Potwin State Bank v. J. B. Houston & Son Lumber Co.

• Decision Date: 16 July 1958
• Docket Number: No. 40758,40758
• Citation: 183 Kan. 475,327 P.2d 1091,80 A.L.R.2d 166
• Parties: , 80 A.L.R.2d 166 The POTWIN STATE BANK, a Corporation, Appellee, v. J. B. HOUSTON & SON LUMBER COMPANY, Inc., Appellant (Charles R. Ward, Sr., and Delores L. Ward, husband and wife, and William Tinkler, Defendants).
• Court: Kansas Supreme Court

Page 1091

327 P.2d 1091

183 Kan. 475, 80 A.L.R.2d 166

The POTWIN STATE BANK, a Corporation, Appellee, v. J. B. HOUSTON & SON LUMBER COMPANY, Inc., Appellant (Charles R. Ward, Sr., and Delores L. Ward, husband and wife, and William Tinkler, Defendants).

No. 40758.

Supreme Court of Kansas.

July 16, 1958.

Syllabus by the Court.

1. In a mortgage foreclosure action upon a mortgage to secure future advances, sometimes referred to as a 'Dollar Mortgage', where the mortgage did not secure the payment of any specified amount, but recited that it 'is intended as a mortgage to secure the payment of any sum or sums of money which may be loaned or advanced by the mortgagee, its successors or assigns, to the mortgagor at the date hereof or from time to time, as the parties hereto may now or hereafter agree * * *; it being the intention of the parties hereto that this mortgage shall secure any debt or advances made from time to time to the mortgage by the mortgagee', it is held: That advances made under such mortgage, pursuant to an agreement to make them, have priority over mechanics' liens which attach after the recording of the mortgage but before the making of the advances.

2. A mortgage given to secure future advances is valid and will be judicially enforced, and advances made from time to time under such mortgage, at least if made pursuant to an agreement to make them, have priority over mechanics' liens which attach after the recording of the mortgage but before the making of the advances.

3. Whether a promissory note is given pursuant to an express agreement to compromise, settle and satisfy a pre-existing debt, or merely given to extend the time for payment, is a question of fact for determination from the evidence.

4. In the absence of an express agreement that a renewal note is executed in satisfaction of an older note, or to compromise, settle and satisfy a pre-existing debt, there is a presumption of law that the renewal note is not a payment of the older obligation but is merely given to extend the time of payment.

5. Whether the taking of a new mortgage in place of a prior one amounts to an extinguishment thereof depends upon the intention of the parties, and the acceptance by a mortgagee of a new mortgage does not amount to a payment or satisfaction and does not deprive him of his right to have the lien of the prior mortgage continued as against an intervening lien, in the absence of an intention to give priority to the intervening lien and in the absence of paramount equities.

6. Where the parties to an action mutually adopted a theory in the trial court and fully try their controversy in accordance therewith, this court will not on appeal adopt another theory and decide the case in accordance with the new theory, but will affirm or reverse as may be required in accordance with the lack or presence of error shown by the record upon the theory adopted by the parties in the trial court.

7. Where a Bank (mortgagee) fully performs its agreement to advance the full amount of the cost of constructing a house, upon which agreement the materialmen rely, the Bank is not responsible for failure of the builder (mortgagor) to pay the materialmen in the absence of an assumption of responsibility by the Bank to see that the builder properly applies the money advanced.

8. Advances made under a recorded mortgage given to secure future advances (described in Syl. 1) will not be denied priority in lien merely because the intervening encumbrancers could not have determined from the mortgage, without extraneous inquiry, the true amount of indebtedness or advances secured thereby.

9. A notation on the face of a mortgage indicating payment of the registration fee is merely a rubber stamp indorsement made by the register of deeds for tax purposes and does not impart notice of the extent of the mortgage. The payment of the registration fee is a revenue measure. It is not a part of the recording acts and has nothing to do with constructive notice.

10. Where a mortgage was given to secure future advances, a notation of the figure '$1,000' in the margin of the mortgage by the mortgagee and an indorsement by the register of deeds indicating payment of registration fees on $1,000, upon facts more fully stated in the opinion, is held not to estop the mortgagee from asserting the priority of its lien for additional advances against mechanics' liens which attach after the recording of the mortgage but before the making of additional advances.

S. E. Freeman, Wichita, L. J. Bond and Robert M. Bond, El Dorado, were on the briefs for appellant.

J. B. McKay and James B. McKay, Jr., El Dorado, were on the briefs for appellee.

SCHROEDER, Justice.

