Home Owners' Loan Corporation v. The Bank of Arizona

• Decision Date: 02 October 1939
• Docket Number: 4051
• Citation: 54 Ariz. 146,94 P.2d 437
• Parties: HOME OWNERS' LOAN CORPORATION, a Corporation, Appellant, v. THE BANK OF ARIZONA, a Corporation, Appellee
• Court: Arizona Supreme Court

94 P.2d 437

54 Ariz. 146

HOME OWNERS' LOAN CORPORATION, a Corporation, Appellant, v. THE BANK OF ARIZONA, a Corporation, Appellee

No. 4051

Supreme Court of Arizona

October 2, 1939

APPEAL from a judgment of the Superior Court of the County of Yavapai. Richard Lamson, Judge. Judgment modified and affirmed.

M. L Ollerton and Patterson & Eastvold, for Appellant.

Favour & Baker and A. M. Crawford, for Appellee, and Ellinwood &amp Ross and Everett M. Ross, Associate Counsel.

OPINION

ROSS, C.J.

This action was brought by The Bank of Arizona as plaintiff to compel an exchange of deeds on the ground of mutual mistake occurring in the manner hereinafter stated. It is against the personal representative of Frank C. and A. R. Alatorre, husband and wife, both deceased, and the Home Owners' Loan Corporation.

The facts as alleged in the complaint are, in substance, as follows: On December 31, 1931, the Alatorres were the owners of lots 33, 34, 35, 36 and 37 in block 9 of the Town of Jerome, Yavapai County, subject to an overdue mortgage for $5,812.90 held by The Bank of Arizona. On that date, in satisfaction of the mortgage, the Alatorres conveyed to the bank such real estate with an agreement that in the event they should pay the bank the amount then due at any time prior to a resale, the bank would reconvey the property to them. The lots had houses on them, particularly lots 37 and 33, and the Alatorres occupied the house on lot 33. They requested the bank to reconvey to them the house and lot on which they lived, and offered to pay or deliver to the bank the amount of bonds the HOLC would loan on said property in satisfaction of their obligation to the bank. The bank agreed to re-deed to the Alatorres the house occupied by them, but the deed which was later executed by the bank, instead of being for lot 33, was, through the fault of the bank or the Alatorres or the scrivener, for lot 37. The deed to the Alatorres, it is alleged, should have been of lot 33, and the mortgage to the HOLC should have been of lot 33; that the Alatorres intended the deed from the bank to them should be for lot 33 and the HOLC intended that its mortgage should be against said lot 33.

It is alleged that the HOLC's agent inspected lot 33 and the improvements thereon and appraised such lot for the purposes of the loan, and that the HOLC believed that such lot and improvements was the property which was being mortgaged to it; that the Alatorres thought they were mortgaging said lot 33, and that the bank believed it had deeded said lot to the Alatorres; that the transaction in which the bank deeded to the Alatorres lot 37 instead of lot 33 took place on February 27, 1934, and the transaction in which the Alatorres mortgaged lot 37 instead of lot 33 took place on April 20, 1934. It is alleged that under date of February 2, 1937, the HOLC acquired title to lot 37 through foreclosure and sale under its mortgage; that the deeding of lot 37 to the Alatorres by the bank was a mistake, as was also the mortgaging of such lot to the HOLC; that all the parties believed they were dealing with lot 33, and that the mistake was mutual.

Before bringing suit, appellee tendered a deed of lot 33 to the HOLC and demanded that the HOLC re-deed lot 37 to it. The relief asked is that an exchange of deeds be decreed, each party giving to the other good title with taxes paid to date of exchange.

Both the Alatorres had died in the meantime and their sole heir, Cuquita A. Rodriguez, was appointed their administratrix. Such personal representative, although served with summons, filed no answer to the complaint and judgment was entered against her in her representative capacity as also as sole heir.

