Conradt v. Lepper

• Decision Date: 05 July 1905
• Citation: 81 P. 307,13 Wyo. 473
• Parties: CONRADT v. LEPPER
• Court: Wyoming Supreme Court

81 P. 307

13 Wyo. 473

CONRADT v. LEPPER

Supreme Court of Wyoming

July 5, 1905

Rehearing Denied August 28, 1905, Reported at: 13 Wyo. 473 at 496.

ERROR to the District Court, Albany County, HON. CHARLES W. BRAMEL Judge.

Action to foreclose a mortgage by H. Julius Conradt against William Lepper. From a judgment in favor of defendant the plaintiff brought error. The facts are stated in the opinion.

Reversed and remanded.

Corlett Downey and C. P. Arnold, for plaintiff in error.

The constitutional provision of California relating to marginal stock transactions has been construed by the highest court of that state to apply to a transaction where any broker purchases stock for a customer with his own money, charging only commissions and interest thereon, and retaining the stock as security until its sale, the customer putting up only a certain margin, and receiving the profit or paying the loss. (Cashman v. Root, 89 Cal. 373; Wetmore v Barrett, 103 Cal. 325; Sheehy v. Shinn, id., 325; Rued v. Cooper, 119 id., 463; Kullman v Simmons, 104 id., 595.) The defendant seeking to defeat the contract in suit affecting real estate situated here by setting up the law of a foreign jurisdiction declaring certain contracts void, which in the absence of such legislation are legitimate and valid, has the burden of proof as to such defense, and should show by satisfactory evidence that the mortgage in question was executed upon the consideration alleged; and in this we think that the defendant wholly failed. The testimony of his own witnesses show that the consideration for the mortgage had nothing to do with the transaction declared illegal by the laws of California, where the mortgage was executed. It clearly appears that the original mortgage from Lepper to Weigleb was made upon a valid consideration, and that the new mortgage to the plaintiff in this case was given upon the satisfaction or discharge of the Weigleb mortgage. It is clear that the assignment from Weigleb to the plaintiff of the first mortgage had no connection with the defendant's operations in stocks. Moreover, at the time the new mortgages were given to the plaintiff he had dissolved his connection with the firm of stock brokers with whom the defendant had stock dealings and the balance of the consideration of the mortgage in suit was paid to the plaintiff in cash.

The California constitution denounces dealing in "margins" and contracts for the sale of the stock of corporations where the stock is not delivered. It was not directed, nor could it be directed, to completed contracts where the subject of the transaction is fully paid for and actually delivered. The testimony shows a final settlement between defendant and his brokers, Gauthier & Co., by an actual delivery of the stocks to other brokers upon defendant's account at his request. The net value of these delivered stocks, after deducting the amount owing by defendant, was $ 4,764.40 on the date of delivery. It cannot, therefore, be successfully contended that the defendant could have obtained a delivery of the stocks by paying for them in full and at the same time sue the broker on the theory that the stocks were not delivered and his interest in them only evidenced by a marginal payment. (Cashman v. Root, 89 Cal. 373; Sheehy v. Shinn, 103 id., 325.) When the legal title of the stock passes from the broker and possession is given, the relation between the parties is not that of broker and customer, but becomes that of vendor and vendee on an executed contract for the purchase of personal property.

The mortgage covers land in this state, and it is, therefore, to be construed as a Wyoming contract and to be governed by the laws of this state. And in this state the contract between the defendant and his broker was as legitimate and valid as any other contract relating to the purchase and sale of personal property. (28 Ency. Law (2d Ed.), 1068.) The validity and the construction and effect of a transfer of title to or interest in land are determined by the laws of the place where the land is situated, and this principle applies as well to mortgages as to conveyances absolute. (22 Ency. Law (2d Ed.), 1327; Story Conf. L., Sec. 609; 2 Parsons on Contracts, Sec. 572; Swank v. Hufnagle (Ind.), 12 N.E. 303; Goddard v. Sawyer, 9 Allen, 78; Doyle v. McGuire, 38 Iowa 410; Hosford v. Nichols, 1 Paige, 220; Baum v. Birchall, 150 Pa. St. 164; Fessendon v. Taft, 65 N. H., 39; Chapman v. Robertson, 6 Paige, 627; Trust Co. v. Rathbone, 5 Sawyer, 32; Curtis v. Hutton, 57 Miss. 451; U. S. v. Crowsby, 7 Cranch, 115; Manton v. Seiberling, 107 Iowa 534; 1 Jones on Mortg. Forc., 345; Giffin v. Giffin, 18 N.J. Eq. 104; Thomas v. Kyle, 23 So. 12; Gault v. Trust Co., 38 S.W. 1065.) The mortgage in question was valid under the laws of this state, even if it had been part of a transaction involving dealings in stocks. (R. S., Sec. 2187; Kinney v. Edwards, 55 P. 306.)

