111 F. 647 | 8th Cir. | 1901
after stating the case as above, delivered the opinion-of the court.
The laws of Arkansas (Sand. & H. Dig. §§ 707, 5090) require deeds and mortgages conveying real property located in that state to be executed in the presence of two disinterested witnesses, or, if not so executed, that they be acknowledged in the presence of two persons, who shall then subscribe tlieir names to the deed or mortgage as attesting witnesses. The mortgage or deed of trust which was executed on March 25, 1895, by Sparks and wife in favor of the Southern Saving Fund & Eoau Company was neither executed nor acknowledged in the presence of two disinterested witnesses, as the local law required, and for that reason it is conceded that it was not entitled to go of record. Moreover, the laws of the state of Arkansas (Sand. & H. Dig. § 5091) contain the following provision:
“Every mortgage, whether for real or personal properly, shall be a lien on the mortgaged property from the time the same is filed in the recorder’s office for record, and not before; which filing shall he notice to all persons of the existence of such mortgage.”
This statute has been construed repeatedly by the supreme court of the state of Arkansas. Beginning with the decision in Main v.
The next and the most important question in the case is whether, on the principle of subrogation, the complainant compáuy can be treated as the equitable assignee of the deed of trust held by R. G. Oliver, as guardian of the minor heirs of C. D. Oliver, and whether the indebtedness secured by that deed of trust can be treated as still subsisting, and be enforced against the mortgaged property for the benefit of the complainant company, although it has been discharged of record. This latter deed of trust, as stated above, was executed about May I, 1894, by Sparks and wife. It was properly acknowledged and recorded, and was paid and discharged of record on March -7; *895, out of the proceeds of the loan which was made by Sparks- and wife from the Southern Saving Fund & Roan Company, hereafter termed the “Saving Fund Company.” For these reasons counsel for the complainant company insists that it ought in equity to be subrogated to all of the rights of the beneficiaries under the aforesaid deed of trust. Courts of equity are most frequently called upon to enforce the right of subrogation where one pays the debt of another which he was under a legal obligation to pay, either because he was a surety or a guarantor. In such cases privity exists between the surety or guarantor and the creditor whose debt is discharged in such a sense that, when the creditor receives payment from the surety or guarantor, he is under an obligation to make over or assign to him all property or securities which may have been pledged or hypothecated by the principal debtor to secure the payment of the debt. The law creates or implies a contract on the part of the creditor that such property or securities will be turned over to the one who is secondarily liable as soon as he pays the creditor’s claim. Tt is manifest, however, that in the case at bar no privity of contract existed between the Saving Fund Company and the holder of the Oliver deed of trust when the latter incumbrance was discharged. The last-named company was under no obligation, either as a surety or
It is urged, however, that, notwithstanding the want of privity, the complainant is entitled to be treated as the equitable assignee of the Oliver deed of trust because it made the loan in question upon the understanding that it was to have a first lien on the mortgaged property, andpn support of that contention the following authorities are cited: Association v. Thompson, 32 N. J. Eq. 133; Tyrrell v. Ward, 102 Ill. 29; Bank v. Bierstadt, 168 Ill. 618, 48 N. E. 161, 61 Am. St. Rep. 146; Draper v. Ashley, 104 Mich. 527, 62 N. W. 707; Wilton v. Mayberry, 75 Wis. 191, 43 N. W. 901, 6 L. R. A. 61, 17 Am. St. Rep. 193; Levy v. Martin, 48 Wis. 198, 4 N. W. 35; Trust Co. v. Peters, 72 Miss. 1058, 18 South. 497; Dillon v. Kauffman, 58 Tex. 696. Without going over these authorities in detail, it will suffice to say that they sustain the following propositions : That where money is advanced to a debtor in pursuance of an express agreement that it is to be used to retire existing liens or incumbrances on his property, arid that the creditor who loans the money is to have a first lien upon the property to secure its repayment, such creditor may be subrogated to the rights of the incumbrancer or lienor whose debt has been paid, not only as against the borrower, but as against any one else who subsequently acquires an interest in the property with knowledge of the circumstances under which the money to pay off the incumbrances or liens was advanced. They further hold that, if money is advanced to a debtor to discharge an existing first mortgage upon his property, and in pursuance of an agreement that the
There are other persuasive facts which deserve consideration. Sparks failed in business in 1893, owing a large number of mercantile debts, and at the time of the transactions involved in this suit was a bookkeeper working on a salary. The Killoughs had known him for a long time, and they admitted knowledge of his financial embarrassments and condition after 1893. Surely, they ought to have known, or to have had a strong suspicion, that Sparks did not have $1,800 to pay Oliver in 1895, unless it was part of the money which he borrowed from the Saving Fund Company; and they ought to have known, and doubtless did know, that the Saving Fund Company would not have loaned him*the amount of .money which it did except in pursuance of his agreement to discharge the Oliver deed of trust, so as to make its deed of trust a first lien. Besides, the Killoughs admit that they deliberately went .about-the business of purchasing the land from Sparks with actual
It is accordingly ordered that the decree below be reversed, and that the cause be remanded to the circuit court, with directions for further proceedings therein in accordance with this opinion.