Finken v. Schram

• Decision Date: 05 May 1931
• Docket Number: No. 40633.,40633.
• Citation: Finken v. Schram, 212 Iowa 406, 236 N.W. 408 (Iowa 1931)
• Parties: FINKEN v. SCHRAM ET AL.
• Court: Iowa Supreme Court

212 Iowa 406

236 N.W. 408

FINKEN

v.SCHRAM ET AL.

No. 40633.

Supreme Court of Iowa.

May 5, 1931.

Appeal from District Court, Shelby County; Kenneth Cook, Judge.

This was a proceeding by the plaintiff, first, to foreclose a mortgage; and, second, to obtain the appointment of a receiver for the purpose of collecting the rents and profits from the real estate during the year of redemption.The relief was granted, and the defendants appeal.

Affirmed.

Byers & Hines, of Harlan, for appellants.

White & White, of Harlan, for appellee.

KINDIG, J.

This proceeding to foreclose a real estate mortgage presents two distinct controversies, generally speaking.The first relates to the existence of the mortgage, and the second involves the pleadings for and against, and evidence to sustain, the appointment of a receiver.

A. N. Finken, the plaintiff and appellee, maintains that he has a valid mortgage executed by the defendants-appellants, N. W. Schram, and his wife, Josephine Schram, covering certain land in Shelby county, and, because the mortgagors are delinquent, the appellee urges that he is entitled to the foreclosure thereof, aided by the appointment of a receiver to collect the rents and profits during the year of redemption, extending from March 1, 1930, to March 1, 1931; while, on the other hand, the mortgagors and the Farmers' Savings Bank of Earling, defendants and appellants, all insist that appellee has no mortgage, and therefore is not entitled to a foreclosure.Furthermore, the appellants argue that, assuming appellee has a mortgage which may be foreclosed, nevertheless he in no event under the pleadings and evidence can have a receiver appointed, because the pleadings and evidence do not authorize such relief.

Three mortgages executed by the appellantsN. W. Schram and Josephine Schram are held by the appellant the Farmers' Savings Bank of Earling.Two of these mortgages are prior liens on the same real estate covered by appellee's mortgage, and the other mortgage, held by the appellant the Farmers' Savings Bank of Earling, incumbers certain chattels and crops belonging to the appellantsN. W. Schram and Josephine Schram.So the appellant the Farmers' Savings Bank of Earling insists that its chattel mortgage covers the rents and profits for the period during which appellee desires a receiver.Hence the appellants aver that the chattel mortgage is superior to any claim a receiver could have on those rents and profits.

After a hearing in the district court, that tribunal entered a judgment and decree declaring: First, that appellee had a good and valid mortgage executed by the appellantsN. W. Schram and Josephine Schram, and accordingly allowed the foreclosure thereof, and, second, that the appellee was entitled to the appointment of a receiver who had a right to the rents and profits from the incumbered land superior to that of the Farmers' Savings Bank of Earling, under the chattel mortgage held by it.Those are the questions involved on this appeal, and they will now be considered in the order named.

[1] I. Under that order, the first question for consideration relates to the existence of appellee's mortgage.Did appellee hold a mortgage legally executed by N. W. Schram and Josephine Schram, which was subject to foreclosure?Our answer is in the affirmative.The facts are now material for an understanding of the legal propositions involved.

N. W. Schram, on March 1, 1920, executed his promissory note for $4,000, payable to the appellee one year thereafter.Following that transaction, Schram, on July 3, 1922, executed a second note to appellee, payable in the sum of $700 March 1, 1923.Both notes bore interest at the rate of 8 per cent. per annum before and after maturity.Neither note was paid, but some interest and a small portion of the principal were satisfied.On May 27, 1926, the amount due and unpaid on the two notes was approximately $6,048.20.To secure that unpaid balance, grant the Schrams additional time for the payment thereof, and reduce the interest from 8 to 7 per cent. per annum, appellee consented to, and did, receive from N. W. Schram and Josephine Schram the real estate mortgage now under consideration.This mortgage was duly signed, acknowledged, and recorded.Contained in that mortgage is the following condition and provision concerning the debt secured:

