United States Mortgage Co. v. Gross

Mr. Justice Baker* delivered the opinion of the Court: We will first examine as to the validity of the mortgage executed by Lombard to the United States Mortgage Company. The charter of that company is not incorporated in the record, but from its name, the character of its transaction here involved, and the facts appearing in the case, we may reasonably conclude its principal or sole business was and is to loan money, taking to itself mortgages on real estate to secure the same. The general incorporation law of 1872, which was in force when the mortgage was executed, provided for the formation in the State of companies for any lawful purpose, expressly excepting, however, corporations for banking, insurance, real estate brokerage, operation of railroads, and the business of loaning money. Section 26 of the act provided that “foreign corporations, and the officers and agents thereof, doing business in this State, shall be subjected to all the liabilities, restrictions and duties that are or may be imposed upon corporations of like character organized under the general laws of this State, and shall have no other or greater powers. And no foreign or domestic corporation, established or maintained in any way for the pecuniary profits of its stockholders or members, shall purchase' or hold real estate in this State, except as provided for in this act.” From these statutory enactments we deduce these conclusions : The latter sentence of section 26 was aimed at the purchasing and holding of real estate by corporations, for the reason such acts would tend to create perpetuities; and by this and other provisions of the same act the evil feared was effectually guarded against. We think, however, it was not designed thereby to prevent corporations from taking mortgages on real estate as security for debts. In fact, the act contemplates corporations will acquire real estate in satisfaction of indebtedness due them, and makes such provision in the fifth section for the sale of real estate so taken as secures the State against the evil had in legislative view and which had been discussed by this court in Carroll v. The City of East St. Louis, 67 Ill. 568. Indeed, it is difficult to see how mortgages, which are conveyances subject to conditions of defeasance, can be considered as tending to create perpetuities. Payments made of the debts thus secured defeat the titles of the mortgagees, and even if they take possession the incomes gradually undermine and destroy their titles. If the premises are sold under powers, the mortgagees can not themselves become purchasers; and if the mortgages are foreclosed by suit, the decrees of the court thereafter become the bases of title. But, we see, from the first sentence of this section 26, it was the policy of the State that foreign corporations should have no other or greater powers in the State than corporations of like character organized under the general laws of the State; and further see, from the first section of the act it was a part of that same policy that corporations should nótbe formed in the State for the business of loaning money. It follows that corporations organized in a foreign State for such business of loaning money could not claim to pursue such business in this State. The comity between the States does not demand we should hold this mortgage company, incorporated under an act of the State of Hew York, could lawfully, within this State, exercise powers denied to corporations formed within our own borders. All the acts of this company here done in furtherance of such business of loaning money were invalid as being obnoxious to our policy and institutions. The act of April 9, 1875, provides, among other things, that any corporation formed under the laws of any other State or country, and authorized by its charter to invest or loan money, may invest or loan money in this State. And any such corporation that may have invested or lent money as aforesaid, may have the same rights and powers for the recovery thereof, subject to the same penalties for usury, as private persons, citizens of this State; and when a sale is made under any judgment, decree, or poAver in a mortgage or deed, such corporation may purchase, in its corporate name, the property offered for sale, and become vested with the title wherever a natural person might so do in like cases. Laws 1875, p. 65. It was the evident intention of this latter act, not only to change somewhat the policy of the State, but to validate such contracts as that here under consideration. It is urged by appellant, that even if the mortgage was theretofore invalid, it was rendered valid and binding by this act; and by appellee it is contended the act thus construed would deprive him of his property without due process of law, and take from him a vested right. A statute must have a prospective operation only, unless its terms show clearly a legislative intention that it should operate retrospectively. Here, there is no doubt, the statute is retroactive; it is expressly so on its face. Unless there be a constitutional inhibition, a legislature has power, when it interferes with no vested right, to enact retrospective statutes to validate invalid contracts or to ratify and confirm any act it might lawfully have authorized in the first instance. We do not deem it necessary to cite any of the many cases where this doctrine has been announced or followed. In Cooley’s Constitutional Limitations, p. 374, it is said: “ When such acts go no further than to bind a party by a contract which he has attempted to enter into, but which was invalid by reason of some personal inability on his part to make it, or through neglect of some legal formality, or