Schneider v. Reed

— 494 — Tbe following opinion was filed December 13, 1904: WiNsnow, J. Tbe appeal of tbe Heeds must be dismissed. It stands admitted that before tbe commencement of this action they deeded to tbe appellant Kerwin their entire inter■est in tbe lands in question. No personal judgment of any kind is rendered against them; hence it is apparent that they have no interest in the litigation, and are not aggrieved in ■any way by the judgment, and hence are not entitled to appeal therefrom. Sec. 3048, Stats. 1898. Tbe appeal of tbe defendant Kerwin, however, raises some serious questions. Ilis first contention is that the deeds to John Schneider and ‘Gilbert cannot be held to constitute a mortgage, because the Reeds and Joseph Schneider had no interest in the premises at the time except a bare possession, and hence had nothing which they could mortgage. This contention is satisfactorily answered by the holding in the case of Schriber v. Le Clair, 66 Wis. 579, 29 N. W. 570, 889, where the defendant had absolutely no interest in the lands deeded, and was not even in possession thereof; yet, it appearing that the lands were conveyed to the plaintiff as mere security for a loan to the defendant, the transaction was held to be a mortgage. Further citation of authority on this point is unnecessary. The most important contention, however, relates to the ■question of the claims of the defendants the Brighton Beach Company and Engels. As stated in the statement of facts, the Brighton Beach Company made an oral agreement with the Reeds and Joseph Schneider to purchase a certain part of the property (but agreed upon no price), and thereafter ■erected an expensive building thereon, and afterwards a large judgment was obtained and docketed against the Brighton Beach Company by Engels, and the claim is that the Brighton Beach Company had an equitable interest in the parcel on which they built, and that the judgment of Engels — 495 — is a lien upon that interest. The court found that the Brighton Beach Company had an equitable and valuable interest in the parcel on which they built, thé character and degree of which was not determined because such determination was unnecessary, and that Engels claimed a lien upon that interest.' The appellant Kerwin claims that it was error to hold that the Brighton Beach Company had any interest in the lands, and that, if it had any interest, it was error not to determine what that interest was with certainty. Taking up these questions in inverse order, it seems to us that if, in fact, the Brighton Beach Company had any interest in the premises, or claim thereon, which a court could recognize, the court should have determined what that interest was, and by what means it was to be protected in this action. Had Mr. Kerwirís rights been simply those of a mortgagee, it seems probable that no such determination would have been necessary, so far as his rights were concerned. All that he could reasonably claim as mortgagee would be a judgment of foreclosure and sale, and a determination of the question as to who was entitled to redeem before sale, and these rights are sufficiently secured by the judgment actually entered. But he was not a mere mortgagee. He had acquired, by purchase before the foreclosure action, title to the interest of the Reeds, which on any theory amounted to at least a two-thirds interest in the equity of redemption. So in regard to this two-thirds interest he stood in' the double relation of mortgagee and owner of the equity of redemption. As such owner the question whether the Brighton Beach Company and Engels had interests in any part of the premises which could in any way be a burden upon his title' acquired from the Reeds was manifestly of considerable importance, especially in case of a surplus upon the foreclosure sale, or in case the mortgage was discharged by the sale of a part of the property. “Equity delights in doing justice, and that not by halves.” All the parties interested in the question were be — 496 — fore tbe court, and as tbe interest of tbe Brighton Beach-. Company, if any, was purely equitable, there would seem to-be great force in tbe claim that it should be settled in tbe present action. In reply to this, however, tbe claim is made-that such a contest between defendants could only be properly considered and decided upon a cross-complaint and that there is no cross-complaint covering this contention in the-answer. It may be readily conceded that tbe most orderly-way of presenting such a controversy between defendants is by way of answer containing tbe essential allegations of a cross-complaint, as fully elucidated in tbe case of Kollock v. Scribner, 98 Wis. 104, 73 N. W. 776, and after-wards specifically recognized by tbe statute in sec. 2883r Stats. 