgage or deed of trust and bonds held by said bank issued by it be transferred to said administrator, and that in case tbe interest on said note should not be paid when due tbe whole of said note shall become due, and that said “J. H. Kurtz as administrator as aforesaid shall bold tbe notes and obligations issued to tbe said Pingree National Bank, together with tbe said bonds and deed of trust, as good and valuable security for tbe payment of said money.” It was further resolved that whereas said company is also indebted to tbe estate of said T. J. Kurtz in tbe sum of $1419.54 .that said sum be included in tbe note to be delivered as aforesaid, and that said trust deed and bonds shall also be held as security for said sum.

Tbe note authorized by tbe foregoing resolution was duly executed and delivered. It was dated August 30, 1906, and was payable in six months from date. Tbe amount specified in tbe note is $16,341.44. Tbis was tbe amount, with accrued interest, that was due to tbe bank and to tbe estate of T. J. Kurtz at that date. In tbe note for said sum of $16,341.44, in referring to tbe security, namely, tbe bonds and mortgage or trust deed aforesaid, it is stated that they were “deposited as collateral security for tbe payment of tbis note and of any and all claims, demands or other indebtedness due or not due.” Tbe court found that tbe matters contained in tbe foregoing resolutions were true, and further found that tbe proposition made by tbe company to said administrator as embodied in tbe resolutions aforesaid was by bim submitted to tbe district court of Weber County in wbicb tbe estate of T. J. Kurtz was being administered, and said court authorized tbe said administrator to pay tbe debt owing to said bank by said company and to receive tbe note of said company with tbe securities as above stated.

Tbe estate of T. J. Kurtz was distributed to bis heirs, eight in number, including J. BE. Kurtz, tbe plaintiff, some time after tbe order aforesaid was made and before this action was commenced. In tbe decree of distribution tbe notes and mortgage upon wbicb this action is based were distributed to tbe plaintiff as trustee in trust for the other heirs, tbe amount coming to each being fixed by tbe court, and tbe right of plaintiff to maintain this action is based upon that decree. Tbe court further found that tbe property mentioned in tbe mortgage was, during tbe three years preceding tbe commencement of this action, occupied by said company as a health resort, and that tbe value of said property during said years was largely speculative; that when this action was commenced said company was insolvent; that prior thereto the “company was a going concern, but was embarrassed at all times to pay its debts for want of ready money, and that said company bad property ample to pay its debts, if tbe same could be converted into cash, and at all times prior to tbe commencement of this suit was engaged in carrying out tbe objects for which it was incorporated, and that there was no fraud nor intent to defraud any one connected with tbe loans of tbe plaintiff or the Pingree National Bank, but at tbe time of said transactions it was bona fide tbe intent and effort of all parties to continue tbe defendant company’s business and to extend tbe time of payment of their due obligations.” Tbe court also found that said company was indebted in tbe sum of $1500 upon a note executed and delivered to plaintiff December 22, 1906, and that $1500 was a reasonable attorney’s fee for the foreclosure of the mortgage. The note provided for a ten per cent, attorney’s fee. It was also found that the judmfents of the interveners, upon which their complaints in intervention were based, were obtained on May 16, 1901, and on August 22, 1908.

The court ordered judgment for plaintiff as follows: (1) Nor $16,341.44 and interest on the note of August 30, 1906; (2) for $1500, with interest, on the note of December 22, 1906; and (3) for $1500 as attorney’s fee. All of these claims were declared prior and paramount to all other liens, and were to be- first paid out of the proceeds of the sale of the property. The court found all the affirmative allegations of .fraud and wrongdoing alleged by the interveners to be untrue, entered judgment in favor of them for the amounts of their judgments, but declared their liens subsequent and inferior to plaintiffs mortgage lien, and ordered that any surplus proceeds derived from the sale of the mortgaged premises, after paying plaintiff’s lien, be divided pro rata among the interveners, and in accordance with the amounts of their judgments. We remark that the plaintiff in his complaint prayed for the appointment of a receiver to take charge of the property and assets of the company. The court duly appointed a receiver, and it seems he is winding up the affairs of the company as an insolvent corporation.

