Wright v. Wimberly

BURNETT, J.,

Concurring Specially. — It was settled by the opinions in the former case that when the plaintiff bought a note secured by mortgage of even date therewith, he was charged with what knowledge he might have obtained by inquiry prompted by the contents of the public records to which his attention was directed by the fact that the mortgage was recorded and that he could not excuse himself under these circumstances for having failed to learn that the. obligations covered part of the buying price of realty. The matter, therefore, about his having purchased in good faith and the like is not available in aid of his action. As to the attorney fee, the makers of the note promised to pay “such additional sum,” which means but one attorney fee. It has been allowed in the foreclosure suit to recover on the note and the record dis *50 closes that it has been paid out of the proceeds of the resulting sale. That portion of the obligation to pay, contingent though it was, has been fulfilled. Having thus liquidated the single sum promised in that behalf, the defendants are not liable to further exaction on that account.

We come now to the consideration of the demurrer to the complaint. The question presented for our decision is whether the foreclosure of a purchase-money mortgage exhausts all remedy which the plaintiff has for the collection of the debt represented by a promissory note given for such a liability and thus secured. Both parties appear to treat the decree in the foreclosure suit as having merely the legal effect to subject the land to the payment of the debt, the plaintiff contending that the application of the proceeds of sale under foreclosure, which were less than the amount of the claim, must be considered as so operating only pro tanto, while the defendants maintain that it worked out a full satisfaction of the debt. Without regard to the mere wording of the former decree, we will treat the question as presented by the parties and- determine whether or not the holder of such a negotiable instrument is precluded by the former decree from collecting a deficiency remaining after the application of the proceeds of the sale towards the discharge of the debt. If nothing else appears the rule is that in a foreclosure suit a personal decree must be rendered against the maker or other person liable upon a promissory note or other personal obligation secured by the mortgage sought to be foreclosed: Section 422, L. O. L. This statutory precept has always been qualified by Section 429, L. O. L., reading thus:

“During the pendency of an action at law for the recovery of a debt secured by any lien mentioned in *51 Section 422, a suit cannot be maintained for the foreclosure' of such lien, nor thereafter, unless judgment be given in such action that the plaintiff recover such debt or some part thereof, and an execution thereon against the property of the defendant in the judgment is returned unsatisfied in whole or in part.”

A further modification was annexed by the act of February 24, 1903, Laws 1903, page 252, entitled “An act to abolish deficiency judgments upon the foreclosure of mortgages to secure the unpaid balance of purchase price of real property,” reading thus:

“When judgment or decree is given for the foreclosure of any mortgage, hereafter executed, to secure payment of the balance of the purchase price .of real property, such judgment or decree shall provide for the sale of the real property, covered by such mortgage, for the satisfaction of the judgment or decree given therein, and the mortgagee shall not be entitled to a deficiency judgment on account of such mortgage or note or obligation secured by the same.”

This statute was codified as Section 426, L. O. L.

Based upon the title, which exercises a controlling influence over the body of the act, it is plain that the enactment refers only to suits in equity and cannot affect other litigation which might theretofore have been lawfully employed for the collection of the debt. This is the doctrine of Page v. Ford, 65 Or. 450 ( 131 Pac. 1013 , 35 Ann. Cas. 1048, 45 L. R: A. (N. S.) 247). In that case it was decided in substance that notwithstanding a note was secured by mortgage on real property, the holder was not restricted exclusively to his remedy by foreclosure in equity but might maintain an action at law upon the note itself independent of the mortgage.

The effect of Section 429, L. O. L., is that if a mortgagee begins on the law side of the court he cannot, *52 during the pendency of the action nor thereafter until execution on his judgment has been returned unsatisfied in whole or in part, resort to equity. His right to relief in chancery is suspended until he exhausts his legal remedy. Correspondingly by Section 422, if he begins in equity he must work out that process to its end, and as by that section he obtains a personal decree for what is due on the promissory note or other personal obligation involved, there is no occasion for his going into the law court to obtain a judgment for what is lacking of complete satisfaction of his debt. The claim is merged in the personal decree and complete relief may be had on execution issued thereon. There cannot be two judgments for the same demand, in the same court, between the same parties.

