Bank of Louisville v. Baumeister

JUDGE LEWIS delivered the opinion of the court. September 14, 1883, by written contract between them, Mrs. V. H. Bullitt leased to George Spalding, for the term of five years, for an agreed rent, a lot of land situated in the city of Louisville, which contract contained a provision, the principal subject of controversy, and hereafter mentioned. September 22, 1883, Spalding made a contract with appellee, Baumeister, for the erection upon the lot of a warehouse, for which he ivas to pay five thousand seven hundred dollars in ten semi-annual installments, appellee Olds agreeing to become surety therefor, upon condition Spalding would indemnify him against loss. And October 1, 1883, a mortgage was executed for that purpose, Mrs. Bullitt being party thereto. In that mortgage is the following recital: “Whereas, by lease dated, fourteenth day of September, 1883, Mrs: Bullitt leased to Spalding a tract — 10 — of ground (describing it); said lease giving to said Spalding the option to purchase the leased premises at any time within five years for the sum of five thousand dollars, to be paid cash in hand, to which, lease reference is made for greater certainty, the same having been duly- lodged for record in the Jefferson County Court Clerk’s office.” Following the farther recital that Olds had become surety in the notes to Baumeister is this clause: “Now, in consideration of the premises, the said. Spalding does hereby sell, assign and transfer to said Henry Gf. Olds the said lease, together with all right, title and interest of said Spalding in and to said lease and the premises therein described, and any improvement or buildings which may be placed upon said premises, together with the option to purchase said leased premises, &c.” On the part of Mrs. Bullitt is the following agreement and reservation: “The said Virginia H. Bullitt unites herein for the sole purpose of signifying her assent to the transfer of the said lease and option. It is distinctly agreed and understood that Spalding does not, by reason of this assignment, cease to be responsible to the fullest extent to Mrs. Bullitt for the fulfillment of said contract of lease between them.” October 6, 1884, Baumeister having in the meantime erected the warehouse- in compliance of his contract, Mrs. Bullitt conveyed the lot to Spalding for the price mentioned ; but' they so modified the original agreement that, instead of the entire purchase money, only one thousand dollars of it was then paid, a lien being retained in the deed for the residue made payable — 11 — September 14, 1888, the day when the lease would have ended. January 26, 1885, Spalding ■ mortgaged the lot, the warehouse being then on it, to appellant, the Bank of, Louisville, to secure certain debts he owed it. And June 13, 1885, he executed a mortgage to Baumeister on the lot “with all the rents, issues and profits thereof,” to secure payment of a note of that date for three thousand five hundred dollars. And in that mortgage “it was agreed that if said note shall not be paid at its maturity, then said second party may immediately enter upon and take possession of said real estate and collect the 'rents, and apply the same to the satisfaction of the debt.”- This action was instituted June 16, 1886, by Baumeister ; Spalding, Mrs. Bullitt, Olds and The Bank of Louisville being defendants. And in his petition he prayed judgment for his debt and application of proceeds of sale of the lot, and rents accrued and accruing during the pendency of the action to satisfy it. The defendants, creditors of Spalding, respectively asked judgment for their debts, and enforcement of their liens. And Spalding having consented that each of the debts against him might be treated as due, personal judgments therefor were rendered, and the priority of liens fixed and proceeds of the sale directed to be applied in the-following order:- 1. To Mrs. Bullitt for the balance of purchase money unpaid., 2. To Baumeister and Olds to the extent of the judgment of the former against thé latter. 3. To the Bank of Louisville, balance unpaid of its mortgage debts. 4. To Baumeister, his debt secured by the mortgage of June 13, 1885. It was farther adjudged that. Baumeister — 12 — had a prior lien for the rents secured by the mortgage last named. From that-judgment, except as it affects Mrs. Bullitt, the Bank of Louisville appeals. It is contended in argument that the judgment ought to be reversed to the extent it gives Olds priority in the proceeds of sale for the reasons: 1. That the option ■of Spalding to purchase was not a subject of mortgage, because no interest in the lot, legal or equitable, existed in virtue of it. 2. That the mortgage did not in any event operate upon or affect the freehold. 3. That it was void as to improvements subsequently put upon the lot. By section 6, chapter 63, General Statutes, it is provided that “any interest in or claim to real estate may be disposed of by deed or will in writing.” And that the right to dispose of such interest or claim was intended to include the right to mortgage as well as to sell absolutely is unquestionable. For it is well settled, that every kind of interest in real estate may be mortgaged if it be subject to sale and assignment. (Jones on Mortgages, section 136.) The simple inquiry then is, whether the option to purchase the lot at the agreed price within the specified period was such an interest in or claim to the lot as could be sold or assigned by Spalding. And the answer to it depends upon whether the contract for the option was or not enforceable. It is true, as argued, “a contract must be mutual, and one. party can not be bound without the other.” But that does not mean that any one or more acts to be done by one of the parties must necessarily be simultaneous with the consideration paid or agreed to be — 13 — paid by the other. The conveyance of the lot, upon demand and tender of the agreed price by Spalding, was obligatory on Mrs. Bullitt, if at all, because it was part of the