All of the appellants join in the assignments of error. The errors assigned are very numerous, but counsel for the interveners have condensed the grounds upon which they claim either a reversal or a modification of the judgment. The grounds stated by them are, in substance, as follows: That the action should be dismissed (1) because plaintiff is not the real party in interest and has not legal capacity to sue; (2) because the complaint fails to state a cause of action. The grounds upon which it is urged the judgment should be reversed are: (1) Because several causes of action are improperly joined and commingled in one cause of action; (2) because the court erred both in overruling and sustaining certain objections to certain evidence. That tbe judgment should be reversed or modified; (1) Because tbe court erred in allowing tbe item of $1500 as attorney’s fee; (2) because tbe court erred in allowing tbe amount of $1500 evidenced by tbe note of December 22, 1906; (3) because tbe court did not eliminate and deduct from tbe $16,341.44 a certain claim amounting to $256.24, and, finally, because tbe court erred in not declaring tbe mortgage or trust deed void as against tbe claims of tbe interven-ers and in not declaring their judgment liens prior and paramount liens. It is conceded, however, that, inasmuch as a reciver has been appointed and tbe assets of tbe company are in tbe custody of tbe court, tbe court may have power to direct that all tbe assets of tbe corporation be converted into cash and to order tbe funds so obtained tó be distributed pro rata among tbe creditors of said company.

Passing now to a consideration of tbe alleged errors, we shall refer to tbe demurrers first. Tbe company demurred to tbe complaint upon tbe grounds that “plaintiff has not legal capacity to sue” and “that tbe complaint does not state facts sufficient to constitute a cause of action.” Tbe demurrer was overruled. Tbe defendant Clark demurred upon tbe grounds just stated, ■ and upon tbe further ground “that several causes of action have been improperly united in one cause of action.” Tbe interveners attempted to raise tbe same objections at tbe trial by objecting to tbe introduction of any evidence in support of tbe allegations of tbe complaint. Tbe first three grounds before stated are based upon tbe demurrers and tbe objections of tbe interveners. Tbe contention that tbe plaintiff bad not legal capacity to sue is clearly untenable. Every natural person of lawful age has legal capacity to sue and nothing to tbe eon- 1, 2 trary appeared on tbe face of tbe complaint. Tbe objection that be was not tbe real party in interest and therefore could not maintain tbe action is likewise without merit. Tbe district court distributed to plaintiff in trust tbe claims sued on in this action. This, tbe record shows, was with tbe consent and at tbe request of all tbe heirs interested in said claims. Appellants, however, contend that tbe court bad no power to distribute the estate of T. J. Kurtz iu the manner and for the purpose aforesaid. The court clearly had jurisdiction of both the parties in interest (the heirs) and of the subject-matter (the estate), hence what the court did, if erroneous, was, nevertheless, not void, and is not subject to collateral attach. The objectors in this case could not have assailed the decree of distribution by a direct attack because they were not interested, and if this be so, 3 then, for a much stronger reason, they cannot assail the decree collaterally. The plaintiff clearly had the right to sue in his own name, and all the other heirs are bound by the judgment by reason of their consent to have the plaintiff act for them, if for no other reason. That they are so bound is all that the appellants can require. The court, therefore, committed no error in its rulings respecting the matters just referred to.

The objection that “several causes of action have been improperly united in one cause of action” cannot be sustained. In section 2962, Comp. Laws 1901, it is provided that a party may demur upon the ground “that several causes of action have been improperly united.” This provision applies in case a pleader sets forth several causes of action in his complaint which cannot be properly joined in the same action. The demurrer in the case at bar 4, 5 is based upon the ground that several cuses of action have been commingled in one statement as one cause of action. This is not a ground of demurrer, but is a ground for a motion to require the plaintiff to separately state his causes of action as provided in the last subdivision of section 2961. (Phillips’ Code Pleading, section 201.) True, a party may demur upon the ground of improper union although the causes of action are mingled in one statement, if the union is not permissible under the provisions of the Code. In the ease at bar while each of the two notes sued on constituted a cause of action, these two causes of action could properly have been united in one complaint. If the demurer, therefore, had been based upon the statute, the court still would not have erred in overruling it, 6 because tbe causes of action upon tbe two notes could properly be united in one complaint. Nor did tbe court err in oyerruling tbe demurrer upon the ground that tbe complaint did not state a cause of action.

Tbe contention that tbe court erred in overruling appel-lasnts’ objection to the testimony relating to tbe attorney’s fee is untenable. Under our statute (section 3505), tbe matter of allowing attorney’s fees in foreclosure cases is, to a large extent, left to tbe discretion of tbe court. Tbe court has a right to fix tbe fee at a lesser sum 7 regardless of a stipulation for a larger one. Tbe court, therefore, was authorized to bear tbe testimony of other attorneys to aid it in fixing a reasonable fee.

