Summary
stating that “the validity of a mortgage and its construction and effect are to be tested and determined by the laws of the state where the mortgaged property is situated”
Summary of this case from Hopson v. Chase Home Finance LLCOpinion
No. 27313.
January 14, 1929. Suggestion of Error Overruled April 8, 1929.
1. MORTGAGES. Validity of mortgage, construction and effect, are determined by laws of state where property is situated.
Validity of mortgage and its construction and effect are to be tested and determined by laws of state wherein mortgaged property is situated.
2. MORTGAGES. Trust deed provisions for payment of attorney's fee of percentage of notes could not be enforced, where similar provisions in notes were void under laws of state governing.
Provisions in deeds of trust covering real estate in state that trustee should pay attorney's fee of ten per cent on amount of notes from proceeds of sale did not create primary obligation to pay attorney's fee which could be enforced, notwithstanding fact that provisions for attorney's fee in notes were void under laws of state which governed.
3. MORTGAGES. Provisions of notes for attorney's fee held unenforceable, where void under laws of state of trust deed.
Provisions of notes secured by trust deeds covering real estate in state for attorney's fees of ten per cent of amount of notes held unenforceable, where such provisions were void under laws of state which governed.
APPEAL from chancery court of Coahoma county, First district, HON. HARVEY McGEHEE, Chancellor.
Maynard, Fitzgerald Venable, for appellant.
This court is committed to the proposition that the laws of the state where the notes are payable govern the terms and conditions of the note itself. The deed of trust does not secure the attorney's fees in any way, but merely states that the trustee shall pay such attorney's fees as may be provided by the notes. Therefore, the provision of the notes must govern, and the provision of the notes being governed by the laws of Arkansas which declare such provision utterly void, there can be no question with regard to the payment of attorney's fees. Iowa City v. McGrath Sons Co., 111 Miss. 880; Emanuel v. White, 34 Miss. 56; Johnson County Savings Bank v. R.E. Yarborough, 106 Miss. 79; Harrison v. Pike, 48 Miss. 46; Lienkauf Banking Co. v. Haney, 93 Miss. 619; Houston v. Keith, 119; Miss. 83; Couret v. Conner, 79 So. 230; Kendrick v. Kyle, 78 Miss. 278, 28 So. 951; Allen v. Bratton, 47 Miss. 119; Commercial Bank v. Auze, 74 Miss. 609; Brown Bros. v. Freeland Murdock, 34 Miss. 181. The debt is the principal thing, the mortgage is a mere incident.
The notes govern in case of conflict between them and the mortgage. 8 C.J. 92; 41 C.J. 340. See also Holly Grove Bank v. Sudbury, 121 Ark. 59, 180 S.W. 470, Ann. Cas. 1917-D 373. This is the latest authority that we have been able to find in regard to the position of the Arkansas courts and it goes to the extent of holding that the passage of the Negotiable Instruments Act by the state of Arkansas does not in any way make valid a stipulation to pay attorney's fees in a note. There can be no doubt that under the decisions of Arkansas, and the public policy of its laws and decisions, the provision for attorney's fees in notes governed by that state's law, is utterly void. So that, even if we had the notes here in question in evidence and they strictly provided for attorney's fees they would be void.
Roberson Cook, for appellees.
We will concede, for the sake of the argument, that the law of the state where a note is payable will control as to the provisions of the notes, but that is not the question before the court. We have not relied or sued upon any notes. This record discloses no contention on the part of the appellees that there is any judgment in personam sought against Mrs. Fitzgerald by virtue of the notes, or even by virtue of the terms of the deed of trust. Our position is that the provision of the deed of trust is really what is in controversy in this case and the mere fact that the notes referred to in the deed of trust are payable in the state of Arkansas will in no wise affect the rights of the parties as determined by the language of the deed of trust in question. The court will bear in mind that the deeds of trust convey land situated in Coahoma county, Mississippi. The deeds of trust could not have been foreclosed in the state of Arkansas and the only place that the deeds of trust could have been foreclosed whether in equity or by advertisement, would be Mississippi. That would be the forum and the law of the forum would control in determining the rights and liabilities of the parties under the deed of trust.
