COMMERCIAL MERCHANTS NAT. BANK & T. CO. v. Le Tourneau
| Decision Date | 25 October 1943 |
| Docket Number | No. 8159.,8159. |
| Citation | 137 F.2d 87 |
| Parties | COMMERCIAL MERCHANTS NAT. BANK & TRUST CO. OF PEORIA v. LE TOURNEAU et al. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Walter G. Todd, Alan W. Boyd, and Charles M. Wells, all of Indianapolis, Ind., for appellants.
Frank C. Dailey, Paul Y. Davis, Harvey B. Hartsock, Geo. S. Dailey, James E. Lesh, and Gustav H. Dongus, all of Indianapolis, Ind., for appellee.
Before EVANS and MINTON, Circuit Judges, and LINDLEY, District Judge.
Plaintiff brought this action against defendants to recover a money judgment for the amount of a note executed by defendants. The note was secured by a mortgage upon real estate located in Peoria, Illinois. The mortgage was never foreclosed.
The mortgagors subsequently gave a warranty deed of the mortgaged premises, subject to the mortgage, to Hall-Hottell Company, Inc., of Indianapolis, Indiana. H. H. Co. subsequently gave a quitclaim deed of this real estate to Luke, an agent of plaintiff, and Luke, in turn, gave a quitclaim deed of the premises to plaintiff.
After this action was begun, plaintiff executed a warranty deed of the property to Silberstein. The price realized from this sale, to-wit, $5,300, was applied upon the note. This action was brought before the plaintiff sold the property, and was for the entire amount of the note, principal and interest.
Defendants pleaded satisfaction of the debt through the merger of the title and also argued that an extension of the date of payment of the debt which plaintiff granted the assignee, released them of all liability. Plaintiff denied both allegations. Judgment was for the plaintiff.
Writ of Certiorari Denied October 25, 1943. See 64 S.Ct. 93, 88 L.Ed. ___.
Defendants' default on their payments and plaintiff's election to declare the full amount due, would unquestionably have necessitated the granting of a judgment for the amount of the note with interest, were it not for plaintiff's acceptance of a deed of the mortgaged property and its action at that time. Its action furnishes the basis of the two contentions which defendants make. It is conceded that the sum which plaintiff later realized from the sale of the premises should be applied upon the note.
Defendants argue that they are not liable for a deficiency judgment in the absence of foreclosure proceedings, because: (a) There was a merger in the mortgagee of the legal and equitable title to the real estate covered by the mortgage given to secure the note sued upon; (b) Even though there was no merger, they were released from all liability because plaintiff granted an extension of time of payment to the defendants' grantee.
As to the facts, there is no serious dispute.
H. H. Company received a warranty deed from defendants, subject to plaintiff's mortgage. It did not assume defendants' indebtedness. It proposed thereafter that plaintiff rent the property and apply the income upon the note and mortgage. Plaintiff replied by asking H. H. Company to execute a quitclaim deed to one L, an officer of plaintiff, and sign a so-called "covering agreement," which read:
The quitclaim deed to L carried an $8.50 stamp.
To make its position perfectly clear, plaintiff wrote a letter to H. H. Co. which was acquiesced in by H. H. Co., setting forth the understanding of the parties when plaintiff received the deed. The letter read:
On the same day Luke, the grantee named in the deed from H. H. Co., quit-claimed the property to plaintiff.
This action was brought, July 11, 1941. The bank's notice of election to declare the full amount of the note, principal and interest due, was mailed, August 22, 1939.
Defendants' argument that there was a release of liability (Conerty v. Richsteig, 379 Ill. 360, 41 N.E.2d 476) because plaintiff granted an extension of time to H. H. Co. is rejected for two reasons. First, there was, in fact, no extension of the date of the maturity of the debt. The most favorable construction to be placed upon plaintiff's agreement was that it agreed not to sell the property before noon, October 31, 1939, and agreed to convey the property to any person to whom H. H. Co. might sell it if plaintiff received a definite sum of money, to-wit, the amount due on the note, with interest, before that hour.
