State Bank of Reynolds v. First National Bank of Reynolds

Birdzell, J. In October, 1919, the defendant, Wester, gave to the plaintiff his note for $7,500, payable in October, 1929, with 6 per cent annual interest, evidenced by coupons. The note was secured by a real estate mortgage executed concurrently therewith. Both the note and the mortgage provided that if default were made in the payment of interest the whole of the principal and the accrued interest would, at the option of the creditor, become at once due and payable without — 614 — notice to tbe mortgagor. The mortgagor defaulted in the payment of interest on October 10, 1920, and again on October 10, 1921. In November, 1921, the cashier of the plaintiff bank told the defendant Wester that the 'bank had decided to foreclose the mortgage. Following this, a notice of intention to foreclose (dated December 1, 1921) was mailed to the mortgagor and also to the defendant, First National Bank of ^Reynolds. This notice, among other things, stated that there was due upon the mortgage the sum of $8,498.41, and that unless this sum were paid within thirty days proceedings would be commenced to foreclose the mortgage. The defendant Wester had transferred to the First National Bank, by deed dated November, 1920, the premises covered by the mortgage, such transfer securing an indebtedness of $1,200 at 9 per cent interest. On or about December 14, 1921, and within thirty days subsequent to the mailing of the notice of intention to foreclose, the defendant First National Bank tendered to the plaintiff the sum of $927.20 covering the amount of interest in default together with interest thereon. This tender has been kept good. Foreclosure proceedings by advertisement were commenced and enjoined, whereupon the present foreclosure action was brought in which judgment was rendered for the plaintiff. This is an appeal from the judgment. The principal if not the sole question for determination on this appeal is the legal effect of the tender. Chapter 131 of the Laws of 1919 provides: “Sec. 1. Any action or proceeding which shall be commenced to foreclose a mortgage on real property shall be void unless a written notice describing the land, the date and amount of the mortgage, the sum due for principal, interest and taxes, and stating that if the same be not paid within thirty days from the date of the notice, proceedings will be commenced to foreclose the mortgage, shall have been served more than thirty days prior to the commencement of such action or proceeding by registered mail addressed to the title owner of record at his or their last-known postoffi.ee address. An affidavit of proof of such service of notice shall bo filed with the clerk of the court at the time of filing complaint in any action for foreclosure and shall be filed and recorded with the notice and certificate of sale in all other cases.” The above section was in force when the mortgage in question was — 615 — executed aird the notice thereby required was served. Chapter 66 of the Laws of 1921 amends the above act by continuing the requirement of notice in substantially the same language as quoted above and adding the following proviso: “Provided, however, that if said owner shall, before the expiration of thirty days from the service of such notice, perform the conditions or comply 'with the provisions upon which the default shall have occurred, such mortgage shall be reinstated and shall remain in full force and effect the same as if no default had occurred therein.” The mortgage in question was executed subsequent to the Act of 1919 and prior to the amendment of 1921. It seems to be conceded that the proviso of the 1921 Act cannot be applied to pre-existing mortgages so as to give an original right to cure a default within the thirty-day period, for the reason that, so applied, it would result in impairing the obligations of contracts contrary to the Federal Constitution. E. J. Lander & Co. v. Deemy, 46 N. D. 273, 176 N. W. 922. But it is the contention of the appellant that the provision of the 1921 Act for curing a default does not impair any valid contract obligation in a mortgage which is subject to chapter 131 of the Sessions Laws of 1919; for it is argued that the 1919 Act, when properly construed, was sufficient in itself to prevent foreclosure if the default were cured within the thirty days, and that the 1921 Act goes no further than this. It is said that, under the 1919 law, the holder could take no steps to enforce the terms of the mortgage until the provisions of that law had been fully-complied with; that is, until the thirty-day period had fully run, no steps whatever could be taken to foreclose. Then it is argued that the declaring of the whole sum due under an acceleration clause, being a necessary step in the foreclosure must be a conditional act during the thirty-day period. Hence, the argument runs, during this period the default might be cured. In other words, as no step in the foreclosure can be taken until the thirty days have expired, and as the declaration that the whole amount is due is a step in the foreclosure, it is argued that the mortgagor can cure the default at any time before the foreclosure is actually instituted. From these premises the appellant draws the logical conclusion that the proviso added to the statute in 1921, which expressly permits the curing of the default and the reinstating — 616 — of the mortgage, in reality adds nothing to the statute but serves only to malee clear and explicit that which was before necessarily implied. It will be seen that these arguments are predicated wholly on the proposition that the option to declare the whole sum due upon default in the payment of interest is nothing more nor less than a step in the foreclosure. This view, in our opinion, is too restricted. The option, as we view it, is a valuable right secured by contract which gives to the creditor the privilege of seeking redress reaching the entire amount of the indebtedness whenever a default occurs. Foreclosure of the mortgage is only one remedy looking toward the recovery of the indebtedness and it may or may not be adequate. The