If the provisions are to be construed as a debt or a primary obligation, and the debt should be considered as an Arkansas debt or obligation, and the validity of which is to be construed in accordance with the law of Arkansas, our position is that even to that aspect the case should be affirmed on direct appeal and reversed on cross-appeal, because as a debt no decree in personam is alleged to be sought as against Mrs. Fitzgerald for such debt, but a resort to the land only is sought, the bill of complaint showing that a foreclosure of the land is being had for the purpose of paying the principal and interest of the notes and likewise for the purpose of collecting attorney's fees, so we say that even if under the notes the law of Arkansas would prevent a judgment in personam from being rendered against Mrs. Fitzgerald as to the attorney's fees, because of the fact that the laws of Arkansas would hold that such stipulation as to attorney's fees was unenforceable in that state and that even though a decree or judgment in personam would not be rendered against Mrs. Fitzgerald with reference to said attorney's fees by the courts of Mississippi on the ground that said provision not being enforced in Arkansas, that same would not be enforced in the state of Mississippi. Still we say that since no decree in personam is asked for and since the record shows conclusively that the only thing being sought is a foreclosure of the deeds of trust in order to pay, among other things, such attorney's fees construed as a debt, that before a sale could be validly enjoined under such facts such attorney's fees would have to be paid. Such is the law in our state and has been settled for many years. Frierson v. Williams, 57 Miss. 451.
It matters not to us whether the stipulation for attorney's fees be considered as a primary obligation or as a matter of costs. It must fall within one or the other, and in either event, whether as a debt or whether as a cost, the attorney's fees as stipulated for in the deed of trust must have been tendered by the appellant here before she would have had a right to an injunction to prevent the sale of the lands under the deeds of trust.
Argued orally by Garner W. Green, for appellant, and Lake Roberson, for appellee.
This is an appeal from a decree of the chancery court of the Second district of Coahoma county, dissolving an injunction which had been theretofore granted to restrain the foreclosure of two certain deeds of trust.
The material facts, as shown by the bill of complaint and exhibits thereto, are substantially as follows: On the 31st day of October, 1922, Mrs. Rosa Mays Horner and Mrs. K.M. Lyford, residents of Helena, Arkansas, were each indebted to Mrs. H.M. Orr, also a resident of Helena, Arkansas, in the sum of six thousand twenty-two dollars and fifty-six cents, evidenced by promissory notes, and to secure this indebtedness each of said debtors executed separate deeds of trust on land and property situated in Coahoma county, Mississippi. With the exception of the names of the grantors and the description of the property conveyed, these deeds of trust appear identical in phraseology. This indebtedness was not paid as it matured; and, after it matured, and at a time when a large part thereof was unpaid, the indebtedness and deeds of trust securing the same were transferred to John B. McKee and W.L. McKee. Thereafter, through the firm of Roberson Cook, as attorneys, the owners and holders of this indebtedness instituted foreclosure proceedings under section 2772, Code 1906, and amendments thereto, by advertising the property for sale under the provisions of the deeds of trust. Subsequent to the publication of notice of sale under the deeds of trust, and prior to the date of the sale, the complainant in the court below, Mrs. Victoria Fitzgerald, purchased from Mrs. Horner and Mrs. Lyford the land and property on which the liens had been created under these deeds of trust, and thereupon Mrs. Fitzgerald began negotiations with John B. McKee, one of the joint owners of the said indebtedness, and with his attorneys, seeking to pay off the indebtedness and all costs and expenses of the foreclosure proceedings, and thereby end these proceedings. In pursuance of this purpose she wrote a letter to Messrs. McKee, the trustee in the deed of trust, and Roberson Cook, attorneys for the Messrs. McKee, in which she made an unconditional tender of eight thousand three hundred sixty-two dollars and seventy cents in full settlement of the indebtedness and costs and expenses. To this letter there was attached a receipt in full for the trustee's fees, and attention was called to the fact that proper credit had not been given for the sum of two thousand five hundred fifty-nine dollars and sixteen cents paid by the original debtors, and also to the fact that the notes secured by the deeds of trust were payable in Arkansas and governed by the laws of Arkansas; and the contention was advanced that under the laws of Arkansas, the provision in the notes for the payment of attorney's fees was unenforceable and void, and, consequently, that no attorney's fees were due.