1898. It may also be conceded that, inasmuch as-tbe statute now uses tbe term “cross-complaint” in referring to such an answer, it would be better pleading to so denominate that part of tbe answer containing tbe supposed cross-complaint in analogy to tbe requirements in case of a-counterclaim. That course was not followed in tbe present, case, but it by no means necessarily follows that tbe issues-were not fairly before the court. Mr. Kerwirís answer,, while not denominated a cross-complaint, really contains the-essential averments of such a pleading. It admits tbe execution of tbe deeds to John Schneider and G-ilbert, alleges-that tbe oral agreement to convey to tbe Reeds and Joseph Schneider was null and void, sets forth bis own purchase of the rights of tbe Reeds and tbe undivided one half owned by Gilbert, and bis consequent ownership of at least one half' of tbe land; alleges that neither tbe Brighton Beach Company nor Engels has any right or interest in tbe land, although Engels claims that bis said judgment is a lien upon tbe lands; and asks affirmatively that tbe claims of said last-named defendants be determined, that bis title be established against such claims, and that said defendants be forever-barred of all rights in said land. This answer, by order of — 497 — court, wás served upon tbe Brighton Beach Company and Engels, and they each made answer thereto, in which they each referred to Mr. Kerwin’s answer as a cross-bill, and each claimed an interest in the mortgaged premises. Under this state of the pleadings we cannot doubt that the issue as to the nature and extent of the claims of the defendants in question was fairly before the court, and that, if there was any substantial defect arising from the failure to properly label the allegations of the answer as a cross-complaint, it was effectually waived by the fact that the defendants voluntarily answered the same as though the allegations had been properly named. Voechting v. Grau, 55 Wis. 312, 13 N. W. 230. So we must not only regard the question as a proper one to be raised and litigated in this action in order that a complete determination of all conflicting claims be reached in one action, but also as in fact properly raised by the pleadings actually filed. Such being our conclusion, the question as to the extent and nature of the interest, if any, must be considered. The Brighton Beach Company took possession, and made their improvements, under an oral arrangement for purchase made with the Reeds and Joseph Schneider, who owned the equity of redemption in the premises. Had this oral agreement been sufficiently definite in its terms, it could doubtless have been specifically enforced in equity. But the difficulty is that no price for the land was agreed upon. Under the most favorable construction of the evidence it appears that the only arrangement as to price was that the company would pay what the land was worth, and that, if the parties could not agree, the price was to be settled by .arbitration. Thus one of the essential elements of the contract was left wholly uncertain,.and it will not be enforced. Eckel v. Bostwick, 88 Wis. 493, 60 N. W. 784. An agreement to arbitrate will not be specifically enforced. Hopkins v. Gilman, 22 Wis. 476. Thus it is plain that the Brighton Beach Company had no — 498 — interest in tlie title of tbe tract, and no right to compel a conveyance thereof under any circumstances; but it by no means follows from this that, as between them and the owners of the equity of redemption, they had no claim which a court of equity would recognize and preserve, subject, of course1, to the prior claim of the mortgage. Eliminating, for the moment, the paramount mortgage interest, the question is whether the company had any equitable rights as against the owners of the equity of redemption. They were not trespassers, but went into possession, and in good faith made extensive improvements under an unenforceable arrangement with the owners of such equity, of which arrangement Mr. Kerwin had notice, by the fact of their possession, when he obtained his title. Fiad ejectment been brought against the company, there could have been no allowance for improvements under the betterment statute, because that statute limits the allowance for improvements to a party in possession who holds adversely in good faith under color of title founded on descent or some written instrument. Sec. 3096, Stats. 