Equitable Mortgage Co. v. Lowe

53 Kan. 39 | Kan. | 1894

Lead Opinion

The opinion of the court was delivered by

Ho ETON, C. J.:

1- ® heí,'proper, If the southwest quarter and the southeast quarter of section 33, township 5, range 18, were the only real estate mortgaged by John W. Lowe to the Equitable Mortgage Company, we would promptly dispose of the case in favor of the mortgage company, upon the equitable doctrine announced in Everston v. Central Bank, 33 Kas. 352. But 800 acres of land in Phillips county were included in the mortgage recited in the petition. This mortgage, according to the petition, was executed on the 21st of January, 1889, and filed for record on the 6th of April, 1889. It was to secure. $3,500, but the only money paid thereon was $934.13. It appears from the evidence that the mortgage company received the mortgage on the 11th day of April, 1889. This action was commenced on the 3d day of May, 1889. The petition alleges, and the evidence shows, that Lowe, the maker of the mortgage, had no title to the southeast quarter of section 33, township 5, range 18, but there are no allegations in the petition showing that he had no title to all the other land described in the mortgage. There are allegations in the petition that Charles H. Smith, Philip Yountz and the American Investment Company had mortgages at one time upon a part of the 800 acres of land other than the southwest quarter and the southeast quarter of section 33, but there are no allegations in the petition that these mortgage liens actually existed at the commencement of this action, or that they were of the full value of all the land, or that the other land not incumbered by mortgages was worthless as a security for the debt. For all that appears in the petition or evidence, the 480 acres of land alone, not embraced in the mortgages paid off, may have been sufficient to satisfy the $934.13, advanced upon the mortgage of John W. Lowe to pay off the four mortgages upon the southwest quarter and the southeast quarter of section 33. This, therefore, is somewhat like a case in which a mortgagee has a lien on two properties or funds and other mortgagees have junior liens on a part of the same properties or funds. In such cases, equity demands that the mortgagee who is secured by two properties or funds shall resort first to that property or fund which is not bound to the other mortgagees or creditors, in order that the others may receive the benefit of their security so far as maybe practicable. (Sheldon, Sub., §63; Ferry Co. v. Jersey Co., 1 Hopk. Ch. 460; Everston v. Booth, 19 Johns. Ch. 486; and Hayes v. Ward, 4 Johns. Ch. 123.)

It was in the power of the Equitable Mortgage Company, in this very action, to pursue and. exhaust its remedy against the 480 acres of land included in the mortgage before being subrogated to the four mortgages paid off by it upon the southwest quarter and the southeast quarter of section 33, upon which the Kansas Trust and Banking Company and the Mortgage Trust Company of Pennsylvania also have mortgages. The right of subrogation or of equitable assignment is not founded upon contract, but upon the' facts and circumstances of the particular case, and upon principles of natural justice. (Eversion v. Central Bank, supra; Crippen v. Chappel, 35 Kas. 499; Yaple v. Stephens, 36 id. 680.) The Equitable Mortgage Company should have proceeded first against the 480 acres; and it is not equitable or just that it exhaust, in the first instance, the southwest quarter and the southeast quarter of section 33, so as to exclude the mortgagees or creditors having junior liens upon that property or fund only. The Equitable Mortgage Company showed in its petition that the defendant John W. Lowe had failed and neglected to pay the taxes for the year 1888 upon the lands embraced in his mortgage, and that the mortgage and debts secured thereby, on account of such default, were due and payable at the time this action was commenced. If, therefore, the mortgage company had proceeded against all of the land mortgaged, all of the mortgages could have been foreclosed and the liens of all the mortgagees adjusted accordiug to equitable principles; but it is contrary to equity and natural justice, without a further showing, to permit the Equitable Mortgage Company to exhaust all of the property or fund upon which there are junior liens, when its mortgage embraces other property which may be sufficient to satisfy its debt.

2. judgment-courureme Upon the trial, it was shown that Mrs. E. M. Lowe did not sign the mortgage, and that the notarial certificate to the acknowledgment was a forgery, but this would not release John W. Lowe, or render the mortgage null and void as to him. If John W. Lowe and the other parties having interests in the 480 acres of land referred to, who were parties in the courts below, but have not been made parties in this court, were properly in this court, we might perhaps reverse the case and send it back for a full foreclosure upon the whole 800 acres of land, and have the proceeds properly distributed; but we cannot render any judgment that will necessarily affect defendants who are not parties in this court by summons in error or otherwise. (McPherson v. Storch, 49 Kas. 313.)