Tbe assertion that tbe court erred in allowing any attorney’s fee is without merit. Tbe note for $16,341.44 expressly provided for an attorney’s fee of ten per cent. We can see no more reason for denying an attorney’s fee in this case than in any other of foreclosure. This objection must be overruled.

Nor can tbe assignment that tbe court erred in excluding tbe statement of a certain witness for tbe interveners of what was said at a particular meeting of tbe board of directors with respect to what was intended by tbe board be sustained. Under tbe issues and in tbe face of tbe written evidence before tbe court, oral evidence upon tbe subject referred to in tbe statement of tbe witness 8 was wholly immaterial, if not improper. Further, even if tbe statement offered bad been admitted, tbe result still would have to be tbe same. In either view, therefore, tbe court’s ruling was not prejudicial.

Tbe contention that tbe court erred in allowing tbe claim for tbe $1500 represented by tbe note of December 22, 1906, and in rendering judgment for tbe plaintiff and against tbe company thereon cannot be sustained. But tbe contention that tbe court erred in its findings, conclusions, and judgment that said sum of $1500 was secured by tbe mortgage or trust deed, and hence was prior in right to tbe judgment liens'of tbe interveners, in our opinion, in view of tbe undisputed facts, should be upheld. In the resolution by which the trust deed was directed to be delivered to the plaintiff as security, two and only two claims are specifically mentioned. One is the amount which was owing and then due from the company to the bank, and the other was the amount owing and also then due from, the company to T. J. Kurtz. These two sums amounted to $16,341.44, and were evidenced by the note authorized by the board of directors. True, in the note itself the clause which we have heretofore quoted is contained. But either the president or secretary, or some one else inserted said clause in the note. The president and secretary could not exceed the authority conferred on them by the board of directors, and that authority was limited, in that it authorized the mortgage or trust deed to be delivered as security only for the amount specified in the resolutions which became both the guide and authority for the president and secretary. The president and secretary apparently had no other authority to deliver said mortgage except the authority conferred on them by the resolutions. Plaintiff’s counsel do not claim that the resolutions conferred authority to deliver the mortgage as seeurty for the $1500 claimed, but they do contend that the clause in the note referred to was sufficient authority. In addition to this counsel contend that the company having obtained and retained the benefit of the $1500, and by recognizing the note given as evidence of the same as a subsisting obligation it is estopped from urging that the trust deed and mortgage did not secure that note. As between the plaintiff and the company this argument would have much force, and especially since the corporation is insolvent and is in the hands of a receiver for the purpose of winding up its affairs. But as between the liens of the plaintiff and the judgment liens of the interveners the question is different. The interveners have the right to insist that unless the claims of the plaintiff are in fact secured by a prior lien his general claims must be reduced in right to the general claims of all the corporate creditors. Further, that in view that the corporation is insolvent and its property and assets are in tbe bands of a receiver for tbe purpose of winding up tbe corporate affairs, all tbe claims of general creditors must prorate and none should be preferred. In view, therefore, that there is no evidence that, tbe board of directors of tbe company authorized tbe president and secretary, or any other officer of said company, to deliver tbe mortgage or trust deed to plaintiff to secure any other amount than tbe two specific amounts named in tbe resolutions adopted by tbe board of directors, we are of tbe 9 opinion that tbe court erred in finding and adjudging that tbe claim for $1500 aforesaid was secured by tbe mortgage and trust deed, and that plaintiff by reason thereof was entitled to a prior and paramount lien for said sum against tbe mortgaged premises over tbe judgment liens of tbe interveners.

Tb contention that tbe court erred in not deducting tbe amount of tbe note for $256.34 from tbe larger sum of $16,341.44 cannot be sustained. This amount was clearly included within tbe resolutions as a debt owing from tbe company and no good reason is made to appear why said sum should be excluded.

