Frost v. Pacific Sav. Co.

• Decision Date: 08 December 1902
• Citation: 70 P. 814,42 Or. 44
• Parties: FROST et ux. v. PACIFIC SAV. CO.
• Court: Oregon Supreme Court

70 P. 814

42 Or. 44

FROST et ux. v. PACIFIC SAV. CO.

Supreme Court of Oregon

December 8, 1902

Appeal from circuit court, Multnomah county; Arthur L. Frazer Judge.

Action by John B. Frost and wife against the Pacific Savings Company to compel the cancellation of a mortgage. From a judgment in favor of plaintiffs, defendant appeals. Reversed.

This is a suit to compel the cancellation of a mortgage on the ground that the amount secured thereby has been fully paid. The defendant is a California corporation, organized for the purpose and with the power of conducting the business of a building and loan association. On May 16, 1893, one Jason J Covey borrowed of the corporation, at Portland, Or., the sum of $1,000, payable on or before seven years after date, with interest at the rate of 6 per cent. per annum, payable monthly. According to the scheme or plan of the corporation Covey was required, in order to secure the loan, to subscribe for 20 shares of its capital stock, of the par value of $100 a share, to transfer 10 of such shares to it as a bonus or premium on the loan, and the other 10 as security therefor and to pay 60 cents a share each month until the monthly payments and accumulated profits amounted to the par value of the stock, when it was to be surrendered to the corporation in cancellation of the debt. As an additional security for the loan, and to secure the monthly payments on the stock, and all fines and charges that might become due, from him, Covey executed and delivered to the defendant a mortgage on certain real estate in Multnomah county. He thereafter made payments on the loan and on the stock in accordance with his contract, until on or about July 14, 1894, when he sold and conveyed the mortgaged premises to the plaintiff John B. Frost, who assumed and agreed to pay the balance remaining unpaid on the mortgage, deducting from the purchase price of the premises such amount. Frost continued to make payments on the stock and mortgage as stipulated in the original contract between defendant and Covey until December 9, 1898, when it was found and determined between him and the defendant that there was then a balance of $500 due thereon. The original contract, including the stock and mortgage, was thereupon canceled, and a new mortgage given by Frost and his wife on the same premises for the $500 balance due thereon; the company issuing to him the requisite shares of stock, to be matured by monthly payments of 60 cents a share, as stipulated in the contract with Covey. Frost thereafter made payments on the stock issued to him, and on the $500 mortgage, until the amount thereof, together with the sums previously paid on Covey's stock and mortgage, aggregated enough, if credited upon the original loan, to pay the entire debt and interest. The defendant refusing to release the mortgage, this suit was brought for its cancellation, and from a decree rendered in favor of the plaintiffs the defendant appeals.

H.M. Cake, for appellant.

BEAN J. (after stating the facts).

It is conceded that the contract between Covey and the defendant was usurious, under the laws of this state, and that as between the parties thereto, all payments made thereon would go to the extinguishment of the debt. Association v Stanley, 38 Or. 319, 63 P. 489, 84 Am.St.Rep. 793; Savings Co. v. Houston, 38 Or. 377, 65 P. 611; Building Co. v. Hill, 40 Or. 280, 67 P. 103, 56 L.R.A. 163. The contention of the defendant, however, is that Frost, having purchased the mortgaged premises, and assumed and agreed to pay the amount then due on the mortgage, as a part of the purchase price, is not entitled to set up the defense of usury as against such mortgage, although it concedes that payments made after the renewal of the mortgage shall go in extinguishment thereof. The plaintiffs, on the other hand, contend that all payments should be credited on the original loan, and go in satisfaction thereof, whether made by Frost or Covey. The question is thus squarely presented whether a purchaser of mortgaged premises, who assumes and agrees, as a part of the consideration therefor, to pay the debt secured by the mortgage, can afterward interpose the defense of usury against its collection, and thus avail himself of the usurious character of the contract of his grantor. There is, perhaps a want of harmony in the adjudicated cases as to whether a purchaser of the equity of redemption, or one who purchases expressly subject to a mortgage, can set up usury as a defense against the foreclosure thereof. But whatever...