Reynolds v. Continental Mortg. Co.

• Decision Date: 18 December 1962
• Docket Number: No. 9003,9003
• Citation: 377 P.2d 134,85 Idaho 172
• Parties: Bernard J. REYNOLDS and Daisy Bell Reynolds, husband and wife, Plaintiffs-Respondents, and Cross-Appellants, v. CONTINENTAL MORTGAGE CO., a Washington Corporation, Defendant-Appellant, and Cross-Respondent, and John G. Dietrich and Maude Dietrich, husband and wife, Defendants-Respondents.
• Court: Idaho Supreme Court

Page 134

377 P.2d 134

85 Idaho 172

Bernard J. REYNOLDS and Daisy Bell Reynolds, husband and wife, Plaintiffs-Respondents, and Cross-Appellants, v. CONTINENTAL MORTGAGE CO., a Washington Corporation, Defendant-Appellant, and Cross-Respondent, and John G. Dietrich and Maude Dietrich, husband and wife, Defendants-Respondents.

No. 9003.

Supreme Court of Idaho.

Dec. 18, 1962.

Bandelin & Cogswell, Sandpoint, for appellants.

McNaughton & Sanderson, Coeur d'Alene, for respondents.

SMITH, Chief Justice.

The records in this cause show that the real name of appellant is Continental Mortgage Corporation, a Washington corporation. It is hereafter sometimes referred to as Continental.

Plaintiffs-respondents Bernard J. Reynolds and Daisy Bell Reynolds, husband and wife, hereafter sometimes referred to as the Reynolds, brought this action seeking a judgment declaring an instrument which they had executed,--on its face a quit claim deed to their real property,--to be a mortgage; also for adjudication of the terms thereof, amount by them owed thereunder, and to whom. The judgment adjudged the deed to be a mortgage and otherwise adjudged relief to the Reynolds, but not to the entire extent which they seek. Defendant Continental Mortgage Corporation appealed from the judgment, and plaintiffs Reynolds cross-appealed. Defendants Dietrichs did not appeal. The facts being involved we shall recite them in some detail.

In the fall of 1956, Reynolds and wife de sired to purchase from one Morris, who resided in the state of Washington, certain timber lands situate in Bonner County, Idaho. They had $1,050.00 on deposit with a realty company which handled the sale and purchase transaction. The property could be purchased on contract for $4,750.00 but the Reynolds preferred to purchase it at the offered cash price of $3,850; to enable them to do so they sought additional moneys in the form of a loan of $2,800. Some time in November of 1956, they contacted appellant Continental Mortgage Corporation, at its office in Spokane, Washington, concerning such a loan.

The evidence conflicts as to subsequent negotiations. Mr. Crandall, president of Continental, testified to having informed the Reynolds that he could process the loan through a lender; that Continental would charge a commission of $800 for finding a lender; that any expense incidental to the loan would be deducted from such commission; and that the total amount of the loan would be $3,600; the Reynolds thus would obtain the desired $2,800, plus the $800 to be retained by Continental as a commission. The Reynolds testified, however, that they believed that the loan was to be an ordinary mortgage loan directly from Continental, to be evidenced by their promissory note in favor of Continental for $2,800, bearing 6 per cent interest, and requiring monthly payments of $40 to be secured by their mortgage to Continental. They testified they were never informed otherwise.

The Reynolds further testified that on November 28, 1956, upon instructions from Mr. Crandall, they went to the office of Continental's attorney in Spokane, where the loan transaction was to be completed. Certain papers, including a quit claim deed and an agreement to purchase, were there presented to the Reynolds for signature. They testified that those documents were not completely filled out, showing neither the total amount to be repaid by them nor the name of the other party to the transaction. The Reynolds then testified that they inquired if the instruments should be taken to an attorney of their selection for examination before they signed them, but that Continental's attorney stated that he represented them as well as Continental and that the papers were regular and proper; that relying upon such assurance, and believing the papers to be the usual and ordinary instruments for a mortgage loan, they executed them,--as grantors in a quit claim deed to the property they were purchasing, and as purchasers or vendees in a form of repurchase agreement. Copies of the signed papers were not given to them. They testified that they never received copies, and that at that same time Continental's attorney informed them that the amount of the loan had been delivered to Morris, the seller of the property, and that the sale had been consummated.

It appears that some time after the Reynolds signed the instruments, the names of defendants-respondents John G. and Maude Dietrich, hereafter sometimes referred to as Dietrichs, who reside at Chelan, Washington, were filled in as grantees in the quit claim deed and as vendors in the repurchase contract; and that the total principal amount to be paid to the Dietrichs by the Reynolds was filled in as $3,600.00.