Tbe assignment that tbe court should have disallowed tbe entire claim of plaintiff, or, at least, should have declared tbe mortgage and trust deed as of no effect as against tbe judgment liens of tbe interveners is, in our opinion, not well founded. Tbe contention that in securing plaintiff’s claim tbe company while insolvent’ preferred tbe claim of an officer or director to tbe prejudice of tbe general creditors, in view of tbe record in this case, cannot be sustained. There is not a scintilla of evidence of actual fraud 10, 11 or of any attempt by any officer or director as a creditor to obtain an undue advantage over other creditors of tbe company. Tbe money borrowed from tbe bani was all obtained for legitimate purposes and was all applied to tbe use and benefit of tbe company. Tbe original bonds were never negotiated to any one and thus never became an outstanding liability of tbe company. Tbe trust deed was, however, executed and thereafter delivered and made effective for a special purpose, namely, to secure tbe debt owing by tbe company to tbe bank. In delivering tbe mortgage or trust deed for that purpose it in legal effect was tbe same as if tbe mortgage or trust deed bad been executed and delivered for tbe express purpose of securing tbe bank debt. .When this debt was subsequently taken up1 by plaintiff as administrator of tbe estate of T. J. Kurtz with tbe consent of tbe board of directors of tbe company, and at tbeir solicitation, and tbe time of tbe payment of tbe bank debt was extended for six months, all of wbicb was evidenced by tbe note for $16,341.44, tbe delivery of tbe mortgage and trust deed to plaintiff thenceforth constituted security for tbe debts mentioned in tbe resolutions, and tbe mortgage, in legal effect, was the same as if it bad been executed and delivered for tbe purpose only of securing tbe debts aforesaid.

This also answers tbe objection that the action was premature because no demand was made as provided in the bonds. Tbe bonds never became of any effect whatever because never negotiated for any purpose.

Nor is tbe contenten that since tbe trust deed and bonds were delivered as collateral security they should have been sold as such security is usually sold of any force. Under the facts and circumstances of this case it is useless to discuss such a contention. Tbe trust deed was in fact delivered to secure plaintiff’s debt. Tbe plaintiff bad no right to negotiate tbe bonds of tbe company, and if be bad it would have been a useless ceremony to offer tbe paper of an insolvent concern. Plaintiff did tbe only thing be could do, wbicb was to bring an action in equity to foreclose tbe mortgage.

Nor can we see wherein tbe facts of this case bring it within tbe doctrine that insolvent corporations may not prefer tbe claims of officers or directors. We are of tbe opinion that tbe facts of this case bring it clearly within tbe rule laid down by this court in tbe cases of Wells Fargo & Co. v. Geo. M. Scott & Co., 18 Utah, 127, 55 Pac. 81, and National Bank of the Republic v. Geo. M. Scott & Co., 18 Utah, 400, 55 Pac. 374.

Nor is tbe contention that tbe company was in fact insolvent at tbe time of the transactions complained of sustained by any proof whatever. Trae, it is con- 12 tended that since the plaintiff alleged its insolvency when this action was commenced in 1907, and the court so found, that therefore we should assume that the company was insolvent at all times prior to that time. We think that the court’s findings on that subject fairly reflect the evidence, and although we are urged to do so, there is no good reason shown why we should disturb the findings.

The contention by the trustee, C. D. Clark, that he was the only proper person to bring suit because he was appointed trustee in the trust deed and bonds, if not already answered by us, is determined adversely to his contention in the case of Stevens,, etc., Co. v. Implement Co., 20 Utah, 267, 58 Pac. 843. If there is any distinction between the case at bar and the Stevens Case, supra, it is this, that in this case there is much stronger reason for holding that said C. D. Clark was not a necessary party to the action because in this case the instruments in which he was 13 designated as trustee never were actually negotiated nor delivered for the purpose for which they were originally issued but the trust deed subsequently became operative for a different purpose and with that purpose the trustee named therein never had any, nor was intended to have any, connection. In view of the circumstances of this case, Trustee Clark, for all legal and practical purposes, was eliminated from the transaction.

The judgment of the district court is affirmed with the exception of that part which declares the claim of $1500 evidenced by the note of December 22, 1906, a prior and paramount lien against the property mentioned in the trust deed or mortgage. Por the purpose of correcting the error in that regard the ease is remanded to the district court of Weber County with directions to modify the conclusions of law and the judgment to the effect that'said sum of $1500 is not a prior and paramount lien against the mortgaged premises, but that such claim should be classed among the general claims against said corporation, and in winding up its affairs and in distributing its assets among its creditors said claim should prorate with all the other general claims. In all other things the judgment and decree of the district court is affirmed. Each party is required to pay his own costs on this appeal.

STRAUP, 0. J., and McCARTY, J., concur.