Davis v. First National Bank of Oakland

• Decision Date: 06 October 1924
• Docket Number: Civil 2042
• Citation: 26 Ariz. 621,229 P. 391
• Parties: CYRUS W. DAVIS, Appellant, v. FIRST NATIONAL BANK OF OAKLAND, a Corporation, Appellee
• Court: Arizona Supreme Court

229 P. 391

26 Ariz. 621

CYRUS W. DAVIS, Appellant, v. FIRST NATIONAL BANK OF OAKLAND, a Corporation, Appellee

Civil No. 2042

Supreme Court of Arizona

October 6, 1924

APPEAL from a judgment of the Superior Court of the County of Maricopa. Joseph S. Jenckes, Judge. Reversed.

Mr Richard E. Sloan, Mr. C. R. Holton and Mr. Greig Scott, for Appellant.

Messrs Armstrong, Lewis & Kramer, Mr. Martin Le Boutillier and Messrs. Breed & Burpee, for Appellee.

OPINION

LYMAN, J.

This action is to foreclose a real estate mortgage. The defense is fraud in the procurement of the note and mortgage, and the total failure of consideration. The case was tried to a jury until the conclusion of the evidence, when, in response to motions made by the plaintiff, the court withdrew the case from the further consideration of the jury, and rendered judgment for the plaintiff. This order was made in the following terms:

"Let the record in this case show that the motion of the plaintiff to withdraw the case from the consideration of the jury, for the reason that, this being an equity case, the verdict of the jury is merely advisory, and that there is not sufficient evidence that the plaintiff is not a holder in due course and for a valuable consideration."

The defendant bases his appeal upon the ground that he is entitled to have the evidence submitted to the jury for its consideration and verdict, and that the judgment of the court was contrary to the law and the evidence.

Upon the first ground of appeal, defendant says that this is a statutory proceeding, a law action, in which he is entitled as of absolute right to a jury trial, and that, even though it be considered in the nature of a suit in equity, he is nevertheless guaranteed by the Constitution the right to have the facts determined by a jury.

The status of this action, defendant contends, is fixed by the provisions of the statute, directing how and by what steps mortgages shall be foreclosed, and because of such statutory provisions the proceeding is without any equitable character. Chapter 3, tit. 35, Rev. Stats. of Ariz. 1913.

Courts of equity have inherent original jurisdiction of actions to foreclose mortgages and authority to render such judgment as substantial justice between the parties may require, and that jurisdiction remains until taken away by statute. There is no statute in this state which by direct provision or implication deprives the courts of such jurisdiction. Sweeney v. Williams, 36 N.J Eq. 627.

Many of the states permit the foreclosure of mortgages by advertisement and sale, or by some other summary method provided by the statute. At one time such a method was sanctioned by the laws of this state, but was later expressly forbidden by paragraph 4113 of the Revised Statutes of 1913, as follows:

"4113. All mortgages of real property and all deeds of trust in the nature of mortgages shall, notwithstanding any provision contained in the mortgage, be foreclosed by action in a court of competent jurisdiction."

It may properly be inferred from this section that the court of competent jurisdiction therein referred to was such court as had always from time immemorial exercised that jurisdiction.

Chapter 3, title 35, Revised Statutes of Arizona of 1913, above referred to, has provisions affecting the form of judgment, the method of sale under execution, and the inclusion in the judgment of items paid on account of taxes. It broadens the remedy which equity formerly applied. There is nothing in the statute which restricts or limits the court in affording the relief which equity formerly gave in suits for foreclosure of mortgages.

The powers of the court in this action to consider and adjudicate all equities between all persons interested in the subject matter of the action, including priority of liens, distribution of the proceeds of sale, and the preservation of the mortgaged premises through the agency of a receiver, who by the terms of our statute shall be governed by the rules of equity, are all left unrestricted by the statute. These are functions of equity, some of them expressly referred to as such by our statute. Paragraph 681, Rev. Stats. Ariz. 1913.

