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FIRST-TRUST JOINT STOCK LAND BANK OF CHICAGO v. MEREDITH.*
This action was brought to recover the balance of some $36,000 on a promissory note of Robert Meredith, Alice R. Meredith, his wife, and Harlan Meredith, secured by their mortgage upon lands in the state of Iowa. The note and mortgage were executed in California. It is not necessary to decide in what state they were delivered. The note was payable in 68 semiannual installments of $1,300 each, which payments included interest; the first payment falling due April 29, 1924. Default was made in the payment due November 1, 1931, whereupon plaintiff, without demand for payment, instituted this action. By the terms of the note itself the holder was not given the right to declare the entire debt due upon default in the payment of any installment of principal or interest, but the mortgage contained the following provision: “And the said parties of the first part do further covenant and agree that in case of default in payment of said principal sum of money, or of any amortization installment thereof, or of interest thereon, or in the performance of any of the covenants or agreements herein contained, then, or at any time thereafter during the continuation of such default, the said party of the second part or its successors or assigns, may, without notice, declare the entire debt hereby secured immediately due and payable, and thereupon the said party of the second part, or its successors or assigns, shall be entitled to the immediate possession of said premises and the appointment of a receiver, as above provided, and may proceed to foreclose this mortgage; and in case of foreclosure, such sum as may be lawful shall be allowed by the court for attorney's fee and all costs and expenses incurred by said Bank or its attorneys, and be included in the judgment or decree.”
Defendant answered, setting up four separate defenses. Plaintiff made a motion for judgment on the pleadings, which was granted for the full amount of principal and interest and for $1,100 attorney's fees.
The first of appellant's points which we shall consider is the claim that by the provision of section 726 of the Code of Civil Procedure plaintiff is barred from prosecuting an action on the note and is limited to an action of foreclosure. It may be conceded that this position is well taken if section 726 relates to mortgages upon lands outside of the state, but the decisions are to the effect that the section relates only to mortgages upon lands located within this state. Felton v. West, 102 Cal. 266, 36 P. 676, 677; McGue v. Rommel, 148 Cal. 539, 83 P. 1000. In the first of these cases the plaintiff was allowed to recover a deficiency in California after foreclosure of a mortgage on Oregon land, in which action personal service could not be had and no deficiency judgment was obtained. The Supreme Court considered the question fully and came to the conclusion that the section does not relate to mortgages upon lands outside of the state, stating: “All the provisions of the section entirely negative the idea of any other construction. * * * This section refers to actions brought in the courts of California for the purpose of foreclosing mortgages upon property situated in the state of California.”
In McGue v. Rommel an action on a note was sustained although it was secured by real property in the republic of Mexico. The question was thus again answered contrary to the contention of the appellant. These authorities are controlling on the point. Plaintiff therefore had a right to bring this action on the note in California; it was not limited to a foreclosure action in Iowa.
Another defense relied upon is alleged want of consideration. The answer alleged that defendant received no money or property or anything of value for the execution of the note and mortgage, and that her signing of the same was wholly without consideration. The briefs cite and discuss the authorities on this point, which are in conflict upon the question whether a mere allegation of no consideration states a sufficient defense. The question does not arise under the defendant's pleading, for the reason that there is no allegation that there was no consideration for the note and mortgage; the allegation being merely that no consideration passed to the defendant Alice R. Meredith. She executed the note and mortgage, with her two comakers, before delivery. If they or either of them received a consideration, and it is presumed that they did, Alice R. Meredith is liable, even though no consideration passed to her. Section 3105, Civil Code, provides that such an instrument is deemed, prima facie, to have been issued for a valuable consideration. An accommodation maker is liable to a holder for value under section 3110, Civil Code, and plaintiff is a holder of the instrument under section 3266, Civil Code. This defense, therefore, was insufficient. If all of the allegations were true, defendant would still be liable as an accommodation maker to a holder for value.
