Leavitt v. Reynolds

• Decision Date: 05 February 1890
• Parties: LEAVITT ET AL. v. REYNOLDS.
• Court: Iowa Supreme Court

79 Iowa 348

44 N.W. 567

LEAVITT ET AL.

v.REYNOLDS.

Supreme Court of Iowa.

Feb. 5, 1890.

Appeal from district court, Black Hawk county; C. F. COUCH, Judge.

On July 14, 1885, Nellie Goodwin and her husband executed and delivered to E. W. Burnham a mortgage for $3,100, covering what is known as “Burnham's Opera-House,” in Waterloo, Iowa, and securing the payment of three promissory notes, as follows: One for $1,000, due August 1, 1886; one for $1,000, due August 1, 1887; and one for $1,100, due August 1, 1888. Mr. Burnham soon thereafter sold the two notes first named to the plaintiffs, Leavitt & Johnson, with proper indorsements, and about the same time sold the third or $1,100 note to the intervenor, J. M. Reynolds, Jr. The first note was not paid when due, but one year's interest was paid on all of the notes. The second not being met when due, the plaintiffs in September, 1887, commenced this proceeding to foreclose said mortgage, and demanded that their lien be the first and prior lien on the mortgaged property, and that their notes be paid in full from the sale of the mortgaged premises. On October 10, 1887, the intervenor, who is the appellant herein, filed his petition of intervention, setting forth the fact that he is owner and holder of the third note, and that the same then was, by the terms and conditions of said mortgage, due and payable; it being provided in said mortgage: “But should said party of the first part fail to pay said notes or the interest when due, or fail to keep said property insured, as above provided, then the whole sum remaining unpaid shall become due, and this mortgage may be foreclosed.”That by virtue of such provision said third note became due upon default made in the payment of the first notes, causing the whole debt to at once become due at the time of such default. The petition of the intervenor asks that he have judgment for the amount due upon his note, and that upon sale of the mortgaged premises the proceeds thereof be divided pro rata between the holders of the several notes, and that plaintiffs' claim to priority be denied, and that the intervenor's right in the mortgaged premises be decreed equal to that of the plaintiffs. To this petition of the intervenor plaintiff demurred. The court sustained the demurrer, and denied to intervenor the pro rata distribution asked in the petition, and entered judgment against him for costs of intervention. From this ruling and judgment the intervenor appeals.Mullan & Hoff, for appellant.

O. C. Miller, for appellees.

GIVEN, J.

1. Different rules are observed in different states in applying the security, when several obligations falling due at different times are secured by the same mortgage. The states of New York, New Jersey, Pennsylvania, Minnesota, Kentucky, and others, have adopted what is termed the “ pro rata theory;” that is, the security is divided among the holders of the different obligations, according to the sums due thereon, neither having priority over the other. In this state, and in Ohio, Indiana, Illinois, Alabama, and some other states, the pro tanto or priority rule is followed, under which the notes first maturing are treated as prior, and to be first paid in full out of the security. Isett v. Lucas, 17 Iowa, 503, and cases therein cited. There is some discussion as to the respective merits of these rules. While much can be said for and against either, we deem it of more importance that the one adopted in the state shall be...