Opinion
No. 4099.
Decided March 10, 1952.
Where the purpose and effect of an order of the Supreme Court was to confirm the validity of a certain mortgage, recorded in violation of an escrow agreement, in the event the mortgagor in possession did not make restitution for his breach, failure of the mortgagor to meet the condition operated to validate the mortgage and its recordation and established its priority over a subsequent government tax lien.
PETITION, for declaratory judgment brought by the Exeter Banking Company against William H. Sleeper and others to determine ownership of a balance of $9,003.14 which it holds as a surplus remaining after satisfying its mortgage demands on certain property by foreclosure proceedings. Hearing by the Court who decreed that the fund belonged to the defendant Sleeper and ordered that the money be paid to his assignee, William H. Sleeper, Jr. The United States of America intervened as a claimant of certain taxes due it from one Lessard, who had given the defendant Sleeper a mortgage of the real estate in question dated August 29, 1946. It excepted to the failure of the Court to make certain findings and rulings, to certain findings and rulings as made, and to a portion of the decree. The Government also excepted to the denial of its motion to set aside certain parts of the decree. Various other claimant defendants who were joined in the proceedings have transferred no exceptions to this court.
It appears in accordance with the facts as set forth in Lessard v. Sleeper, 96 N.H. 268, which it is agreed have been incorporated herein and made a part of this case, that the plaintiff bank held a mortgage on certain property known as Hotel Constance and owned by the defendant Sleeper. The latter sold this property to Lessard, subject to this mortgage on May 1, 1945. Later, on August 29, 1946, Sleeper and Lessard made an agreement whereby Sleeper contracted to sell Lessard certain land, buildings, and furnishings situated in the rear of the hotel for $15,000, $5,000 of which was to be paid on or before September 1, 1948. On the same day this agreement was made Lessard signed a note and mortgage to Sleeper covering this property and also the hotel, and Sleeper signed a deed of the property, and a bill of sale of the personalty to Lessard. It was agreed that Sleeper was to have the right to deposit the note as collateral security. The deed, mortgage and bill of sale were all to be deposited in escrow in the plaintiff bank and they were not to be delivered, nor was title to pass until the $5,000 was paid. However, Lessard was to take full possession and control of the property immediately and at the same time interest was to begin running on the note. Lessard did take full possession and control of the premises under the agreement and used them until the fall of 1948. He has never paid the $5,000 due on September 1, 1948. Sleeper, without Lessard's knowledge or consent, recorded the mortgage on September 13, 1946, and the deed on June 25, 1949. He commenced foreclosure proceedings on the mortgage on or about April 26, 1949. A bill to enjoin the foreclosure, to cancel the mortgage and to declare it null and void as well as to cancel the deed and note was brought by Lessard, who claimed fraud and mistake among other grounds. After a hearing by a master who found no fraud, upon his report recommending that the foreclosure be enjoined and the mortgage, deed, note and bill of sale be declared null and void, the report was disallowed and the bill was ordered dismissed by the Superior Court. On appeal to this court, the order was amended to "Bill dismissed nisi." The matter was remanded to the Superior Court with an order that if Lessard were able and willing to pay Sleeper such damages as that court might find were occasioned by Lessard's beach of the agreement, a decree of cancellation might issue. Otherwise, "the order of dismissal should stand." Lessard v. Sleeper, 96 N.H. 268, 272. Sleeper then filed a motion to have his damages assessed, and the Superior Court ordered Lessard to file a bond before a day certain and upon his failure to do so, ruled that there should be judgment on its original order of "Bill dismissed." Subsequently, in the present declaratory judgment proceedings, the Superior Court ruled that a valid mortgage existed between Lessard and Sleeper taking priority over all the claimant defendants including the United States of America. It appears that the liens of the Government and the other defendants were all created subsequent to the recording of the mortgage from Lessard to Sleeper on September 13, 1946. Transferred by Wheeler, J. Other facts appear in the opinion.
George R. Scammon for the plaintiff, filed no brief.
