Hubbard v. Robert B. Wallace Co.

CourtUnited States State Supreme Court of Iowa
Citation208 N.W. 730,201 Iowa 1143
Docket NumberNo. 36653.,36653.
Decision Date07 May 1926


Appeal from District Court, Pottawattamie County; Tom C. Whitmore, Judge.

The plaintiffs are husband and wife, and bring this action in equity, praying the cancellation of a certain note and mortgage executed to the Robert B. Wallace Company, Inc., of Council Bluffs, Iowa, on May 8, 1923, and by the said company transferred to the United States Trust Company of Omaha, Neb. and by the latter to the Metropolitan Life Insurance Company of New York, upon the grounds of fraud and of a partial failure of consideration, and to quiet title to the mortgaged premises against all of the above-named corporations, defendants herein. The Life Insurance Company alone appeared and filed answer. A decree was entered for plaintiffs, as prayed, and the insurance company appeals. Affirmed.Morsman, Maxwell & Haggart, of Omaha, Neb., and Tinley, Mitchell, Ross & Mitchell, of Council Bluffs, for appellant.

Robertson & Robertson, of Council Bluffs, for appellees.


The Robert B. Wallace Company, Inc., was for many years engaged in the loan and insurance business in Council Bluffs, Iowa. For two years preceding the transaction involved in this action George A. Hubbard was engaged in the business of a general contractor and builder, purchasing vacant lots, and erecting buildings thereon for the purpose of sale. To aid him in carrying on said business he procured loans on the property to be improved on a 15-year semiannual amortization plan. On or about March 1, 1923, he made application in writing to the Wallace Company for a loan of $4,500, proposing to secure the payment thereof by mortgage upon the lots involved herein. Later, he sold a portion of this real estate, and, on May 8, 1923, with his wife, executed a note for $3,000, payable to the Wallace Company, together with a mortgage upon the remaining property to secure the payment thereof. On the following day a new application was signed by George A. Hubbard alone for the loan. The note provided for the payment of interest semiannually at the rate of 6 per cent., and for the principal in monthly installments of $90; the note maturing finally September 1, 1938. The plan upon which the loan was made contemplated the payment of the $3,000 to appellees in installments as the building progressed, the final payment not to be made until it was wholly completed. This, as we gather from the record, is the plan upon which loans of the character above mentioned are customarily made. On July 9, 1923, the note and mortgage were transferred by the Wallace Company to the United States Trust Company of Omaha, Neb., and, on the following day, the trust company transferred the same to appellant. These transfers were accomplished by indorsements on the back of the note without recourse, and by written assignments of the mortgage in the usual form, both of which were simultaneously filed for record in the office of the county recorder of Pottawattamie county.

Robert Wallace, who was president of the Wallace Company, died August 29th. It was then, or shortly thereafter, discovered that the company was insolvent. The $3,000 was paid by the trust company to the Wallace Company as follows: $1,400 in May, and the balance in June, 1923. The court found in its decree that the total amount disbursed by the Wallace Company to or for appellees under the terms and provisions of the loan was $745. This sum, with interest, was tendered by them in open court and in writing to the party found by the court to be entitled thereto. The payments made to appellees by the Wallace Company were as follows: $300 in cash, and the balance upon orders delivered to laborers and materialmen, employed upon the building and drawn on the Wallace Company, or for other purposes fully authorized by the application. Payment of one order for $1,400 was declined by the Wallace Company.

On August 31st, two days after the death of Robert B. Wallace, this action was commenced for the cancellation of the note and mortgage. Three defenses were interposed by the Metropolitan Life Insurance Company, appellant, all of which are urged by counsel upon this appeal.

