Hawkenson v. Rostad

Mr. Justice Burnett delivered the opinion of the court. 1, 2. The testimony discloses substantially the following state of affairs: Thorsen was the owner of the land — 708 — in question. He procured Eostad to take a deed to the premises, execute the notes mentioned and with his wife to secure the same by a mortgage upon the realty. At the same time and as part of the same transaction Thorsen also took a return deed from Eostad and wife conveying the land back to him. This latter instrument was withheld from record, but the deed from Thorsen to Eostad and the latter’s mortgage were recorded about the time of their execution. There is no controversy but that Eostad paid nothing whatever for the land and received nothing for the notes and the mortgage. In short, the effect of the transaction was that Thorsen used Eostad to produce some bank- . able paper secured by the mortgage upon land really belonging to the former. The evidence is undisputed that Thorsen negotiated the large note to the Scandinavian American Bank prior to maturity and received therefor $20,000 in coin; and further, that prior to the maturity of either of the $5,000 notes he indorsed them to Flanders for value and that the latter knew nothing whatever of the transaction between the original parties beyond what appeared of record at the time. The evidence does not in any respect sustain the charge that Thorsen represented to Eostad that the notes should not be negotiated or transferred to any one. The judgment against Eostad in favor of the People’s Bank was not recovered until more than three years after the execution of the notes and mortgage. In substance the contention of the People’s Bank is that because on the face of the record Eostad had the legal title to the land, its judgment became a lien upon the premises upon its rendition and docketing; and that the transaction between Thorsen and Eostad was fraudulent and void as against the latter in whose shoes the People’s Bank is entitled to stand — 709 — and thus make its judgment paramount to the mortgage. It is plain that Eostad never had any actual estate in the land but merely held the bare legal title and that as part of the transaction he encumbered it with the mortgage. It is well settled in this state that a judgment is a lien only upon the actual interest of the judgment debtor in the land: Meier v. Kelly, 22 Or. 136 (29 Pac. 265); Dimmick v. Rosenfeld, 34 Or. 101 (55 Pac. 100); Smith v. Farmers & Merchants’ Bank, 57 Or. 82 (110 Pac. 410); Gladstone Lumber Co. v. Kelly, 64 Or. 163 (129 Pac. 763). As viewed by a court of conscience Eostad had no interest in the realty not having paid anything whatever for it. Having put nothing into the land it is certain his creditors can take nothing out of it. The People’s Bank cannot reap where neither it nor Eostad has sown. Moreover, in equity the judgment creditor cannot assume any better position than could its debtor of record. He cannot accept the benefits of the transaction between himself and Thorsen in part, without adopting the whole of it. This includes not only the execution of the deed from Thorsen to Eostad, but also the mortgaging back of the property to the amount of the notes in question. If he would escape the effect of the notes and mortgage, or if the People’s Bank would do the same thing standing in his shoes, in a court of chancery they must do the equity of restoring what they got by virtue of the deal of which the mortgage was a part. There is no pretense that this has been done or offered. 3. It was urged at the argument, although there is no assignment of error on that ground, that the decree was void because Thorsen was not made a party notwithstanding that in the reply of the present plaintiff it appears for the first time that Eostad in addition to — 710 — the mortgage reconveyed the land to his grantor, which conveyance, however, was not recorded. Reliance is had upon the case of Osborn v. Logus, 28 Or. 302 (37 Pac. 456, 38 Pac. 190, 42 Pac. 997). That was a suit to foreclose mechanics’ liens wherein it was insisted that the contractor was a necessary party defendant. In discussing this point the court distinguished between a person having a subsequent lien and one having a prior encumbrance and said: “Now the result of all this is that the owner of the equity of redemption is an indispensable party, and without him the suit cannot proceed. Subsequent lienors are considered necessary parties but their absence from the record does not perforce of that fact render the proceeding a nullity; but interested parties may require that they be brought in for their protection, and proper parties may be brought in if deemed necessary. The owner, of course, is an indispensable party and his absence would be fatal to the proceeding; a decree without him would be a nullity.” In Byrd v. Cooper, 69 Or. 406, 410 (139 Pac. 104), in an opinion by Mr. Justice Moore the opinion in Osborn v. Logus, supra, is thus discussed: “What was there said about the owner being an indispensable party was evidently intended to be used by way of illustration and comparison. But however that may be it is believed that the language so employed is a correct declaration of the law applicable to the question here involved. Prom this assertion it follows that if the owner of real property whose conveyance of the title thereto is duly recorded at the time a suit is brought to foreclose a mechanic’s lien attaching to the premises, is not then made a party or brought in within the time limited by the statute therefor, any decree that might be rendered in that suit is not binding on him.” The instant case is somewhat different from Sellwood v. Gray, 11 Or. 534 (5 Pac. 196). There the — 711 — plaintiff had loaned to one Carter a sum of money secured by mortgage on certain realty. Cray after-wards secured a judgment against Carter. Sellwood foreclosed his mortgage hnt did not serve process upon Cray. He, however, took a decree against Carter and other parties including the mortgagor and bought in the property. Afterwards Cray issued execution upon his judgment and sold the land, becoming the purchaser at his own sale. Sellwood then instituted a suit to compel Cray and others to redeem from his mortgage or that it he foreclosed. In this situation Mr. Justice Lord used this language: “"When, therefore, the plaintiff instituted his suit of foreclosure against Carter, the mortgagor, and obtained a decree for the sale of the property, without making the defendant,' Cray, a party, the proceeding, as to him, was a nullity. But the sale effected some important results. Except as to the defendant, Cray, who was not bound by it, it had operated to cut off the right of the mortgagor to redeem, and to change the ownership of the property from the mortgagor to the mortgagee, who had become the purchaser. ’ ’ The distinction is that here the owner of the estate is not before us; while there he was a party to the suit, and hence the title was in the power of the court. Not so, however, in the present juncture in which the plaintiff asks us to do the vain thing of ordering a sale of the land without having jurisdiction of Thorsen, its owner. "While we might order a sale of his encumbered property if we had jurisdiction of him and not of the junior encumbrancers, as in the Sellwood foreclosure, which, however, would not affect them, the precept will not work the other way and allow us to dispose of his land without his consent or giving him his day in court on that question, although all subsequent lienholders are in court. — 712 — This makes applicable Section 41, L. O. L.: “The court may determine any controversy between parties before it, when it can be done without prejudice to the rights of others, or by saving their rights; but when a complete determination of the controversy cannot be had without the presence of other parties, the court shall cause them to be brought in.” It is true that in Wilson v. Tarter, 22 Or. 504 (30 Pac. 499), a part owner of the land included in the mortgage was not made a party defendant, but the foreclosure proceeded to sale. Afterwards the missing title holder was allowed to maintain a suit to compel the mortgagee to elect between redemption of the whole premises or make conveyance of the parcel to the plaintiff. We are not required, however, to visit such complication upon the present litigants. Neither would it be seemly for us to launch upon the business community a title which would be a nullity because the owner of the fee was not a party to the decree directing the sale of the realty involved. As a proper solution of the case, therefore, the decree of the trial court will be reversed and the cause remanded with directions to that tribunal to cause the owner of the fee and any other necessary parties to be brought in for the purpose of making complete foreclosure in this suit. Reversed and Remanded With Directions. Mr. Chief Justice McBride, Mr. Justice Benson and Mr. Justice Harris concur.