1898. But the fact that a court of law, in a purely legal action governed by statutory provisions, may be unable to grant relief, by no means sets bounds to the beneficial powers of a court of equity, especially when the opposing party has himself entered that court,-and asked for its decree cutting off the alleged equitable claims. If no relief could be given in the present case to the maker of the improvements, then it would follow that whenever the owner of land succeeded in inducing a third party to enter upon land under an invalid contract of sale, and to make valuable improvements thereon in good faith, he could refuse to carry out the arrangement, and recover his land, with the improvements, without rendering any compensation therefor. We do not find that we are compelled to lay down any such harsh and unjust rule. Mr. Waterman, in his work on Specific Performance, at sec. 281, states the rule thus: — 499 — “If tbe contract is sucb tbat it will not be enforced, tbe vendor will be compelled to refund tbe purchase money and pay for tbe improvements of tbe vendee, deducting therefrom tbe rents and profits.” It may, perhaps, be doubted whether this proposition is not stated too broadly, but it may confidently be said tbat tbe authorities generally bold tbat, where a purchaser of land, without fault on bis part, has in good faith made permanent and valuable improvements thereon, and is unable to compel specific performance of bis supposed contract because it is not in writing, and tbe vendor refuses, to complete tbe same, tbe purchaser is entitled in equity to compensation for tbe amount which bis improvements have added to tbe value of tbe land, less tbe rents and profits properly chargeable against him while in possession. 16 Am. & Eng. Ency. of Law, 96, 97, tit. Improvements ; Parkhurst v. Van Cortlandt, 1 Johns. Ch. 273; Rhea v. Allison, 3 Head, 176; Thouvenin v. Lea, 26 Tex. 612; Duke v. Griffith, 13 Utah, 361, 45 Pac. 276; Bender’s Adm’rs v. Bender, 37 Pa. St. 419; Winton v. Fort, 5 Jones Eq. 251; Chabot v. Winter P. Co. 34 Ela. 258, 15 South. 756; S. C. with note, 43 Am. St. Rep. 192. This principle should be applied in tbe present case. Testimony should be taken on tbe question-as to bow much tbe hotel built by tbe Brighton Beach Company has enhanced tbe value of the parcel which their oral agreement to purchase covered, and also upon tbe question as to tbe reasonable rental value of tbat parcel irrespective of buildings during their possession,-and tbe balance in favor of tbe company, if any, should be adjudged to be an equitable lien upon tbe parcel, subject to tbe mortgage, and tbe lien of tbe Engels judgment, when docketed, should be held to attach thereto. Tbe owners of tbe equity of redemption should be allowed tbe right, if they choose, to redeem from sucb equitable lien by payment of the amount thereof, with interest from- the •date of tbe judgment within a reasonable time, to be fixed — 500 — by the judgment, with no deduction for rents and profits accruing after the entry of judgment, in analogy to the statutory provisions as to the payment by the plaintiff of the amount allowed for improvements in an ejectment action. Sec. 3098, Stats. 1898. The period allowed by the last-named section is three years, but it is deemed that eighteen months would be the proper period in the present case. It was rightly held by the trial court that, if foreclosure sale should be necessary, the premises should be sold in parcels, the parcel deeded to the defendant the Fox River Yalley Electric Railroad Company being sold last, because it was first conveyed, and the parcel possessed by the Brighton Beach Company being sold next to the last. It should further be provided by the judgment that, in case it becomes necessary to sell the Brighton Beach parcel for the- reason that the previously sold parcels have not produced enough to discharge the mortgage, the same should be sold free from the lien, and that the only equity then remaining to either the Brighton Beach Company or Engels should be a lien upon the surplus, if any, arising from the sale of that parcel, which surplus should be brought into court for disposal by order of court. The judgment should also provide that the mortgage foreclosure sale may be moved by either the plaintiff, John Schneider, or the defendant Kerwin, to the end that there be no delay in such sale at the close of the mortgage redemption period of one year, and that the sale may take place before the expiration of the eighteen months allowed for redemption from the equitable lien of the Brighton Beach Company. It should also be provided that, in case of failure to redeem from the latter lien within the eighteen-months period, and failure for any reason to cause a foreclosure sale of the tract within that period, the Brighton Beach Company and Engels be permitted to bring an action for strict foreclosure of such lien, subject to