Opinion
December 12, 1941. Rehearing Denied, February 26, 1942.
EQUITY: Mortgages: Intent Necessary For Equitable Mortgage. An insurance company agreed to accept a mortgage when defendant's building had been remodeled. Defendant arranged temporary financing with plaintiff bank to have the building reconstructed. A building fund under control of plaintiff was formed from the proceeds of defendant's short term collateral note. The plaintiff received as collateral a note and deed of trust of like amount in favor of the insurance company, but on which no money had been advanced. The proceeds of the building loan were used to pay the building contractor in part and to pay off prior deeds of trust which were then held uncanceled by the plaintiff. There was no intent to create a lien in favor of the plaintiff. Its security was its control over the new deed of trust, the prior deeds of trust and the building fund. The deed in favor of the plaintiff under the sale ordered by the court should be canceled.
Appeal from Circuit Court of City of St. Louis. — Hon. Joseph J. Ward, Judge.
REVERSED AND REMANDED ( with directions).
Clem F. Storckman, William L. Igoe and Victor A. Wallace for appellant.
(1) Neither under its petition nor its proof does plaintiff show the existence of facts necessary to a decree in its favor, because: (a) An equitable mortgage can only arise from a specific agreement, and equity requires clear and unequivocal proof of the intention of the parties to create an equitable mortgage lien, and the plaintiff has not sustained its burden of proof in this respect, but the evidence is to the contrary. 41 C.J. 294, Mortgages, sec. 33; Jones on Mortgages (8 Ed.), sec. 225, page 262; Jones on Liens (3 Ed.), secs. 31, 32; New Orleans Natl. Banking Assn. v. Adams, 27 L.Ed. 910, 109 U.S. 211; Smith v. Rainey, 9 Ariz. 362, 83 P. 463; Hibernian Banking Assn. v. Davis, 295 Ill. 537, 129 N.E. 540. (b) The collateral agreement upon which plaintiff bases its action does not describe any specific property, and equity requires the contract to clearly describe or point out the property to which the lien attaches. 41 C.J. 302, Mortgages, sec. 48; Carter v. Holman, 60 Mo. 498; Langley v. Vaughn, 57 Tenn. 554; Boehl v. Wadgymar, 54 Tex. 589; Industrial Lumber Co. v. Tex. Pine Land Assn., 72 S.W. 875, 31 Tex. Civ. App. 375; Pomeroy's Eq. Jur. (4 Ed.), sec. 1237; Sanderson v. Stockdale, 11 Md. 563; Jones on Liens (3 Ed.), sec. 33. (c) There is no pleading or proof of fraud, accident or mistake, which are the only equitable grounds that would entitle the plaintiff to the benefit of any agreement other than that expressed in the collateral pledge contract. Jones on Liens (3 Ed.), sec. 70; Cheff v. Haan, 257 N.W. 894, 269 Mich. 593; Printup v. Barrett, 46 Ga. 407. (2) Since the evidence showed that plaintiff made its loan in reliance on the commitment from Kurrus-Goddard Company, and that the plaintiff assumed the obligation of seeing that the building was completed and the title clear, and since the bank did not comply with its agreement, it is not entitled to any lien, for an equitable lien under the agreement of the parties only arises when the agreement is fulfilled. Jones on Liens (3 Ed.), sec. 38. (3) The collateral pledge agreement is complete upon its face, and since the ambiguity, if any, is patent, parol evidence is inadmissible to vary or contradict its contents, and plaintiff is not permitted to show that what is a complete pledge agreement upon its face was in fact intended as an equitable mortgage. Carter v. Holman, 60 Mo. 498; Jamison v. Wells, 7 S.W.2d 347. (4) Plaintiff cannot be permitted by parol to make out of the collateral pledge contract an agreement for a mortgage which would convey, or effect an interest in, land, as this would be, in contravention of the statute of frauds. Sec. 3354, R.S. 1939; Sleeth v. Sampson, 142 N.E. 355, 237 N.Y. 69, 30 A.L.R. 1400; Shy v. Lewis, 12 S.W.2d 719, 321 Mo. 688; Davis v. Holloway, 295 S.W. 105, 317 Mo. 246; Rosenberger v. Jones, 24 S.W. 203, 118 Mo. 559. (5) A pledge agreement relates to and deals exclusively with personal property, and, having prepared and used that form of agreement, the plaintiff cannot vary or contradict its own handiwork and now contend the collateral pledge contract covers real estate and creates an equitable mortgage. 