The resultant of the varied legislative acts relating to debts secured by mortgage is further to separate the procedure at law from that in equity in litigation to recover the purchase price of realty, payment of which is secured not only by the direct personal promise of the debtor, but also by a collateral mortgage upon the land bought. As to that class of debts, its effect is confined to the procedure to realize upon them and does not alter the right of the buyer to agree to pay for the property a certain sum of money absolutely and at all events. Respecting purchase price liability, the concurrency of the remedies is restricted on one hand to the extent that if .a judgment at law has been rendered, a foreclosure suit cannot be maintained until the law execution has been returned unsatisfied in whole or in part; while on the other, in such cases, the chancellor properly may not invade the province of the law court by rendering afterwards and in addition to the personal decree required by Section *53 422, L. O. L., a deficiency judgment upon which.an execution, as at law, would issue as formerly for the satisfaction of a balance remaining after applying to the liquidation of the debt the proceeds of sales under execution issued on the original decree. In other words, the two remedies in such instances, the one by action at law on the note and the other by suit in equity for foreclosure, are made successive rather than strictly concurrent. The common-law rule that both proceedings may be carried on simultaneously is thus modified as to procedure, but the right ultimately to recover the entire debt is not impaired. That these statutes, being in derogation of the common law, must be strictly construed, is to follow a well-established canon of interpretation.

Besides all this, the title to the act of 1903 relating to deficiency judgments confines its operations to foreclosure suits. It makes no allusion to actions at law and does not pretend to restrict the theretofore established right to sue at law for the recovery of the debt. A deficiency judgment is one rendered in the foreclosure suit, but only after sale of the mortgaged realty has been effected and the proceeds found to be insufficient to discharge the debt secured: 1 Words and Phrases, Second Series, p. 1271; 3 Jones on Mortgages (7 ed.), § 1709a. Under Section 422, L. O. L., requiring in mandatory language that the court ‘ ‘ shall also decree a recovery of the amount of such debt against such person’ ’ who gave a note or other personal obligation for the payment of the debt, there never can be a deficiency judgment in the true sense of the term. Suppose, after the return of the sheriff reporting the sale of the land under foreclosure, the plaintiff should apply to the equity court to render a judgment for *54 what was lacking of full satisfaction, the answer would be:

“You already have a personal decree for your whole debt; you cannot have another in the same suit; look to your execution for relief.”

Section 426, L. O. L., against deficiency judgments is only declaratory in negative form of what has always been the rule derived from the plain meaning of Section 422, L. O. L.

According to the writer’s observation of the practice in this state under Section 422, extending over a period of more than forty years, the procedure is to . take a personal decree for the debt evidenced by the note or other like obligation and an additional decree for the sale of the property and the application of the proceeds to the satisfaction of the debt. There is no occasion for inserting in the decree a clause granting an execution for the remainder. That follows by operation of law under the second subdivision of Section 425, L. O. L., reading thus:

“When the decree is against the defendants or any one of them in person, and the proceeds of the sale of the property upon which the lien is foreclosed is not sufficient to satisfy the decree, as to the sum remaining unsatisfied the decree may be enforced by execution as in ordinary cases, * * .”

This is in consonance with Section 415, L. O. L., making the general statute on executions applicable to the enforcement of decrees so far as the nature of the decree may require or admit of it.

The two remedies, the one at law and the other in equity, are not inconsistent, but, on the contrary, supplement each other. While there can of course be but one satisfaction, neither remedy impairs the efficacy of the other to the end that the fulfillment of the law *55 ful promise of the debtor to pay absolutely and at all events may be accomplished. If the term “waive” properly may be applied to the act of the creditor in commencing a suit instead of an action, or vice versa, it is only a temporary waiver in the light of the statutes and loses its force with the exhaustion of the remedy first chosen without full satisfaction of the debt.

The rule on that subject is thus enunciated in 19 R. C. L., page 509, Section 305:

“As a general rule, the taking of collateral security for the payment of a debt does not afford any implication that the creditor is to look to it only or primarily for the payment of the debt. The obligation of the debtor to respond in his person and property is the same as if no security had been given. This is the settled rule at law. Therefore, a creditor holding a note secured by a mortgage may ignore his security and bring an action on the note. The promise to pay as evidenced by a promissory note is one distinct agreement, and, if couched in proper terms, is negotiable, while the pledge of real estate to secure that promise as evidenced by a mortgage is another distinct agreement which is not intended to affect in the least the promise to pay, but only to provide a remedy for the failure of performance.”