It would be impossible for the court to apply these remedies effectively through the medium of a general verdict. Some of the states of the Union have provided for summary proceedings for the foreclosure of mortgages, either with or without court action. In most, if not in all, states, where a summary method of foreclosure is permitted by contract, or provided by statute, the right of foreclosure by suit in equity is still preserved.

Even if this action be considered as in equity, nevertheless defendant conceives that he was entitled to a jury trial. He cites the case of Brown v. Greer, 16 Ariz. 215, 141 P. 841, in which there is to be found a Dictum to the effect that the Constitution of the state guarantees trial by jury in all cases, without any distinction of law or equity. That is not the law of this state, and has never been. The organic act, supported by a number of decisions of this court, both before and since statehood, is in conflict with it. The Constitution does not assume to create any such right. On the contrary it preserves and perpetuates equity jurisdiction, expressly vesting it in the courts of the state. Ariz. Const., art. 6, § 6.

Another ground upon which defendant bases his appeal is that the judgment is at variance with the law and the evidence.

The note and mortgage, the subject of this action, represented the first payment under a contract for the purchase of a tract of 100 acres of land, with appurtenant water right from one Post. The defendant was induced to enter into this contract upon representations by him that a sufficient supply of water for the irrigation of this land was available, and that he had financial means to develop the water and put it on the land. Accompanying these representations was the promise that such power and ability would be expended by him so that the water would be actually put upon the land within a given period, and in time to raise a crop during the current season, and within six months from April, 1919. Though this was merely a promise, its effect upon the present controversy depends upon the truth or falsity of the representations which made the fulfillment of that promise possible.

This land was desert in character. Without water to irrigate it sufficiently to raise crops, it was practically valueless. It was sold for farming purposes. The only source of water supply was from wells sunk to the level of an underground stratum of water. The volume of water which could possibly be derived from that source was for the most part undeveloped, and the amount available rested upon the estimate of engineers who had made an examination of the supply. The evidence bearing upon this matter contained in the record is meager, but without conflict. An engineer, who was apparently relied upon by the plaintiff, estimated the possible supply of water available for this tract as sufficient to irrigate 10,000 acres of land.

The representations made by Post as to the available supply of water and his pecuniary ability to develop it were both untrue, as he must have known. His promise to place water upon the land within six months was made without reasonable expectation, and therefore without intention of fulfilling it. It is not to be supposed that he intended the impossible. Lentz v. Landers, 21 Ariz. 117, 185 P. 821.

There was not available from any source, so far as disclosed, a sufficient supply of water for the adequate irrigation of more than 10,000 acres. Post was without financial means with which to develop such water as was available. Neither during the season of 1919, nor subsequently, was there any development of a supply of irrigation water sufficient to raise crops upon any considerable portion of this land. He never had, nor was he able to procure, sources of water supply from which the land of defendant could be irrigated.

Though not admitting the fraud which tainted the original transaction, the plaintiff urges that, even though such fraud existed, it received the note and mortgage without notice of any such infirmity, in due course, for value, and is therefore unaffected by the original transaction between Post and Davis, beyond what appears from the face of the note and mortgage.

The plaintiff, First National Bank of Oakland, took the note and mortgage as collateral security for the payment of a loan to Post, made in April, 1920. The mortgage did not cover the land involved in the contract but another tract in a different locality.

Between the time of the execution of this note and mortgage, and its negotiation in April, 1920, Post had constant business relations with the plaintiff bank in the course of which the bank was engaged in financing Post and his project for the development of the land. It had made repeated and minute investigations of the so-called Post project, including a number of visits to the land by its agent, and a close and careful scrutiny of the land itself, possible sources of water supply, the contract relationships between Post and those with whom he had contracted to sell the land, the source and character of whatever title he held to both land and water supply, and such progress as was made toward developing water for the irrigation of these lands. Interest and good business judgment dictated that no detail of the business which Post was carrying on in the sale and development of these lands should escape the attention of the plaintiff. The written reports, which were made by the agents of the plaintiff from time to time before the transfer of the note and mortgage sued on, indicate that as early...