Opinion
Argued at Pendleton May 10, 1929
Affirmed as modified July 16, 1929
From Deschutes: T.E.J. DUFFY, Judge.
For appellant there was a brief and oral argument by Mr. E.O. Stadter.
For respondent there was a brief and oral argument by Mr. Ross Farnham.
Suit to foreclose mortgage. Plaintiff had decree and defendants appeal. Modified and affirmed.
This is a suit to foreclose a mortgage on certain real property in the City of Bend, Oregon. In order to get an intelligent comprehension of the status of the parties, we will say that the plaintiffs, George E. Hubble and Letitia Hubble, are husband and wife. S.W. Hubble is their son and Nellie Hubble was his wife when the foreclosure proceedings were commenced,
See 11 R.C.L. 630. See 15 R.C.L. 720. but has since been divorced. Hubble's is a corporation organized by S.W. Hubble in 1926 for the purpose of carrying on a garage and automobile business in the City of Bend, and to distinguish it from the various other Hubbles, we will call it Hubble's, Inc.
On October 9, 1925, S.W. Hubble, being the owner of the premises in controversy, mortgaged it to The Pacific States Savings Loan Association to secure the payment of a promissory note for $11,000 principal, and $5,019.52 interest, payable in installments, the contents of which note are not material here. Nellie Hubble, the wife of S.W. Hubble, joined in the note and mortgage. Subsequently the plaintiffs here, who are the father and mother of S.W. Hubble, bought the note and mortgage and on April 3, 1928, commenced suit to foreclose the same for the amount unpaid, namely, $9,649.96, with interest at 10 per cent per annum from September 1, 1927, insurance paid by them amounting to $164.50, $24 for continuance of abstract, and for attorney's fees in the sum of $770, and costs.
The complaint alleges that The Fisk Tire Company, Inc., Oliver P. Wilson, The First National Bank of Bend, Hubble's, Inc., and the Standard Oil Company of California, a corporation, claim some interest in the mortgaged premises, but, if any existed, it was subsequent to the lien of plaintiff's mortgage. Summons was served upon all of the defendants between the fifth and twentieth day of April. S.W. Hubble and wife, The Fisk Tire Company, Oliver P. Wilson, The First National Bank of Bend, H.F. Schilling and Hubble's, Inc., all defaulted, and on May 12, 1928, an order of default was entered against each of them, leaving only the Standard Oil Company as an answering defendant.
The Standard Oil Company answered, alleging that on the twenty-seventh day of April, 1928, in the Circuit Court of the State of Oregon for Deschutes County, in a case wherein the Standard Oil Company was plaintiff and S.W. Hubble and others were defendants, judgment was given in favor of the Standard Oil Company of California against S.W. Hubble as defendant for the sum of $7,951.49 with interest on $2,951.49 from November 23, 1927, at 6 per cent per annum, interest on $5,000 from December 15, 1927, at 6 per cent per annum, for a further sum of $585 as attorney's fees and $24 costs; and it is alleged that said judgment was still a valid and subsisting judgment and wholly unpaid and constituted a lien upon the real property described in the complaint subject to the prior rights of plaintiffs under their mortgage; and asked that there be included in the decree a provision that in the sale of the real property described in the complaint, should there be realized a greater sum than required to satisfy the judgment herein, then such excess should be applied to the satisfaction of the judgment of the defendant against S.W. Hubble.
On the same date Letitia Hubble, one of the plaintiffs, asked to be made a defendant and to file an answer, which was granted. The answer admitted every allegation in the complaint except the amount of attorney's fees, and alleged that on May 23, 1927, she began an action against S.W. Hubble and attached the property mentioned in the complaint; that on June 6, 1927, she recovered a judgment against S.W. Hubble for $4,500 with interest thereon at 6 per cent from March 1, 1922, and $450 attorney's fees and for the further sum of $2,000 with interest at the rate of 8 per cent from September 10, 1923, and $200 attorney's fees and $17.70 costs. She prayed that her judgment be adjudged a second lien on the property described in the mortgage and on the same day plaintiff filed a reply admitting every allegation in Mrs. Hubble's answer.