On the following day, the attorneys for McKee addressed a letter to the attorneys for Mrs. Fitzgerald, in response to the letter of tender in which the tender was rejected for two reasons: First, that some of the bills tendered were not legal tender under the acts of Congress; and, second, that the attorney's fees provided for by the two deeds of trust were not included in the tender; and special attention was called to a provision of the two deeds of trust which reads as follows:
"From the proceeds of sale, the trustee shall pay:
"First. The costs and expenses of executing this trust, including a fee to the trustee of five per centum on the amount of said sale, for his services, and a further fee of ten per centum, on the amount of said notes, for the services of an attorney, as provided by said notes."
Thereafter Mrs. Fitzgerald's attorneys replied to the letter of Roberson Cook, attorneys, and renewed the tender, including legal tender notes, with such additional interest as had accrued, and made therein the following statement:
"As we conceive the law, the original contracts, both notes and deeds of trust, were made between citizens of the state of Arkansas, notes payable in Arkansas at the Interstate Bank Trust Co., at Helena, Arkansas, and the contracts governed by the Arkansas law which forbids the payment of attorney's fees on such notes. Mrs. Fitzgerald therefore will not pay such attorney's fees on these notes."
No answer was made to the last above-mentioned letter, and thereupon Mrs. Fitzgerald, in order to prevent the sale of the property by the trustee, filed the original bill in this cause and secured the issuance of an injunction writ restraining the sales, and paid into court the amount previously tendered. The bill of complaint set forth, in detail, the facts above stated, and made exhibits thereto the various letters and instruments above referred to; and it is apparent from the bill and exhibits, as well as the concessions of counsel, that the only point in controversy between the parties was the question as to whether or not the complainant was liable for attorney's fees as contended for by the defendants, it being conceded that the complainant was entitled to a credit of two thousand five hundred fifty-nine dollars and sixteen cents, as claimed by her and that the amount tendered was the amount due with the exception of the attorney's fees claimed by the defendants.
To this bill of complaint, the defendants filed a demurrer, alleging as the grounds thereof the following:
"First: There is no equity on the face of the bill.
"Second: The bill shows upon its face that the complainant has failed to do equity, in that she has failed to tender the total amount of indebtedness due under the allegations of said bill.
"Third: The bill shows upon its face that the complainant has failed to tender to the defendants the attorney's fees provided to be paid by the trustee, upon the foreclosure of the Exhibits C and D to the bill of complaint."
A motion to dissolve the injunction upon the demurrer to the bill of complaint was then filed, and, after notice, this motion was heard and sustained, and a decree entered dissolving the temporary injunction and awarding statutory damages of five per cent on eight hundred thirty dollars, attorney's fees found to be due and owing by the complainant; and from this decree the complainant prosecuted this appeal, while the defendant prosecuted a cross-appeal from the action of the chancellor in allowing damages on the amount of the attorney's fees claimed instead of on the entire amount of indebtedness due.
The notes secured by the deeds of trust referred to in the bill of complaint, and discussed at length by counsel in their briefs, do not appear in this record, and, consequently, we cannot know the exact provisions thereof in reference to attorney's fees. The bill of complaint, however, charges, and the demurrer admits, that the contracts between the original parties were made in the state of Arkansas, and that the notes secured by the deeds of trust were executed with the express understanding that the indebtedness and notes evidencing the same should be payable at the Interstate Bank, at Helena, Arkansas, and that this was done for the purpose of securing the advantage of having the notes paid in and governed by the laws of the state of Arkansas, where all the parties lived. In fact, counsel for appellee concedes that the notes are payable in the state of Arkansas and that the provision of the notes for the payment of attorney's fees was to be governed by the laws of that state, and that under the laws of the state of Arkansas, a provision in a note for the payment of attorney's fee is unenforceable and void is shown by the case of Holly Grove Bank v. Sudbury, 121 Ark. 59, 180 S.W. 470, Ann. Cas. 1917D, 373, from which we quote the following:
"It is conceded, of course, that this provision for the collection of attorney's fees was invalid prior to the enactment of the Negotiable Instruments Law in this state. . . . There is no doubt as to the policy of this state on this question prior to the enactment of this law. In the case of Boozer v. Anderson, 42 Ark. 167, it was said that the provision for the payment of an attorney's fee was an agreement for a penalty, and that the courts of this state would not enforce it. This holding was reaffirmed in the case of Benton v. Holliday, 44 Ark. 60, and Chaffe Sons v. Landers, 46 Ark. 371. . . . This holding has been reaffirmed in the subsequent cases of Arden Lumber Co. v. Henderson Iron Works, 83 Ark. 244, 103 S.W. 185, and White-Wilson-Drew Co. v. Egelhoff, 96 Ark. 105, 131 S.W. 208. In the case of Arden Lumber Co. v. Henderson Iron Works, supra, this court refused to enforce a stipulation for an attorney's fee in a note payable in a state where that provision was enforceable, upon the ground that comity did not compel us to enforce contracts which contravene the policy of our own laws.