As a further defense, defendant alleged that she executed the note and mortgage, “solely in order that her contingent right of dower would not take precedence over plaintiff's mortgage, and for no other purpose,” that she received no consideration, and that plaintiff did not loan any money upon the personal credit of defendant or because of any personal obligation of the defendant to repay the same. In support of her argument upon this point appellant cites Hinman v. Treinen, 196 Iowa, 701, 195 N. W. 345; Le Fleur v. Caldwell, 196 Iowa, 727, 195 N. W. 234; Insell v. McDaniels, 201 Iowa, 533, 207 N. W. 533; Cooley v. Will, 212 Iowa, 701, 237 N. W. 315. These cases hold that, where a wife receives no consideration for making a note and mortgage, which she executes for no other purpose than to waive or relinquish her contingent right of dower, and where no credit is extended to her personally, she is under no personal liability for the debt. In all of the cases cited, there was a pre-existing obligation of the husband for which the wife was not liable. The notes and mortgages were given in each of the cases cited to secure the husband's obligation. Neither of the transactions was a new or original one, whereas, in the instant case it is alleged, and not denied, that at the time the note and mortgage in question were given plaintiff loaned thereon the sum of $40,000. The Iowa decisions have not extended the rule of the cases cited to a case where the wife's note and mortgage are given at the time of the creation of the debt or obligation which they evidence and secure, but, upon the contrary, in Starry v. Starry & Lynch, 212 Iowa, 274, 234 N. W. 281, 283, the authorities here cited by appellant were reviewed, and the court said that they follow an exception to the general rule and that the exception “is to be carefully applied within strict lines lest by its expansion it detroy the rule itself.” It was held in this case that the rule first announced in Hinman v. Treinen, supra, did not apply to a case where the obligation of each signer became effective at the same time and the consideration of the contract became operative on both parties simultaneously.
In Millard v. Curtis, 208 Iowa, 682, 223 N. W. 489, the court refused to extend the exception to the rule to relieve from liability a wife who joined her husband in a note given to a bank, upon the ground that consideration did not depend merely upon what she received, or whether she received anything, but might as well depend upon inconvenience or detriment to or waiver by the bank.
In American Commercial, etc., Bank v. Kramer, 206 Iowa, 49, 219 N. W. 931, 932, a wife was held to be liable where she joined her husband in an agreement to pay a mortgage which her husband had theretofore assumed, in consideration for which the bank extended the time for the payment of the debt. The cases here cited by appellant were discussed by the court and held to be not in point, and it was said of the wife's contract in each of those cases: “Her signature was attached by her to a contract already complete. It was not done pursuant to any previous promise or condition. The payee parted with nothing on the faith thereof, nor did the principal maker receive anything.” These later cases show quite clearly that the Supreme Court of Iowa has not extended the rule of Hinman v. Treinen to cover such facts as we have in the instant case, but, upon the contrary, has refused to do so. We conclude, therefore, that this special defense did not allege facts sufficient to relieve defendant from liability upon the note.
Another defense urged is that only one installment of the note was overdue at the time the action was commenced, and that the judgment is erroneous in awarding plaintiff judgment, for the entire unpaid balance of the note.
The note was payable in sixty-eight semiannual installments of $1,300 each, applying to principal and interest. There was no acceleration clause in the note, but the mortgage provided that, in event of default, “the said party of the second part, or its successors or assigns, may without notice declare the entire debt hereby secured immediately due and payable and thereupon the said party of the second part, or its successors or assigns, shall be entitled to the immediate possession of said premises and the appointment of a receiver as above provided, and may proceed to foreclose this mortgage,” etc.
It is appellant's contention that the provision of the mortgage which gives the mortgagee the right, in event of default, to declare the entire debt due, relates and is limited to the foreclosure of the mortgage; in other words, that, while the debt may be declared due, the remedy available is only the foreclosure of the mortgage, and that no suit can be brought on the note. In support of this argument, cases are cited which announce the rule for which appellant contends, and which has come to be known as the “Minnesota rule,” declared in that state in the case of White v. Miller (1893) 52 Minn. 367, 54 N. W. 736, 19 L. R. A. 673. This rule has been followed in later Minnesota cases, and has been adopted in a number of other jurisdictions, while in others it has been rejected, in favor of the rule that default gives a mortgagee the right to declare the debt due under the acceleration clause of the mortgage, not only for the purpose of foreclosure but for all purposes. The point has not been decided in California. It would unduly extend this opinion to discuss the many learned opinions on the question and the reasoning employed to support them.
The weight of authority, and we believe the better reasoning, is against the Minnesota rule as a general rule. When it was originally adopted, not only in Minnesota in White v. Miller, supra, but in McClelland v. Bishop, 42 Ohio St. 113, Baird v. Meyer, 55 N. D. 930, 215 N. W. 542, 56 A. L. R. 175, Birken v. Hickey, 42 S. D. 472, 176 N. W. 137, Capehart v. Dettrick, 91 N. C. 344, all of which cases are frequently cited in support of the rule, the courts gave effect to the notes and mortgages as separate instruments so as to preserve the negotiability of the notes unaffected by acceleration clauses in the mortgages. Each case was properly considered with a view to carrying out the contract of the parties. In later cases the doctrine has been extended unduly, we think, to situations which do not come within the reasoning of the earlier cases, in which the rule had its origin. It has been carried to the extent of holding that a deficiency after foreclosure cannot be recovered until the notes themselves mature. Burnside v. Craig, 140 Minn. 404, 168 N. W. 175. Where so many forms of notes and mortgages have been construed, the courts have necessarily placed them in two classes, one in which the contract showed an intention that the debt shall not be matured except for foreclosure purposes, and the other where a contrary intention is found in the particular language of the instruments. Changes which have occurred in the Negotiable Instruments Law have eliminated many of the reasons which led the courts to regard the notes as negotiable instruments, unaffected by the terms of mortgages by which they were secured. The courts of Iowa have made no choice between two rules, although in that state recovery of the entire debt in a mortgage foreclosure action is allowed even before the notes mature according to their terms, although, as we have said, this is not the rule in Minnesota. There is nothing in the Iowa cases which militates against a construction that the note and mortgage in question should be considered as a single contract, maturable under the terms of the mortgage, not only for the purpose of foreclosure, but for all purposes.
