Appeal from the Circuit Court of Cook County; the Hon. David
J. Shields, Judge, presiding.
JUSTICE SULLIVAN DELIVERED THE OPINION OF THE COURT:
Rehearing denied October 10, 1985.
This is an appeal by Peterson Bank (the bank), from an order entered at the close of its case during trial granting defendants' motion for a directed finding and dismissing the bank's mortgage foreclosure action. It is contended here that reversal is required because the trial court decision was based on the erroneous finding that the mortgage lacked consideration.
On December 4, 1979, defendants went to the bank to borrow money to enable them to purchase an insurance company. By signing a mortgage on their house and a note for $100,000 they obtained a line of credit in that amount. The mortgage and note were signed by both defendants, and later that same day Sheldon executed a promissory note for $75,000, receiving therefor a cashier's check which he negotiated. This note stated that it was secured by certain securities *fn1 and by the "Mortgage and Note dated 12/4/79." Also on that same day, Estelle Langendorf executed a power to hypothecate by which she attempted to pledge the $100,000 note and the mortgage as collateral for the "indebtedness of Sheldon P. Langendorf now evidenced (in whole or in part) by note dated 12/4/79 for $75,000.00." On January 4, 1980, another note for $15,000 was signed by Sheldon Langendorf. Both this and the $75,000 note were due June 4, 1980, and on that date they were renewed and combined into one note for $90,000 due December 10, 1980. This latter note was also renewed to become due on June 10, 1981. All of the notes indicated that the proceeds of the loans were being used as working capital for the purchase of an insurance company.
In April 1981, the bank received a $45,000 principal reduction from Sheldon Langendorf, and when a like amount plus accrued interest remained unpaid on the $90,000 note, the bank sued to foreclose the mortgage on defendants' home. During a bench trial, the trial court found that there were no funds disbursed by the bank under the December 4, 1979, $100,000 note and granted defendants' motion for a directed finding at the close of the bank's case. This appeal followed.
The bank contends that the trial court's ruling that there was no consideration for the mortgage on defendants' home was based upon the erroneous finding that it disbursed no funds under the $100,000 note securing the mortgage. Pointing out that it paid Sheldon Langendorf $75,000 on December 4, 1979, and $15,000 on January 4, 1980, the bank argues that the mortgage constituted a valid lien on the defendants' home in the amount of the actual disbursement, or $90,000. Defendants maintain that there was no consideration for the mortgage because the bank, not having paid any money to Estelle, made no disbursement under the $100,000 note. They argue that the $90,000 paid by the bank was on the notes signed only by Sheldon in a separate transaction unrelated to the mortgage.
This argument, however, does not necessarily support a finding of lack of consideration, since "consideration for a mortgage need not move directly from the mortgagee to the mortgagor. The consideration may consist in a loan to a third person" (Riddle v. LaSalle National Bank (1962), 34 Ill. App.2d 116, 119-20, 180 N.E.2d 719, 721), and the validity of a mortgage does not depend on immediate disbursement of funds.
"A mortgage is security for a debt and without a debt it has no effect as a lien. [Citations.] A mortgage may be taken to secure future advances, but it can only take effect as a lien from the time some debt or liability secured by it is created. If there is no mortgage debt or obligation in existence there is nothing for the mortgage to operate on, and the lien begins only when money is advanced or the contemplated debt comes into existence in the course of dealing between the parties. The lien is measured by the extent of the advances and the amount of the debt. [Citations.]" (Emphasis added.) (Freutel v. Schmitz (1921), 299 Ill. 320, 323, 132 N.E. 534, 535. See also Collins v. Carlile (1851), 13 Ill. 254.)
Defendants further argue that a mortgage to secure a particular debt is not enforceable as the security for a different debt, but the case cited by them, Totten v. Totten (1920), 294 Ill. 70, 128 N.E. 295, does not support their position. Rather, in Totten, where two distinct debts were involved, the court based its holding on the intention of the parties. *fn2 It is to the intention of the parties then that we will turn in our analysis of this transaction, and in this regard we initially note that their intention may control even where a mortgage itself is technically deficient.
"The doctrine of equitable mortgages is based upon the principle that equity will interpret an agreement according to the intent of the parties as evinced therein, and if not contrary to some positive rule of law or public policy, will give it effect even though it does not meet the technical requirements of the law; hence where an instrument manifests an intent to charge or pledge property as security for a debt, and the property is identified, a lien will be recognized in equity." Trustees of Zion Methodist Church v. Smith (1948), 335 Ill. App. 233, 237, 81 N.E.2d 649, 650.
• 1 It is well established that, as between the parties, construction of a mortgage involves consideration of all instruments executed by the contracting parties in the course of the transaction, and such construction must take place within the context of the overall transaction. (Tepfer v. Deerfield Savings & Loan Association (1983), 118 Ill. App.3d 77, 454 N.E.2d 676.) We turn, then, to an examination of the documents executed by the parties, the authenticity of which defendants do not deny.
The mortgage itself, signed by both defendants, declares that they are indebted to the bank on the $100,000 note, which is also signed by them and specifies that it is secured by the mortgage. Additionally, the $100,000 note states that the proceeds of the loan, as evidenced by the note, are to be used as working capital for the purchase of an insurance company. The note expressly states, in a typewritten provision, that it is "given as collateral security." With respect to this provision, it has been held that a creditor may hold two notes of a debtor for the same debt, one note collateral to the other. See Parish Bank & Trust Co. v. Wennerholm Brothers (1942), 313 Ill. App. 121, 39 N.E.2d 383.
• 2 On the same day that the mortgage and $100,000 note were executed, December 4, 1979, the bank issued a cashier's check for a commercial loan in the amount of $75,000 to Sheldon Langendorf and that disbursement was evidenced by a note signed by Sheldon but not by Estelle. Although defendants argue that the $75,000 note was an entirely separate transaction, the note expressly stated in a typewritten provision that it was secured by the earlier mortgage and the prior note of December 4, 1979, and that the proceeds were to be used as working capital for the purchase of an insurance company. Such language indicates that the $75,000 note constituted part of the original transaction contemplated by the parties when they executed the mortgage.
Estelle Langendorf also executed an undated "power to hypothecate" in an apparent attempt to pledge the mortgage and the $100,000 note as collateral for the "indebtedness of Sheldon P. Langendorf now evidenced (in whole or in part) by note dated 12/4/79 for $75,000." Defendants now argue that this document had no legal effect and that the power, alleged by defendants to have been executed after December 4, 1979, could not have affected the parties' intent on December 4. It is not necessary, however, for this court to resolve those issues since, whatever the actual legal effect of the power to hypothecate, Estelle Langendorf did execute the document in question and it certainly constitutes evidence of her intent. ...