City National Bank v. Riggs

• Decision Date: 11 December 1933
• Docket Number: 4-3315
• Citation: 66 S.W.2d 293,188 Ark. 420
• Parties: CITY NATIONAL BANK v. RIGGS
• Court: Arkansas Supreme Court

66 S.W.2d 293

188 Ark. 420

CITY NATIONAL BANK v. RIGGS

4-3315

Supreme Court of Arkansas

December 11, 1933

Appeal from Sebastian Chancery Court, Fort Smith District; C. M Wofford, Chancellor; affirmed.

Decree affirmed.

James B. McDonough and Joseph R. Brown, for appellant.

Watts & Wall, Daily & Woods, G. L. Grant, and Hill Brizzolara & Fitzhugh, for appellee.

OPINION

MCHANEY, J.

On July 29, 1927, C. B. Johnson and appellee, Jessie Johnson, his wife, executed and delivered to appellant, City National Bank, agent, hereinafter called the bank, twenty-five $ 1,000 notes, due and payable three years after date, and, to secure same, the Johnsons also executed and delivered their mortgage to the bank (which was duly recorded) covering four separate pieces of real property in the city of Fort Smith, one piece being a garage building on North Eighth Street, described as lot 9, block 30, city. The bank, from August 1st to the 6th 1927, sold said notes to the appellees as follows: To J. A. and P. L. Riggs, $ 7,000; to E. N. King, $ 2,000; to Mrs. D. B. Taylor, $ 8,000; and to appellant, Mrs. Jessie A. Bracht, $ 8,000. No assignment of said notes nor of the lien of said mortgage was made of record, but the notes were indorsed to the purchasers without recourse. The mortgage, after describing the above-mentioned notes, contained this clause: "It is further agreed that this mortgage is made to secure any and all other indebtedness that may be due and owing to the mortgagee by the mortgagors."

On August 16, 1928, the mortgagor, Johnson, sold the North Eighth Street garage property for $ 12,300, and the bank released on the margin of the record the property from the lien of the mortgage without the knowledge or consent of any of the note-holders. The $ 12,300 was deposited in the bank to Johnson's credit, and he shortly thereafter, or at the same time, paid to the bank for one of the note-holders (Mrs. Bracht) $ 4,000, and to it on a debt due by Johnson subsequently incurred and due it on separate note the sum of $ 7,500, leaving a balance to his own credit from this source of $ 800 less a small amount of interest paid on the Bracht notes.

When the remainder of the notes fell due in July, 1930, Johnson was unable to pay them, and sought a renewal. The bank negotiated with the note-holders to this end, and some, or at least one, of whom demanded additional security on account of the depressed condition of property values, not knowing that a portion of the security had been released by the bank. Johnson had no additional property to include in the new mortgage, but his wife was induced to include her homestead therein. The new mortgage was executed by Mr. and Mrs. Johnson, not for $ 21,000, the balance due on the old mortgage, but for $ 25,000, which included an additional $ 4,000 debt Johnson owed the bank, and the notes for which were sold to other investors.

Default having been made in the payment of interest and taxes in 1932, this action was instituted to foreclose under an acceleration clause in the mortgage by appellees, J. A. and P. L. Riggs, who made the mortgagors, the bank and the other note-holders, defendants therein. Judgment was prayed against the Johnsons, and a receiver was asked. Appellee, Mary Parke Taylor, a resident of St. Louis, filed answer and cross-complaint. She admitted the allegations of the complaint, and, in her cross-complaint, set up her ownership of $ 8,000 of the notes, for which she prayed judgment. She also charged the bank with having wrongfully and unlawfully satisfied the original mortgage as to the garage, as above set out, and with having wrongfully diverted the proceeds of the sale to itself and others, and prayed judgment against it for 8/25ths of the purchase price of said lot. Thereupon, the Riggs amended their complaint, and prayed judgment against the bank for 7/25ths of the $ 12,300, making similar allegations to those of Mrs. Taylor. C. B. Johnson and Jessie M. Johnson filed an answer and cross-complaint. The answer was a general denial, but the cross-complaint charged that Mrs. Johnson was induced to permit the inclusion of her homestead in the new mortgage of 1930 through the representations of the bank's president, I. H. Nakdimen, that it was merely a matter of form, and that he and the bank "would personally save them harmless by reason of the inclusion of the homestead, and would personally guarantee the payment of the new note issue without resort to said homestead." The prayer was for judgment against the bank and Nakdimen in the event they lost their homestead. Appellants made answer denying the wrongful diversion of the $ 12,300 and the cross-complaint of the Johnsons. They also filed numerous demurrers and motions, all of which were overruled.

Trial resulted in a decree in favor of appellees. Mrs. Taylor was awarded judgment for 8/25ths of said $ 12,300, and the Riggs 7/25ths, against the bank, for an unlawful and unauthorized diversion. The court found that the inclusion of the homestead of Mrs. Johnson in the new mortgage of 1930 was accomplished by the false and fraudulent representations made to her by the bank and its president, for which they are personally liable to her for whatever loss she may sustain by reason thereof, but that, as to the Riggs and Mrs. Taylor, their rights to resort to said homestead for the collection of their notes are not affected by the transaction between Mrs. Johnson and the bank. As to Mrs. Bracht, the court found that she had been paid the sum of $ 76.67 in excess of her proportionate share of the sale price of the garage property, and that, as to such excess, her claim in foreclosure proceedings shall be subordinated to that of Riggs and Taylor; that E. N. King had sold his notes to the bank, and that the equities of Riggs and Taylor in the foreclosure were superior to that of the bank. The bank, Nakdimen and Mrs. Bracht have appealed.

Many errors are assigned in an extensive brief for a reversal of the judgment. We cannot argue them all in detail. It is first contended that the court erred in permitting the Riggs and Mrs. Taylor to change their action from one of contract to one of tort. We think not. Primarily the action was one to foreclose a mortgage. It continued to be such, and was one cognizable in a court of equity. When Mrs. Taylor filed her cross-complaint against the bank for the wrongful satisfaction of the mortgage as to the garage property and the wrongful diversion of the sale price thereof, the action was not converted into one on tort wholly, as she still sought the foreclosure of the mortgage, even though other relief was asked. The general rule is that, when a court of equity acquires jurisdiction for one purpose, it will retain it for all purposes, and will grant all the relief, both legal and equitable, to...