This is an action brought by the appellee in the lower court to foreclose a mortgage reciting a consideration of 'One Dollar ($1.00) and the further covenants, agreements and loans and advances hereinafter specified' with a specific recital that it was 'intended as a mortgage to secure the payment of any sum or sums of money which may be loaned or advanced by the mortgagee, its successors or assigns, to the mortgagor at date hereof or from time to time, as the parties hereto may now or hereafter agree, with interest'--commonly called a 'Dollar Mortgage'.

The underlying question concerns the priority of liens where a mortgage is given to secure future advances and mechanic's lien claimants supply labor and materials for the erection and construction of a dwelling house on the mortgaged premises after the recording of the mortgage but before the making of the advances by the mortgagee.

The action was brought by The Potwin State Bank (hereinafter called the Bank), appellee, against Charles R. Ward, Sr. (hereinafter called Ward), and Delores L. Ward, his wife, J. B. Houston & Son Lumber Company, Inc. (hereinafter called Houston), and William Tinkler, to foreclose a mortgage given by the Wards to the Bank.

In July, 1955, Ward applied to the Bank through Ralph Hinnen, its cashier (hereinafter called Hinnen), to finance the building of a number of houses on lots Ward had acquired in Towanda, Kansas. Hinnen agreed to finance the building of one house at a time, the arrangement being that Ward would sell each completed house and pay the Bank's mortgage against it before starting another house.

Pursuant to this arrangement, the Bank advanced the money to build the first house, this house was sold, the Bank paid, and the mortgage released.

The Bank advanced the money to build a second house and the Wards gave a 'Dollar Mortgage' as security covering Lots 10 and 12. The second house was completed and the proceeds paid to the Bank and the mortgage released. (Except to give the history leading up to this controversy the foregoing two mortgages are not material in this action.)

On January 11, 1956, the same day the mortgage was given to finance the second house, the Wards gave the Bank a 'Dollar Mortgage' covering Lots 5, 7, 9, 15, 17 and 19. At the time this mortgage was recorded, Ward's total indebtedness to the Bank, evidenced by various notes, was $6,000, and the Bank paid a mortgage registration fee on $5,000 on the mortgage covering Lots 10 and 12. A mortgage registration fee on the remaining $1,000 was paid on the mortgage covering the six last described lots. This mortgage was recorded on the 12th day of January, 1956, in the office of the register of deeds and in the margin of the mortgage itself in the upper right-hand corner was written $1,000 in Hinnen's handwriting. The material portions of the mortgage in question between the Wards and the Bank read:

'Witnesseth, That the said mortgagor, in consideration of the sum of One Dollar ($1.00) and the further covenants, agreements and loans and advances hereinafter specified to the said mortgagor duly paid, the receipt of which is hereby acknowledged, has sold and by these presents does grant, bargain, sell and mortgage to the said mortgagee, its successors and assigns, forever, all that tract or parcel of land situate in the County of Butler and State of Kansas, described as follows, to-wit:

Lots numbered 5-7-9-15-17 and 19 all in Block 3 Mooney's 2nd Add'n to the City of Towanda.

with all the appurtenances, and all the estate, title and interest of the mortgagor therein.

'And the said mortgagor does hereby covenant and agree that at the delivery hereof the mortgagor is the lawful owner of the premises above granted and seized of a good and indefeasible estate of inheritance therein, free and clear of all encumbrances.

'This grant is intended as a mortgage to secure the payment of any sum or sums of money which may be loaned or advanced by the mortgagee, its successors or assigns, to the mortgagor at date hereof or from time to time, as the parties hereto may now or hereafter agree, with interest on each loan or advance from the time of the loan or advance until paid; it being the intention of the parties hereto that this mortgage shall secure any and all advances made from time to time to the mortgagor by the mortgagee, its successors or assigns, however evidenced, whether by note, check, receipt, book accounts, overdraft, or any liability as endorser or guarantor on any other indebtedness of either of the mortgagors, either direct or indirect, now or hereafter held by the said mortgagee, its successors or assigns, and to remain in full force and effect between the parties hereto, or assigns, until all advances made by virtue hereof, including all other liabilities held as heretofore mentioned, are paid in full with interest; * * *.'

On the face of this instrument was a stamp with blanks filled in reading as follows:

'Registration Fee

Amount of indebtedness $1000.00 Fees $2.50

Filed this day 12 of Jan. 1956 No. 38

s/ Nina Jones

Register of Deeds Butler County Kansas'

On March 29, 1956, Ward executed two notes to the Bank, one for $1,000 in renewal of the $1,000 note given on January 11, 1956, and secured by the mortgage...