Berridge v. Gaylord

• Decision Date: 11 December 1920
• Docket Number: 22,793
• Parties: F. G. BERRIDGE, Appellant, v. CORA M. GAYLORD, Appellee
• Court: Kansas Supreme Court

193 P. 1066

108 Kan. 105

F. G. BERRIDGE, Appellant, v. CORA M. GAYLORD, Appellee

No. 22,793

Supreme Court of Kansas

December 11, 1920

Decided July, 1920

Appeal from Nemaha district court; WILLIAM I. STEWART, judge.

Judgment reversed and cause remanded.

SYLLABUS

SYLLABUS BY THE COURT.

NOTE AND MORTGAGE--Made Payable to Stranger to Evade Taxation--Subsequently Assigned to Real Owner of Note--Right of Recovery. Where one who makes a loan upon real estate causes the note and mortgage securing it to be made payable to a stranger to the transaction, for the purpose of evading the payment of taxes, that fact does not constitute a defense to the mortgage, in an action against the mortgagor brought in the name of the real owner, who has in the meantime taken an assignment from the nominal mortgagee.

T. D Humphreys, of Topeka, for the appellant.

W. P. Waggener, J. M. Challiss, and Walter E. Brown, all of Atchison for the appellee.

OPINION

MASON, J.:

F. G. Berridge brought an action against Cora M. Gaylord upon a note and mortgage originally executed by her to Joseph F. White and by him assigned to the plaintiff. Judgment was rendered for the defendant cancelling the mortgage upon the ground that the loan secured by it had been made by the plaintiff, who caused White to be named as payee for the purpose of enabling him to avoid the payment of taxes. The plaintiff appeals.

The correctness of the judgment depends upon the interpretation of the decision and opinion in Sheldon v. Pruessner, 52 Kan. 579, 35 P. 201, upon the authority of which it is obviously based. That case has sometimes been regarded as holding that if the owner of a mortgage places the formal legal title to it in another for the purpose of evading the payment of taxes he is thereby prevented from collecting it and the act constitutes a defense to any action for its enforcement. The decision however goes no further than to hold that if the mortgagee while retaining the beneficial ownership makes a mere colorable assignment in order to escape the payment of taxes and a foreclosure is attempted in the name of the assignee no recovery can be had in that action. Its limited scope in this regard was recognized in a note published shortly after its rendition, reading as follows:

"The decision that a transfer of a mortgage to evade taxation is so far contrary to public policy that the transferee cannot enforce it for the benefit of the transferrer seems to be a novel one. The exact effect of such a transfer on the rights of the parties is left somewhat indefinite. Whether the transferee could enforce the mortgage if he chose actively to, assert his rights for himself, and whether on the other hand the transferrer could in his own name enforce the mortgage are important questions left open in the case." (Note, 22 L. R. A. 709.)

The ordinary rule is that the holder of the formal legal title of a note may maintain action upon it although he has no beneficial ownership and must account to his assignor for the proceeds. The Sheldon-Pruessner case has been referred to as illustrating a situation in which the rule does not apply because of the transfer having been made in bad faith ( Greene v. McAuley, 70 Kan. 601, 606, 79 P. 133)--a reference which shows the effect heretofore given to the case by this court. In an action to foreclose a lien evidenced by an instrument in the form of a deed, which had been executed to replace a mortgage, the court applied this interpretation by holding that no defense was stated by an answer which alleged that one of the purposes for which the plaintiff took the deed was to avoid the payment of taxes. In the opinion it was said:

"The plaintiff being the holder of the indebtedness and the real party in interest, the defendants cannot rely upon the case of Sheldon v. Pruessner, 52 Kan. 579, 35 P. 201. In that case the mortgage had been assigned in order that the mortgagor might avoid the payment of taxes. The assignment was held to be fraudulent, and it necessarily followed that the assignee was not the real party in interest, and it was held that he could not maintain the action." ( Johnson v. Harvey, 83 Kan. 471, 472, 112 P. 108.)

In Drexler v. Tyrrell, 15 Nev. 114, it was held (one of the three justices dissenting) that a mortgage which is made in the name of some one other than the lender of the money in order to escape the payment of taxes, is wholly void--the position taken by the defendant here. That case, with others, was cited in the opinion in Sheldon v. Pruessner, in support of a familiar general proposition quoted from a California decision. Such citation of course did not imply the adoption of the full doctrine of the Nevada case, which may have been influenced by a local statute and so far as we have observed has never met with full acceptance elsewhere except in a dissenting opinion (Brown v. Newell, 64 S.C. 27, 73, 41 S.E. 835) and in an editorial in a law journal (55 Conn. L.J. 121, 201, 261), while it has been expressly disapproved by the courts of a number of jurisdictions. (See the following cases and the citations therein: ...