American Savings Bank & Trust Co. v. Lawrence

Main, J. — The purpose of this action, so far as the appeal is concerned, was to foreclose an alleged equitable lien claimed to have been created by a written instrument. Prom a judgment denying foreclosure, the plaintiff appeals. The appellant, on and prior to November 28, 1914, when the writing in question was executed, was a corporation engaged in the banking business, and for convenience it will be referred to as the bank. Prior to this time, one Alfred Lawrence had executed and delivered to the bank certain mortgages which had been — 199 — foreclosed, and sheriff’s deed would soon be obtained. Lawrence, prior to tbis time, bad conveyed bis property not covered by tbe mortgages to bis children and to bis former wife, but these conveyances vested only tbe legal title in them and tbe property was held in trust for him. Not wishing to lose tbe property foreclosed on, Lawrence proposed to tbe bank that, if it would deed back to him tbe property covered by tbe mortgages which bad been foreclosed, be would give new mortgages upon tbe same property covering bis indebtedness and be would also have reconveyed to him tbe property which stood in tbe name of bis wife and children. Tbis proposition was accepted by tbe bank and reduced to writing in tbe form of a letter, tbis letter being tbe document alleged by tbe bank to be an equitable mortgage. Tbe letter is as follows: “Seattle, Washington, November 28th, 1914. American Savings Bank & Trust Company, Seattle, Washington. In regard to rearranging my affairs with tbe bank, I propose as follows: If you will deed back to me tbe three pieces you now have foreclosed on and take back a separate mortgage on each piece, I will have deeded back to me tbe following described property, now standing in tbe names of my two sons and their mother in trust for me, to wit: (Description.) “I also agree to bold said property in my own name while indebted to your bank, and if I succeed in selling any of tbe within mentioned properties to apply as much of it as I am able on my indebtedness to the bank. “Alfred Lawrence. “It is hereby agreed on behalf of tbe American Savings Bank & Trust Company that, upon compliance with tbe above agreement, said bank will take three new mortgages covering tbe indebtedness of said Lawrence and release tbe foreclosure heretofore bad against him. “American Savings Bank & Trust Company. By J. P. Gleason, Manager.” — 200 — In accordance with, this agreement, Lawrence had the properties mentioned therein conveyed to him and the hank deeded hack to him the properties on which it had foreclosed. Lawrence executed new mortgages to the hank covering these latter properties, hut not the ones mentioned in the letter. The hank immediately recorded the mortgages, hut the letter was not recorded until April 26, 1916, approximately a year .and a half after the day of the transaction. On August 14, 1918, Lawrence deeded to his former wife certain of the property described in,the letter; and on August 28,1919, Mrs. Lawrence mortgaged the property to the respondents C. W. Arland and wife, which mortgage was recorded on August 28,1919. In November, 1918, the bank began foreclosure of the mortgages given it by Lawrence on November 28,1914, and alleged that, as additional security for the indebtedness covered by these mortgages, Lawrence had signed and delivered the letter set forth above and that, by reason of such letter, the property mentioned therein was subject to a prior lien of the bank for the payment of Lawrence’s indebtedness. As already indicated, the trial court held that the letter did not create an equitable lien. The first, and as we believe the controlling, question is whether by the letter an equitable lien was created. In considering this question it will be assumed, but not decided, that the recording of the letter would operate as constructive notice to subsequent purchasers and incumbrancers. From the facts stated, it appears that the respondents Arland and wife took their mortgage subsequent to the time when the' letter was made a matter of record. It is a general rule that, where an express executory agreement in writing sufficiently indicates an intern — 201 — tion to make the particular property described therein a security for a debt or obligation, an equitable lien is created upon the property so indicated which is en-forcible against the lands, not only while in possession of the original contractor, but also as against incumbrancers with notices. 3 Pomeroy’s Eq. Jur. (4th Ed.), § 1235: 19 R. C. L. 273: 25 Cyc. 665. The agreement in question does not expressly provide that the property shall be held as security for the indebtedness or that the bank shall have a lien thereon. If such a lien exists, it must, therefore, arise by implication. It seems to be the doctrine of the United States supreme court, as stated in Walker v. Brown, 165 U. S. 654, that an intention to create such a lien, when it is not created by express terms, must arise by necessary implication, from the terms of the agreement construed with reference to the situation of the parties and the attendant circumstances. In In re Springer’s Estate, 97 Wash. 546, 166 Pac. 1134, the court construed a power of attorney, which it was claimed established an equitable lien upon real estate. It was there held that the words, “my said interest in said estate to be received by my said attorney and held by him in trust as collateral to secure payment of any promissory notes or renewals that I may at any time owe to the First National Bank of Crestline, Ohio,” was not sufficient to create an equitable lien. In the case of Hossack v. Graham, 20 Wash. 184, 55 Pac. 36, a mortgage had been made which covered certain property and was in the usual form for real estate mortgages. There was an additional clause in the mortgage which provided that the mortgagor should pay twenty-five per cent of the money received from sales of all the property which it should thereafter make to a certain bank to be applied upon the indebtedness cov — 202 — eréd by tbe mortgage. Tbe property covered by this latter clause was not included in the property mortgaged, though as already stated it was a paragraph in the same instrument. The question arose as to whether by this clause the parties intended to create an equitable lien. The holding in that case seems to us controlling here. It was