49 C.J. 895; Jones on Liens (3 Ed.), sec. 11; Crooghan v. Savings Trust Co., 85 S.W.2d 239, 231 Mo. App. 1161. (6) It is admitted in the record that the Phoenix Mutual gave no consideration to Miss Goedecke for the note and deed of trust, and, since there was no endorsement or transfer of the note to the plaintiff, the plaintiff could not derive any right or benefit therefrom because the deed of trust could not, in and of itself, apart from the note, be assigned. Mo. Real Est. Loan Co. v. Gibson, 220 S.W. 675, 282 Mo. 75; Thayer v. Campbell, 9 Mo. 280. (7) Under a general denial, coupled with a verified denial of execution, the defendant is entitled to adduce any evidence tending to show that the plaintiff never had a cause of action, and the court erred in excluding defendant's evidence offered to prove that the bank's agreement was to see that the building was completed and the title cleared and that it failed to do so. Cushing v. Powell, 109 S.W. 1054, 130 Mo. App. 576; Ornburn v. Haley, 225 S.W. 114; Harrington v. Dunham, 202 S.W. 1066. (8) Even if the Phoenix Mutual note and deed of trust and the other three series of notes and deeds of trust had been pledged, the collateral pledge contract provides for a method for relief, and the remedy at law is adequate, and the plaintiff could not forfeit title to the deeds of trust so pledged and foreclose upon the real estate security. 49 C.J. 982, sec. 213; Swofford Bros. Dry Goods Co. v. Randolph, 151 Mo. App. 385, 132 S.W. 255; Smith v. Becker, 192 Mo. App. 597, 184 S.W. 942.
Bryan, Williams, Cave McPheeters for respondent.
( 1) Under its petition and proof, plaintiff alleged and proved the facts necessary to a decree in its favor. (a) By executing, delivering and pledging to plaintiff bank the note to Phoenix Mutual Life Insurance Company, and deed of trust securing the same, as collateral security under the terms and conditions of the Collateral Pledge Contract, defendant undertook to create and give to the plaintiff a mortgage lien upon the premises described in said deed of trust as security for the payment of the $45,000 loan from plaintiff to defendant, and by reason of the fact that said note to Phoenix Mutual Life Insurance Company was not endorsed by Phoenix Mutual Life Insurance Company, plaintiff obtained an equitable mortgage lien upon said premises. Fendler v. Roy, 331 Mo. 1083, 58 S.W.2d 459; Harwood v. Toms, 130 Mo. 225, 32 S.W. 666; Campbell v. Hoff, 129 Mo. 317, 31 S.W. 603; Warren v. Richie, 128 Mo. 311, 30 S.W. 1023; Mellier v. Bartlett, 103 Mo. 381, 17 S.W. 295; 41 C.J. 294; Jones on Mortgages (8 Ed.), sec. 225, p. 262; Stark v. Kirkley, 129 Mo. App. 353; Laurenceville Cement Co. v. Parker, 60 Hun, 586, 15 N.Y.S. 577; Chauncey v. Arnold, 24 N.Y. 330; Jones on Collateral Securities and Pledges (3 Ed.), sec. 142, p. 169. (b) The Collateral Pledge Contract describes with sufficient accuracy the property pledged thereunder. Klaber v. Lahar, 63 S.W.2d 103; Chattanooga Natl. Bank v. Rome Iron Co., 102 F. 755; 49 C.J. 905; Virginia-Carolina Chemical Co. v. McNair, 139 N.C. 326, 51 S.E. 949; 2 Paton's Digest, 1926, sec. 3820a. (c) It is not necessary for plaintiff to plead or prove fraud, accident or mistake as a ground of equitable jurisdiction in the present case. 21 C.J. 119; 19 Am. Jur., 152; Hughes v. Community Bank of Dawn, 336 Mo. 305, 78 S.W.2d 98. (2) The evidence did not show that plaintiff made its loan in reliance on the commitment from Kurrus-Goddard Company, or that the plaintiff assumed the obligation of seeing that the building was completed and the title clear, or that the bank failed to comply with any such agreement. (3) No parol evidence was offered to vary or contradict the Collateral Pledge Contract, but merely parol evidence to identify the collateral in its possession. 