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United States Mortgage Co. v. Sperry, 138 U.S. 313 (1891)

United States Mortgage Company v. Sperry

No. 22

Argued January 31, February 3, 1890

Decided February 2, 1891

138 U.S. 313


The power of a guardian, under the statute of Illinois relating to guardians and wards, approved April 10, 1812, Rev.Stats. Illinois, 1874, c. 64, to mortgage the real estate of the ward is subject to these express restrictions: (1) that he obtain the leave of the county court, based upon petition setting out the condition of the estate, the facts and circumstances on which the petition is founded, and a description of the premises to be mortgaged; (2) that the mortgage, if not in fee, must be for a term of years not extending beyond the minority of the ward, and (3) that the time of the maturity of the indebtedness secured by it should not extend beyond the minority of the ward. It is also subject to the implied restriction, controlling the discretion and power both of the guardian and the county court, that the indebtedness secured by the mortgage mast arise out of, and have some necessary or appropriate connection with, the management of the ward's estate.

Mortgages executed in 1872, 1813 and 1876, by a guardian in Illinois, with the leave of the county court, to secure the payment of bonds given by him for moneys borrowed to pay off existing encumbrances upon the ward's real property and to improve such property by replacing thereon buildings that had been destroyed by fire are sustained as not invalid under the above statute.

Such mortgages were not invalid because authorizing an absolute sale and not expressly recognizing the right of redemption after sale, for such right of redemption exists by statute as a rule of property, whether recognized or not in the mortgage.

The United States Mortgage Company, a corporation of New York, being authorized by its charter to lend money on bond and mortgage on real estate situated within the United States, or upon any hypothecation of such real estate, or upon hypothecation of bonds or mortgages on such real estate, for any period of credit, could contract in Illinois to lend money there upon bond and mortgage of real estate at nine percent per annum (which the late of that state permitted), although the highest rate of interest permitted by the general laws of New York was seven percent, and although the special charter of the company provided that no loan or advance of money should be made by it "at a rate of interest exceeding the legal rate."

In Illinois, overdue coupons, so drawn as to be negotiable securities according to the general commercial law, bear interest after maturity at the rate of six percent per annum. But an interest warrant signed by a guardian,

Page 138 U. S. 314

who has contracted to be exempt from personal liability for the principal debt or for the interest thereon, practically payable out of particular funds, are not a security of that class, and do not bear interest after maturity.

Where a certain sum of money is due and the creditor enters into arrangements with his debtor to take a less sum provided that sum is secured in a certain way and paid at a certain day, but if any of the stipulations of the arrangement are not performed as agreed upon, the creditor is to be entitled to recover the whole of the original debt, such remitter to his original rights does not constitute a penalty, and equity will not interfere to prevent its observance.

A guardian having obtained leave of the county court to borrow the sum of $95,000 and mortgage the ward's estate to secure its payment, allowed the mortgagee, in the settlement of the loan, but without the assent of that court, the sum of $7,219.27 in payment of interest on overdue coupons upon previous loans, and received from the mortgagee only $87,780.73. Held: (1) that this was not a contract within the meaning of the statute that the company should receive usurious interest, for no such contract had been attempted to be authorized by the county court; (2) that as the allowance by the guardian of interest upon interest was under a mistaken view of the obligation of the coupons in that regard, the remedy was to treat the loan as one for only $87,780.73, making the calculation of interest at the contract rate upon that basis, and not to forfeit the interest upon the sum actually received by the guardian from the mortgagee.

Where a guardian in Illinois, with leave of the county court, contracted on behalf of his ward's estate for the repayment of money borrowed, with interest at nine percent per annum, payable semiannually until the principal sum "shall be fully paid" -- the principal debt maturing, as required by the statute, before the majority of the ward -- interest is to be calculated after the ward's majority at the contract rate, and not at the statutory rate of six percent. In such case, it is the right of the ward, immediately upon attaining full age, to pay off the debt or, by agreement with the lender, obtain an extension of the time of maturity and a less rate of interest.