I. Appellant alleges that it purchased the note and mortgage of the United States Trust Company in due course without notice of any defects in the title of the holder thereof, and that it paid full value therefor. It is not claimed that appellants did not pay full value for the note, but it is contended by appellees that it is nonnegotiable, and subject to all of the defenses that might have been urged against it, if action were brought thereon in the name of the original payee. The mortgage which, by specific provisions of the note, was made a part thereof contained the following provisions:

“In the event the parties of the first part, their heirs, executors, administrators, successors or assigns, shall for any reason fail to keep the said premises so insured or fail to deliver the policies of insurance to the said party of the second part, if it so elects, may have such insurance written and pay the premiums thereon, and any premiums so paid shall be secured by this mortgage and repaid by the parties of the first part, their heirs, executors, administrators, successors or assigns, within ten days after payment by the party of the second part. In default thereof, the whole principal sum and interest and insurance premium with interest on such sum paid for such insurance from the date of payment may be and shall become due at the election of the said party of the second part, its successors or assigns, anything herein to the contrary notwithstanding. * * *

And it is further mutually covenanted and agreed by said parties that in default of the payment by said parties of the first part of all or any taxes, charges and assessments, which may be imposed by law upon the said mortgaged premises or any part thereof, it shall and may be lawful for the said party of the second part, its successors, legal representatives and assigns, to pay the amount of any such tax, charge or assessment, with any expenses attending the same; and any amounts so paid the parties of the first part shall repay to the said party of the second part, its successors, legal representatives or assigns, on demand, with interest thereon, and the same shall be a lien on the said premises and be secured by the said note and by these presents, and the whole amount hereby secured if not then due shall thereupon, if the said party of the second part so elects, become due and payable forthwith. And the said parties of the first part do further covenant and agree that they will execute or procure any further necessary assurance of the title to said premises and will forever warrant said title.”

The mortgage further provided for the payment of the expense of collection in the event an action should be commenced thereon, including reasonable attorney fees and the expense of an abstract. The particular provisions of the mortgage, which, it is claimed, destroy the negotiability of the note, are those authorizing the holder to pay taxes, assessments, and insurance upon the property, if appellees should default therein, making the same a lien upon the property, and authorizing recovery thereof in an action against the makers to foreclose the mortgage and the further provision accelerating the maturity of the note. It is urged that these provisions of the mortgage which, by the terms of the note, are incorporated therein render uncertain and indefinite the amount which the maker promises to pay, and also the time of payment.

[1][2][3] The first question we shall discuss has not previously been decided by this court. It is the rule, well settled in this state, that instruments relating to the same transaction and contemporaneously executed will be construed together. Swearingen v. Lahner & Platt, 61 N. W. 431, 93 Iowa, 147, 26 L. R. A. 765, 57 Am. St. Rep. 261;Bank v. Arthur, 143 N. W. 556, 163 Iowa, 205, Ann. Cas. 1916C, 498; Lundean v. Hamilton, 169 N. W. 208, 184 Iowa, 907. This is the rule in other jurisdictions. Frost v. Fisher, 58 P. 872, 13 Colo. App. 322. Nevertheless, it was held in Bank v. Arthur, supra, that the negotiability of a note was not affected by the provision in a mortgage executed to secure the payment thereof which authorized the mortgagee to pay the taxes on the mortgaged premises and to recover the same of the mortgagor. The doctrine of these cases is not applicable to the present controversy, for the very obvious reason that the note in question, by its specific terms, incorporates in and makes every provision of the mortgage a part thereof. The proposition here urged by appellant must be disposed of in exactly the same manner, and upon the same principle, as it would if the provisions of the mortgage above set out were written in the body of the note. If a note containing identical provisions would be nonnegotiable, then the note in question must be. It is true that the note on its face expresses a definite amount, and also a definite time of payment. Does the provision of the mortgage relating to taxes, assessments, and insurance, the exact amount of which it is impossible to foresee, give rise to such uncertainty as to destroy negotiability? The mere statement of the proposition would seem to answer the inquiry in the affirmative. The court referred to, but reserved, this question for the future in Bank v. Arthur, supra, and, as it has not been previously decided by this court, we must look to the authorities in other jurisdictions in which the Uniform Negotiable Instrument Law has been enacted. It is not only provided by statute, but apparently universally held, that a promise to pay is not rendered conditional by a statement in the note of the transaction which gave rise to its execution. Section 9463, Code 1924; King Cattle Co. v. Joseph, 198 N. W....

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