“Provided always and these presents are upon this express condition, that if the said N. W. Schram and Josephine Schram(appellants), his wife, heirs, executors, administrators or assigns, shall pay the said A. N. Finken(appellee), his heirs, executors, administrators, or assigns the sum of Sixty Hundred Forty-eight and 20-100 Dollars on the first day of June, 1929, with interest thereon payable semi-annually at the rate of 7 per cent. per annum, according to the tenor and effect of the one promissory note of N. W. Schram and Josephine Schram payable to A. N. Finken or order, and bearing date May 27, 1926, then these presents to be void, otherwise to remain in full force.(The italics are ours.)”

A note purporting to be the one mentioned in the mortgage was introduced in evidence, but no signatures appear thereon.It seems that this note was prepared for execution at the time the mortgage was drawn up.W. B. Ryan, cashier of the appellant the Farmers' Savings Bank of Earling, at appellee's request, prepared the note and mortgage for the signatures of N. W. and Josephine Schram.When preparing those documents, Ryan found that the total due under the $4,000 and $700 notes, above described, equaled the sum named in the mortgage and unsigned note.After preparing the mortgage and unsigned note, Ryan gave them both to Mr. Schram “to take out for himself and wife to sign.”About one month thereafter Ryan went out to the Schram home, which was on a farm.Mrs. Schram was ill.Later the Schrams came to the Farmers' Savings Bank of Earling, where they signed and acknowledged the mortgage, but for some reason they did not sign the note.By way of explanation, Mr. Ryan, the cashier, declares that Mr. Schram reported to him the note had been lost.Accordingly, the cashier then prepared a duplicate note, but it appears that the Schrams did not sign it.Some delay was caused because of Mrs. Schram's illness, and then the matter seems to have been overlooked.Appellee had a box in the Farmers' Savings Bank of Earling, where he kept the mortgage and unsigned note, together with the $4,000 and $700 notes previously described.

Following the execution and recording of the mortgage, the Schrams paid interest on the debt secured, and asked for an extension of the obligation.During a conversation with appellee, Schram asked that the mortgage be extended and not foreclosed.At no time did the Schrams deny the indebtedness as set forth in, and secured by, the mortgage.Because of the foregoing facts, appellants now say that the mortgage never became operative, for the reason that the note therein named had never been signed.Appellants declare that, without the intended signatures on the note, there could be no completed transaction.As the transaction contemplated a note and mortgage, it is said that the mortgage could not become effective without the note.

In answer to appellants' argument in that regard, appellee maintains that the debt existed and that the mortgage was given to secure the same, regardless of the note.Such are the contentions of the respective parties.That the debt named in the mortgage existed is not disputed.Likewise it is conceded that the $4,000 and $700 notes, above named, are largely unpaid, unless they are absorbed in the mortgage indebtedness.There is no doubt that the Schrams asked for an extension of the obligation, and that appellee consented thereto, providing the mortgage was given.To accomplish that result, the cashier was asked to prepare the mortgage and new note, and obtain the Schrams' signatures thereon.He apparently handled the transaction and kept all the papers in appellee's box at the bank.Regardless of the new note, appellants recognized the mortgage and the indebtedness secured thereby, for they paid interest thereon and asked that there be no foreclosure, as above stated.Additional time under the mortgage was requested by appellants and refused by appellee, as aforesaid.Not only is the foregoing true, but all the defendants in their answer admitted “the execution and delivery of the note and mortgage.”

Manifestly, therefore, the mortgage was given to secure the debt rather than the mere note.A careful reading of the entire instrument settles this fact beyond dispute.If, as we have found, the mortgage was given not merely to secure the note, as such, but rather to protect the debt, as distinguished from the evidence thereof, then, under the facts and circumstances, the mortgage may be a valid contract.Morris v. Linton, 74 Neb. 411, 104 N. W. 927;Lierman v. O'Hara, 153 Wis. 140, 140 N. W. 1057, 44 L. R. A. (N. S.) 1153;Lee et al. v. Fletcher et al., 46 Minn. 49, 48 N. W. 456, 12 L. R. A. 171.See, also, Fetes v....