there said: “It is insisted by the appellant that the language of the clause shows that the mortgagor intended to absolutely mortgage certain of its properties, and twenty-five per cent of the proceeds of the sale of certain of its other property, as security for the $80,000 and interest; while the construction placed upon it by the respondent is to the effect that no lien is created upon the lots described under the twenty-five per cent clause, but that it is simply an agreement to pay or appropriate money, which is personal between the parties to the agreement. We think the latter construction is the correct one. In support of appellant’s contention is cited § 1235, Pomeroy’s Equity Jurisprudence, which is as follows: “ ‘The doctrine may be stated in its most general form, that every express executory agreement in writing, whereby the contracting party sufficiently indicates an intention to make some particular property, real or personal, or fund, therein described or identified, a security for a debt or other obligation, or whereby the party promises to convey or assign or transfer the property as security, creates an equitable lien upon the property so indicated, which is enforcible against the property in the hands not only of the original contractor, but of his'heirs, administrators, executors, voluntary assignees, and purchasers or incumbrancers with notice. ’ “This statement of the law is in harmony with universal authority, but we do not see that it can be made applicable to appellant’s interest in this case, for the statement assumes the very question which is in dispute here, viz., whether or not the party promised to convey or assign or transfer this property as security. — 203 — It is the intention of the parties to the contract, which is to be determined from the phraseology of the instrument. Further on in the same section Mr. Pomeroy says that the agreement, before it can be determined to constitute a lien, ‘must indicate with sufficient clearness an intent that the property so described, or rendered capable of identification, is to be held, given or transferred as security for the obligation.’ And so with § 1048, quoted also by appellant, to the effect that— “ ‘Wherever property, real or personal, which is already impressed with or subject to a trust of any kind, express or by operation of law, is conveyed or transferred by the trustee .... then the rule is universal that such heir, devisee, successor or other voluntary transferee, or such purchaser with notice, acquires and holds the property subject to the same trust which before existed, and becomes himself a trustee for the original beneficiary. ’ “The same fact is assumed, viz., that the property is already impressed with, or subject to, a trust. The same thing may be said of the quotation from Jones on Mortgages § 162, for while it is no doubt true that it is not necessary that the contract should be, in express terms, a security, for the reason that equity will frequently imply a security from the nature of the transaction between the parties, yet, according to Mr. Jones, the essence of the contract is the intention of the parties to create a security..... “And so with all the cases cited by the appellant, both those from the United States supreme court and the Federal cases, and all other cases so far as we have been able to ascertain, maintain the lien where it was stipulated that the property concerning which the agreement was made should constitute a hen for the payment of the obligation. In the case at bar there is no stipulation of this kind. If it had been the intention of the parties to have created a lien on a one-fourth interest in these lands embraced in the second description, it would have been an easy matter to have made that fact appear in the mortgage. But it is especially stated that this property shall not be cov — 204 — ered by this mortgage, and it seems to us tbat tbe Language simply indicates a separate agreement in relation to tbe property falling under tbe second description. Tbe fact tbat tbe agreement is incorporated in tbe same instrument with tbe mortgage gives it no other or different legal effect tban it would bave, bad it been an agreement detached from and independent of tbe mortgage contract: and we do not think it can be said, under any authority, tbat, if this bad been an independent contract, it would bave created a lien on tbe property in dispute, or tbat it would bave been anything more than a naked promise to pay a given amount of money upon the happening of a certain contingency.” Tbe only difference between tbat case and tbe present is tbat here there was an express agreement on tbe part of Lawrence to bold tbe property covered by tbe letter in bis own name, while there there was no such express language. But this difference does not make a controlling distinction. Tbe purpose of tbe language requiring Lawrence to bold tbe title in bis own name while be was indebted to tbe bank is plain when it is recalled tbat, prior to tbe transaction,, tbe legal title to tbe property was in bis former wife and bis children, be only having a trust estate. Tbe bank doubtless considered that it was to its advantage tbat tbe legal title to tbe property remain in its debtor during tbe time tbat the indebtedness existed. In tbe Hossack case, while it was not expressly so provided, it was undoubtedly contemplated by tbe parties tbat tbe title to tbe property mentioned in writing would remain in tbe name of tbe mortgagor until it was sold or tbe indebtedness paid. If it bad been tbe intention of tbe bank and Lawrence to bave created an equitable lien, it would bave been easy for them to bave so stated in tbe writing. Tbe purpose of tbe writing, apparently, was to give Lawrence an oppor — 205 — tunitv to pay Ms indebtedness to the bank and also avoid the necessity of the bank’s taking and holding real estate until it could dispose of it in due course. The case of Pinch v. Anthony, 8 Allen (Mass.) 536, is distinguishable because there the writing expressly provided that the indebtedness should be a “charge” on the estate of the parties executing the instrument. The language there used in itself indicated an intention to create an equitable lien. There is no corresponding or similar language in the writing which we are called upon to construe in this case. The judgment will be affirmed; Holcomb, Mount, Mitchell, and Tolman, JJ., concur.