Opinion
No. 3922.
Decided July 6, 1950.
By a contract which provided that a deed and mortgage of real estate deposited in escrow would be delivered and title would pass upon payment of a certain sum toward the stipulated purchase price by a stated date, the purchaser incurred an unconditional obligation to purchase for that price. However under the terms of the contract the deed and mortgage were not effective until such partial payment was made. In such case, where the seller procured the mortgage deed and recorded it in violation of the escrow agreement before payment of the stipulated sum, but delivery was never ratified by the purchaser nor recognized by him as valid, the mortgage did not become effective. Failure of the purchaser to pay the purchase price will not preclude entry of a decree for cancellation of a mortgage placed by him in escrow where a conditional decree consonant with justice may be entered.
BILL IN EQUITY, for the cancellation of a certain deed, mortgage deed, and note referred to in the following agreement between the parties: "It is agreed between William H. Sleeper, of Exeter, N.H. and Edgar P. Lessard of Hampton, N.H., on this 29th day of August, 1946, that a deed from William H. Sleeper to Edgar P. Lessard of all the land and buildings now owned by William H. Sleeper at the rear of the Constance Hotel at Hampton Beach, N.H., more fully described in deed and mortgage to secure a note of even date for the total purchase price which is in the sum of Fifteen Thousand Dollars ($15,000.00) is now signed and deposited at the Exeter Banking Company by the parties in escrow; the said deed, mortgage, note and also the bill of sale of the personal property upon the premises will be delivered and the title will pass when the sum of Five Thousand Dollars toward said purchase price has been paid by the said Edgar P. Lessard, and this sum of Five Thousand Dollars shall be paid on or before September 1, 1948, the purchase price of said real and personal estate shall be apportioned as follows. — Twelve Thousand Dollars for said real estate, and Three Thousand Dollars for the personal property and rights as described in said bill of sale.
"It is understood between the parties that the said Edgar P. Lessard shall have full possession and control of the said property, both real and personal, as of the date hereof, and will pay the assessments and carrying charges upon said property, except that William H. Sleeper will pay the taxes for the present year, 1946; that the interest upon the note will begin as of the date hereof, that is, when possession and control is taken by the said Edgar P. Lessard, and the said William H. Sleeper shall have the right to deposit said note as collateral security.
"(s) William H. Sleeper "(s) Edgar P. Lessard
"Witness: "(s) Janet M. Wiggin"
The mortgage deed included not only the land to be acquired under the deed but also the equity in the Constance Hotel real estate already owned by the plaintiff.
The case was referred to a master, who found the following facts:
"The petitionee filed the mortgage for record in the Rockingham County Registry of Deeds without the knowledge or consent of the petitioner on the 13th of September 1946.
"The petitioner took possession of the property after signing the agreement on August 29, 1946, and used it until the fall of 1948 during which time he paid taxes, insurance, the interest on the note and one principal payment of $1,000, but he did not pay the sum of $5,000 on or before the 1st of September 1948.
"`The petitionee started proceedings to foreclose the mortgage dated August 29, 1946 on or about April 26, 1949 and on June 25, 1949 without the knowledge or consent of the petitioner recorded the deed dated August 29, 1946 in the Registry of Deeds."
The master also found that there was no fraud practiced upon the plaintiff in connection with the transactions which are the object of the bill. He recommended that the deed, note, mortgage and bill of sale be declared null and void and that the defendant be enjoined from foreclosure of the mortgage.
The Court disallowed the master's report and dismissed the bill, to which ruling the plaintiff excepted. Wheeler, J. reserved and transferred all questions raised by this and other exceptions.
Charles J. Griffin (by brief and orally), for the plaintiff.
Wayne J. Mullavey (by brief and orally), for the defendant.