"It thus appears that the policy of this state was thoroughly well fixed at the time of the enactment of this law. . . . And as we find nothing in the act inconsistent with our previous declaration of the state's policy, we hold that it remains unchanged by the act, and the provision in the note is void."
It thus appears that the provisions of the notes for the collection of attorney's fees, if any, and whatever they may be, are here immaterial, since under the law of Arkansas any such provision is unenforceable and void, and counsel for the appellant does not contend otherwise. While other points are argued, it is stated in the brief of counsel for appellee that the "real question involved is whether or not Mrs. Fitzgerald shall be required to pay the attorney's fees, if any, as provided by said notes, if any such provision is in the notes." Counsel for appellees agree that the real question involved is the liability of the complainant for attorney's fee, but they contend that "the terms of the deed of trust determine as to whether the injunction was properly dissolved on account of the appellant not having tendered the attorney's fees as provided for in the deed of trust."
In each of the deeds of trust it is provided that:
"From the proceeds of sale, the trustee shall pay:
"First. The costs and expenses of executing this trust, including a fee to the trustee of five per centum on the amount of said sale, for his services, and a further fee of ten per centum, on the amount of said notes, for the services of an attorney, as provided by said notes."
Appellees contend that this stipulation in the deeds of trust either creates a primary obligation for the payment of attorney's fees in the event of foreclosure of the deeds of trust, or makes such attorney's fees a part of the costs of foreclosure for which the lands covered by the deeds of trust are liable, and which the trustee is authorized and required to pay in the event of the sale of the lands, and that such stipulation for attorney's fees is valid under the laws of this state where the mortgaged property is situated and where the validity of the deeds of trust is to be tested and determined.
It is settled law in this state, as well as many other jurisdictions, that the validity of a mortgage and its construction and effect are to be tested and determined by the laws of the state where the mortgaged property is situated; and it is undoubtedly true that in a mortgage on real estate situated in this state a provision creating a primary or independent obligation to pay attorney's fees in the event of foreclosure of the mortgage is valid and enforceable, although the notes secured thereby may contain no valid provision for such payment. It follows, therefore, that if the provision in reference to attorney's fees which is found in the deeds of trust involved in the case at bar created an independent obligation to pay such fees, either as a primary obligation or debt, or as costs of foreclosure, the decree of the court below was correct and must be affirmed on direct appeal.
The deeds of trust each provide that in the event of a sale of the property conveyed thereby, the trustee should pay from the proceeds of the sale, "first, the costs and expenses of executing this trust, including a fee to the trustee of five per centum on the amount of said sale, for his services, and a further fee of ten per centum, on the amount of said notes, for the service of an attorney, as provided by said notes;" and it is upon this provision that the appellees base their claim of right to collect an attorney's fee of ten per cent on the amount of the indebtedness due and secured by such deeds of trust. We are of the opinion that this provision in the deeds of trust does not create a primary obligation to pay the attorney's fees, or an obligation to pay such fees independent of the provisions of the note, if any, for the payment of such fees, but that it is a mere security for the collection and payment of such attorney's fees as are collectible under the provisions of the notes. The trustee is thereby required to pay ten per cent on the amount of the indebtedness for the services of an attorney, as provided by said notes, and he must look to the notes for the measure of his authority in this respect. The provisions of the notes in reference to attorney's fees determine when and upon what conditions liability for attorney's fees has been incurred, and furnishes the measure of liability for such fees. Since the notes involved are controlled by the laws of the state of Arkansas, any provision for the payment of attorney's fees is void. There is found in such notes no foundation upon which to base an enforceable liability for such fees, which the trustee in the deeds of trust is authorized to discharge out of the proceeds of a sale of the property covered by the deeds of trust.
The decree of the court dissolving the injunction and dismissing the bill of complaint will therefore be reversed, the injunction reinstated, and the cause remanded.
Reversed and remanded.