in consequence of some ingredient in the contract forbidden by law, the question they suggest is one of policy and not one of constitutional power.” Lombard borrowed the money and attempted to make a valid contract of mortgage to secure its payment, and he was, if not legally, at least in justice and good conscience, bound thereby; and it is clear the mortgage might well be validated so far as regards him. But it is claimed the rights of third persons have intervened which can not be affected by this legislation. The true line of distinction is laid down by Cooley in his work on Constitutional Limitations, just quoted from. On pages 378 and 379, he says: “The operation of these cases, however, must be carefully restricted to the parties to the original contract and to such other persons as may have succeeded to their rights with no greater equities. A subsequent bona fide purchaser can not be deprived of the property which he has acquired, by an act which retrospectively deprives his grantor of the title which he had when the purchase was made. Conceding that the invalid deed may be made good as between the parties, yet if, while it remained invalid, and the grantor still retained the legal title to the land, a third person has purchased and received a conveyance, with no notice of any fact which should preclude his acquiring an equitable as well as a legal title-thereby, it would not be in the power of the legislature to so confirm the original deed as to divest him of the title he has acquired. The position of the case is altogether changed by this purchase. The legal title is no longer separated from equities, but in the hands of the second purchaser is united with an equity as strong as that which exists in favor of him who purchased first. Under such circumstances even the courts of equity must recognize the right of the second purchaser as best, and as entitled to the usual protection which the law accords to vested interests.” We understand the rule to be that where a third party purchases under such state of facts as would preclude his acquiring an equitable as well as a legal title, the legislature may confirm the original contract so as to divest him. So, here, the National Life Insurance Company had and has no equity as against the United States Mortgage Company, and bought expressly subject to its equity, and agreed, as a part of the purchase money for the premises, to pay the debt which was, in equity and good morals, due from Lombard to the mortgage company. It would be inequitable and unjust to permit the insurance company, Avere it here defending against this mortgage, it having agreed to pay $100,173 for these lots, the larger portion of Avhich AA'as in the assumption of the debt of Lombard to the mortgage company, and secured or attempted to be secured by the mortgage expressly subject to which it purchased, to now hold this valuable property discharged of this debt. It received full consideration for this assumption of the mortgage debt, and to now keep and possess the property released therefrom would be such want of good faith on its part, both towards Lombard, its grantor, whose debt it was paid for assuming, and to appellant, as a court of equity would be loth to sanction. We think it evident the insurance company took the lots with no greater equities than existed in Lombard, the party to the original mortgage contract with appellant. Great stress is laid by appellee upon the case of Thompson v. Morgan, 6 Minn. 295, and it is said that case is exactly like the one at bar. We do not think the cases are analogous. Even if we assume the doctrine of that case to be correct, a point it is not deemed necessary to here examine, yet there is a broad and fundamental distinction between the two cases. In that case the court held the mortgage from Folsom to Morgan was ineffectual to pass an interest in the land, because not executed in conformity with statutory requirements, and that although Folsom afterwards conveyed the premises to Babcock subject to the Morgan mortgage, and so expressed in the deed, yet he could safely take the title subject to the mortgage, and rely upon the defence that was patent upon its face for protection, and that the curative act of July 26, 1858, could have no effect to validate the Morgan mortgage to the prejudice of Babcock, or of Thompson, who claimed under him. But, it will be noted, the gist of the case is the mere notice to Babcock, and the question was whether such notice changed his status as regarded the character and defects of the mortgage. And the court; said: “ Babcock might perhaps have estopped himself from questioning the validity of this mortgage, by an appropriate clause in his deed recognizing it as a subsisting lien and waiving its defects, but the mere admission of notice that such a mortgage existed, by a recital of it in this deed, through which he derived his title, would not operate such a consequence.” We regard this as a plain intimation, by the Supreme Court of Minnesota, that had this element of a recognition of the mortgage as a lien and waiver of defects appeared in the record, the decision of that case would have been otherwise. In the case at bar the premises were not only sold subject to the mortgage, but there was an express assumption of the mortgage debt, and a promise to pay that mortgage debt as a part of the consideration of the purchase. The facts of this case go far beyond a mere notice, and beyond even that which seems to have been deemed sufficient in Thompson v. Morgan. Although Gross took the note of the National Life Insurance Company, secured by the second mortgage, before maturity, yet, as regards the mortgage or trust deed security, he merely stepped into the