Summary
concluding that the fact that a note was not executed was immaterial when the mortgagee proved the existence of the underlying debt described in the mortgage
Summary of this case from Mitchell Bank v. SchankeOpinion
No. 174.
Argued: February 6, 1969.
Decided: March 4, 1969.
APPEAL from a judgment of the county court of Waupaca county: WENDELL McHENRY, Judge. Affirmed.
For the appellant there was a brief by Glassner, Clancy Glassner of Milwaukee, attorneys, and Richard E. Johnson of Waupaca of counsel, and oral argument by William E. Glassner, Jr., and Albert Solochek, both of Milwaukee.
For the respondent there was a brief and oral argument by Karl J. Goethel of Durand.
This action was commenced in 1964 by Security National Bank to foreclose a second mortgage executed by Carl and Sylvia Cohen as officers of C S Cohen, Inc. There is a first mortgage held by the defendant, Clintonville Savings Loan Association.
Irving Koren, the son of Carl and Sylvia Cohen, was president of Chain-O-Lakes, Inc., which was indebted to the Security National Bank. Loans from the bank to Chain-O-Lakes were secured by inventories and accounts receivable. As additional security, Carl Cohen assigned three insurance policies on his life to the bank.
On November 15, 1954, Plymouth Cheese Company and Wm. H. Heinemann Creameries, Inc., each commenced a garnishment action against Chain-O-Lakes as principal and Swift Company as garnishee defendant. Invoices from Swift Company in the approximate sum of $36,375.71 had been assigned to the bank to secure borrowings by Chain-O-Lakes. Swift's answer disclosed the bank's claim on the indebtedness owing from Swift to Chain-O-Lakes, and the bank was made a party to each of the garnishment actions.
After these proceedings, Chain-O-Lakes' dealings with the bank culminated in a conference on May 22, 1958, relative to Chain-O-Lakes' indebtedness to the bank. Present at this conference were G. C. Schiefelbein, an officer of the bank; Attorney Harold E. Stafford, representing the bank; Irving Koren; Attorney David B. Bliss, representing Irving Koren and Chain-O-Lakes, Inc.; Carl and Sylvia Cohen.
The results of this conference are embodied in a letter of Harold E. Stafford, dated June 25, 1958. The letter reads, in part, as follows:
"The indebtedness of the Chain-O-Lakes to the Security National Bank is approximately $33,000. The bank has recovered from the Fidelity Casualty Co. the sum of $10,000 by reason of an insurance policy, or Fidelity bond, so that the Fidelity Casualty Co. is subrogated to that extent.
"Chain-O-Lakes is hopelessly insolvent and the assets of Irving Koren, its president, is limited, but the father of Irving Koren has property in the name of a corporation and will assist his son. There is a mortgage on this property for approximately $20,000, payable to the Clintonville Federal Savings Loan Association, and it is thought that there is sufficient equity in the property of the father to secure the settlement which we have arrived at. It has been agreed that Irving Koren will pay the Security National Bank of Durand the sum of $13,000 in full settlement. Of this amount the bank will pay to the Fidelity Casualty Co. the sum of $1,000 at the rate of $250 per year during the first 4 years, as the money is received from Mr. Koren. The $13,000 is payable as follows:
"$2,000 down and the balance of 1,000 a year payable quarterly with interest at 5% per annum payable quarterly. This obligation is to be secured by a 2nd mortgage on the property herein referred to.
". . .
"Therefore, the note and mortgage may be delivered promptly to the undersigned pursuant to this agreement. I presume the Clintonville Federal Savings Loan Association will continue to hold the abstract as security for their loan, but we would like to have the right to borrow this abstract and examine it and then will return it. Therefore, I would be pleased to have Mr. Bliss send me the note and mortgage, together with the abstract up-to-date.
"I think this letter embodies the entire agreement which we have all agreed to. However, if any party desires a formal agreement to be executed and signed by the parties, they are at liberty to prepare such an instrument and we will be pleased to have it executed. In the absence of so doing it will be assumed that this letter evidences the agreement of all the parties, and a copy is sent to each accordingly."
Thereafter, a mortgage was executed and delivered to the attorneys for the Security National Bank. A note was never executed, nor were the policies on the life of Carl Cohen returned from the bank.
Although this action was originally commenced against C S Cohen, Inc., a domestic corporation, and the Clintonville Savings Loan Association, and a default judgment was entered thereon, later, because C S Cohen, Inc., was legally dissolved on January 4, 1961, the trial court vacated the judgment. Thereupon, the trial court determined that the mortgaged premises had been assigned to Sylvia Cohen, and the plaintiff was granted leave to amend the summons and complaint to make Sylvia Cohen a party defendant.
