Opinion
No. 25823
Decided July 15, 1936.
Mortgages — Property right in street passes to mortgage owner — Mortgage security cannot be impaired without compensation by public authority — Compensation payable to mortgagee and mortgage lien transferred to funds in court — Mortgagor's assignee of judgment not entitled to fund, when.
ERROR to the Court of Appeals of Hamilton county.
This cause originated in the Common Pleas Court of Hamilton county and it was there heard upon the pleadings and evidence. Upon the request of the defendant, Spiegel, the trial court made a separate finding of facts, which comprises the entire history of this litigation.
One Frank Gronefeld and wife were the owners of property abutting on Hillside avenue in the city of Cincinnati. This avenue had a ditch immediately joining their property. In the maintenance of the street and ditch, the city made excavations approximately four feet below the street level. In so doing, it failed to shore the land of the Gronefelds with proper lateral supports, thus causing their property to slide, their porch to sag and the foundation and walls to crack. On February 23, 1934, the Gronefelds filed their amended petition in a suit against the city for damages caused to their property. Issue was joined by the city's answer, and a verdict was returned in favor of the plaintiff, which was reduced by remittitur to the sum of $1,000. Judgment for that sum was entered on the verdict on July 26, 1934.
The State Avenue Loan Building Company was made a party defendant on August 10, 1934, and answered that it was the holder of a mortgage upon the premises of the Gronefelds to secure an indebtedness in excess of $2,500; that the Gronefelds were in default for payment of interest and principal on its mortgage; and that the taxes were delinquent as well. The mortgagee alleged in its answer that the damages caused to the premises by the city had impaired its mortgage security, and asked that it be held entitled to the payment of the money in the hands of the court as partial satisfaction of its mortgage. One-half of the judgment secured by the Gronefelds against the city was paid as a fee to their attorney, and the trial court issued an injunction against the city restraining the city from paying the balance until final adjudication of the case. The finding of facts states that when the mortgagee's petition was filed on August 10, 1934, the mortgagee was negotiating with Gronefeld, the husband, relative to application of the proceeds of the suit to its mortgage; and, being unable to make progress in their negotiations, the Gronefelds, at about eleven o'clock on that day, sold and assigned their interest in the $500 balance of the judgment to the defendant, Harry Spiegel.
On September 4, 1934, Spiegel was made a party defendant and answered, alleging that on August 10, 1934, at 11 a. m., he became a purchaser of the $500 balance of the judgment for value, in good faith and without notice or knowledge of any other claim, etc., and he asked the court to order the city to pay the $500 to him in satisfaction of his assignment of the judgment. At the time of hearing, there was due on the mortgage the sum of $2,878.70. The mortgagee offered evidence that while the property was worth $3,500 at the time the loan was made, the damages resulting from the action of the city had reduced its value to less than $1,200. When Gronefeld assigned his mortgage to Spiegel, he received $400 in cash for his interest in the remaining portion of the judgment. Gronefeld also testified that, at the time of trial, the property was worth not more than $1,200. One of the important findings of fact made by the trial court is as follows:
"That the defendant Harry Spiegel with full notice of the pending litigation, and with the idea of making a substantial profit at the expense of one of the litigants, bought a chose in action after employing counsel to check court records to make sure that there were no prior rights of record — this circumstance clearly indicating that he knew that others were asserting claims to the money when he purchased Gronefelds' rights."
The trial court, in its conclusion of law, held that the verdict of the jury awarding compensation for the damage to the property was a confirmation of Gronefelds' claim for damages and proof of the actual diminution of the mortgagee's security, and that the mortgagee was entitled to the rights of the Gronefelds in the judgment; it also held that, when Spiegel took the assignment, he took it subject to the rights of the mortgagee. The trial court decreed that the mortgagee was entitled to the sum of $500, and ordered the city to pay that sum over to it or its attorney. The Court of Appeals, one member dissenting, reversed this judgment and ordered the city to pay the balance of the judgment, amounting to $500, to Spiegel as assignee. Certification was allowed by this court.
Mr. Alfred Pfau, for plaintiff in error.
Mr. Sol Goodman, for defendant in error Harry Spiegel.
Mr. John D. Ellis, city solicitor, and Mr. Francis T. Bartlett, for defendant in error the city of Cincinnati.
Many of the questions decided in the case of City of Toledo v. Brown, 130 Ohio St. 513, 200 N.E. 750, apply here. In the Brown case, we held that an owner of lots abutting on a street has a property right which passes to the owner of a mortgage on the premises, is included within the mortgage security and cannot be taken by public authorities without compensation. We also held that a mortgage, from the date of its filing, was constructive notice to everyone who dealt with the mortgaged premises.
Under the facts found by the trial court, the property rights of the Gronefelds were seriously lessened in value, and the mortgage security was seriously impaired. The mortgage record was notice to everyone, and at the time when the mortgagee filed its intervening petition in the Common Pleas Court, its mortgage was in default for the payment of both interest and principal. The fund was in the hands of the court; and had the Gronefelds asked for its payment to them, the trial court, in its broad equity powers, and especially in view of its finding that the mortgagee's interest had been seriously impaired, should have applied its payment not to the mortgagors, but to the mortgagee in partial satisfaction of its security. The lien of the mortgagee's security will be treated as having been transferred to the fund in the hands of the court.
While the following decided cases are somewhat different in their aspect from this, the equitable principle herein announced has been adhered to in the following cases: Sherwood, Admr., v. City of Lafayette, 109 Ind. 411, 10 N.E. 89; Severin v. Cole, 38 Iowa 463; Moritz v. City of St. Paul, 52 Minn. 409, 54 N.W. 370; Omaha Bridge Terminal Ry. Co. v. Reed, 69 Neb. 514, 96 N.W. 276. In the City of Lafayette case, supra, the chief justice quotes from 1 Jones on Mortgages (1878 Ed.), Section 708, as follows: "When the mortgaged property has been turned into money, or a claim for money in any way, as, for instance, by the taking of the property for public uses, or for the use of a corporation under authority of law, the rights of the mortgagee remain unaltered, and he is entitled to have the money in place of the land applied to the payment of his claim. Thus if a street be laid out through land subject to a mortgage, although the damages be assessed to the mortgagor, the mortgagee is entitled to them, as an equivalent for the land taken for the street." There will be no danger of double payment of damages by the city, since the city will be protected by the court's decree in a proceeding where each claimant of the fund is a party.
What has been said applies especially to the rights of the mortgagors and the mortgagees. Had Spiegel been an innocent purchaser for value, it might be possible, as intimated by his counsel, for this court to order foreclosure proceedings in the hope that the mortgage might be satisfied by sale of the premises and that Spiegel might eventually obtain the money from the fund held by the court. But the trial court found that Spiegel was not an innocent purchaser; but, with "full notice of the pending litigation, and with the idea of making a substantial profit at the expense of one of the litigants, bought a chose in action, * * * this circumstance clearly indicating that he knew that others were asserting claims to the money when he purchased Gronefelds' rights."
In view of this finding, Spiegel does not come to the court with clean hands. The trial court's judgment awarding the fund to the mortgagee was proper. The judgment of the Court of Appeals is reversed and that of the Common Pleas Court affirmed.
Judgment reversed.
WEYGANDT, C.J., STEPHENSON, WILLIAMS, JONES, MATTHIAS, DAY and ZIMMERMAN, JJ., concur.