Union Central Life Ins. Co. v. Imsland

• Decision Date: 21 July 1937
• Docket Number: No. 10767.,10767.
• Citation: 91 F.2d 365
• Parties: UNION CENTRAL LIFE INS. CO. OF CINCINNATI, OHIO, v. IMSLAND et ux.
• Court: U.S. Court of Appeals — Eighth Circuit

91 F.2d 365 (1937)

UNION CENTRAL LIFE INS. CO. OF CINCINNATI, OHIO, v. IMSLAND et ux.

No. 10767.

Circuit Court of Appeals, Eighth Circuit.

July 21, 1937.

Wallace E. Purdy, of Brookings, S. D., for appellant.

S. W. Clark, of Redfield, S. D. (Dunham & Dunham, of Clark, S. D., on the brief), for appellees.

Before STONE, SANBORN, and THOMAS, Circuit Judges.

SANBORN, Circuit Judge.

The broad question presented by this appeal is whether a mortgagee which has agreed to accept a compromise settlement of the mortgage debt may be compelled to carry out its agreement, where it appears that the mortgagors have performed acts and incurred expense in reliance thereon. The court below answered the question in the affirmative and entered a decree accordingly, from which this appeal is taken by the mortgagee.

The facts are not in dispute and most of them are agreed to. It appears that in 1923 Lars Imsland and his wife, Amanda, owned and occupied a 479-acre farm in Clark county, S. D. They borrowed $14,000 from the Union Central Life Insurance Company and gave to it a mortgage upon the farm to secure the repayment of this debt with 6 per cent. interest according to the terms of thirty-one promissory notes described in the mortgage as follows: "The first Note being for Four Hundred One & 33/100 (401.33) Dollars, and the remaining 30 notes for Ten Hundred Seventeen & 09/100 ($1,017.09) Dollars each; the first note being payable on April 1, 1924, and one of the remaining notes being payable on same day in each of the succeeding thirty years, (or prior to maturity in accordance with Stipulation therein). The total amount of the above notes includes a loan of $14,000.00, and interest to maturity of each note calculated at six per cent. and expense charge of ______ cents per one hundred dollars per annum, and all notes bear interest at ten per cent. per annum after maturity until paid." The mortgage required the mortgagors to pay all taxes upon the farm, and gave to the mortgagee the right to declare the entire mortgage debt due and to foreclose upon failure of the mortgagors to pay any note at maturity or to comply with any covenant of the mortgage by them to be performed. They paid all notes maturing prior to April 1, 1933. They did not pay the note which matured on that date. Apparently at the suggestion of an agent of the Union Central, they then endeavored to borrow from the Land Bank Commissioner $1,500 upon a second mortgage, in order to make good their default; but their application for the loan was denied. About November 1, 1933, they received notice from the National Farm Loan Association of Clark, S. D. — the local association affiliated with the Federal Land Bank of Omaha — through which they were negotiating for a loan, that the Federal Land Bank of Omaha would lend them $7,000 upon a first mortgage, and that the Land Bank Commissioner would lend them $3,000 upon a second mortgage, provided that the proceeds of these two loans would be accepted by the Union Central in full satisfaction of its mortgage.

The Union Central at first refused to accept the proceeds of the proposed loans in satisfaction of its mortgage, but on May 18, 1934, in a letter to the National Farm Loan Association, it stated: "The following is an itemized statement of the amount required to pay the above numbered Loan: $10,000.00 in compromise settlement, if paid by 6-1-34, (Interest per day after 6-1-34, $1.67)."

On July 21, 1934, the mortgagors advised the Union Central that the proceeds of their loans from the Land Bank and the Commissioner would not equal $10,000, since $865 would be deducted for expenses (stock in Farm Loan Association, loan commission, title fee, taxes, and bill for abstract), leaving net proceeds of only $9,135. To make up the deficiency in the $10,000 which the mortgagee had agreed to accept, Lars Imsland executed and delivered to the mortgagee his promissory note for $865, payable January 1, 1935, and secured by a chattel mortgage upon his cattle and machinery. The mortgagee, upon receipt of this note, wrote the secretary-treasurer of the National Farm Loan Association at Clark, S. D., as follows:

"To the Federal Land Bank of Omaha:

"The following is a true and correct statement of the indebtedness which is owing the undersigned by the applicant whose name appears above:

                  "Compromise settlement, ....  $9,135.00
                  "Interest at 6% from October
                     8, 1934, to date paid ...  $
                  "Total, ....................  $
                  "Daily interest $
                

"The above indebtedness is secured by a real estate mortgage.