The trial court concluded that the Security National Bank was entitled to foreclose on property described in the mortgage in question.
Sylvia Cohen appeals from that judgment.
Three interrelated issues are presented on this appeal:
1. Did plaintiff-respondent prove the underlying obligation for which the mortgage was security?
2. Was the mortgage executory in that it was conditioned upon the return of the hypothecated life insurance policies?
3. In the absence of a showing of fraud, is the defendant entitled to defend the foreclosure of the mortgage, under seal, on grounds of want of consideration?
Appellant's major contentions are (1) that the plaintiff-respondent has failed to establish an obligor-obligee relationship between C S Cohen, Inc., and the Security National Bank; and (2) that on May 22, 1958, it was agreed that Carl Cohen would substitute a mortgage on certain property in the name of a corporation ((C S Cohen, Inc.) as collateral to replace the insurance policies held by the bank. Appellant contends that the mortgage never became effective because the insurance policies were not returned from the bank.
Underlying Obligation.
Did plaintiff-respondent prove the underlying obligation for which the mortgage was security?
Appellant properly contends that there can be no mortgage unless there is a debt to be secured thereby. It is conceded that there is no note representing the debt.
Estate of Rosenthal (1967), 34 Wis.2d 402, 149 N.W.2d 585; Doyon Rayne Lumber Co. v. Nichols (1928), 196 Wis. 387, 220 N.W. 181; Cawley v. Kelley (1884), 60 Wis. 315, 19 N.W. 65.
At the outset it should be pointed out that the obligation for which the mortgage in question was security was the debt of Chain-O-Lakes to the bank. We are not dealing with an obligation of C S Cohen, Inc., to the bank. The relationship of the bank and C S Cohen, Inc., was that of principal and surety, C S Cohen, Inc., securing the obligation running from Chain-O-Lakes to the bank.
See 72 C.J.S., Principal and Surety, p. 514, sec. 1.
As to the nature of that obligation, it appears that Irving Koren and the corporation of which he was president, Chain-O-Lakes, Inc., were indebted to the bank in the sum of approximately $33,000 as of May 22, 1958. Of this amount the bank recovered $10,000 from Fidelity Casualty Company, which company is subrogated for that amount.
A conference was held on May 22, 1958, to settle this indebtedness. The results of this conference, as embodied in the letter of Harold E. Stafford, were that the bank would settle the debt for the sum of $13,000, Irving Koren paying $2,000 down and $1,000 per year, payable quarterly, with interest at five percent per annum. The letter further indicated that Carl Cohen agreed that this obligation was to be secured by a second mortgage on certain properties which were owned by him in the name of a corporation (C S Cohen, Inc.).
Schiefelbein, who attended the May, 1958, conference, confirmed the agreement as set forth in the Stafford letter. He testified that as of that date the amount owed by Chain-O-Lakes to the bank was approximately $33,000. He also testified that the settlement agreement provided that Irving Koren pay Security National Bank the sum of $13,000. He stated that $2,000 was paid down by Koren and that the balance was to be paid in quarterly installments. Schiefelbein was permitted to testify that the agreement to pay the additional $11,000 was to have been secured by a second mortgage on the property located in Waupaca county owned by C S Cohen, Inc. According to Schiefelbein, the bank never received any payments upon the $11,000.
In his testimony, Koren acknowledged the debt as described in the letter of June 25, 1958, although he did not testify specifically as to its amount.
Carl Cohen acted upon his part of the agreement. LeRoy J. Hagemann, attorney for Carl Cohen, testified that in the first part of October, 1958, Carl Cohen came to his office with a prepared letter and a mortgage which he wanted him (Hagemann) to execute. Cohen further requested Hagemann to tender the mortgage with the letter to the attorney for the bank, Stafford. The letter stated:
"Enclosed you will find a second mortgage executed by C S Cohen Inc. Mr. Cohen advised me that certain insurance policies are presently being held by Security National and requests there [sic] retender at this time."
The mortgage reads, in part, as follows:
"This mortgage is given as a second mortgage on the above described property in the course of a release and settlement. Provided alswys [sic], that the mortgagor shall pay the mortgagee the sum of $11,000.00 said sum to be paid in quarterly installments of $250.00 with interest at the rate of 5% per annum on the unpaid balance, and the first quarterly payment shall be due on May 22, 1958."
Thus it appears that Koren owed the Security National Bank the sum of $11,000 plus interest, and that the mortgage executed by Carl and Sylvia Cohen, as officers of C S Cohen, Inc., was for the purpose of securing that obligation.
The trial court correctly concluded that the indebtedness was fully described in the mortgage and, therefore, it was not material that a separate note had not been executed.