On May 17th Hubble's, Inc., filed an answer admitting the mortgage, but denying the amount of attorney's fees in any sum greater than $750, and setting up an affirmative defense alleging:
"That on January 1, 1927, the defendant S.W. Hubble was owner in fee simple of the real estate described in the complaint subject only to the lien of plaintiff's mortgage, and that on said date said defendant leased said real estate and premises unto this answering defendant for the full term of ten years from and after January 1, 1927, for the sum of $18,000.
"That said lease ever since has been and is now in full force and effect; and that the rental reserved under said lease has been fully paid by this defendant to the defendant S.W. Hubble for the entire term thereof.
"That the rental value of said real estate and premises is as great or greater than the amount required to be paid and which as above alleged has been paid under the terms of said lease; and that the value of said lease for the unexpired portion of the term thereof is the sum of $15,450.
"For a second further and separate answer defendant alleges:
"That plaintiffs have taken possession of the real estate and premises described in the complaint and are collecting the rentals thereon; and that this defendant is informed and believes and therefore alleges the fact to be that plaintiffs have so collected and are in possession of a considerable sum of money which they should be required to account for in this suit.
"Wherefore, defendant prays the decree of this court as follows:
"1. That the value of unexpired term of the lease held by this defendant upon the real estate and premises described in the complaint be fixed and determined and that the interest of this defendant in said real estate and premises by virtue of said lease be declared to be second only to the lien of plaintiffs' mortgage and prior to all other liens and incumbrances thereon; and that upon the sale of said real estate and premises all of the proceeds over and above the sum required to satisfy the claim of plaintiffs under their mortgage with accruing costs be paid over to this defendant to be applied upon the value of the leasehold interest of this defendant as fixed by the decree.
"2. That plaintiffs be required to account for all moneys received by them as rentals on the real estate and premises described in the complaint and that the amount thereof be applied to the reduction of plaintiffs' claim under their said mortgage."
The plaintiffs moved to strike out the answer, first, because it was filed after default and without leave of the court; and second, because it was not properly verified, having been verified by the attorney without the affidavit showing the requisite conditions permitting such verification.
The court set aside the default, but struck out the answer for want of verification with permission to file a properly verified answer, which was done, the same being of similar purport to the original answer.
AFFIRMED AS MODIFIED.
There is no question that S.W. Hubble, at the date of the execution of the mortgage, was the sole owner of the premises. The contest here centers around the lease, which he claims he executed to Hubble's, Inc., on January 1, 1927, for the term of 10 years. The testimony, in respect to this lease, is very conflicting. The lease is introduced in evidence. It is properly signed and bears date of January 1, 1927, and by its terms describes the premises as numbers 1002, 1004, 1006 and 1008 Bond Street, in Bend. Whether these numbers are the numbers of rooms, or street numbers, it is not clear, but the parties seem to agree that they constitute the first floor of the building in Bend owned by S.W. Hubble. The lease provides that as rental, for the term aforesaid, Hubble's, Inc., shall pay to S.W. Hubble the full sum of $18,000 in installments of $150 each on the first day of every calendar month of said term. Failure to keep the provisions of the lease authorizes the lessor to re-enter and assume possession of said premises. Previous to making this lease, Mr. Hubble, the owner of the premises had organized a corporation to be formed August 24, 1926. The stockholders consisted of S.W. Hubble, who subscribed 148 shares, Charles H. Goldsmith, a clerk in the garage, one share, and Charles W. Erskine, another clerk, one share; and the evidence shows that, so far as authority is concerned, S.W. Hubble controlled the whole business.
It is claimed, although the lease makes the rental at $150 per month, that, as a matter of fact, it was finally determined that it should be paid up, and, in fact, it was a paid-up lease by giving S.W. Hubble 148 shares in the Hubble's, Inc., company; and that the rent having been thereby paid, Hubble's, Inc., became the owner of the leasehold. The contesting party here, Mrs. Letitia Hubble, contends that there was no such agreement, but that the Hubble's, Inc., failed to pay the rent and that the lease is forfeited. It was denied in Mrs. Hubble's reply that any such lease ever existed. As before remarked, the testimony is very contradictory, but we are inclined to the opinion that such a change was made from the original terms of the lease and that the rental was in fact paid up by assigning to S.W. Hubble 148 shares of stock in Hubble's, a corporation.