Rejection of this contention is also based upon the Indiana practice. See State v. Traylor, 77 Ind.App. 419, 132 N.E. 608, where it is held that a discharge through an extension of time of payment is an affirmative defense and must be pleaded. Also see Rule 8, Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c. This suit, having been brought in the State of Indiana, in the U. S. District Court, the law of Indiana governs as to the requirements and necessities of the pleadings.
It is also worthy of note that the case of Conerty v. Richsteig, supra, might be distinquished from this case. In the Conerty case the purchaser from the mortgagor assumed the mortgage indebtedness.
Whether there was a merger with the resulting satisfaction of the debt presents quite a different and a more difficult question.
Here, it is argued, the law of Illinois governs because the conveyances and their effect involved title to Illinois real estate. Under Illinois law, if there were a merger, the mortgage debt was extinquished. Forthman v. Deters, 206 Ill. 159, 69 N.E. 97, 99 Am.St.Rep. 145; 37 Am.Juris. page 429.
The controverted question, however, is not over the effect of a merger, so much as over the existence of a merger.
To refute the claim of merger, plaintiff relied upon its written statement to H. H. Co., written at H. H. Co.'s request, and to avoid dispute. This written statement made when the deed was executed and delivered to L contained these significant words:
"* * * It is understood that the delivery of this quitclaim deed is not intended by either party, nor by this Bank, to constitute or effect a merger * * *."
For the purpose of this argument, in the absence of any such agreement by plaintiff and the H. H. Co., we may assume that there would have been a merger. Also we may assume, for the purpose of the argument, that if suit were brought in Illinois, a merger would have extinguished the debt.
Decisive, then, of the controversy, with these assumptions, is the question,— May the parties by agreement determine the consequence of their action, when such action consists of passing title to real estate by deed from a mortgagor to a mortgagee? Our conclusion is that the parties could and did avoid the effect of a merger by their express agreement not to effect a merger. Lyman v. Gedney, 114 Ill. 388, 29 N.E. 282, 55 Am.Rep. 871; Forthman v. Deters, 206 Ill. 159, 69 N.E. 97, 99 Am.St.Rep. 145; First National Bank v. Watson, 277 Ill. 186, 115 N.E. 156; Shippen v. Whittier, 117 Ill. 282, 7 N.E. 642; Moffet v. Farwell, 222 Ill. 543, 78 N.E. 925; Campbell v. Carter, 14 Ill. 286; Security Co. v. Schlender, 190 Ill. 609, 60 N.E. 854; Richardson v. Hockenhull, 85 Ill. 124; Kessler v. Aller, 287 Ill.App. 606, 5 N.E.2d 761; Continental Ill. Bank & T. Co. v. Cunningham, 291 Ill. App. 180, 186, 9 N.E.2d 664; Jones on Mortgages (8th Edition), Sec. 1088, 1089.
For discussion of the question, see note to 95 A.L.R. 89.
It should be noted that defendants had parted with their title to the real estate. They had no equity of redemption. The purchaser from them found himself with property falling in value and worth less than the outstanding mortgage. He was willing to save the mortgagee the expense of foreclosure, yet if there were a recovery in real estate value, he desired to reduce, and if possible avoid, his loss. He offered to turn over the real estate upon conditions named. The mortgagee was unwilling to accept unless it was validly agreed that its rights against the debtor were unimpaired. In other words, if there were a merger, its claim on the note might be lost. It therefore declined to accept a deed, unless it were agreed there was no merger. They so agreed and put their agreement in writing.
Was this agreement effective? Did it prevent a merger?
We answer both questions in the affirmative.
The law is both clear and uniform as to the effect of a transfer of mortgaged property by a mortgagor to a mortgagee. The result is the so-called merger which effects a discharge of the mortgage and the satisfaction of the debt.
Illinois has chosen to fortify or strengthen this law by a statute, but the result is the same, whether the origin is statutory or judicially-made law.
The query persists, however. Is there a merger if the...
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