contract of lease, which, being founded upon a valuable consideration, was valid and enforceable as- an entirety. A naked agreement on her part to convey the lot for the stipulated price, at the option of Spalding, without any value received or to be received by her, or expense to be incurred or loss sustained by him on the faith of it, would not have been binding. But if Spalding agreed to lease and pay rent for the vacant lot, and incur the expense of putting a warehouse upon it, in order to make it remunerative, upon the faith of her agreement he should have the option to purchase at any time during the term of his lease, she was, it seems to us, unquestionably bound. It is not unusual or unfair, on the contrary often of advantage to both buyer and seller of merchandise and farm products, to give to the one the option to receive, or to the other to deliver at an agreed price, a greater quantity or number .than is or perhaps Tan be conveniently specified and fixed at the time of the contract. “Sales on trial” or “approval,” and “sale and return,” are terms of common use in the transfer of personal property, and indicate transactions that apparently lack mutuality; but they are not necessarily without consideration or disadvantageous to either buyer or seller. We perceive no reason why the owner of unproductive real estate may not, as part of a contract of lease, and in consideration of rent to be paid by his — 14 — lessee, or expense to be incurred in. making it productive, as seems to be this case, bind himself to sell it within a prescribed period at a stipulated price, at the option of the lessee. But it is useless to argue this question farther. For Mrs. Bullitt, the only person having any right to deny the validity of that .part of the contract, irrevocably bound herself to convey the lot to Spalding upon the agreed terms, by making herself a party to the mortgage, and “signifying her assent to the transfer of said lease and option.” Having thus by her own voluntary act caused Olds to become the surety of Spalding in the note given to Baumeister for erecting the warehouse upon the faith she would convey the lot upon payment of the price by Spalding, she was thereafter estopped to deny being bound by. the contract to do so. Moreover, the question of her obligation to convey, if it had been an open one, was closed by her actually making a deed for the lot to Spalding before it was mortgaged ■ by him to the Bank of Louisville. ■ It is true that, instead of paying the whole of the purchase money when the deed was made, in accordance with the original contract, he paid only one thousand dollars thereof, which was accepted by her. But that change, made as he alleges without his consent, did not in any way impair the rights of Olds as mortgagee. For although his security became of less value than if the lot had been fully paid for, leaving no incumbrance on it for unpaid purchase money, he could, as was done, waive his right to insist upon a literal compliance with the first contract, and still retain his mortgage lien upon whatever interest Spalding acquired — 15 — under the deed. And that interest is precisely the same as if the lot had been conveyed to him in pursuance of a title bond. For the contract, even before it was supplemented by the mortgage, bound Mrs. Bullitt as effectually to convey the lot, with a good title, upon the terms specified in it, as she would have been by a covenant to convey, executed in due form. We are, therefore, unable to see upon what ground it can be contended the mortgage to Olds did not operate upon and affect the freehold after it was acquired by Spalding.. The subject of the mortgage was the interest of Spalding in the' lot secured by his contract with Mrs: Bullitt, and that interest he impliedly, if - hot in the express terms of the mortgage, agreed to make equivalent to a complete ownership of the lot by paying the purchase price in full. But independent of any agreement, Olds was entitled ’to the benefit of whatever he did pay. For upon the discharge of a prior incumbrance, whether it be a mortgage or vendor’s lien, the mortgage interest has the full benefit of the discharge, (Jones on Mortgages, sections 138, 139.) We think, whatever was the extent and .value of Spalding’s interest in the lot, the lien of Olds thereon was subordinate only to that of Mrs. Bullitt. The rule by which to determine whether the warehouse is to be regarded embraced by the mortgage of Olds is, “that fixtures attached to the realty after the execution of a mortgage of it becomes a part of the mortgage security, if they are attached for the permanent improvement of the estate, and not for a temporary purpose; or if they are such as are regarded as permanent in their nature, or if they are so fastened or — 16 — attached to the realty as that the removal of taem would be aa injury to it.” Although Spalding, at the time he commenced the erection of the warehouse, was not the owner of the lot, nor had in fact openly made his election to purchase it, yet considering the character and cost of the building, the option to purchase the lot which he had secured by his contract with Mrs; Bullitt, and the special mention of the warehouse in the mortgage to Olds, it is evident it was intended by him to be attached as a permanent improvement of the estate which he subsequently purchased. And as the liability of Olds was incurred to enable him to erect the building, and upon the faith it, as part of the realty, would constitute a security against loss, we think it was properly adjudged subject to his mortgage. Though excepted to at the time, counsel do not in argument insist upon a reversal upon the ground Baumeister was adjudged to have a prior lien upon the rents. Nor do we think there was error on that account. For neither of the other mortgages in terms operated upon or related to the rents, as was the case of the mortgage to Baumeister, and consequently neither of them created a lien upon any thing besides the property mortgaged. The judgment is affirmed.