shoes of Lombard and the insurance company. He has but an equitable title to the trust deed, to enforce which he has resorted to a court of equity, and he holds such title with all the equities and infirmities existing against it, and has no stronger or better claims under it than his assignor could have claimed. Darst v. Gale, 83 Ill. 137; Walker v. Dement, 42 id. 272; Fortier v. Darst, 31 id. 212. So far as the security for the note is involved Gross took with notice, he claiming his lien under and through the insurance company and Lombard, and is affected by the recitals and covenants in the deed from Lombard to the insurance company to the same extent they were. When he took the trust deed as a security he was chargeable with notice of all equities appearing in the chain of title whereby he acquired a lien under that trust deed, and the equity of the United States Mortgage Company appeared in the deed to the grantor in the trust deed under which he claims. So, the same knowledge imputable to Lombard and the insurance company is imputable to him, when he stands in the court of equity seeking relief, not as the legal holder of negotiable paper assigned before maturity, but in the attitude, so far as concerns the equitable security, of an assignee of an equitable title, subject to all the equities and infirmities existing against it in the hands of the original parties to the contract. Our conclusion is, it was entirely competent for the General Assembly to validate the mortgage in question, not only as to the parties to the original contract, but as to Gross, the assignee of the equitable interest in the trust deed, since, under the circumstances of the case, he has no such equities as will give him a vested right as against the equities of the mortgage company. A party, can not have a vested right contrary to equity and justice. The other principal question at issue is, who is entitled to the judgment for $10,952.73 against the city ? Should that judgment be paid to Gross, the holder of the note secured by the trust deed executed on the premises and delivered to Lombard, in whose favor the waiver clause in the mortgage to appellant was made? Or, should it be paid to appellant, who holds the first mortgage but took the same with that waiver clause in it? We think it a misapprehension to say the thirty-five feet of ground, the appropriation of which to the opening and extension of Dearborn street was contemplated, was either omitted or released from the mortgage. The premises purporting to be conveyed by way of mortgage were the entire premises, the whole lot and the half lot, and then, after the description of the lots mortgaged and after the habendum clause, was inserted a provision that if the strip of ground off the west end of the premises should be taken by the city for the purposes of the extension, then, in that event, “any benefit which may accrue to the said party of the first part herein, may be paid by the city to the said party of the first part direct.” What was the intention of the parties to the contract? The whole instrument must be construed together, and this stipulation must be interpreted in the light of the other provisions of the deed. And if the deed is equally susceptible of two interpretations, it is a well established rule that meaning will be adopted which is adverse to the interests of the grantor. City of Alton v. Illinois Transportation Co. 12 Ill. 38. Lombard was the general owner of the lots, and for the purpose of securing funds with which to build thereon he borrowed $50,000 from appellant, and mortgaged the premises. He covenanted to pay the debt and interest, and that the real estate was clear of all incumbrances, and that he would warrant and defend the same, and suffer no impairment of the security of the mortgage company, and that the mortgage should stand as security for any money paid for taxes or insurance, and that on failure to pay any taxes or assessments on said lots, or keep any other covenants, the whole of the debt should become due at the option of the mortgage company. It is clear, from this, it was intended Lombard should pay the benefits assessed against the lots for the proposed improvement, since it was expressly stipulated he should suffer no impairment of the security, and that on his failure to pay any assessment on the premises, the whole debt might be declared due. It was evidently contemplated Lombard would continue to hold the lots and building to be erected thereon, and intended the investment of appellant, which was for a term of years, should be kept secure, and that the interest on the loan, and taxes, insurance and assessments on the property, should be paid by Lombard. It is also plain, from the mortgage itself, as well as from the manner in which the building was constructed, with its main front on Dearborn street as proposed to be extended, and leaving the thirty-five feet unoccupied, it was considered that street would shortly be opened. If this was done, there would necessarily be benefits assessed against the lots, and, on the other hand, compensation allowed the lot owner. Lombard was already, by his covenants, bound to pay the assessments levied for benefits, and to suffer no impairment of the security held by the company—and this, too, under a heavy penalty, which, if imposed, would be likely to deprive him of the whole of this valuable property. In that state of the case, it was stipulated the benefit which might accrue should be paid to Lombard direct. The several parts of the instrument should be construed together, and thus construing them, we think it manifest it was the understanding Lombard should collect the compensation, and, at the same time, pay the assessments, so