Upon the petition, the other pleadings, and the evidence introduced upon the trial, the judgment of the district court must be affirmed.

AlleN, J., concurring.

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Dissenting Opinion

JohnstON, J.,

dissenting: The money advanced by the Equitable Mortgage Company upon the forged and fraudulent mortgage was loaned for the purpose of discharging a prior valid incumbrance, and had actually been so applied. When these facts had been established, they made a prima facie case entitling the Equitable company to be subrogated to the rights of the prior incumbrancer whose debt had been thus satisfied, there being no intervening rights or incum-brances. (Everston v. Central Bank, 33 Kas. 359; Sheldon, Sub., §8; Harris, Sub., § 825.) By advancing the money and paying the prior incumbrance, the plaintiff succeeded to the rights of the prior mortgagee, and this substitution in no manner disturbed or depreciated thé liens of the subsequent mortgagees. Their securities were just as good after the payment and substitution as they would have been had no payment been made by the Equitable Mortgage Company. It is highly equitable that subrogation should be made, and it appears that it can be made without lessening the rights or doing any injustice to the defendants. The only material objection or defense against the subrogation of the plaintiff is the-claim that there are two funds to which plaintiff may resort, on one of which the junior mortgagees have no lien, and that, for their protection, the plaintiff should exhaust the property covered by the fraudulent mortgage given to it before resorting to the lien which it has succeeded to by payment. This doctrine of two funds recognizes that the party who has discharged a prior incumbrance is entitled to subro-gation, and it only provides a rule for marshaling securities and adjusting priorities in the interest of justice and equity. The doctrine, however, is never applied so that it will work injustice to a senior creditor. He cannot be compelled to resort to doubtful securities or to funds upon which he can realize only by litigation. “To confine the senior creditor to one of two. funds, it must be shown that it is sufficient to satisfy his debt.” (Harris, Sub., §§ 496, 497; Sheldon, Sub., § 63.) This fact must be shown by the defendant. When the plaintiff had proved the payment of the prior incumbrance and its right to take the place of the prior incumbrancer, it had established the right of subrogation, and it devolved upon the defendants to show that the fund or property covered by the fraudulent mortgage was available and sufficient without resorting to the other property.

From what appears in the record, the mortgage made by Lowe to the plaintiff was false, fraudulent, and forged, and some of the land which it purported to cover he did not own. The loan was obtained upon a false and forged abstract of title. The mortgage was false and fraudulent, to which the wife’s signature had been forged. The receipt of the register of deeds, showing that the mortgage had been filed for record, was also a forgery. If there are any lands included in the mortgage which were owned by Lowe, his wife has an interest in them which is not conveyed by the mortgage. The loan having been obtained by the grossest fraud, on a false and forged instrument, the plaintiff was at liberty to treat it as being without force or effect, so far as the mortgagors were •concerned. If Lowe has any interest in the mortgaged lands against which the plaintiff might enforce its claim, it is of the most dubious and doubtful character, and probably furnishes little if any security for the payment of the money innocently advanced and used in the discharge of a valid debt and incum-brance. If the judgment of the district court is sustained, the plaintiff is entirely cut off from any benefit of its substituted lien, although the interest of Lowe in the lands covered by the fraudulent mortgage may be wholly valueless. The authorities cited in the prevailing opinion do not go to the extent of defeating the senior mortgagee, but, recognizing his superior right, merely suspended the proceedings which he had instituted until the fund or mortgage which was not bound to the other creditors should be pursued and exhausted. The judgments entered in those cases decreed that, after exhausting the funds in which the others had no interest, and any debt or balance remained due to the plaintiff, the original suit should then proceed in the usual course to enforce the payment of such debt or balance, and the junior creditor could then take what remained. (Ferry Co. v. Associates of Jersey Co., 1 Hopk. Ch. 460; Hayes v. Ward, 4 Johns. Ch. 123; Everston v. Booth, 19 Johns. Ch. 433.) This was certainly as far as the district court should have gone in this case, instead of cutting off the plaintiff from any rights under his substituted lien. I think the facts shown in the record entitle the plaintiff to subrogation, and that the judgment of the district court should be reversed.