In January, 1957, the Reynolds began making monthly payments to Continental, the receipts for such payments being issued by Continental's escrow department. The first such receipt however showed the payments credited to the Reynolds, rather than to Dietrichs. Dietrichs were shown as creditors on the subsequent receipts. This first receipt which showed the balance due, after the first payment, as $3,578.00, was later repleaced by a so-called 'duplicate,' crediting the payment to the Dietrichs, although it appears that Dietrichs never actually received this first payment. The Reynolds testified that they observed the balance shown due on this first receipt to be far in excess of the $2,800 which they believed they had borrowed. They attributed this discrepancy to a possible failure to give them credit for the $1,050.00 which had been their deposit with the realty company, to be applied toward the purchase price of the real property. The Reynolds further testified that they made objection to Continental at this time and several times subsequently, although Mr. Crandall, Continental's president, testified that he had received no such objection until the middle of 1958. The Reynolds continued to make payments until the trial of the present action. A subsequent agreement between the Reynolds and the Dietrichs allowed Reynolds to remove timber from the property and to apply the proceeds therefrom to the purchase price; some additional payments were made in this way.

Although Continental contends that the loan was a transaction directly between the Reynolds and the Dietrichs, a deposition by Mr. Dietrich indicates that his first knowledge of the transaction was during the forepart of January, 1957, more than a month after the loan papers had been signed by the Reynolds and the loan proceeds paid over to Morris. In fact, it appears the Dietrichs had no interest in the transaction until January 15, 1957, after the Reynolds had made their first payment to Continental. Plaintiffs' Exhibit 7, a letter to Mr. Dietrich from Continental's attorney, dated February 12, 1957, states:

'Please note from the Closing Statement that the unpaid balance at the time that this contract was transferred to you was in the sum of $3,578.00 with interest at 6 per cent from January 15, 1957. The next payment will be made by the purchasers on February 15, 1957, and will be then forwarded to you by the Continental Mortgage Corporation. That payment will include interest from January 15, 1957.'

It is clear from the evidence that Mr. and Mrs. Dietrich were not parties to the original transaction, even though their names were later placed upon the instruments. Instead, they acquired their interest after the first payment had been made to Continental, paying therefor not the full $3,600.00 appearing on the face of the agreement, but rather the amount then due, $3,578.00; thus, the right to the first payment does not appear to have been acquired by Dietrichs. It is agreed by all parties that Dietrichs had no knowledge of the $800.00 retained by Continental as a 'commission.'

November 4, 1957, the Reynolds, after having had the transaction investigated, brought the present action against Continental and the Dietrichs, seeking to have the quit claim deed declared an equitable mortgage as security for the intended loan, and for other appropriate relief.

The trial court adjudged the Reynolds' quit claim deed to be a mortgage, and the repurchase contract to be void. The court further found and adjudged:

That Dietrichs were innocent of any fraud in the transaction.

That Continental had actually loaned Reynolds $2800.00.

That Continental had wrongfully benefited in the amount of $663.75 (being the $800.00 alleged 'commisson' less $136.25 legitimate expenses of the loan transaction), and adjudged that Continental pay such sum of $663.75 to Dietrichs.

That Reynolds owed on the mortgage debt to Dietrichs, as of July 5, 1960, the principal sum of $1139.89, figured as follows:

Purchase by Dietrichs at Continental's figure of the Reynolds' mortgage $3,600.00

Less amount the Reynolds had paid on principal sum $1796.36

Less amount adjudged to be paid by Continental to the Dietrichs 633.75 2,460.11

Balance of principal sum of mortgage debt $1,139.89

The court adjudged that the Reynolds pay to the Dietrichs such sum of $1,139.89 at 6% interest on deferred balances at the rate of $40.00 a month, less any payments made by the Reynolds after July 5, 1960.

Continental by its assignments of error, in effect, urges insufficiency of the evidence to sustain the judgment, in that the record fails to show by clear and convincing evidence that Continental wrongfully benefited by the loan transaction or committed fraud in connection with the transaction; also that the evidence shows waiver by the Reynolds of all claim of fraud.

The Reynolds on their cross appeal assign as error the failure of the trial court to adjudge in favor of plaintiffs the difference in interest moneys they paid on the basis of a $3600 loan and what they would have paid on the basis of a $2800 loan; also in failing to find and adjudge that Continental had violated the usury statute, and in not charging Continental and the Dietrichs with the penalty of...