the mortgage lien, if such, lien still exists. — 501 — Tbe only remaining assignment of error wbicb is considered of sufficient importance to be noticed is that relating to the interest of the defendant Joseph Schneider. The court having found that the original transaction was, in legal effect, a mortgage between the Reeds and Joseph Schneider as mortgagors and John Schneider and Gilbert as mortgagees, it results necessarily that the Reeds and Schneider became the owners of the equity of redemption in equal undivided shares, though there was no specific finding or judgment to this effect. The court further found, however, that it was agreed between the Reeds and Schneider, before procuring the loan, that Schneider was only to have his third interest on paying to the Reeds, out of any sales of the land, if there was enough for the purpose, the sum of $2,000. This finding has never been excepted to by Schneider, and he has taken no appeal, so he is bound by it. There have been no sales of land, and no money paid by Schneider. The trial judge made no finding or judgment further defining Schneider’s interest, liabilities, or rights; although in his written opinion he says that the Reeds became entitled to a lien upon his interest in the land, whatever it was, for the $2,000, and that to these rights Kerwin succeeds. The judgment gives Kerwin no such relief, and his failure is assigned as error. The preliminary agreement between the Reeds and Joseph Schneider, whatever it was, seems to have been, as between themselves, the very foundation of the subsequent transaction with John Schneider and Gilbert, and no good reason is perceived why, in this equitable action, it should not be made effective. To adjudge him to be the absolute owner of ono-third interest in the title of the mortgaged lands on equitable principles, when.it stands confessed that he has in no way paid, and is not to be required to pay, what was agreed as the consideration therefor by the terms of the arrangement on which his interest is based, is an anomaly in the administration of the principles of equity. ■ The judgment should de — 502 — finitely declare tbe title to tbe equity of redemption in tbe mortgaged lands to be in Xerwin as to two thirds and in Joseph Schneider as to one third, in undivided shares. It should also impose a lien upon Schneider’s one third (subordinate, however, to the interests of the Brighton Beach Company and Engels as to the parcel occupied by said company) in favor of Xerwin for $2,000, without interest, and to be paid out of moneys received from the first sales of the-land after the mortgage is discharged. It should also provide for the working out of this lien by providing that Schneider might pay it in cash, and thus clear his title therefrom, by further providing that, in case of redemption by Xerwin of John Schneider’s interest in the mortgage, he should have' not only his rights to sell Joseph Schneider’s one-third interest by foreclosure sale, to pay his share of the mortgage-debt, but also should retain the $2,000 lien in that interest that in case of redemption by Joseph Schneider he should be subrogated to the mortgagees’ right to sell at the foreclosure sale Xerwin’s two thirds interest to pay the Reeds’’ two thirds of the mortgage debt, the lien for $2,000 in favor of Xerwin still remaining on his one third; that in case of sale upon foreclosure resulting in a surplus Xerwin should have a lien upon such surplus (subject to the lien of the-Brighton Beach Company and Engels in any surplus on the: Brighton Beach tract, to the amount of $2,000, and that so’ far as said lien is paid by such surplus the balance of the land remaining unsold, if any, be relieved from said lien. As modified by the foregoing suggestions, the provisions-of the former judgment should be embodied in the new judgment. By the course above indicated it is believed that the rights of all parties will be properly protected. Further testimony should be taken upon the question of enhancement in value of the Brighton Breach parcel by the improvements thereon,. — 503 — and upon the question of the reasonable rental value thereof ■while occupied by the company, hut upon no other questions. By the Gourt. — Judgment reversed, and remanded for further proceediiigs, and for judgment in accordance with law and this opinion. Ejjewih, J., took no part. On January 10, 1905, the mandate in this case was amended so as to read as follows: By the Gourt.- — The appeal of Charles Reed and W. W. Reed is dismissed with costs; and upon the appeal of J. O. Kerwin the judgment is reversed with costs and the action remanded for further proceedings and for judgment in accordance with law and this opinion.