Bay City Bank v. White

• Decision Date: 24 February 1938
• Docket Number: No. 66.,66.
• Citation: 283 Mich. 267,277 N.W. 888
• Parties: BAY CITY BANK v. WHITE et al.
• Court: Michigan Supreme Court

283 Mich. 267

277 N.W. 888

BAY CITY BANK

v.WHITE et al.

No. 66.

Supreme Court of Michigan.

Feb. 24, 1938.

Suit by Bay City Bank against Rosemary C. White, as administratrix of W. Ernest White, deceased, and individually, for foreclosure of a chattel mortgage and deficiency decree. From a decree for plaintiff, defendant appeals.

Affirmed.

Appeal from Circuit Court, Bay County, in Chancery; James L. McCormick, Judge.

Argued before the Entire Bench.

B. J. Tally, of Bay City, for appellants.

Lloyd W. Bartlett, of Bay City, for appellee.

NORTH, Justice.

Plaintiff filed a bill for foreclosure of a chattel mortgage and a deficiency decree. After the case was tried in the circuit court, but before entry of decree, defendant W. Ernest White died and Rosemary C. White, as administratrix, was substituted in the place of deceased. The chattel mortgage in suit (in form of a bill of sale) covered a cottage and garage owned by defendants on land in which they held a leasehold interest, and was given to secure a promissory note dated April 26, 1934, in the principal amount of $1,176.62. There was default, and on foreclosure plaintiff purchased the property for $1,000, and had decree for deficiency of approximately $300. This appeal followed.

The defense is that the note and chattel mortgage are void and unenforceable, being in violation of the Home Owners' Loan Act 1933, as amended, 12 U.S.C.A. § 1461 et seq., and against public policy. This defense necessitates a review of the transaction leading up to the execution of the note and bill of sale.

Defendants owned a home in Bay City subject to a mortgage in favor of plaintiff bank. There was default in the mortgage payments, the mortgage was foreclosed, and a sheriff's deed for the premises was issued to plaintiff on August 13, 1932. Defendants failed to redeem the property, and title became absolute in plaintiff. Plaintiff desired to give defendants a further opportunity to save their home, and suggested that they make an application for a Home Owners' Loan Corporation loan. Plaintiff prepared the application, which was signed by defendants, and it was submitted to the Saginaw office of the Home Owners' Loan Corporation. After an appraisal of the property, an offer was submitted of $3,200 in H.O.L.C. bonds for the bank's interest in the property. According to the policy of the Home Owners' Loan Corporation, before they purchased a mortgagee's interest in a homestead, such mortgagee was required to sign a ‘mortgagee's consent to take bonds.’ This instrument, which was submitted to plaintiff, contained a paragraph reading as follows: ‘The acceptance of this consent by the undersigned constitutes a waiver by you of any and all claims which you may have at this time against either the property involved or the applicant for a loan with the H.O.L.C. named in this consent arising from this property.’

At this time the bank had an interest of $4,376.62 in the property and was unwilling to release its claim for the amount offered by the Home Owners' Loan Corporation. However, after further negotiations, defendants agreed to give the note in suit, in the sum of $1,176.62 (being the difference between plaintiff's claim and the amount of the H.O.L.C. offer), secured by the bill of sale covering the cottage and garage owned by defendants. Before the transaction was consummated, the whole arrangement was discussed between the assistant cashier of the plaintiff bank and a representative of the Home Owners' Loan Corporation and received the latter's approval. Concerning the conversation at the H.O.L.C. office, Mr. Bamford, assistant cashier of the plaintiff bank, gave the following uncontradicted testimony:

‘Prior to the signing of exhibits 1 (the note), 2 (the bill of sale) and 3 (the mortgagee's consent to take bonds), I had several discussions with Mr. and Mrs. White. My bank received exhibits 1 and 2 and $3200 on H.O.L.C. bonds. I discussed this with the Home Owners' Loan Corporation, in their office. I talked to Mr. Lawler.

‘Q. Did you at that time present to him the proposition which was carried through later here? A. Yes, I talked the whole proposition over with them thoroughly.

‘Q. Advised them of the total amount? A. Advised them of the total amount, and asked them for their consent to handle the matter in that way, to take additional security-of the security it would take, a bill of sale on the cottage to apply on our mortgage, and afterwards sent an acceptance of the $3,200 in Home Owners' Loan bonds for the balance of the loan.

‘Q. The Mr. Lawler you talked to was in the Home Owners' Loan Corporation office? A. Yes, Saginaw branch of the Home Owners' Loan Corporation.

‘Q. And did he object to that, or was he agreeable to it? A. He was agreeable to it. * * * Mr. Lawler told me he would consent to allow that separate transaction to go through between the bank and the Whites.’

The transaction was completed on April 26, 1934, by the execution of the note and bill of sale by defendants, and the mortgagee's consent to take bonds by plaintiff. Further, when the consent to take bonds was forwarded to the office of the Home Owners' Loan Corporation on May 3, 1934, the bank again reiterated the details of the arrangement finally entered into in a letter reading as follows:

‘Home Owners' Loan Corporation,

‘207 Goff Building,

‘Saginaw, Michigan.

‘Attention: Mr. Lawler.

‘Dear Sir: We are enclosing herein mortgagees consent to take bonds in the sum of $3200 in settlement of our interest in the property of W. Ernest White, located at 2156 Fourth Avenue, Bay City, Michigan.

‘This matter has been held up for several days during which time arrangements were made for the balance of our claim. The bill of sale on the summer cottage regarding which the writer talked to you on his last visit to Saginaw has been completed and our mortgage now reduced to the above mentioned sum of $3,200.’

As hereinbefore stated, the defense urged is that the part of the transaction which resulted in defendant's giving the note and chattel mortgage, being in violation of the spirit of the Home Owners' Loan Act, was contrary to public policy and therefore unenforceable. Cases involving legal questions of this character are of comparatively recent origin; and there is seeming conflict in the decisions. The purpose sought to be accomplished by the organization and the contemplated activities of the H. O. L. C. is stated in one of the decisions as follows: ‘To save homes from threatened or...