United States Fidelity & Guaranty Co. v. Burke

• Decision Date: 08 January 1917
• Docket Number: 2744.
• Parties: UNITED STATES FIDELITY & GUARANTY CO. v. BURKE et al. [1]
• Court: U.S. Court of Appeals — Ninth Circuit

238 F. 881

UNITED STATES FIDELITY & GUARANTY CO. v. BURKE et al. ^[1]

No. 2744.

United States Court of Appeals, Ninth Circuit.

January 8, 1917

J. V Beach, N. D. Simon, and R. C. Nelson, all of Portland, Or for appellant.

A. E Clark and M. H. Clark, both of Portland, Or., A. H. Imus, of Kalama, Wash., Coy Burnett and Edmund C. Strode, both of Portland, Or., M. J. Gordon, of Seattle, Wash., J. H Easterday, of Tacoma, Wash., and I. E. Shrauger, of Mt. Vernon, Wash., for appellees.

Before GILBERT, ROSS, and HUNT, Circuit Judges.

HUNT Circuit Judge.

In April, 1913, Burke and Ferris, appellees, brought suit to foreclose a mortgage given by Mountain Timber Company to secure certain promissory notes executed by the Mountain Timber Company for $32,500. The mortgage covered a tract of timber land in Cowlitz county, Wash. Two notes, each for the sum of $16,250, were given. One note matured February 3, 1911, and the other February 3, 1912. No part of the notes had been paid. By the mortgage the Timber Company agreed with D. L. Kelly and his assigns that any timber cut by the Timber Company, or its assigns, on any of the lands mortgaged, before full satisfaction and payment of the mortgage, should be paid for to Kelly, or his assigns, at or before the time of cutting the timber, at the rate of $2.50 per thousand feet, according to prescribed method of scaling, and that payment so made should apply upon the amount due upon the mortgage.

The complaint alleged, among other things, that the chief value of the premises was the merchantable timber standing thereon; that the defendant had cut quantities of timber from the premises without making payment on account thereof; and that at the time of the commencement of the suit defendant was cutting and removing timber from the land, and would continue to do so unless restrained, thus lessening and endangering the mortgage security. Temporary injunction was prayed for, and on May 5, 1913, when the motion for injunction came on to be heard before the District Court, a stipulation was entered into between the parties to the suit. After reciting the commencement of the suit and application being made for a temporary injunction, the stipulation continued as follows:

'Whereas, the defendant has on this 5th day of May, 1913, filed in this court and cause a bond in the sum of $45,000, with the United States Fidelity & Guaranty Company as surety thereon, conditioned for the payment in full of any judgment which shall be rendered in favor of the plaintiff in this action: Now, therefore, in consideration of the filing of said bond, it is hereby stipulated and agreed: First. That plaintiff's application for an injunction be and the same is hereby withdrawn. * * * '

At the same time that the stipulation was filed, a bond executed unto George B. Burke by the Mountain Timber Company, as principal, and United States Fidelity & Guaranty Company, as surety, was filed. The bond, after recital of the institution of the suit heretofore referred to, contained the following clause:

'Now, therefore, we, Mountain Timber Company, a corporation, as principal, and United States Fidelity & Guaranty Company of Baltimore, Maryland, as surety, are held and firmly bound unto George B. Burke in the penal sum of forty-five thousand dollars ($45,000.00), for the payment of which, well and truly to be made, we hereby bind ourselves, our successors or assigns: Provided, and the condition of this obligation is such that if Mountain Timber Company shall pay, or cause to be paid, in full any judgment which shall be rendered in favor of the plaintiff in the above-entitled action, then this undertaking to be null and void; otherwise, to be and remain in full force and effect.'

Upon a hearing the District Court found, among other things, that at the time of the commencement of the foreclosure suit and when temporary injunction was applied for, and at the time of the execution of the bond, defendant was cutting timber from the mortgaged premises, and that in consideration of the execution of the bond plaintiff did not seek to obtain a temporary writ of injunction, and defendant was permitted to cut and remove the timber from the premises, and that since the execution of the bond it had cut timber and diminished and impaired the security of the mortgage debt in a substantial amount. The court ordered judgment against the defendants Mountain Timber Company and the United States Fidelity & Guaranty Company for $32,500, with interest, attorney's fees, and costs, and that judgment for foreclosure, with direction for the sale of the property conformably to the requirements of the statutes and the rules of the court, should be granted. Appeal to this court was taken by the United States Fidelity & Guaranty Company.

