Beckman v. Ward

• Court: Washington Supreme Court
• Writing for the Court: TOLMAN, Justice.
• Citation: Beckman v. Ward, 174 Wash. 326, 24 P.2d 1091 (Wash. 1933)
• Decision Date: 05 September 1933
• Docket Number: 24271.
• Parties: BECKMAN et al. v. WARD et al.

24 P.2d 1091

174 Wash. 326

BECKMAN et al. v. WARD et al.

No. 24271.

Supreme Court of Washington

September 5, 1933

Department 2.

Appeal from Superior Court, King County; Robert M. Jones, Judge.

Action by Emilie Beckman and others against John Ward and wife and others, to foreclose a mortgage. From a decree awarding plaintiffs judgment against defendant Higgs only, denying foreclosure, and directing cancellation of the mortgage of record, plaintiffs appeal.

Affirmed.

Joseph Matsen, of Seattle, for appellant Emilie Beckman.

Lloyd R. Savage, of Seattle, for appellant Nick Theisen.

E. W Klein, of Snohomish, for appellant Mary Hulliger.

Mifflin & Mifflin, of Seattle, for appellant W. J. Von Miller

Burkheimer & Burkheimer, of Seattle, for appellant Emily Heyes.

Byers &amp Byers and Alfred J. Westberg, all of Seattle, for appellant B. S. Bloxom.

Edwin H. Flick and Herald A. O'Neill, both of Seattle, for appellant Harry Pilcher.

Alex Stewart and Peter Balkema, both of Seattle, for appellant Anna M. Arnold.

Padden & Moriarty, Earl F. Requa, and Melvin T. Swanson, all of Seattle, for respondents.

TOLMAN Justice.

Appellants as plaintiffs, brought this action to foreclose a real estate mortgage which had been given to Osner &amp Mehlhorn, Inc., they being the owners of certain of the notes described in and secured by the mortgage. From a decree awarding a judgment against defendant Higgs only, denying foreclosure and directing that the mortgage under which they claim be canceled of record, the plaintiffs have appealed.

The record is voluminous, and the transactions shown are considerably involved, but the controlling facts are practically undisputed and will be stated here in greatly abbreviated form sufficiently only to present fairly what we consider the vital issue to be.

The real estate involved is a lot in the city of Seattle, improved by a frame apartment house building, the title to which on and prior to August 30, 1924, rested in Osner & Mehlhorn, Inc. On that day for its own purposes, and using defendant Higgs as a figurehead only, Osner & Mehlhorn, Inc., conveyed the property by deed to Higgs, who, on the same day, executed the mortgage in question to Osner & Mehlhorn, Inc., as mortgagee, to secure the payment of eighteen notes aggregating the principal sum of $15,000, the mortgage so specifying. This mortgage was duly recorded. Immediately thereafter Higgs deeded the property, subject to the mortgage, to August Mehlhorn, Jr. It is apparent that Higgs at no time invested any money in the property, or had, or claimed to have, any personal interest therein, but that he acted at all times for the accommodation of Osner & Mehlhorn, Inc., or August Mehlhorn, Jr., its managing officer, and probably was paid a small fee for his services in that respect. Of the notes, executed by Higgs and secured by the mortgage, $5,500, in principal amount, have been paid and retired, the remainder aggregating $9,500, in principal amount, have passed each for a valuable consideration to some one or other of the appellants, and the appellants as a group now own all of the unpaid notes secured by the Higgs mortgage. No assignment of the mortgage or any interest therein was ever made by Osner & Mehlhorn, Inc., to the appellants, or either of them, and they at all times knowing that the mortgage ran to Osner & Mehlhorn, Inc., as mortgagee, no one of them made an attempt to establish his interest in the mortgage of record in any way whatsoever. Interest on their several notes was paid to them regularly by Osner & Mehlhorn, Inc., until May 30, 1930, but no part of the principal upon these notes was ever paid.

