Meek v. Wilson, No. 53.

• Court: Supreme Court of Michigan
• Writing for the Court: BUTZEL
• Citation: 278 N.W. 731,283 Mich. 679
• Docket Number: No. 53.
• Decision Date: 04 April 1938
• Parties: MEEK v. WILSON et al.

283 Mich. 679
278 N.W. 731

MEEK
v.
WILSON et al.

No. 53.

Supreme Court of Michigan.

April 4, 1938.

Mortgage foreclosure suit by Marcellus R. Meek, as assignee of Walter M. Meek, against Reginald Frank Wilson and another, wherein the defendants filed a cross-bill. Decree for plaintiff, and defendants appeal.

Remanded, with directions.

[278 N.W. 733]

Appeal from Circuit Court, Wayne County; Homer S. Ferguson, judge.

Argued before the Entire Bench.

Ralph S. Moore, of Detroit, for appellants.

Angell, Turner, Dyer & Meek, of Detroit, for appellee.

BUTZEL, Justice.

Plaintiff brought suit to foreclose a second mortgage of $3,500 given by defendants to plaintiff's assignor on the 15th day of March, 1935. The mortgage covered property improved with a residence in Grosse Pointe Park, Wayne county, Mich., which in 1928 defendant had undertaken to purchase on land contract for the sum of $22,500 from the owner at that time. The contract was assigned to Walter Meek. In 1932, Meek and defendants entered into a new contract in place of the former one. Meek later assigned the new contract to plaintiff. The property was subject to a first mortgage running to the First National Bank of Detroit. Payments were made on the contract reducing the balance due to $17,888.50, but upon default being made in October, 1932, plaintiff began foreclosure proceedings in chancery. The case was dismissed because the defendants moved out of the premises and assigned the rents to the bank to apply on its first mortgage.

Subsequently, a first mortgage loan was sought from the Home Owners' Loan Corporation, organized and existing under the laws of the United States, Home Owners' Loan Act of 1933, approved June 13, 1933, c. 64, § 1 et seq. 48 Stat. 128, and amendments thereto; 12 U.S.C.A. § 1461 et seq. p. 984, et seq. The Home Owners' Loan Corporation for brevity is referred to herein as the H.O.L.C.

In March, 1935, the H.O.L.C. agreed to refinance the defendants' obligations, but, prior thereto, there was considerable negotiation by defendants with plaintiff's assignor, and also with the H.O.L.C. The H.O.L.C. offered to loan to defendants, on a first mortgage, the sum of $9,105.07, of which $7,075 in bonds and a small amount in cash would be paid to the First National Bank to discharge its first mortgage, $475 in bonds and $25 in cash to plaintiff's assignor for his equity in the land contract, and the balance to be used by pay taxes and expenses. Plaintiff's assignor valued his equity in the property at approximately $7,700 and he notified defendants that he was unwilling to sacrifice that equity for $500, the amount offered by the H.O.L.C. On December 27, 1934, the H.O.L.C. gave notice to Mr. Meek that unless he called at the former's office within 48 hours, the application for the loan would be denied. Notice was sent to all parties on January 11, 1935, that the application had been denied. However, on January 16, 1935, defendants orally agreed to give plaintiff's assignor a second mortgage of $3,500 in addition to the $500 he was to receive from the H.O.L.C. Plaintiff's assignor thereupon signed and mailed to the H.O.L.C. a ‘Vender's Consent to take Bonds,’ in which he stated that he agreed. ‘If said refunding can be consummated, to accept in full settlement of the claim of the undersigned the sum of $500 net, face value of the bonds of the Home Owners' Loan Corporation, to be adjusted with not exceeding $25.00 cash and thereupon to release all the claim of the undersigned against said property.’

The consent was dated December 19, 1934, but was not mailed until after the agreement to give a second mortgage had been reached between plaintiff's assignor and defendants. The H.O.L.C. reopened the application for the loan. In performance of his agreement, plaintiff's assignor executed a warranty deed of the premises to defendants, but delivered it to the H.O.L.C. Defendants then gave a first mortgage to the H.O.L.C. and on March 15, 1935, gave the note and second mortgage to plaintiff's assignor in accordance with

[278 N.W. 734]

the previous negotiations. The H.O.L.C. was not a party to the negotiations and did not know that plaintiff's assignor was exacting a second mortgage of $3,500 for the deed and release. Plaintiff's assignor received the bonds and cash allotted to him by the H.O.L.C.

Upon default in the payments on the second mortgage, plaintiff brought suit to foreclose. In their answer, defendants admitted the execution of the note and mortgage, but defended on the grounds of no consideration, fraud, and release. They also filed a cross-bill, asking that the note and mortgage be declared void and that plaintiff be ordered to refund payments made thereon. The trial court awarded a decree to plaintiff.

The agreement to give a second mortgage was a condition precedent that the plaintiff's assignor exacted from defendants before he would accept payment from the H.O.L.C. and give defendants a deed to the property. Defendants so understood it. There was no misunderstanding between plaintiff's assignor and defendants, nor were there any fraudulent misrepresentations to defendants. The court properly found that plaintiff was not guilty of any fraud on them.

Defendants claim on appeal that there was no consideration for the note secured by the second mortgage, since the original obligation of defendants was released in full by plaintiff's assignor. However, it is undisputed that the agreement to give a note and mortgage was reached before the release was sent to the H.O.L.C. The agreement of plaintiff's assignor to release the contract obligation and to take bonds from the H.O.L.C., a third party, was sufficient consideration for the oral agreement of defendants to give a note and second mortgage. While the release which was thereafter given purported to be a release in full of all claims against the property, the manifest intent of the parties was that the release should affect only the contract obligation and not the new agreement to give a note and second mortgage. It was understood by defendants that they were to give the second mortgage in consideration of plaintiff's assignor's concessions to them, which made it possible for them to refinance the debts against the property through the H.O.L.C.

The real difficulty in the case, if the question is properly before us, is whether the note and second mortgage are not void because against public policy. As stated in the title of the original Home Owners' Loan Act, as enacted by Congress, the purpose of the act was ‘to provide emergency relief with respect to home mortgage indebtedness, to refinance home mortgages,...