The master correctly ruled that the contract required the deed, mortgage, and bill of sale to be held in escrow until the plaintiff should pay the sum of $5,000 on account of the purchase price. While the first paragraph of the agreement included the note for $15,000 in the instruments to be held in escrow, the second paragraph provided that the defendant should have the right to deposit the note as collateral security, and that it should bear interest at once. The plaintiff paid the interest on the note to August 29, 1947, and on July 28, 1948, paid $1,000 on account of the principal. The effect of the provision of the contract dealing specifically with the note, and of the action of the parties, was to make the note effective at once, notwithstanding the earlier provision of the contract.
The plaintiff incurred an unconditional obligation to purchase the premises for $15,000. Collateral to this undertaking was the agreement that the property should be conveyed to him, and delivery made to the defendant of a mortgage of the property and other premises owned by the plaintiff, when the latter's obligation evidenced by the note should be reduced to $10,000. Specifically it was provided that the deeds should be delivered and title pass "when the sum of Five Thousand Dollars . . . has been paid . . . and this sum . . . shall be paid on or before September 1, 1948." Had the parties intended that the deed and mortgage should take effect on the specified date regardless of payment, payment obviously would not have been made condition precedent. From the standpoint of the plaintiff, who was doubtful of his ability to raise funds in the face of other substantial indebtedness, his undertaking was to take title to the property, and in turn to mortgage it with other property owned by him, only if he were successful in paying the first five thousand dollars. He agreed to jeopardize his other property only to the extent of a ten thousand dollar balance, and not as security for payment of the full purchase price. His undertaking, so far as the mortgage was concerned, was conditional, and to this condition the defendant agreed. In breach of the agreement, the defendant procured the mortgage deed, and recorded it on September 13, 1946. His action was unknown to the plaintiff until 1949, and played no part in the plaintiff's default. The delivery to the defendant has never been ratified by the plaintiff nor recognized by him as valid.
The escrow agreement was for the protection of the plaintiff as well as the defendant, since property already owned by the plaintiff was included in the mortgage. While the defendant might and did undertake to waive the condition with respect to his own deed, he had no power to waive it so far as it related to the plaintiff's mortgage deed. In effect the plaintiff retained control over delivery of the mortgage deed, so that technically it may not have been in escrow. See Cook v. Brown, 34 N.H. 460; Restatement, Contracts, s. 103, and New Hampshire annotations. In any event, according to well established principles, the delivery of the mortgage to the defendant was invalid, and the mortgage has never become effective. McCabe v. Company, 90 N.H. 80, 85, and cases cited. See also, Stavers v. Stavers, 69 N.H. 158; annotation, 48 A.L.R. 401. The defendant can take no title under the mortgage either to the premises described in his deed to the plaintiff which the latter has never accepted (see Johnson v. Farley, 45 N.H. 505), or to the plaintiff's hotel property also described in the mortgage deed. Outstanding in the hands of the defendant the mortgage constitutes a cloud on the defendant's title to the hotel, and a constant threat of foreclosure by power of sale.
The plaintiff is entitled to the relief which he seeks, unless he is barred in equity by reason of his breach of his undertaking to purchase. Under ordinary circumstances, a decree for cancellation will not be entered unless the plaintiff offers to do equity (2 Pomeroy, Equity Jurisprudence, 5th ed., 79), and this he has not offered to do. It is not an obstacle to a decree in his favor however, since a conditional decree may be entered. Thorpe v. Packard, 73 N.H. 235; 2 Pomeroy, op. cit. 82, 83. The defendant asserts a right to damages alleged to have been occasioned by the plaintiff's breach of his agreement to purchase. It does not appear that consideration was given to the possibility of conditional relief. Having taken jurisdiction, equity may proceed to determine the respective rights of the parties if equity may thus be done. Shaw v. Abbott, 61 N.H. 254; Oullette v. Ledoux, 92 N.H. 302, 306. If the plaintiff is able and willing to pay upon their assessment by the Court, such damages, if any, as may have been occasioned the defendant by his breach, no reason is now apparent why upon appropriate motion the case should not be reopened for trial of the issue of damages and such other matters as the Superior Court may determine, and for the entry of a decree of cancellation, upon payment of the damages. If the plaintiff is not able and willing, the order of dismissal should stand.
Bill dismissed nisi.
All concurred.