"The undersigned agrees to accept payment of the hereinbefore described indebtedness, in compromise settlement of its claim.

"Union Central Life Ins. Co. "By Stanton Allen, Manager. "Dated: Sept. 17, 1934."

At the same time, the mortgagee notified the secretary-treasurer, of the association that it had a blanket agreement with the Federal Land Bank to accept Federal Farm Mortgage Corporation bonds in payment of mortgage loans. This blanket agreement provided:

"Whereas, the undersigned is the owner and/or holder of various mortgages on farm property, which it is contemplated will be refinanced through loans by the twelve Federal Land Banks and/or the Land Bank Commissioner;

"Now, Therefore, The undersigned agrees as follows:

"(1) That in the case of each agreement by the undersigned to accept loan proceeds in satisfaction of indebtedness due the undersigned payment may be made in Federal Farm Mortgage Corporation Bonds at any time within a period of 90 days after the date of such agreement.

"(2) That such bonds will be accepted in payment at their face value, with any necessary adjustment for interest accruing to the date of payment provided that in each case the bonds shall be of the last issue preceding the date the proceeds of the loan or loans are disbursed. * * *"

On October 26, 1934, the mortgagors executed two mortgages upon their farm, one for $6,900 to the Land Bank, and a second for $3,100 to the Land Bank Commissioner. These mortgages were recorded on November 5, 1934. There was delay in completing the refinancing, apparently due in part to a demand of the Land Bank that it be permitted to deduct an additional $587.86 from the proceeds of its loan. This demand was finally waived.

Lars Imsland's note for $865 to the Union Central according to its terms, fell due on January 1, 1935. Payment of the note was not demanded, and the note was not paid.

On February 2, 1935, more than a month after Lars Imsland's note was due, the Union Central wrote to the Land Bank with respect to the delay in the refinancing of the Imsland loan, closing its letter with the following statement: "We are still holding open our compromise settlement with Mr. Imsland, which is much in his favor, but we cannot continue to do so indefinitely. Therefore, if you could tell me just when this transaction will be closed, I would appreciate it."

On February 6, 1935, the bank replied, explaining the delay and stating that "under the circumstances, arrangements are in progress to permit remittance now on those pending new Land Bank and Commissioner's Loan in case it is found that title and other requirements have been or can be met."

The Federal Land Bank on or about February 11, 1935, remitted to the secretary-treasurer of the local association at Clark, S. D., orders on the Federal Reserve Bank at Kansas City for bonds of the Federal Farm Mortgage Corporation in the amount of $9,000, together with two checks in favor of the Union Central, to make up the balance of $9,135 which it had agreed to accept in the settlement of its mortgage loan. These orders entitled the Union Central to receive the bonds from the Federal Reserve Bank of Omaha. While on September 17, 1934, the date when the Union Central agreed to accept $9,135 with interest in settlement of the amount owed it by the Imslands, the bonds of the Federal Farm Mortgage Corporation used in closing Land Bank loans bore interest at 3¼ per cent. per annum, matured in thirty years, and were callable in not less than ten years, the orders for bonds which were sent to the secretary-treasurer to be turned over to the Union Central, in accordance with its agreement to accept bonds, called for bonds bearing 3 per cent. interest, maturing in twelve years, and callable in seven years. Notice that the orders for bonds and the checks were ready for delivery to it was received by the Union Central on or about February 16, 1935. It refused to accept the checks and orders for bonds or to carry out its compromise agreement. On March 4, 1935, it returned to Lars Imsland his $865 note marked "cancelled."

Shortly thereafter the Union Central commenced this suit in equity to foreclose its mortgage, alleging that there was due thereon on May 17, 1935, the date when suit was commenced, $14,834.56; that default had occurred in the conditions of the mortgage; and that there had been placed on record a first mortgage to the Federal Land Bank and a second mortgage to the Commissioner. The prayer was that the mortgage be foreclosed and a decree entered barring all rights or claims of the Land Bank and the Commissioner. No answers were filed by or on behalf of the Land Bank or the Commissioner, but the mortgagors answered, admitting the execution of the mortgage, their default, and the amount of the mortgage debt. As an affirmative defense they set up their negotiations for loans from the Federal Land Bank to refinance their indebtedness to the Union Central, the Union Central's agreement to accept $9,135 in payment thereof, and its subsequent refusal to comply with its agreement after the mortgagors had performed their part of the agreement and had given to it Lars Imsland's note for $865 and had paid or incurred expenses in connection with the procuring of the loans from the Land Bank and the Commissioner; and they prayed for a decree requiring the Insurance Company to accept...