Mr. A.H. Oliver, a witness called by the defendant Hubble's, Inc., and who was in S.W. Hubble's employ as a bookkeeper from January, 1925, to November, 1927, seemed to have been the only witness called who was in a position to know anything about the internal affairs of the corporation, and it was his understanding that the lease was paid up by giving S.W. Hubble 148 shares of the capital stock. From time to time the corporation made a statement of its financial resources and assets with a view of obtaining credit and this lease was always included as one of its assets. It is true that he worked under the direction of S.W. Hubble, the president of the company, but it seems hardly probable that the president of the company, considering the serious legal and criminal consequences which might ensue, would expose himself to the danger of obtaining goods or money under false pretenses.
Mr. R.B. Parsons, an expert bookkeeper and auditor of accounts, and a witness called by the defendant, had been called in another action to examine into the books of Hubble's, Inc., and S.W. Hubble, which books appear to have been destroyed before this trial, and, while he found them in a state of confusion, he is of the opinion that the lease was treated by Hubble and the corporation as a paid-up lease. S.W. Hubble was not called to explain these matters although his mother was vitally interested in their determination and was the person, if anyone, most likely to know what he would have testified. He probably had been so devious in his business methods that he thought best to absent himself from the scene of his financial exploits.
There was an objection to Parson's testimony that it was inadmissible, because the authenticity of the books which he had examined was not clearly proven, but we are satisfied from all the testimony that he did examine the real books of the company, and his opinion as to what they contained was admissible under the circumstances.
It has been repeatedly held that where books are voluminous, intricate or uncertain, resort may be had to the testimony of an expert bookkeeper to explain the entries and the true state of the accounts: Guarantee Co. v. Mutual Building Loan Assn., 57 Ill. App. 254; Chicago etc. R. Co. v. Wolcott, 141 Ind. 267 ( 39 N.E. 451, 50 Am. St. Rep. 320); Bartley v. State, 53 Neb. 310 ( 73 N.W. 744); Daniels v. Fowler, 123 N.C. 35 ( 31 S.E. 598).
Having come to the conclusion that this lease is genuine and that Hubble's, Inc., have the interest accrued by it, it has a right to be considered in the distribution of the proceeds of the sale if it brings anything above the amount of the mortgage and costs.
The court fixed the value of the leasehold of Hubble's, Inc., at $15,540. The amount of the present rental received, amounts to about $2,500 a year and the testimony is to the effect that even that amount is liable to be diminished in the future. Out of this the buyer at the mortgage sale will have to pay taxes and upkeep, which will naturally diminish the net revenues from rentals. On the whole, we are of the opinion that the actual value of the leasehold is not greater than $12,000 and fix it at that amount.
Counsel for appellant urges that the court erred in setting aside the default against Hubble's, Inc., and permitting it to answer here. Such matters are to a great extent discretionary, and the answer of that defendant, while not technically verified in the manner required by law, was equivalent at least to an affidavit of merits and we cannot say that the discretion of the court was improvidently exercised.
Neither of the parties, Letitia Hubble, nor the Standard Oil Company, has any judgment against Hubble's, Inc., and taking the pleadings as they stand, and in view of the evidence, the order of distribution of the proceeds should be as follows:
First, the proceeds of the sale, or as much thereof as may be necessary, should be applied to the satisfaction of plaintiffs' judgment, and costs and disbursements including costs of sale.
Second, if any sum is left, it should be applied to the extent of $12,000 to the payment of the value of the leasehold interest of Hubble's incorporated.
Third, the judgment of Letitia Hubble, being first in time, should be first in right after the application of the proceeds to plaintiffs' judgment and Hubble's, Inc.
Fourth, the amount remaining, if any, should be applied to the payment of the judgment of the Standard Oil Company of California, and each of the parties should have the statutory right of redemption.
The plaintiffs will be allowed costs of foreclosure and sale and none of the other parties will recover costs.
In all other respects than those noted, the decree of the Circuit Court is affirmed.
AFFIRMED AS MODIFIED.
BEAN, RAND and ROSSMAN, JJ., concur.