20 Am. Jur. 1006; 22 C.J. 1261. (4) Plaintiff did not attempt to prove by parol evidence any agreement within the statute of frauds. 22 C.J. 1261; 49 C.J. 905; 21 R.C.L. 641. (5) Under the terms of the Collateral Pledge Contract personal property was pledged, to wit, various notes which were secured by deeds of trust, which deeds of trust "followed" the pledge of such notes. Smith v. Holdoway Const. Co., 344 Mo. 862, 129 S.W.2d 894; Missouri Real Est. L. Co. v. Gibson, 282 Mo. 75, 220 S.W. 675; George v. Surkamp, 336 Mo. 1, 76 S.W.2d 368; St. Louis Mut. Life Ins. Co. v. Walter, 329 Mo. 715, 46 S.W.2d 166; American Bank v. Bray, 321 Mo. 576, 11 S.W.2d 1016; Baade v. Cramer, 278 Mo. 516, 213 S.W. 121; Lipscomb v. Talbott, 243 Mo. 1, 147 S.W. 798. (6) The Phoenix Mutual Life Insurance Company deed of trust was not assigned apart from but along with the note which it secured. (7) The evidence offered by the defendant with respect to an alleged contract of the bank to see that the building was completed was properly excluded. 49 C.J., 800; 21 R.C.L. 568; Kelleher and Little v. Henderson, 203 Mo. 498; Carter v. Insurance Co., 275 Mo. 84; Arn v. Arn, 264 Mo. 19; McDearmott v. Sedgwick, 140 Mo. 172; Grafeman v. Northwestern Bank, 288 S.W. 359. (8) Plaintiff had no adequate remedy at law. 21 C.J. 119; 19 Am. Jur. 152; Hughes v. Community Bank of Dawn, 336 Mo. 305, 78 S.W.2d 98; 49 C.J. pp. 1013, 1016, 1019; 21 R.C.L. 666; Farmers' State Bank v. Miller, 222 Mo. App. 633, 300 S.W. 834; Welker v. Hayes, 224 Mo. App. 392, 22 S.W.2d 1052; 1 C.J.S. 1266; 1 C.J. 1090; Martin v. Lee County State Bank, 265 S.W. 1057; Plankinton v. Hilldebrand, 89 Wis. 209, 61 N.W. 839; Farmers, etc., Natl. Bank v. Rogers, 1 N.Y.S. 757, 15 N.Y. Civ. Proc. 250.
Action to decree an equitable mortgage on land described as follows:
"A lot in Block 1518 of the City of St. Louis, fronting Thirty feet (30') on the North line of Cherokee Street by a depth Northwardly of One Hundred Eighteen feet (118') one inch (1") to an alley; bounded west by Ohio Avenue, together with improvements erected thereon known as and numbered 2649 Cherokee Street."
The chancellor decreed such a mortgage and the land was sold under the decree to plaintiff. Defendant appealed without bond. In this connection it may be stated that, absent an intent to create a mortgage, a chancellor is without authority to decree an equitable mortgage. The question of intent must be determined on the facts, which, in substance, follow:
Defendant purchased the above described lot on which is located a business building. For many years, and as president of a company, defendant was a depositing customer of plaintiff bank. Occasionally plaintiff made short time small loans to the company. On purchasing the lot, and in 1937, defendant conferred with John J. Griffin, vice-president of plaintiff with reference to a bank loan to provide money to remodel the building and pay three notes secured by three deeds of trust on the property. It was contrary to a rule of plaintiff to make long time loans on land. Even so, the question drifted until 1939 when defendant, at the invitation of Griffin, went to the bank and was introduced to the loan agent of the Phoenix Mutual Life Insurance Co. From this the defendant, the bank and the loan agent negotiated with reference to the insurance company making a loan on the property. The negotiations continued until in July, 1939. At that time the insurance company offered a loan of $45,000 to be secured by a first deed of trust on the property. The offer was conditioned on an insured title and the remodeling of the building in accordance with certain plans and specifications, free of mechanics liens. The offer was not satisfactory to plaintiff's vice-president in charge of loans, which resulted in further negotiations with the insurance company.