The precept is thus taught in 27 Cyc. 1758:

“"Where the proceeds of a foreclosure sale are not sufficient to satisfy the mortgage debt, and plaintiff did not recover a deficiency judgment in the foreclosure suit, or was prevented from doing so by want of authority in the court to grant it, want of jurisdiction over the defendant, or other cause, he may thereafter maintain an action at law against the person liable for such deficiency, basing his action either on the note or bond secured by the mortgage or on the foreclosure judgment, or simply on the indebtedness arising from *56 the foreclosure, and the failure of its proceeds to extinguish the original debt or claim.”

It is clearly lawful for. one to buy land from another and give his promissory note in payment of the whole or a part of the purchase price without executing any mortgage or other security in connection therewith. It is equally as competent for the buyer of such realty to give a mortgage upon it, so conditioned that it shall be void upon the payment of a certain sum of money, representing part of the purchase price, but without assuming any personal liability. Each contract, the one personal and the other by pledge, is lawful and is not inconsistent with the other. All that our statute has said is that if the creditor begins the exercise of either remedy, he must pursue it to exhaustion. In short, the legislation of this state has not gone to the extreme of saying that giving of collateral security by mortgage impairs the obligation voluntarily assumed by the debtor of paying absolutely and at all events the purchase price of realty. Colby v. McClintock, 68 N. H. 176 ( 40 Atl. 397 , 73 Am. St. Rep. 557 ), and other like cases are precedents sustaining the right to use both remedies so far as necessary to collect the- whole debt.

Even in states where it is provided that there shall be but one form of action for the foreclosure of a mortgage and the collection of a debt secured thereby, the practically universal holding is that the effect of such legislation is merely to require the creditor to exhaust the mortgage security before proceeding at law as he may properly do to recover any deficiency in the payment of the debt: Boucofski v. Jacobsen, 36 Utah, 165 ( 104 Pac. 117 , 26 L. R. A. (N. S.) 898); Clark v. Paddock, 24 Idaho, 142 ( 132 Pac. 795 , 46 L. R. A. (N. S.) *57 475); Sacramento Bank v. Copsey, 133 Cal. 663 ( 66 Pac. 8 , 85 Am. St. Rep. 242 ); Blumberg v. Birch, 99 Cal. 416 ( 34 Pac. 102 , 37 Am. St. Rep. 67 ); 2 Jones on Mortgages (7 ed.), §§ 1215, 1218, 1220-1222, 1227, 1228.

The legislative department of government by its enactments mentioned has not made the promissory note in question an unlawful contract. Neither has it stigmatized with illegality the mortgage to secure the same, and until it has done so those who voluntarily execute such contracts must comply with them according to their terms.

The argument is fallacious to the effect that Section 426, L. O. L., should be liberally construed in favor of those who would acquire homes and give mortgages for some, if not all, of the purchase price. The practical result of that doctrine would be to obstruct the acquisition of homes, for if it be understood that the would-be purchaser lawfully may repudiate his direct promise to pay the contract price absolutely and at all events, as evidenced by his promissory note, property owners will not deal with him. Taken in connection with the rule established in Page v. Ford, 65 Or. 450 ( 131 Pac. 1013 , Ann. Cas. 1915A, 1048, 45 L. R. A. (N. S.) 247), another consequence of the construction for which the opinion of the late Mr. Justice Moore contends, would be to drive mortgagees to the law side of the court in the first instance to recover judgment, with its attendant costs and expenses. This would not release the mortgage, and while it might delay, yet it would not preclude its foreclosure by a subsequent suit as allowed by Section 429, L. O. L., quoted above.' Especially in cases where the debtor resides in one county and the mortgaged land is in another, judgment might be taken, an execution issued in the law action in the county of his residence and returned un *58 satisfied, leaving the way open to the foreclosure in the other county at the additional expense, and burdening the debtor with two proceedings where one would answer the purpose. Such a result cannot be avoided without judicial legislation incorporating in the statute terms not included by the law-making power.

In the case at bar the Circuit Court had before it a complaint which discloses that the plaintiff already has a personal decree for the full amount of his debt, the unsatisfied portion of which can be collected by execution as in ordinary cases, by authority of Sections 415 and 425, L. O. L. No appeal from this decree seems to have. been taken by the defendants. Eight or wrong in the first instance, it is at this juncture valid because rendered by a competent tribunal having jurisdiction of the litigants and of the subject matter. The plaintiff’s demand was merged in that decree both as against the debtors themselves and as against the mortgaged realty. He has no present cause of action on that claim. He could get nothing more by an additional judgment. The matter is res judicata. His remedy is by the issuance of an execution on that decree “as in ordinary cases.” Hence the Circuit Court was right in sustaining the demurrer to the complaint and its decision should be affirmed.