The HOLC's defense consists of a special and general demurrer and an answer. The special demurrer is on the ground that two causes of action are improperly united, and the general demurrer is that the complaint does not state facts sufficient to constitute a cause of action against the defendant. The answer is one of denials of the material allegations of the complaint, and also an affirmation:

"That if there was any such mutual mistake as alleged in plaintiff's complaint, or any mistake at all herein plaintiff has long since waived the same and ratified its said deed and acts by which, in 1934 as herein stated, it conveyed the above described property to said Frank Alatorre and A. R. Alatorre, his wife. That plaintiff knew, or might by the exercise of reasonable diligence have known, all the facts relative to such mutual mistake, if any, in 1934 at the time plaintiff gave said deed to said Frank Alatorre and A. R. Alatorre, his wife. That plaintiff is guilty of negligence in not having asserted its present claims at once after execution of said deed."

In 1937 the HOLC foreclosed its mortgage on lot 37 and in due course, on August 24, 1937, the period of redemption having expired, received a sheriff's deed thereto. Thereafter, on December 23, 1937, this suit was filed.

Before the HOLC would let the Alatorres have the loan and deliver its bonds to the bank, it required that the title thereto be guaranteed and, accordingly, the bank secured such guaranty from the Guarantee Title & Trust Company, an Arizona corporation.

There also appears in the record a quitclaim deed of lot 33 from the United Verde Extension Mining Company to the Alatorres reciting generally that its acceptance by the Alatorres would be a surrender of certain lateral support. The trial court held that, since the Alatorres deraigned title from one G. W. Hull, this deed would not affect their title. The evidence does not show under what circumstances such deed was executed.

The demurrers were overruled and after a trial the court rendered judgment in favor of the plaintiff and directed defendant to convey to plaintiff lot 37 with good and sufficient title and taxes paid up to and including the year 1937, and that plaintiff convey to defendant lot 33 and the southerly six feet of lot 34 adjoining lot 33, with good and sufficient title and taxes paid for the same period.

The defendant has appealed and by its assignments has raised certain propositions of law which it contends require that the judgment of the lower court be reversed.

We will not undertake to follow the appellant's assignments for the reason that we think they may be considered and disposed of under a few general headings.

The court's action in overruling the special demurrer is assigned as error. We cannot see wherein the complaint states, as claimed, two causes of action. If it does anything, it states one cause of action against two defendants, the Alatorres and the HOLC. It should be remembered that the very nature of the transaction involved three parties; the home owner, the owner of the encumbrance on the home, and the HOLC, from which it was expected to get a loan. We take notice the latter is a relief agency organized under the authority of the Home Owners' Loan Act (48 Stat. 128; 12 U.S.C.A., § 1461 et seq.) to help distressed home owners in saving their homes. Chaves County Building & Loan Assn. v. Hodges, 40 N.M. 326, 59 P.2d 671. The arrangement required that the owner of the encumbrance agree with the home owner and the HOLC that it would accept the latter's bonds, in the amount it was willing to advance to the home owner to free his home from debt. In this arrangement there must be a meeting of the minds of the three parties concerned as to the property to be saved for the home owner, the amount of the HOLC's bonds necessary for that purpose, and other minor details.

The mistake alleged touches the whole transaction, beginning with the bank's deed to the Alatorres and ending with the mortgage to the HOLC, and to settle the matter it was necessary that all parties to the transaction be made parties to the suit. The complaint states but one cause of action.

The court's action in overruling the general demurrer is also assigned. This involves the sufficiency of the facts alleged to constitute a ground for the exchange of deeds as prayed for. The basis for such exchange is that the parties by common mistake, free of fraud and deceit, dealt with lot 37 instead of lot 33 as intended by all of them. The action is highly equitable in its nature, its purpose being to see, if possible, that all parties give and get exactly what they agreed to give and receive. It is essential, therefore, that the terms of the agreement, whether written or oral, should be alleged in the complaint, and also how such terms were departed from in the execution of the agreement. If the facts alleged clearly show the parties by mutual mistake in the performance of their agreement departed from its terms by misdescribing the subject matter, in the absence of superior equities pointing in a different direction, the complaint is sufficient. A mutual mistake is defined in 53 Corpus Juris, 941, section 59, as follows:

"Where mistake alone is relied on as a ground for the reformation of an instrument, the mistake must be a mutual mistake. It must appear that by reason of the mistake both have done what neither intended, that is the contract must be written in terms which violate the understanding of both parties, and the mistake must be in reference to the same matter. But where all the proper elements exist, that is a valid agreement between the parties and an instrument failing adequately to express the same, because of a material mistake which is...