59 C.J.S., Mortgages, p. 158, sec. 112d. See Wood v. Travis (1931), 231 App. Div. 331, 248 N.Y. Supp. 22; 41 C. J., Mortgages, pp. 393-394, secs. 221-224; 41 C. J., Mortgages, p. 410, sec. 256; Thomas, Mortgages (3d ed.), pp. 83-85, sec. 104; 9 Thompson, Real Property (1958 replacement), p. 382, sec. 4745.
Is Mortgage Executory?
Was the mortgage executory in that it was conditioned upon the return of the hypothecated life insurance policies?
The thrust of appellant's argument is that the mortgage executed by C S Cohen, Inc., never became a lien on the premises because the Security National Bank never returned the insurance policies on the life of Carl Cohen. Irving Koren testified that the general import of the May 22, 1958, conference was that collateral was to be substituted for the insurance policies.
Whether the mortgage was conditioned upon the return of the insurance policies is a question of fact. The trial court concluded that at the conference of May 22, 1958, no reference was made to the insurance policies that had been assigned to the bank by Carl Cohen in 1952. On this, the trial court chose to reject the testimony of Koren and to accept the testimony of Schiefelbein. This it had a right to do.
The trial court also concluded that the correspondence subsequent to the conference supported its conclusion that the return of the insurance policies was not a part of the settlement agreement.
The letter from Attorney Hagemann, representing Carl Cohen, to Attorney Stafford, representing the bank, stated that:
"Enclosed you will find a second mortgage executed by C S Cohen Inc. Mr. Cohen advised me that certain insurance policies are presently being held by Security National and requests there [sic] retender at this time."
The trial court was of the opinion that it was "quite obvious" that this letter was not written by an attorney and that Attorney Stafford could arrive at no other conclusion than that set forth in his letter of October 16, 1958, to the Security National Bank. A copy of this letter was sent to Attorney Hagemann.
"I am also enclosing herewith a copy of the letter dated October 14, from Mr. Hagemann in which he refers to some insurance policy. I do not understand what he means by the `retender' so I assume he means for you to retain them. I am sending a copy of this letter to Mr. Hagemann so that if this assumption is incorrect he may let us know."
Attorney Hagemann in turn answered Attorney Stafford's letter on October 22, 1958, as follows:
"Certain policies of insurance on the life of Mr. Cohen are being held by Security National Bank; apparently this is some type of collateral pending the mortgage execution.
"Mr. Cohen requested that these policies be returned to him."
On October 29, 1958, Attorney Stafford again wrote to Attorney Hagemann:
"I have your letter of recent date in regard to the life insurance policy left with the Security Nat. Bank as collateral on the obligation owing to the Security Nat. Bank. I presume there is not much cash surrender value, if any, on these policies but the bank would prefer to retain them as security pending payment of the full amount of the compromise settlement.
"At the time the settlement was made with the son I don't believe there was anything said about these life insurance policies. If I am in error I will be glad to be corrected."
Thereafter, in November, Attorney Hagemann went to the bank to demand the return of the policies. In June and July of 1959, Hagemann saw Stafford and again requested the return of the policies. Hagemann was advised in a letter from the bank dated August 29, 1959, that the policies would be returned to Cohen upon the payment of the settlement agreement.
The trial court was satisfied that the demand for the return of the policies occurred subsequent to the settlement agreement. This determination is not against the great weight and clear preponderance of the evidence. Thus the mortgage was not executory.
Challenging Consideration in Absence of Fraud.
In the absence of a showing of fraud, is the defendant entitled to defend the foreclosure of the mortgage, under seal, on grounds of want of consideration?
In Virkshus v. Virkshus, this court stated:
(1947), 250 Wis. 90, 93, 26 N.W.2d 156.
". . . The seal imports consideration for the mortgage. This imports consideration for the note also. In absence of allegations of fact showing fraud the mortgage cannot be impeached for want of consideration."
Appellant, however, relies upon sec. 891.27, Stats. (formerly sec. 328.27) which reads as follows:
"Effect of Seal. A seal upon an executory instrument shall be received as only presumptive evidence of a sufficient consideration." (Emphasis added.)
See Frank v. Schroeder (1941), 239 Wis. 159, 300 N.W. 254.
However, because, as we have concluded, the executed mortgage did not constitute an executory instrument as contended by appellant, the trial court was correct in concluding that fraud must be alleged and proven in order to defend against foreclosure upon the grounds of lack of consideration. The seal was conclusive as to the issue of consideration. By the Court. — Judgment affirmed.
See Singer v. General Accident, Fire Life Assurance Corp. (1935), 219 Wis. 508, 262 N.W. 702.