The later cases, in jurisdictions where no choice has previously been made between the two rules, hold that a debt matured under a provision of a mortgage is matured for all purposes. Durham v. Rasco (1924) 30 N. M. 16, 227 P. 599, 34 A. L. R. 838; Wilson v. Kirchan (1927) 143 Wash. 342, 255 P. 368. In both of these cases the authorities are collected, and they may also be found in notes in 34 A. L. R. 850, and 56 A. L. R. 185.
The California cases, such as Meyer v. Weber, 133 Cal. 681, 65 P. 1110, hold that a note and mortgage are to be construed as a single contract. While section 726, Code of Civil Procedure, allows but one action to be brought on a mortgage obligation, judgment for deficiency may be rendered in a foreclosure action, under express authority of the statute, or may be recovered in an independent action in cases where it cannot be granted in the foreclosure suit. Blumberg v. Birch, 99 Cal. 416, 34 P. 102, 37 Am. St. Rep. 67. There is also the right in California to bring an action on the mortgage note in case the security has become valueless. We could apply the rule in this state, which would defer the bringing of such actions until the notes matured, only to a case where the parties had contracted that way.
The note and mortgage in the instant case should be construed as one instrument. The note recites that it is secured by a conveyance of certain described real estate. The mortgage sets forth the amount of the debt and the terms of payment, and provides that the mortgagors “do hereby covenant and agree to pay or cause to be paid the principal sum and interest above specified, in the manner aforesaid.” There is a further provision that upon default the mortgagee has the right to “without notice declare the entire debt hereby secured immediately due and payable.” No question of the negotiability of the note is concerned. No rights or liabilities of indorsers are involved, and the action is between original parties to the contract. In such a case we see no reason for holding that a debt, when matured according to the terms of the mortgage, is not collectible by independent suit on the note brought in California without foreclosure of the mortgage in Iowa.
Appellant next contends that the judgment for attorney's fees was erroneous, and with this contention we are disposed to agree. The note contained no provision for the payment of attorney's fees. The mortgage contained a provision which we have already quoted, and also the following provision: “And the said parties of the first part do hereby covenant and agree to pay, or cause to be paid, the principal sum and interest above specified, in manner aforesaid, together with all costs and expenses of collection, if any there shall be, and any costs, charges or attorney's fees incurred and paid by the said party of the second part, or its successors or assigns, in maintaining the priority of this mortgage, or in foreclosing the same.” As we interpret these provisions, there was no obligation to pay attorney's fees except in case of foreclosure. The parties had in mind collection either through foreclosure or without foreclosure. Accordingly, the mortgage bound the makers, where there was no foreclosure, to pay the principal and interest, “together with all costs and expenses of collection, if any there shall be.” There were two separate provisions for the payment of costs, charges, or attorney's fees paid in foreclosing the mortgage. The theory of the respondent is that “expenses of collection” include attorney's fees, and numerous authorities are cited so holding. We do not question the rulings in the cases cited, but we think the parties to the mortgage have contracted otherwise. If they had understood that “expenses of collection” included attorney's fees, they would not have considered it necessary, by two separate provisions of the mortgage, to provide for attorney's fees in case of foreclosure, and conversely, as they apparently considered it necessary to make a special provision for attorney's fees in the case of foreclosure, and did not provide for attorney's fees in case of collection without foreclosure, we do not doubt that the words “expenses of collection” were understood to exclude liability for attorney's fees. Since attorney's fees are not collectible in the absence of special agreement to pay them, and we believe that such agreement was not intended to be expressed in the language employed in the mortgage, it follows that the judgment for attorney's fees was erroneous.
As no sufficient defense was stated in the answer, the motion for judgment on the pleadings was properly granted, except in so far as it awarded plaintiff attorney's fees in the sum of $1,100.
The judgment is modified by striking therefrom the award of attorney's fees, and, as modified, is affirmed; appellant to recover costs on appeal.
SHINN, Justice pro tem.
We concur: HOUSER, Acting P. J.; YORK, J.
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Docket No: Civ. 8711.
Decided: April 25, 1935
Court: District Court of Appeal, Second District, Division 1, California.
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