Whatever may be the rate of interest contracted for in Illinois, after the debt is merged in a judgment or decree, the contract ceases to exist and the rate of interest upon the sum adjudged to be due is thereafter controlled by the statute.

This appeal brought up for review a decree, United States Mortgage Co. v. Sperry, 24 F. 838, and United States Mortgage Co. v. Sperry, 26 F. 727, ordering the sale of certain real property in the City of Chicago belonging to the appellee Henry W. Kingsbury in satisfaction of the aggregate amount found to be due on three bonds given by

Page 138 U. S. 315

his guardian to the United States Mortgage Company, with the approval of the County Court of Cook County -- by which court the guardian was appointed -- for moneys borrowed to be used in improving the ward's property and discharging certain encumbrances upon it. The bonds, all signed by the guardian, were payable, respectively, May 1, 1852, April 1, 1883, and December 1, 1883, and each one was secured by mortgage of distinct parts of the real estate directed to be sold. The mortgages bore date, respectively, July 10, 1872, April 1, 1873, and December 1, 1876, and provided, as did the bonds, that upon default, continuing for one month, in the payment of interest as stipulated, the principal sum, together with all arrearages of interest thereon should, at the option of the Mortgage Company, become immediately due and collectible. Default having occurred and continued for one month in the payment of interest on each of the bonds, the company, on the 2d of November, 1877, exercised that option, declared the principal and all arrearages of interest to be immediately payable and collectible, and within a few days after that date brought the present suit for foreclosure.

The circumstances under which the bonds, coupons, and mortgages were executed are as follows:

On the 5th of July, 1872, Anson Sperry, guardian of Kingsbury, presented his petition, properly verified, to the County Court of Cook County showing that the real property of the minor was subject to encumbrance by mortgages to the amount of about $78,500, that the debts secured by some of them were due, and the holders demanding payment, that the holders of other mortgage debts, soon to mature, were willing to accept payment and to assign or cancel their mortgages, that upon all of the mortgages considerable accumulations of interest were due and unpaid, that a portion of the real estate belonging to the minor consisted of lot 6 and a part of lot 5 in block 25 of the original Town of Chicago, and that the buildings formerly thereon were destroyed by fire October 9, 1871; that the premises constituted a very large part of his estate in point of productive value, were centrally located in Chicago, and, before the destruction of the buildings

Page 138 U. S. 316

thereon, yielded large rents; that in the judgment of all persons interested in the estate and in its proper management, the buildings should be restored and the property made productive; that no money had come to the guardian's hands with which to liquidate the existing mortgage debts or the accumulated interest thereon; that, the rents from the estate being insufficient for that purpose, it was necessary that provision be made to prevent the foreclosure of the mortgages; that there was no money of the estate to be applied in restoring the buildings; that the cost of constructing suitable buildings upon the premises would be about $100,000, and that for the purpose of funding, consolidating, and paying off the mortgage debts and constructing proper buildings, it would be necessary to borrow about $200,000.

The prayer of the guardian was that he be authorized to negotiate, for the purposes stated, a loan of not exceeding $200,000 and to pay usual and reasonable commissions and brokerage therefor upon such terms and for such time as shall be approved by the court and allowed by law, the mortgage to rest upon certain premises belonging to the minor, the metes and bounds of which are given in the petition of the guardian. The authority asked for was given and a loan in gold for $175,000 was negotiated with the appellant. The bonds given therefor were made payable in gold May 1, 1882, with interest (evidenced by coupons signed by the guardian) in like coin at the rate of nine percent, payable semiannually, until the principal was paid, and the mortgage to secure the payment of principal and interest was submitted to and approved by the county court. The order of approval was made August 6, 1872.