appellant seems to regard the acceleration clause as being in the nature of a penalty or as involving a forfeiture. Such is not the accepted view. Acceleration clauses are enforceable in equity as well as at law. Pomeroy, in his work on Equity & Jurisprudence (1 Pom., 4th ed. § 439), says: “The third instance of what is not a penalty is that of a contract, not that the amount of a debt should be increased, but that in a specified event the time for the payment of a certain sum due shall be accelerated. It is therefore settled by the overwhelming weight of authority that if a certain sum is due and secured by a bond, or bond and mortgage, or other form of obligation, and is made payable at some future day specified, with interest thereon made payable during the interval at fixed times, annually, or semi-annually, or monthly, and a further stipulation provides that in case default should occur in the prompt payment of any such portion of interest at the time agreed upon, then the entire principal sum of the debt should at once become payable, and payment thereof could be enforced by the creditor, such a stipulation is not in the nature of a penalty, but will be sustained in equity as well as at law. In exactly the same manner, if a certain sum is due and is secured by any form of instrument, and is made payable in specified installments, with interest at fixed successive days in the future, and a further stipulation provides that in case of a default in the prompt payment of any such installment in whole or in part at the time prescribed therefor, then the whole principal sum of the debt should at once become payable, and payment thereof could be enforced by the creditor, such stipulation has nothing in common with a penalty, and is as valid and operative in equity as at the law.” — 617 — To the same effect is 2 Jones, Mortg., 7 th ed. §§ 1181 and 1182. The latter authority, in § 1182, says that a mortgage due by the election of a mortgagee is as fully matured as one due by expiration of the time limit fixed in the mortgage, — citing Bartlett Estate Co. v. Fairhaven Land Co. 49 Wash. 58, 15 L.R.A.(N.S.) 590, 126 Am. St. Rep. 856, 94 Pac. 900. It is also established that notes containing similar acceleration clauses, upon the exercising of the option, are due not merely for purposes of foreclosure but for all purposes. Wheeler & W. Mfg. Co. v. Howard (C. C.) 28 Fed. 741; Detweiler v. Breekenkamp, 83 Mo. 45; Bergman v. Fortescue, 74 N. J. Eq. 266, 69 Atl. 474. It is equally well established that the option to declare the whole amount due is effectively exercised by manifesting the fact in such a manner as to apprise the mortgagor. 2 Jones on Mortgages § 1182, expresses the rule as follows: “Where the mortgagee has the option to consider the entire debt matured on any default, it is not necessary that any particular form of expression shoxrld bo used for the purpose of declaring such option. A recital in a mortgagee’s deed, under a power of sale in the mortgage, that ‘having elected to declare said mortgage due and payable, as by said mortgage he was authorized to do, according to the terms and conditions thereof, he had proceeded to exercise the power,’ is sufficient. It is only necessary that the mortgagee show an unmistakable intention to exercise the option, and this may be done by taking steps for foreclosure, filing foreclosure suit, sale pursuant to the mortgage, or advertisement of the property for sale pursuant to the terms of the mortgage. But there must be some outward act beyond a mere mental determination or a direction to his own agents that he has manifested an election.” See also Hodgdon v. Davis, 6 Dak. 21, 50 N. W. 478; 19 B. C. L. 497, 498. In the instant case there was an affirmative declaration in writing served upon the mortgagor. When this declaration was communicated to the mortgagor, the entire indebtedness matured by virtue of the acceleration clause, unless chapter 131 of the Laws of 1919 operates to change the effect of such a clause. It will be seen that this statute deals with nothing except the subject of notices before foreclosure. Its title is so restricted. It does not purport to alter in any ~way the creditor’s right to enforce the obligation according to the contract in an action at — 618 — law. If tbe creditor remains in a position to collect tbe entire indebtedness in an action at law, clearly it is because sucb amount is legally due. Tbe statute, indeed, seems to presuppose tbat acceleration clauses shall continue to operate as in tbe past, for it requires tbe notice to state tbe “sum clue” for principal, interest and taxes, and tbat if tbe same be not paid witbin thirty days, proceedings will be commenced, etc. There is no criterion laid down to determine tbe “sum clue,” so obviously it must be determined by tbe terms of tbe contract tbe parties have made. If sucb be not tbe proper construction of tbe statute, we would have tbe anomalous situation existing of a debt due for tbe purpose of an action at law to recover it and yet have tbe remedy of foreclosure barred because tbe mortgage given to secure tbe same debt is not in default. The construction contended for involves a reversal of the ordinary legal conception of tbe relation between gn indebtedness and a mortgage given as security therefor, — tbe debt being tbe principal or primary thing and the mortgage an incident. A court should be reluctant to read into a statute of this character an implication which would credit tbe legislature with intending to permit a judgment to be obtained in a personal action, and tbe judgment collected, while a mortgage given to secure tbe same debt would be deemed not in default. We are of tbe opinion tbat any election which would be sufficient to enable a creditor to sue in an action at law for a money judgment would suffice to make tbe same “sum due” for tbe purpose of foreclosure. From this it follows tbat tbe tender in this ease was insufficient to cure tbe default existing at tbe time it was made and that tbe judgment appealed from is correct. It is affirmed. Bronson, Ch. J., and Johnson, Birdzell, Nuessle, and Christianson, JJ., concur.