American Building & Loan Ass'n v. Waleen

• Decision Date: 23 December 1892
• Citation: 52 Minn. 23
• Parties: AMERICAN BUILDING & LOAN ASSOCIATION <I>vs.</I> ANDREW J. WALEEN <I>et al.</I>
• Court: Minnesota Supreme Court

52 Minn. 23

AMERICAN BUILDING & LOAN ASSOCIATIONvs.ANDREW J. WALEEN et al.

Supreme Court of Minnesota.

Argued December 2, 1892.

Decided December 23, 1892.

Appeal by plaintiff, the American Building and Loan Association, from an order of the District Court of Hennepin County, Hooker, J., made June 18, 1892, overruling its demurrer to the answer.

Action upon a bond made by defendants, Andrew J. Waleen, Halvor Fergestad and A. Risberg for $4,500, conditioned as stated in the opinion.The answer stated that plaintiff had foreclosed the mortgage, and at the sale had bid in the property for the full amount of the debt secured, with interest and costs, and had sustained no damage on account of the mechanic's lien on the mortgaged premises.To this answer plaintiff demurred.The trial court overruled the demurrer and plaintiff appeals.

Charles M. Cooley and Rea & Hubachek, for appellant.

Peterson & Kolliner, for respondents.

MITCHELL, J.

At first sight the question raised by this appeal might seem somewhat perplexing, but, upon applying to the facts familiar principles of law, its solution is not difficult.

The facts, as alleged or admitted in the answer to which the demurrer was interposed, are, so far as here material, substantially as follows: The plaintiff, having agreed to make a loan to Waleen, to be secured by mortgage on real estate, exacted from him, as a condition of making the loan, a bond executed by himself and two sureties, the recitals and condition of which were that whereas, Waleen had applied for a loan to be secured by mortgage on certain real estate; and whereas, certain buildings had been recently erected on the premises, and the same were liable to liens for labor and material, performed or to be performed, furnished or to be furnished, for the construction of such buildings; and whereas, Waleen had agreed to fully complete said buildings, and pay all claims for such labor and material performed or furnished as aforesaid, and save the plaintiff forever harmless by reason of the enforcement of any such liens: * * * "Now, therefore, if said Waleen shall pay, or cause to be paid, all claims or liens as aforesaid, and shall do and perform all other acts and things necessary or required to be done and performed as hereinbefore more particularly recited and set forth, then this obligation shall be void, etc."Subsequently one Satherli filed a claim for a lien on the premises for material furnished to Waleen for the construction of the buildings, and, in an action wherein Satherli was plaintiff and Waleen and the present plaintiff were defendants, this claim was adjudged a lien on the premises superior to the lien of plaintiff's mortgage.Intervening between the date of filing the claim of lien and the date of the judgment in the action referred to, plaintiff, on default being made in the conditions of the mortgage, foreclosed under a power of sale and bid in the premises for the full amount due on the mortgage, and then, to protect its title under this purchase, paid off the Satherli claim, and now brings this suit on the bond to recover the amount thus paid out.The contention of the defendants is that the bond was merely one of indemnity; that the sale of the mortgaged premises fully paid and satisfied the debt; and therefore plaintiff, having thus received all it was entitled to, has not been damnified, and consequently has no cause of action on the bond.

The first question to be considered is what the contract of the bond was, — whether it was merely one of indemnity to protect the mortgage security against liens which would diminish its value or an affirmative and absolute contract to pay all claims for labor and material performed or furnished for the construction of the buildings.

If it was the former, then damage must be shown before the party indemnified is entitled to recover; if it is the latter, then the mere failure to pay these claims would constitute a breach of the condition of the bond, and it would be no defense to say that the plaintiff had not been thereby damaged.

Some of the earlier cases, without, perhaps, giving due weight to the manifest purpose of the bond as indicated by its provisions as a whole, and the relations of the parties to its subject-matter, were inclined to lay hold of the language of a particular clause, and, because it was in the form of a stipulation to do a particular act or pay a certain sum, to hold that the bond was not one of mere indemnity, but an affirmative contract to do the specified act or to pay the specified sum.But the tendency of the more modern authorities is to adopt as the cardinal principle to be applied in the construction of such bonds that actual compensation can only be given for loss actually sustained, unless it is evident that the parties have stipulated for some other and more extensive remuneration; and to give more weight to the general purpose of the bond as indicated by its provisions as a whole, and the interests of the parties in the subject-matter, than to the precise form of words used in a particular clause.

In the present casethe plaintiff had no interest in the premises except as security for its loan.It did not interest it what liens might be created against them, except so far as this might decrease or injuriously affect the mortgage security.The claims for labor and material were not debts for which the plaintiff was liable, and it had no interest in their payment except to prevent their becoming liens on...