as to keep the security unimpaired. The phraseology of the stipulation relied on by Gross is peculiar. After the recitation in reference to the anticipated extension of Dearborn street, the language used is, “in which event, any benefit which may accrue to the said party of the first part herein may be paid by the city to the said party of the first part direct.” It is plain the word benefit is not used in the technical sense in which that word is used in the statute. The words, “ compensation and damages,” are the words there used to indicate the amounts to be paid to the lot owner by the city; and the word “benefit” is the word used in the law to indicate the amount to be paid by the lot owner to the city. The stipulation is not that the compensation or damages should be paid by the city to Lombard direct. Now, as we have seen, Lombard was bound by his covenants to pay the assessments for benefits and suffer no impairment of the security, and ho is entitled by the same contract to “ any benefit which may accrue to him,” he being the general owner. The prospective compensation that would become due from the city, without special provision otherwise, would be payable to the mortgage company by virtue of the lien on the property taken, and would be a credit upon the loan. This was, therefore, provided against, and, as it was at least possible, if not probable, the improvement would result in an excess of compensation over the assessment made on the lots, it was stipulated any benefit which might accrue should be paid to Lombard direct. In other words, if the compensation exceeded the assessment, then a pecuniary “benefit” would accrue to the lot owner from the opening of the street, and that, instead of being credited on the debt, was to go to the owner of the lot; but if, as the event was, the assessment exceeded the compensation for the thirty-five feet taken, then no pecuniary “ benefit” would accrue to the lot owner from the extension of the street. It would seem this was the real meaning and understanding of the parties to the contract, and the real object in view in inserting the waiver clause. Lombard would thereby not only pay the assessment, but collect the compensation, and get the benefit of any surplus of compensation and damages over benefits—the United States Mortgage Company being only interested that the opening of the street would impose no additional burden upon them and not impair the security they held. We think a consideration of the whole contract and all its various provisions, in the light of the surrounding facts and circumstances, clearly shows this was the real substance of the arrangement between the parties. It appears the compensation awarded for the portions of the lots taken for the street was $10,952.73, and that the benefits assessed against the remaining portions of the lots were $15,897.84. So that, if Lombard had in good faith performed his contract made with the appellant company, not only would the whole of the compensation have been absorbed in paying the assessment, but he would have been obliged to pay $4945.11 in addition thereto. The rules of equity do not require he should be allowed a premium for his breach of contract. If Lombard himself were here in a court of equity, claiming this fund of $10,952.73, and at the same time admitting his failure to pay either debt, interest, insurance, taxes, or even the assessment of benefits growing out of the selfsame improvement from which that fund originated, and casting back upon appellant the mortgaged property thus incumbered and the security thus impaired, his claim would only be enforced by setting it off against the above mentioned just demands against him. It also appears from the record he is insolvent and a bankrupt, and that no assets of his are known to exist, and that the National Life Insurance Company is in like predicament, and that the mortgaged premises are not worth the amount due on the mortgage and the special assessments on the lots. These latter facts but intensify the case, to show the rank injustice that would be done in giving this fund to either Lombard or the insurance company, were either he or it here asking therefor. But it is claimed this view overlooks the rights and position of Gross. That position and those rights we have considered in connection with the other branch of the case. We have seen that, as regards the trust deed, he bought that which was not assignable at law, and with notice of the equities of the mortgage company, and took that security subject to all the infirmities to which it would have been liable in the hands of Lombard or the insurance company. When recourse is had to a court of chancery, such assignment will not cut off prior and stronger equities against the same fund. It is also claimed the damages arising from the taking of these thirty-five feet of the lots by the city can not be set off against the benefits assessed against the remaining part of the lots, and the decision of this court in Carpenter v. Jennings et al. 77 Ill. 250, is referred to in that connection. The question there considered was as to the constitutional powers of commissioners of highways in laying out a public road, while this case involves no such inquiry, but the validity and construction of a contract, and the equities of appellant and appellees, respectively. The adjudication of the claims of the mechanics and material-men was right. The decree must be reversed on the assignments of error made by the United States Mortgage Company, and the cause is remanded for further proceedings consistent with this opinion. Decree reversed. Footnotes [*] This cause was decided and the opinion prepared during the time Mr. Justice Baker was on the Bench.