In January, 1925, August Mehlhorn, Jr., and wife, by warranty deed, conveyed the property to one Grimsley, the deed reciting that it was subject to the Higgs mortgage. A few months later the defendant John Ward, then a bachelor, began to negotiate for the purchase of the property. In these negotiations, Grimsley, the then owner, was represented by an agent who had desk room in the office of Osner & Mehlhorn, Inc. Grimsley asked $30,000 for the property, and Ward finally offered $27,500, and at this point August Mehlhorn, Jr., was advised of the situation and, after conferring with him, all agreeing, it was arranged that Ward should pay down $8,500 in cash which he had, should give a mortgage to Osner & Mehlhorn, Inc., for $19,000, and that Osner & Mehlhorn, Inc., would advance to Grimsley an additional $4,500 to pay out his interest and the remainder of the proceeds of the $19,000 mortgage would be used by it to satisfy the Higgs mortgage. An abstract of title was furnished to Ward who had it examined by an attorney, and he was advised that the title was in Grimsley, free and clear of all incumbrances except the Higgs mortgage. Following that, the arrangement was carried out, Grimsley and wife conveying, by warranty deed, the property to Ward, the deed reciting 'subject to a balance of $14,500 of an original mortgage made August 30th, 1924, recorded in Vol. 906 of Mortgages, Page 239, Records of King County, Washington.' The mortgage made by Ward to Osner & Mehlhorn, Inc., was made to secure the payment of twenty-one notes aggregating the principal sum of $19,000, which mortgage was also duly recorded. Both the deed from Grimsley to Ward and the Ward mortgage were filed for record at the request of Osner & Mehlhorn, Inc.

At the time of closing the transaction, the Higgs mortgage was not released of record, but Mehlhorn gave to Ward a receipt which reads as follows:

'Seattle, Wn., June 4, 1925,

'Received of John Ward, Fourteen Thousand Five Hundred and 00/100 Dollars in pay't of balance of mortgage made by Raymond E. Higgs on Lot 7, Blk. 84, Terry's II Addition, recorded in Vol. 906 of Mtgs., page 239 Records of King County and guarantee satisfaction of same.

'Osner & Mehlhorn, Inc.,

'$14,500.00

By August Mehlhorn, Jr.'

Ward was apparently satisfied with this receipt and did not afterwards demand or receive a formal satisfaction of the Higgs mortgage, nor was such a satisfaction ever executed, nor was any satisfaction of the Higgs mortgage ever made of record. Appellants here, the holders of the Higgs notes, had no personal knowledge of these transactions.

Ward proceeded in due course to pay off the notes secured by his mortgage to Osner & Mehlhorn, Inc., until he had reduced the principal to $13,000. In July, 1930, Ward and wife executed a mortgage in the sum of $15,000 on the preperty to Neil Ward, a relative, who made no inquiry as to the Higgs mortgage which was still unsatisfied of record. The money borrowed from Neil Ward was used by John Ward to pay off the remainder of the $19,000 mortgage running to Osner & Mehlhorn, Inc. All of the notes described in and secured by that mortgage were canceled and returned to him, except one, which was not returned, although several requests were made for it. Ward received a satisfaction of the $19,000 mortgage which was placed of record, but apparently did not then make any demand for a release of the Higgs mortgage, continuing to rely upon the receipt given him at the time he purchased. These conditions continued until the disappearance of August Mehlhorn, Jr., in September, 1930, and the appointment of a receiver for Osner & Mehlhorn, Inc. Shortly thereafter this action was commenced.

Of course, Osner & Mehlhorn, Inc., paid nothing to the appellants, the holders of the Higgs notes, at any time, save only the semiannual interest as it became due. Osner & Mehlhorn, Inc., received sufficient money, soon after Ward executed to it the $19,000 mortgage, by selling Ward's notes, to have satisfied the plaintiff's claims, and also received in cash more than enough for that purpose when the $19,000 mortgage was paid off by Ward, but while Osner & Mehlhorn, Inc., on its books, made entries indicating such payments to the several appellants, it never, in fact, distributed the money, but kept it for its own use. All of these Higgs notes became due by their terms on or Before August 20, 1927, but the holders appear to have been satisfied by Mehlhorn's representations that their rights were not imperiled, and they did nothing to enforce payment or to secure a renewal of the notes or the mortgage and, of course, they at no time gave any notice to the defendants Ward that these notes were outstanding, and that they were the holders of them.

The trial court found: 'That the...