Subsequently, on the 4th of September, 1872, the guardian filed in the county court an inventory of the real and personal estate of the minor which recited all the mortgages upon his property, including those executed before he inherited it, and the above mortgage for $175,000. This inventory was examined, approved, and ordered to be recorded. A subsequent inventory filed by him December 26, 1872, showed a balance of receipts in his hands of $496.98, and a cash balance of

Page 138 U. S. 317

$30,026.71 unexpended from the loan that had been authorized by the court. In that report he said

"that upon consultation with all parties interested, and with persons of sound discretion and without interest, it is thought best to construct on the north one hundred feet of lot six, fronting on the alley north of Randolph Street, and being the north end of Randolph Street lot, a public hall. There are no halls of the character intended to be built north of 22d Street and east of the south branch of the Chicago River, and the large number of conventions, meeting, concerts, readings, and other assemblages of a like character requires proper accommodations. The ground proposed to be used is useless for almost any other purpose, but is a source of large expense. The ground is eighty feet wide by one hundred feet deep, and a hall with seating room for fifteen to eighteen hundred people can be built at a cost of about $50,000, from which an annual income of $10,000 at least can be realized. An entrance can be made through the Clark Street building, and the basement thereunder will rent for the purposes of an eating house at a fair rent. All the property belonging to said estate is liable to the dower right of Mrs. Jane C. Kingsbury of one-third of the net income thereof, and to the dower right of Mrs. Eva Lawrence of two-ninths of said net income."

This report was examined, approved, and recorded.

On the 3d of March, 1873, the guardian presented another petition to the county court showing that he had used $68,643.80 out of the above loan in paying off old mortgages on the minor's estate, leaving a balance of $126,002.58, which he estimated would all or nearly all be required in the construction of buildings then being erected on the Randolph Street front of lot 6 in block 35, and the building on that part of lot 5, in the same block, owned by the minor. His petition also showed that the rear part of lot 6 had upon it, before the fire of 1871, a public hall or theater, and that upon careful consideration, and after consultation with judicious, competent persons, it was best for the estate to erect a public hall upon the rear of that lot, having its front on Clark Street, an to be used for concerts, lectures, readings, etc. It

Page 138 U. S. 318

further appeared that, in addition to the old mortgages previously described, there were two other encumbrances that were either in whole or in part charges upon the estate of the infant, and which amounted to $15,000 and interest, and that the money in his hands, of the former loan, would be needed for the buildings on lot 6, and more was needed to erect the building on the rear of that lot and to pay off said encumbrances. His petition showed

"that the entire estate of the said Henry W. Kingsbury consists of real estate, nearly all situate in the City of Chicago, and the only revenue and income of said estate to meet the various charges and encumbrances upon it and its expenses and taxation must be derived from the rental of said real estate; that no revenue can, in his judgment and that of judicious persons with whom he has consulted, be derived from the said rear portion of said lot 6 unless the same be improved; that the said premises have heretofore, as thus improved, been largely productive and profitable until the said improvements were destroyed by fire, and it is believed that, if judiciously built upon, as proposed, they would be again equally productive and profitable, if not more so."

He therefore asked authority to negotiate an additional loan of $75,000 in gold coin or the equivalent thereof in paper currency of the United States, paying usual and reasonable commissions and brokerage therefor, upon such terms and for such time as the court would approve and the law allowed, and to secure the same by mortgage upon certain described premises.

The prayer of that petition was also granted, and an order was made authorizing a further loan of $75,000 in gold coin, or its equivalent in paper currency, upon the terms stated in the petition. Under this order, the mortgage of April 1, 1873, was executed to secure the payment of $70,000 in gold coin borrowed by the guardian from the mortgage company, and for which amount the guardian gave his bond maturing April 1, 1883, payable with interest (evidenced by coupons signed by him as guardian) at the rate of nine percent per annum, payable half-yearly in like coin, until the principal sum was fully paid. This mortgage does not seem to have been formally

Page 138 U. S. 319

presented to the court for examination, but the fact of its execution was brought to its attention in the guardian's reports from time to time of the condition of the estate, and was recognized.

