Manchester Gardens v. Great West Life Assur. Co., 11450

• Decision Date: 11 June 1953
• Docket Number: 11451.,No. 11450,11450
• Citation: 92 US App. DC 320,205 F.2d 872
• Parties: MANCHESTER GARDENS, Inc., v. GREAT WEST LIFE ASSUR. CO. et al. GREAT WEST LIFE ASSUR. CO. et al. v. MANCHESTER GARDENS, Inc.
• Court: U.S. Court of Appeals — District of Columbia Circuit

92 US App. DC 320, 205 F.2d 872 (1953)

MANCHESTER GARDENS, Inc., v. GREAT WEST LIFE ASSUR. CO. et al.

GREAT WEST LIFE ASSUR. CO. et al. v. MANCHESTER GARDENS, Inc.

Nos. 11450, 11451.

United States Court of Appeals District of Columbia Circuit.

Argued January 28, 1953.

Decided June 11, 1953.

Petition for Rehearing or Modification of Opinion Denied July 27, 1953.

Mr. Harry Friedman, Washington, D. C., for Manchester Gardens, Inc.

Mr. George Morris Fay, Washington, D. C. with whom Mr. John P. Burke, Washington, D. C., was on the brief, for Great West Life Assur. Co. and Metropolitan Mortgage Co.

Mr. William R. Glendon, Asst. U. S. Atty. at time of argument, Washington, D. C., with whom Messrs. Charles M. Irelan, U. S. Atty. at time of argument, Washington, D. C., and Ross O'Donoghue, Asst. U. S. Atty., Washington, D. C., were on the brief, for Franklin D. Richards. Messrs. Leo A. Rover, U. S. Atty., Joseph M. Howard, Asst. U. S. Atty. at time brief was filed, Washington, D. C., and William E. Kirk, Jr., Asst. U. S. Atty. at time of argument, Washington, D. C., for Franklin D. Richards.

Before PRETTYMAN, BAZELON, and WASHINGTON, Circuit Judges.

WASHINGTON, Circuit Judge.

No. 11450. This is a controversy between mortgagor and mortgagee. It grows out of the mortgagor's desire to receive interest on certain of its funds accumulated in the hands of the mortgagee, in accordance with the terms of their financing transaction, to assure the payment of taxes, insurance and the like.

The mortgagor, Manchester Gardens, Inc., contracted in the mortgage deed of trust to make monthly payments into two reserves to cover (1) the annual mortgage insurance premiums assessed by the Federal Housing Commissioner, (2) the sums periodically due on fire and other insurance, ground rents, water rates, taxes, and assessments.¹ And the mortgagor's corporate charter in effect calls upon it to make monthly payments into a third reserve to cover the replacement of certain mechanical and other equipment.² After making numerous monthly payments into these three reserves, the mortgagor claimed entitlement to interest on these funds while they are in the hands of the mortgagee. The mortgagee disputed this claim and the mortgagor thereupon filed the present suit for a declaratory judgment, damages, and an injunction against foreclosure in the United States District Court for the District of Columbia.³

The District Court decided that no interest was payable on the sums accumulated in the reserves numbered (1) and (2) above. It thereupon dismissed the mortgagor's complaint in its entirety, without deciding the question of interest on the third reserve and "without prejudice to the right of the plaintiff to assert claim for interest" on this reserve. The court evidently felt that the principal question before it was whether the plaintiff should be granted equitable relief as to future monthly payments into the reserves, and that the question of law as to plaintiff's right to interest on the replacement fund already accumulated could be settled in a later suit.⁴ We do not think this was a sufficient reason for not deciding an issue clearly presented by the pleadings. While the granting of declaratory relief is largely within the discretion of the court,⁵ we think that where a court decides some of the issues in a case it should not decline (without good reason) to decide related issues which are ripe for decision and which may otherwise simply give rise to further litigation. Cf. Ward v. Deavers, 1953, 92 U.S.App.D.C. ___, 203 F.2d 72. We find no such reason here.

In the circumstances, it would no doubt be proper to remand the case for determination of this issue, relative to the third fund, by the District Court. But since the question is one of law and has been briefed and argued here on an adequate record, we think it preferable to decide it here. We shall deal with it at the outset.