John J. Sheehan, United States Attorney and Robert D. Branch, Assistant United States Attorney (Mr. Branch orally), for the defendant, the United States of America.
Wayne J. Mullavey (by brief and orally), for the defendants William H. Sleeper and William H. Sleeper, Jr.
The parties agree the issue here is whether a valid mortgage lien existed on the property in question in favor of the defendant Sleeper prior to the creation of the tax liens of the claimant, the United States of America. If such a lien did exist, then Sleeper must prevail. United States v. Sampsell, 153 F.2d 731; note 174 A.L.R. 1387. This is true here whether or not the authority of the Sampsell case, so far as it applies to inchoate liens, has been affected by the decision in United States v. Savings Bank, 340 U.S. 47. See also, anno. 95 L. ed. 59, 65, 67. The claimant has no lien except that given it by statute. Flack v. Agency, 96 N.H. 335, and authorities cited. In this case, the federal statute expressly provides that the lien created by 26 U.S.C.A. s. 3670 "shall not be valid as against any mortgagee" until certain notices are filed. 26 U.S.C.A. s. 3672 (a) (2). Admittedly, the required notices were not filed until long after the mortgage was executed and recorded. It appears that the claimant, who concededly derives all its rights from Lessard, has none superior to those of the defendant Sleeper. The latter executed a substantial part of his agreement in that he gave Lessard exclusive possession and use of all the properties mortgaged, both real and personal, from the date of the contract until the fall of 1948. Considering that they consisted of a hotel, camps, barracks so-called, and furnishings, it is obvious that the defendant might sustain substantial damage from Lessard's failure to perform — and this fact was recognized in our previous opinion. Lessard v. Sleeper, 96 N.H. 268. So far as the record indicates, his only means of satisfying such damages are from the disputed fund.
In his original petition Lessard prayed that the mortgage foreclosure by Sleeper be enjoined and the mortgage declared null and void. The master filed a report recommending that this be done, but the Superior Court disallowed the report, ruled the mortgage valid and ordered the bill dismissed. In this situation our previous opinion recognized, as it was forced to do, that unless the Superior Court's order was reversed, Sleeper could go ahead with the foreclosure sale. This it appears is the reasonable construction of our statement that "outstanding in the hands of the defendant the mortgage constitutes . . . a constant threat of foreclosure by power of sale." Lessard v. Sleeper, 96 N.H. 268, 272. Regardless of the earlier language in the opinion which might suggest a different conclusion, the plain purpose and effect of our order "Bill dismissed nisi" was to confirm the order and ruling of the Superior Court holding the mortgage not null and void but leaving it valid and uncancelled on the record to protect Sleeper in the event Lessard did not pay such damages as might be assessed against him for his breach. This was not inequitable since Sleeper had substantially performed by permitting Lessard to use all the property from August 29, 1946, to the fall of 1948. See Rutherford Nat. Bank v. Bogle Co., 114 N.J. Eq. 571, and authorities cited; Tancred v. Beppler, 15 N.J. Super. 394.
The claimant was put on notice of the situation by the mortgage recorded on September 13, 1946, long prior to the inception of any of the liens. See Hargett v. Hargett, 201 Ala. 511. In this respect the case is clearly distinguishable from such decisions as Butler v. Wheeler, 73 N.H. 156, where the attaching creditors had no notice, actual or constructive, of other claims. It follows that since Sleeper had a valid mortgage which takes precedence over the Government liens, his assignee is entitled to the fund.
Judgment for the defendant, William H. Sleeper, Jr.
KENISON and DUNCAN, JJ., dissented: the others concurred.