On the 12th of October, 1876, the guardian, who at that time was Herman G. Powers, presented to the county court a petition showing a large indebtedness against the minor's estate, arising in part from the erection of buildings upon the lots before referred to, and including $51,987.04 in gold, which he stated was due the United States Mortgage Company for unpaid interest up to August 15, 1876. For the purpose of discharging said indebtedness, he asked authority to make an additional loan in gold of a sum not exceeding $95,000, or its equivalent in paper currency of the United States, paying interest thereon at the rate of nine percent per annum in gold. The authority asked was granted, and the amount above named having been negotiated with the appellant, he executed a mortgage December 1, 1876, to secure the payment of that sum in gold coin on the 1st of December, 1883, with interest (evidenced by coupons signed by him as guardian) payable half-yearly in like coin at the rate of nine percent per annum until the principal sum was paid, the guardian giving his bond for the principal sum and coupons for the interest. The mortgage, bonds, and coupons, having been submitted to the court, were examined and approved.

Upon the basis of the master's report, the aggregate amount due on the 15th day of December, 1885, was $343,399.96. This amount was reduced by the final decree to the sum of $221,727.64, making a difference against the company at that date of $121,672.32.

The following extract from the final decree shows how this result was reached:

"And the court finds that there was due the complainant, October 15, 1884, of principal and interest on the loans made by said Anson Sperry as guardian, calculating interest at nine percent per annum from the time to which the interest on said loans had been paid or funded and secured by the mortgage executed by the said Powers, the following sums, to-wit: "

Page 138 U. S. 320

Principal of first loan . . . . . . . . . . . . . $175,000.00

Interest at nine percent from November

1, 1876, to October 15, 1884. . . . . . . . . . 125,343.75

Principal of second loan. . . . . . . . . . . . . 70,000.00

Interest at nine percent from April 1,

1877, to October 15, 1884 . . . . . . . . . . . 47,512.50


Making a total of . . . . . . . . . . . . . . $417,856.25


And the court finds and the master's

report shows payments to the

complainant, made October 15, 1884, and

previously, to the amount of. . . . . . . . . . $302,568.17

And that said Powers improperly paid

to said complainant the sum of $370.57

as interest on coupons secured by

said 1st and 2d mortgages, which sum

should be charged to complainant. . . . . . . . 370.57


Total payments. . . . . . . . . . . . . . . . $302,938.74


Leaving a balance due October 15, 1884,

on said first two loans of. . . . . . . . . . . $114,917.51

The interest upon which at nine percent

to December 15, 1885, is. . . . . . . . . . . . 12,066.33


Leaving a balance due on the first

two loans at that date. . . . . . . . . . . . . $126,983.84


And the court finds that the principal

of said third mortgage made by

Heman G. Powers should be reduced

by deducting the amount of interest

on coupons included therein, or

$7,219.37, leaving. . . . . . . . . . . . . . . $87,780.73

And that the complainant should be allowed

as interest thereon to December 15, 1885,

the sum of. . . . . . . . . . . . . . . . . . . 6,963.07


Making a total of principal and interest

due on said mortgage of . . . . . . . . . . $94,743.80


Which, added to the sum due on said first two

mortgages, makes a total of . . . . . . . . . . $221,727.64

due the complainant on all three of said mortgages December 15, 1885.

Page 138 U. S. 321

The calculation of interest was made to December 15, 1885, because on that day the court below filed an opinion sustaining the defendants' exceptions to the master's report so far as it allowed (1) interest on coupons after their maturity; (2) interest on coupons of the first and second loans included in the third mortgage, and (3) interest on the third loan at the rate of nine percent.

The assignment of error questions the correctness of the ruling on the exceptions, but makes no distinct point as to interest at the contract rate having been calculated to December 15, 1885, rather than to the date of the entry of the final decree passed on the 23d of March, 1886.

Page 138 U. S. 325

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