Federal Trust Co. v. Nelson
| Decision Date | 02 April 1935 |
| Docket Number | 41782. |
| Citation | 260 N.W. 341 |
| Parties | FEDERAL TRUST CO. v. NELSON et al.[a1] |
| Court | Iowa Supreme Court |
Appeal from District Court, Harrison County; Earl Peters, Judge.
Action at law, after foreclosure, to recover deficiency on notes secured by mortgage. The notes and mortgage were Nebraska contracts. Defense was made that an extension agreement had released the mortgagors and that the notes were usurious. Judgment was against the defendants for the full amount of the notes, from which they have taken this appeal.
Reversed.
William P. Welch, of Logan, for appellants.
Ginsburg & Ginsburg, of Lincoln, Neb., and Robertson & Wolfe of Logan, for appellee.
This was an action at law and was tried to the court. Defendants had executed to plaintiff fourteen promissory notes, and a mortgage upon certain Nebraska real estate securing the notes. The Nebraska real estate had been exhausted by foreclosure of the mortgage, leaving a portion of the notes unpaid, to recover which this action was commenced. The notes and mortgage were Nebraska contracts and the substantive rights of the parties are to be determined by the laws of that state. The notes became due November 1, 1927, prior to which date defendants had conveyed the mortgaged real estate to a third person, who, as part of the consideration, had assumed and agreed to pay the mortgage indebtedness. On November 10, 1927, plaintiff-mortgagee entered into a written contract with the said grantee of the mortgaged premises extending for a term of years the time for payment of said notes, without the consent or knowledge of the defendants. Defendants pleaded in defense to said notes that, under the laws of Nebraska, the execution of said extension agreement released defendants from personal liability on the notes, and they also pleaded that said notes were usurious. The district court held the defendants had not been released, that the notes were not usurious, and entered judgment against defendants for full amount of the notes including interest, from which judgment this appeal was taken.
The errors relied on by appellants are, first, that the court erred in entering judgment against them, because, as appellants claim, they were released from personal liability, by reason of the execution of the extension agreement, and, second, the court erred in including in the judgment any interest on the notes, appellants claiming that the notes were usurious, and that under the laws of Nebraska interest is not collectible upon a usurious contract.
Anent the alleged error first mentioned, the Supreme Court of Nebraska at one time had determined in Merriam v Miles, 54 Neb. 566, 74 N.W. 861, 69 Am.St.Rep. 731, that in a fact situation identical with that involved in the execution of the extension agreement of November 10, 1927, the makers of the secured notes became released from personal liability. The reasoning of the case was, in a large part, that the grantee assuming the mortgage debt had become the principal and the mortgagors had become his sureties, and the extension, without consent of the surety-mortgagors, operated to release them. But later, in the case of Peter v. Finzer, 116 Neb. 380, 217 N.W. 612, 65 A.L.R. 1419, that court held that this pronouncement in the Merriam Case did not have application to negotiable instruments, because under the provisions of the Negotiable Instruments Act of Nebraska, the maker of a note is primarily liable for its payment, and the court held that the expediency of obtaining uniformity in the law merchant was a sufficient reason for the holding in the Peter Case. However, from the testimony of witnesses learned in the law of Nebraska, it is evident that the rule in the Merriam Case still obtains so far as nonnegotiable instruments are concerned. So, to avail themselves of the holding in the Merriam Case, appellants at all events must establish that these notes were nonnegotiable. Appellants say the notes were nonnegotiable at the time of the extension agreement, because, first, they were past due, and, second, they were usurious. It is apparent that the fact that the notes were past due when the extension agreement was made avails nothing to appellants, because if the notes were negotiable instruments, this characteristic continued after their maturity, although subject to certain defenses that were not admissible against a bona fide purchaser before maturity. The makers would continue to be the principal debtors, after maturity, and, not being sureties, they could not invoke the...
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