The execution of the mortgage was expressly admitted in the answer of the defendant, and after the trial the defendant sought to substitute an amended answer denying the execution of the mortgage. It is, however, a familiar rule that an admission in the pleading is conclusive upon the parties and must be taken as true for all the purposes of the cause. (11 Ency. Law (2d Ed.), 447; R. R. Co. v. Morton, 61 F. 814; Elec. Works v. Finck, 47 F. 583; Wade v. R. R. Co., 149 U.S. 327; Jeffreys v. Jeffreys, 139 Ill. 368; Hewitt v. Morgan, 88 Iowa 468; Assur. Fund v. Boesse, 92 Ky. 290; Bean v. Schmidt, 43 Minn. 505; Franch. Co. v. Simms, 36 Mo. App., 229; Foley v. Haltry, 41 Neb. 563; Sinis v. Davidson, 54 N. Y. Sup., 235; Robertson v. Sayer, 139 N.Y. 97.)

In the event that the last mortgage of the series was invalid, the plaintiff would, however, be entitled to the lien granted by the first mortgage, and equity will set aside the cancellation of the first mortgage and revive the same for the benefit of the assignee. 22 Ency. Law (2d Ed.), 247.)

H. V. S. Groesbeck, for defendant in error.

The amended answer did not state a new cause of action and raised no new issue; the court did not abuse its discretion in permitting the filing of such amended answer. (R. S. 1899, Sec. 3588; Horton v. Bristol, 77 P. 354.) What was the consideration of the promissory note and the mortgage given to secure the same? In our opinion the record discloses that it was a marginal transaction. The testimony preponderates in favor of the claim of the defendant that no money was exchanged upon the giving of the note and mortgage; the testimony of the plaintiff on that question stands alone, and the facts and incidents of the entire transaction disputes it. The evidence in the case is clear, convincing and satisfying: first, that the dealings between the defendant and Weigleb and the firm of which the plaintiff was a member was a marginal transaction and, therefore, illegal; second, that the consideration of the note and mortgage in suit grew out of those dealings and was, therefore, illegal. Not one share of stock purchased by the firm was delivered to Lepper, nor to anyone up to and including July 16, 1891, the date of the note and mortgage. It was not until August 10, twenty-five days later, that the stock held by the firm was delivered to another broker, and there must have been additional assets and liabilities incurred after the date of the note and mortgage.

Such delivery to other brokers did not divest the entire transactions of their marginal nature. The defendant is not seeking to recover any portion of the money paid to the broker upon the delivery of the stock August 25, 1891. He is simply asking for the cancellation of the illegal note and mortgage given to secure his account with the brokers, and dealings between himself and the brokers on margins, prior to July 16th, the date of the note and mortgage in question. Under the decisions of the Supreme Court of California, cited by plaintiff in error in his brief, the constitutional provision of that state prohibiting marginal transactions has been upheld, and that provision has been applied to transactions similar to that of the case at bar. (See cases cited for plaintiff in error, and also Parker v Otis, 130 Cal. 322.) The law is not silent upon this subject in Wyoming. The California law has pronounced the transaction a gambling transaction. If it was a gambling transaction there, the consideration of the note was a gambling contract, and they now seek to enforce that contract and the mortgage securing it in this state. The statute of this state provides that where the consideration of any contract or conveyance is money, property or other valuable thing won by any gaming, the same shall be utterly void and of no effect. (R. S. 1899, Sec. 2187; Kinney v. Hynds, 7 Wyo. 22; Swinney v. Edwards, 8 Wyo. 54.) The note was a California obligation and contract, payable there, and if void in that state it must be void in every other jurisdiction. If the note fails, the mortgage must also fail, since the latter is but an incident of the note. (Hepburn v. Warner, 112 Mass. 271; Jackson v. Blodgett, 5 Cowen, 202; Jackson v. Willard, 4 Johns., 43; Carpenter v. Longan, 16 Wall., 271; Kenicott v. Supervisors, 16 Wall., 452.) The mortgage and note must be construed as one contract and instrument. (Boone on Mortg., Sec. 4, and cases cited; Schultz v. Bank, 141 Ill. 116; Leavitt v. Palmer, 3 N.Y. 19; Swearington v. Lehner, 93 Iowa 147; Evans v. Beaver, 50 Ohio St. 190; 20 Ency. Law (2d Ed.), 1030; Graham v. Blinn, 3 Wyo. 751; Balch v. Arnold, 9 Wyo. 35.) A mortgage executed upon an illegal consideration is void ab initio, because the nullity of the principal debt destroys all securities accompanying it. Every contract or agreement, the consideration for which is...