Mayer v. Bassett

• Decision Date: 09 October 1972
• Citation: 501 P.2d 782,263 Or. 334
• Parties: Donald J. MAYER, Plaintiff, Audrey Kleinknecht, Appellant, v. Alton John BASSETT, Respondent.
• Court: Oregon Supreme Court

Page 782

501 P.2d 782

263 Or. 334

Donald J. MAYER, Plaintiff Audrey Kleinknecht, Appellant, v. Alton John BASSETT, Respondent.

Supreme Court of Oregon, In Banc.

Argued and Submitted May 8, 1972.

Decided Oct. 9, 1972.

Michael J. Esler, Portland, argued the cause for appellant. With him on the brief were David W. Harper, and Keane, Haessler, Harper, Pearlman & Copeland, Portland.

James O. Goodwin, Oregon City, argued the cause for respondent. With him on the brief were Jack, Goodwin & Anicker, Oregon City.

BRYSON, Justice.

This is a suit by Donald J. Mayer, assignor, and Audrey Kleinknecht, assignee, to reform and foreclose a second mortgage executed by defendant on real property in Clackamas County, Oregon. The defendant's answer alleges no delivery of the mortgage by defendant to Mayer and certain set-offs against plaintiff Mayer.

Plaintiff Mayer assigned the mortgage to the Community Bank, which in turn assigned it to plaintiff Kleinknecht, presumably for collection or suit. After Kleinknecht brought suit, defendant joined Mayer as a necessary party plaintiff, claiming set-offs against Mayer, assignor of the mortgage. Mayer is not a party to this appeal.

The origin of the second mortgage is as follows: Defendant Bassett, plaintiff Mayer and Elwyn Boly, deceased, entered into a partnership or joint business venture to invest in certain enterprises. Defendant devoted considerable time on behalf of these enterprises. As a partner, he was handicapped in these efforts by his indebtedness in the amount of $16,000 for state and federal income taxes and demands of miscellaneous creditors. At this time, Mayer had a substantial financial interest in Sawyers Viewmaster Company. When that company merged with GAF Corporation, Mayer became interested in securing more shares of GAF Corporation stock. However, he was prevented from purchasing additional GAF Corporation shares in his name by securities regulations concerning insider trading.

To free defendant of his debts, Mayer, on November 30, 1965, pledged some of his own shares of GAF Corporation as security for a bank loan of $16,000 to defendant. On March 25, 1966, the same bank advanced $25,000 to defendant, which was used to purchase GAF shares in the name of the defendant. These shares and other securities belonging to Mayer were pledged as security for the second loan. Both of the loans and the stock purchase were negotiated in defendant's name.

Defendant and Mayer anticipated that defendant's profits from the partnership would be sufficient to repay the bank loan. They orally agreed that defendant's profits, if any, would be used to satisfy the $16,000 loan. ¹ However, the profits failed to materialize. Defendant failed to make payments on the principal or interest of this loan. Eventually the bank called the loan and sold the Mayer stock which they held as collateral on the $16,000 loan to defendant.

The evidence discloses that the mortgage was prepared and executed by defendant on December 23, 1965, and that he recorded the same on May 17, 1966, but retained possession of it. The defendant alleged that the mortgage was not delivered to plaintiff Mayer and contends it is not a valid mortgage. Mayer testified that the defendant did not 'actually deliver the mortgage paper to my hands, but I did know that it had been filed and that it was in my benefit.' The defendant testified, 'I don't really know that Mr. Mayer ever knew about it (mortgage), I don't think so.'

In the recent case of Reed v. Reed, 94 Or.Adv.Sh. 332, 333, 493 P.2d 728, 729 (1972), the grantors prepared and recorded a deed and thereafter retained the deed in their possession. We held '* * * (t)he recording of the deed created a presumption of delivery which was not rebutted by plaintiff's evidence * * * (Citations omitted).' We conclude that the defendant's evidence in this case did not overcome the presumption of delivery of the mortgage. The mortgage between Mayer and defendant was valid.

A more difficult issue is presented in determining the purpose intended by the giving of the mortgage and how it was to be satisfied. Both parties agree there was no note prepared or delivered evidencing the loan. The face of the mortgage recites that defendant, on demand, promised to pay $16,000 to Mayer. There is no provision for payment of interest or attorney fees.