The funds held by the plaintiff bank and now claimed by the United States and the assignee of William H. Sleeper are proceeds of the sale of an equity of redemption in hotel property conveyed in 1945 by Sleeper to Edgar P. Lessard, and thereafter foreclosed by the bank under a mortgage to which Lessard's title was subject. Prior to the foreclosure, Lessard undertook to purchase adjoining property from Sleeper for the sum of $15,000 by an agreement dated August 29, 1946, more particularly set forth in Lessard v. Sleeper, 96 N.H. 268, 269. A second mortgage to Sleeper of the hotel property acquired by Lessard in 1945 was placed in escrow pursuant to the agreement, and was the subject of the litigation in which the last cited opinion was rendered. It now appears that in June, 1950, the mortgage and the note secured thereby were assigned by Sleeper, and the assignee's claim to the fund held by the bank is founded upon that mortgage. The claim of the United States is based upon liens for taxes assessed against Lessard in 1947 and subsequent years. Notice of the first lien was filed in the office of the Clerk of the United States District Court on May 28, 1948, and like notices were filed in subsequent years.
The Trial Court ruled that "as a result" of the entry of final judgment upon an order dismissing the bill in Lessard v. Sleeper, "there was a valid mortgage existing between Lessard and Sleeper," which had priority over the liens of the United States. In the opinion now rendered, which holds the second mortgage valid, apparently for the same reason, I am unable to concur.
It was expressly decided in Lessard v. Sleeper, supra, 271, that the mortgage of August 29, 1946, never became effective, for want of valid delivery. As between Sleeper and Lessard, and their respective privies who are the adverse claimants in these proceedings, that determination is res judicata. Morgan v. Burr, 58 N.H. 470. The question of the validity of the mortgage was then in issue (cf. Laconia Nat. Bank v. Lavallee, 96 N.H. 353), and it was necessarily determined in that action. See 50 C.J.S. 237, 238. The plaintiff Lessard's right to cancellation of the mortgage depended upon its invalidity, and he was held to be entitled to cancellation provided he should do equity by satisfying any damages occasioned the defendant Sleeper by his breach of contract. It now appears that no decree of cancellation was entered because the condition was never complied with. But Lessard's failure to take the steps necessary to entitle him to the aid of equity could not operate to make the ineffective mortgage enforceable, or to validate the invalid delivery of the mortgage in 1946. Denial of the aid of equity to Lessard could not deprive him of his title to the hotel. "Having a legal right, the fact his equitable remedy is lost does not show that all his rights are obliterated." Nashua Hospital v. Gage, 85 N.H. 335, 342. No more could the denial of relief to Lessard create a property interest in Sleeper which he did not previously have. The mortgage was no more effective in 1951 than it was in 1946. Title still remained in Lessard. Stockwell v. Williams, 68 N.H. 75. It follows that Sleeper never acquired any interest in the premises owned by Lessard and later sold by the bank, and that his recent assignment of the mortgage conveyed no rights in the proceeds from foreclosure of the first mortgage.
Reliance is placed upon a statement in the former opinion that the second mortgage constituted "a constant threat of foreclosure." The sentence described the mortgage as a cloud upon title, and imported no recognition of a right of foreclosure.
The apparent concern over the chance that Sleeper was damaged by Lessard's breach of contract to purchase the adjoining property has no proper place in determination of rights in the hotel. As vendor of the other property Sleeper received substantial payments while the vendee was in possession (Lessard v. Sleeper, supra, 270) and the vendee never acquired title because he never accepted the vendor's deed. Id., 271. No damages have been determined, and the possibility of their existence is no justification for an award of over $9,000 to the assignee upon a mortgage which has previously been held ineffective. This goes beyond protection of the vendor against the nonpayment of any damages that might be assessed against the vendee. In substance, the defendant in the prior litigation is now rewarded for action previously described as a breach of contract on his part. Id.
The liens of the government attached to whatever interest Lessard had in the hotel equity. If in fact that interest was greater than the records appeared to indicate because of the invalid second mortgage, the liens attached to the larger interest. See Beland v. Goss, 68 N.H. 257. The statute creating the liens (26 U.S.C.A. s. 3670) operated to vest an immediate interest in the United States (United States v. Greenville, 118 F.2d 963, 965) of no lesser standing than that of an attaching creditor. United States v. Savings Bank, 340 U.S. 47. I would give judgment for the United States.
KENISON, J., concurred in the foregoing opinion.