On June 15, 1915, the court rendered its opinion in favor of the plaintiffs and against the defendant Mountain Timber Company. The record shows that on July 6, 1915, attorneys for the plaintiff filed in the District Court a 'notice of motion for filing and entering of findings of fact and conclusions of law,' etc. This notice of motion, dated July 2, 1915, was addressed to the defendant Mountain Timber Company and Coy Burnett, its attorney, and United States Fidelity & Guaranty Company, and advised these defendants that on Tuesday, July 6, 1915, at 10 o'clock, at the courtroom, Tacoma, Wash., plaintiffs would move for signing and entering of findings of fact and conclusions of law in accordance with the opinion of the court which had been rendered and filed, and in accordance with findings and decree, copies of which had theretofore been served upon the defendant in the case. The notice contained this further clause:

'And at the same time and place the plaintiffs will move for the entry of findings and decree, which, among other things, will provide that judgment and decree shall go against the defendant and United States Fidelity & Guaranty Company, surety upon the bond to stay the issuance of an injunction; execution to issue against said companies, and either thereof, and their property jointly, in the event of a deficiency.'

On the cover of the notice, 'due service' was accepted at Portland, Or., on July 2, 1915, by acknowledgment of receipt of a copy by Coy Burnett, 'W.K.K.,' of attorneys for Mountain Timber Company. There was also on the cover of the notice an affidavit by J. F. Alexander, of Portland, Or., to the effect that he was employed at the office of A. E. Clark and M. H. Clark, attorneys, in Portland; that he served the notice on the United States Fidelity & Guaranty Company by handing to, and leaving with, one Newman, a clerk in the office of D. R. Tate, statutory agent of said United States Fidelity & Guaranty Company, a duly certified copy of the notice, certified to by M. H. Clark, one of the attorneys for the plaintiff; that such service was made July 2, 1915, at the office of the company and statutory agent in the Chamber of Commerce Building, Portland, Or.

The contention of the appellant is that the District Court erred in entering a decree that plaintiff should recover of the Mountain Timber Company and the United States Fidelity & Guaranty Company $32,500, with interest from February 31, 1910, and attorney's fees and costs, and have execution against the Mountain Timber Company and the United States Fidelity & Guaranty Company for any deficit remaining after the sale of the realty ordered to be sold. In the assignment of errors appellant states as follows:

'The error alleged refers only to so much of said decree as affects the United States Fidelity & Guaranty Company, and the claim of error is based on the contention that the United States Fidelity & Guaranty Company was not a party to the suit, and that the said court had no jurisdiction in said cause to render the said judgment and decree, or any judgment or decree whatsoever against the said United States Fidelity & Guaranty Company.'

The argument is that under equity practice neither deficiency judgment nor personal judgment can be entered for the full amount of indebtedness in advance of sale under foreclosure and that, therefore, the entry of a personal judgment against the Timber Company for the recovery of money was improper, and can only be sustained by construing the decree, not as a personal judgment for the full amount due plaintiffs, but as an ascertainment of the amount due, in accordance with the procedure in equity, prior to foreclosure sale. This is, in effect, a contention that as the bond was given to guarantee the payment by the Timber Company of any judgment against it, the condition of the bond has not yet been broken. But the language of the decree demonstrates the error in the major position. The court made a direct, single decree that plaintiff in the suit should recover against the defendants Mountain Timber Company and the United States Fidelity & Guaranty Company the sum of $32,500, with interest and attorney's fees, the whole amounting to $44,128, and ordered that the mortgage be foreclosed according to law and the rules and practice of the court; that the real estate described in the complaint be sold to satisfy the amount of the judgment; that the proceeds of sale should be applied to the payment of the judgment, and that plaintiff might have general execution against any of the property of the Mountain Timber...