The reserve for replacements is established in the corporate charter of the mortgagor. By its provisions —

"SIXTH (f) Anything to the contrary herein notwithstanding, no dividends shall be paid upon any of the capital stock of the corporation * * * until a reserve fund for replacements is first established and maintained by the allocation to such reserve fund in a separate account with the mortgagee (or in the case of a deed of trust with the beneficiary) or in a safe and responsible depository designated by the mortgagee * * * of an amount equal to One Hundred Twenty-Three Dollars and Sixty-Seven Cents ($123.67) and a like amount monthly thereafter. Such fund, whether in the form of a cash deposit or invested in obligations of, or obligations fully guaranteed as to principal and interest by the United States of America, shall at all times be under the control of the mortgagee. * * *"

We think that under this language the mortgagor has a clear choice, exclusive of other alternatives: it can make a cash deposit, or it can deposit with the mortgagee obligations issued by the United States or fully guaranteed by it as to principal and interest. It cannot, if it chooses to make a cash deposit, require the mortgagee to pay it interest at the legal rate. There is no showing that any of the parties to this financing transaction contemplated such a possibility. No more does the mortgagor comply with the charter provision if it makes a cash deposit in an institution of its own choosing — a local building association — and hands the passbook over to the mortgagee, as was attempted in this case. The language of the charter simply does not authorize such a procedure.⁶ The passbook is plainly not the exact equivalent of cash. And nothing in the record indicates that it is a substantial equivalent, so as to produce a fund "at all times * * * under the control of the mortgagee." Nor does a passbook in a building association fall within the category of obligations fully guaranteed by the United States as to principal and interest, even if deposits made therein are insured as to principal (only) by the Federal Savings and Loan Insurance Corporation, an agency of the United States.

As to the first two reserves, established by the deed of trust, we agree with the District Court that the mortgagor is not entitled to interest, either on the funds already accumulated or on future monthly payments. The charter provision expressly gives the mortgagor the opportunity to secure interest on the funds in the replacement reserve by depositing obligations of a described category. In contrast, the deed of trust is altogether silent on the question of interest. The reserves provided for in that deed are small in size and regularly emptied. They were established under the terms of a detailed financial contract, entered into as a result of arms-length negotiation. The contract contains full provision for the computation and disposition of these reserves and for the consequences of failure to make the required payments into them. Under the circumstances, it is scarcely credible that the parties understood that the reserves were to carry interest but neglected to express their understanding. More than this, we think the parties' conspicuous failure to provide expressly that interest should be paid is, under the circumstances of this case, equivalent to an agreement that it should not be paid.⁷ In other situations there may perhaps be room for recovery of interest on some nonconsensual basis, such as unjust enrichment of the person holding the funds or the other party's deprivation of their use.⁸ But no such basis of liability for interest can exist in a case like the present, where the parties must be held to have agreed that interest shall not be paid.

Another grievance stated in the complaint related to the mortgagee's failure to protest certain taxes paid by it from the reserves. This will be dealt with in the concluding portions of this opinion.

No. 11,451. In a cross-appeal, the mortgagee seeks attorney's fees in respect of the present litigation. It relies on a covenant of the deed of trust that the mortgagor is to pay "all costs and expenses and attorney's fees * * * of the Trustee and of the Beneficiary mortgagee in case of any litigation involving this property * * *," as well as on a recital in the preamble that the deed was designed, inter alia, to secure the reimbursement to the Trustee and Beneficiary of "any and all costs and expenses (including reasonable attorney's fees) incurred or paid on account of any litigation at law or in equity which may arise in respect to this Trust, or to the indebtedness or to the property herein mentioned * * *."⁹

The claim for attorney's fees was not raised on the pleadings. After the District Court had announced its intention to dismiss the complaint, the defendant mortgagee submitted a proposed order to that effect which included a clause directing the plaintiff to pay defendants' attorney's fees. After extended argument on the point, the District Court entered an order which dismissed the complaint, "without prejudice to the right of the defendants' attorneys to assert claim for attorneys fees as provided for in the deed of trust." J.A. 44.

We think the court should have ruled on the claim for fees. The issue appears to have been as fully tried as possible, with the implied consent of the parties,¹⁰ despite the fact that it was not raised by the pleadings; under the circumstances, the fact that it was not so raised is immaterial. Fed.R.Civ.P. rule 15(b), 28 U.S.C.A. Here again we think it appropriate to express our views on the question of law presented, as it has been fully briefed in this court.

The instant litigation seems clearly covered by the literal language of the covenant: it obviously "involved" the property mortgaged, insofar as plaintiff sought to restrain foreclosure on the property, and asked "That the court require defendant mortgagee to pay taxes on it under protest * * *." And plaintiff's demands that defendant be...