Mayer testified that at the time the $16,000 loan was negotiated, 'we did discuss that he would protect me in a second mortgage on his house, in case something happened to him, in the event he couldn't finance his home, at a later date if we paid some of the other ventures and it became due rather than me having to sacrifice my stock he would do that to pay off the loan.' According to Bassett, Mayer had expressed concern over the fact that their agreement with respect to Mayer's priority right to defendant's partnership profits was not expressed in writing. Bassett stated that he had suggested the mortgage merely as a memorial of this priority agreement. Thus, according to Bassett, the mortgage was not intended to be a security device.

The issue presented is whether this mortgage was intended as security to protect Mayer in the event of defendant's default in payment of the $16,000 loan from the bank, which was secured by the pledge of Mayer's stock. A cardinal rule in the construction of legal instruments between parties is to ascertain the intention of the parties. In Meier v. Kelly, 20 Or. 86, 93, 25 P. 73, 76 (1890), we stated, '(I)n our construction of the mortgage we are confined to the intention of the parties, as gathered from its contents.' Cited with approval in Harvey v. Campbell, 107 Or. 373, 433, 214 P. 348 (1923). Also, 'in construing a mortgage the court will not, unless constrained to do so by the terms of the instrument considered in the light of the surrounding circumstances, give to it such interpretation as would make it void.' 55 Am.Jur.2d 303, Mortgages § 175. When read in light of these rules, the mortgage suggests that it was drawn as security for a debt. It contains no language indicating that the mortgage was intended merely to acknowledge Mayer's priority right to defendant's partnership profits.

The defendant's amended answer alleged 'that said alleged mortgage was executed to secure a loan to defendant from plaintiff Mayer * * *,' but contended the loan was to be repaid from partnership assets. At the time of trial the defendant attempted to retract this admission found in his pleadings. On cross-examination he was asked:

'Q Now, I note in the amended answer, you also state on page one that the mortgage was executed to secure a loan to the defendant from the plaintiff Mayer, you said that right in your pleadings in the answer on page two, page one of the amended answer.

'A I shouldn't have.

'* * *.

'A I signed that answer, I don't think that we are using that term in the same sense. The mortgage was not executed for that purpose * * *.'

It is difficult to conceive how the defendant could misjudge the legal effect of the mortgage which he prepared and recorded. He had practiced law in Oregon for many years. If he desired simply to memorialize a prior agreement with Mayer, the use of an unambiguous mortgage for such a purpose was certainly a curious vehicle. The defendant should not be allowed to escape liability under the terms of a mortgage because of his own imperfect explanation of his intentions. Cf. King v. Holbrook, 38 Or. 452, 63 P. 651 (1901), and Manley v. Smith, 88 Or. 176, 171 P. 897 (1918).

We hold that the mortgage was intended as security for Mayer in the event defendant defaulted in the payment of the $16,000 loan by the bank to defendant, thereby resulting in the sale of Mayer's stock which he pledged to secure the defendant's debt to the bank.

The trial court made written findings of fact which stated, in part:

'3. That between the defendant and Donald J. Mayer it was the intent that said sum ($16,000) would be paid from the profits of the joint ventures.

'5. That defendant is entitled to a set-off in the amount of $16,000 by reason of Donald J. Mayer's misconduct in the varied business ventures.';

and entered judgment which provided, in part:

'* * * The court made various findings after the trial in a Memorandum Opinion which are specifically incorporated herein, * * * and the Court further found that there was evidence of services rendered in payment of the sum of $16,000.00 from the defendant to the plaintiff's predecessor in interest and that in equity, was a complete set-off * * *.'

The plaintiff first assigns as error that 'the trial court erred in holding that defendant had discharged the $16,000 debt by rendering services to plaintiff's predecessor in interest.'

The defendant did not plead as an affirmative defense that he had rendered services to plaintiff's predecessor, Mayer, in payment of the sum of $16,000. In his brief, the defendant states, '* * * We repeat that there was no issue in this case of defendant paying a debt with services. * * * The defendant is not claiming pay for rendering services and therefore neither the factual situation on the one hand, nor the legal question on the other, concern us.'

Because of the court's finding set forth in the judgment, we have reviewed the testimony regarding services that defendant might have rendered. There is evidence that the defendant performed various services on behalf of the partnership. 'A partner is not entitled to remuneration for acting in the partnership business (ORS 68.310(6)) in the absence of an agreement to the contrary (Citations omitted).' McBride v. Fitzpatrick, 224 Or. 457, 467, 356 P.2d 947, 951 (1960). There is no evidence of such an agreement between Bassett and other members of the partnership.

Defendant rendered just one service to Mayer personally. On that occasion defendant made a two- day trip to Canada and return in the company of Mr. Mayer, and, as secretary of a corporation in...