Local Federal Sav. & Loan Ass'n of Oklahoma City v. Sheets
| Decision Date | 29 September 1942 |
| Docket Number | 30419. |
| Citation | 130 P.2d 825,191 Okla. 439,1942 OK 312 |
| Parties | LOCAL FEDERAL SAVINGS & LOAN ASS'N OF OKLAHOMA CITY v. SHEETS et ux. |
| Court | Oklahoma Supreme Court |
Rehearing Denied Nov. 17, 1942.
Syllabus by the Court.
1. Where the Home Owners' Loan Corporation refunded mortgage indebtedness without knowledge that the creditor was taking from the debtor a second mortgage for the difference between the proceeds of the loan and the amount of the debt refunded second mortgage is invalid and unenforceable.
2. The rule that parties to a contract tainted with illegality will not be granted relief does not obtain where public policy requires that relief be granted.
3. Money paid under an illegal contract may be recovered when the illegality grows out of a law designed for the protection of the party seeking recovery.
Appeal from District Court, Oklahoma County; Albert C. Hunt, Judge.
Action by R. B. Sheets and wife against the Local Federal Savings & Loan Association of Oklahoma City to cancel a second mortgage on realty and to recover money previously paid in partial satisfaction of debt secured by the mortgage, wherein the defendant filed cross-petition to foreclose the mortgage. From an adverse judgment, defendant appeals.
Affirmed.
Everest McKenzie & Gibbens, of Oklahoma City, for plaintiff in error.
Carmon C. Harris and Frank W. Jones, both of Oklahoma City, for defendants in error.
This is an action to cancel a second mortgage on real estate and to recover money previously paid in partial satisfaction of the debt secured by the mortgage. It was instituted in the District Court of Oklahoma County by R. B. Sheets and Letha Mary Sheets, husband and wife, against the Local Federal Savings and Loan Association of Oklahoma City, on the sixth day of April, 1940.
Issues were framed by appropriate pleadings in which the defendant not only sought to defeat plaintiffs' action but also in a cross petition sought to foreclose its mortgage. The cause was tried to the court without the intervention of a jury. Judgment was rendered on February 14, 1941, cancelling the second mortgage and awarding a recovery of the money previously paid in partial satisfaction of the mortgage debt.
The defendant savings and loan association has appealed appearing herein as plaintiff in error. The order of appearance in this court is thus reversed; however, our continued reference to the parties will be by their trial court designation.
The second mortgage herein involved was connected with a transaction in which a former mortgage had been refinanced by the Home Owners' Loan Corporation (hereinafter referred to as the HOLC). The second mortgage was taken by the original mortgagee.
The trial court concluded that the second mortgage was invalid upon consideration of the rule announced by this court in Local Federal Savings & Loan Association of Oklahoma City v. Harris, 188 Okl. 214, 107 P.2d 1012. We therein said in the syllabus: "Where the Home Owners' Loan Corporation refunded mortgage indebtedness without knowledge that the creditor was taking from the debtor a second mortgage for the difference between the proceeds of the loan and the amount of the debt refunded, such second mortgage is invalid and unenforceable."
In presenting this case on appeal the defendant first asserts "If the note and mortgage security held by plaintiff in error in which it sought to foreclose in its cross petition was not taken in violation of the Act of Congress creating the Home Owners' Loan Corporation, it was entitled to a judgment against defendants in error and to a decree foreclosing its mortgage." In connection with this proposition defendant first takes the position that the second mortgage herein involved did not violate the rule of the HOLC, nor defeat the spirit and purpose of the act. The facts which present this proposition are:
In July of 1932 Letha Mary Elkins married R. B. Sheets. At the time of her marriage she was the owner of the real estate involved in this action. She had previously (on July 22, 1930) executed a mortgage to the defendant corporation which mortgage, or rather the debt secured thereby, was delinquent at the time of her marriage. Mr. Sheets was not aware of the delinquency at the time but found out about it sometime in 1933. In the latter part of 1933 they made application for a loan to the HOLC to be closed January 31, 1934. At that time the amount due the defendant corporation was $2,715.21. After some investigation of the matter on the part of the HOLC the latter declined to make the loan.
Subsequently, beginning in March of 1934, negotiations were renewed. It was then known to the parties to this litigation that the approval of the property as made by the HOLC and the requirements of the latter corporation with reference to the property, together with the expense of making a loan, were such that the proceeds of the contemplated loan would be insufficient to meet the full amount of the mortgage debt due the defendant corporation. In order to satisfy this deficiency it was agreed between the parties that the deficiency or difference would be taken care of by means of a second mortgage on the premises. Thereafter negotiations were carried forward with the HOLC and the loan consummated. The proceeds of the loan in the aggregate sum of $2,401.26, mostly in bonds ($2,375), were delivered to the defendant corporation which released its then existing mortgage. The note and mortgage to the HOLC were executed on July 13, 1934. Thereafter, on July 23, 1934, Mr. and Mrs. Sheets executed to the defendant association their note for $363.94 and second mortgage securing the same. Later the note was succeeded by another note for $400 secured in the same manner.
The question of knowledge on the part of the HOLC of the contemplated and subsequently executed second mortgage is the subject of some discussion in the briefs.
An examination of the record on this point discloses that the HOLC was advised that arrangements were made between the mortgagors and the defendant corporation "for any difference there may be in the proceeds of the loan and the amount due" the defendant corporation. However, the record does not disclose that the HOLC was advised that a second mortgage loan on the premises was the means agreed upon. If such an arrangement can be assumed to have been intimated by the correspondence, it is certain that the details of the arrangement were not submitted for approval.
The notification to...
To continue reading
Request your trial