Finally the insurance company made an offer which was satisfactory to said vice-president. Thereupon Vice-President Griffin negotiated with a construction company with reference to remodeling the building. [259] The negotiations resulted in the company contracting with defendant on August 9, 1939, to remodel the building by November 15, 1939, in accordance with the plans and specifications approved by the insurance company.
After the execution of the remodeling contract, and on September 6, 1939, defendant executed a note for $45,000 payable in twenty years in installments to the Phoenix Mutual Life Insurance Company. The note was secured by a deed of trust on the above described property. Defendant received no money on this note and deed of trust.
On October 3, 1939, defendant executed and delivered to plaintiff a note for $45,000, due in six months and payable to plaintiff. Attached to the note was the usual form of collateral pledge contract which defendant also executed.
On recording the Phoenix Mutual Life Insurance Company deed of trust, and in due course, both the Phoenix note and deed of trust were delivered to plaintiff from the recorder's office, which note and deed of trust were held by plaintiff under the collateral pledge contract. At the time defendant executed the $45,000 note in favor of plaintiff, a cashier's check for $45,000, payable to defendant, was delivered by plaintiff to defendant. Instantly, and at plaintiff's request, defendant endorsed the check and returned the same to plaintiff. Under defendant's endorsement on the check was typed the words "Goedecke Building Fund." Thereupon plaintiff deposited the check in the bank to the credit of said fund. At that time signature cards were signed providing for the withdrawal of money from the fund on the joint signatures of defendant and John J. Griffin, vice-president of the bank. Shortly thereafter the three notes amounting to $23,917.84 secured by prior deeds of trust on the property were paid from this fund and delivered to plaintiff. The deeds of trust securing said notes were not released of record. Plaintiff also retained these notes under the collateral pledge contract. In due course $22,412.52 was paid from this fund to the construction company on the remodeling contract and for incidental expenses connected therewith. In the meantime there where disagreements between defendant, vice-president Griffin and the construction company with reference to the remodeling of the building, which was not furnished by November 15, 1939. Later the contractor abandoned the construction. Thereafter mechanic's liens, amounting to $11,262.72, were filed against the property.
On the question of security Vice-President Griffin testified, in substance, as follows: I stated to defendant that plaintiff made no long time loans on land and suggested that an insurance company might make the loan. We then negotiated with reference to plaintiff making a short time loan of $45,000. I explained that the collateral for the short time loan must be a note and deed of trust on the land in favor of an insurance company and an agreement from the company to purchase the loan when the building was completed. I also explained that the three prior deeds of trust on the property would be paid from the short time loan, and the deeds of trust securing said notes would be held by plaintiff and released of record at the pleasure of plaintiff.
Thus it appears that there is no evidence tending to show that defendant intended to create a mortgage in favor of plaintiff by executing and delivering the Phoenix Mutual note and deed of trust to plaintiff. Furthermore, it appears that there is no evidence tending to show that plaintiff so understood said execution and delivery of the note and deed of trust. On the contrary, the evidence conclusively shows that plaintiff relied for security on its control of the $45,000 in the "Goedecke Building Fund," its supervision through Vice-president Griffin of the building construction, its control of the three notes secured by deeds of trust and its control of the note and deed of trust executed by defendant in favor of the Phoenix Mutual Life Insurance Company, on which note the insurance company agreed with plaintiff to make a loan to defendant.
In this connection plaintiff argues that by mistake the Phoenix Mutual note was not endorsed by the Phoenix Mutual Life Insurance Company. There is no claim of mistake in the petition, and the decree rules no such question. Furthermore, there is no evidence tending to show that the parties, including the Phoenix Mutual Life Insurance Company, understood that the agreement of the parties required such an endorsement. Furthermore, the evidence conclusively shows that the defendant and the Phoenix Mutual Life Insurance Company responded to all the requirements of plaintiff with reference to the loan.
Plaintiff cites Stark v. Kirkley, 129 Mo. App. 353, 108 S.W. 625; Lawrenceville Cement [260] Co. v. Parker et al., 60 Hun, 586, 15 N.Y.S. 577, and Chauncey v. Arnold, 24 N.Y. 330. Those cases rule questions of defect in a mortgage. They are without application to the facts of this case.
The judgment should be reversed and the cause remanded with directions to cancel the deed purporting to convey the property to plaintiff. It is so ordered. All concur.