16 S.E.2d 9 | Ga. | 1941
Lead Opinion
1. The bill of exceptions was not subject to dismissal as failing, under the Code, § 6-901, to sufficiently "specify the decision complained of and the alleged error."
2. Where a grantor executes a junior mortgage or security deed which, while referring to a senior mortgage or security deed, purports to convey the property itself, and contains a covenant of warranty against himself and all other persons, and where the senior lienholder buys in the property at a sale under a power in its security deed, and conveys the property back to the original grantor, the title or lien of the junior incumbrance, as against the original grantor and his privies with notice, is not extinguished, but subsists as a priority or first lien.
3. However, where a privy of the original debtor, contemporaneously with the deed made by the senior security-deed holder back to the debtor, furnishes the purchase-money for such reconveyance, and takes a mortgage or security deed covering both this amount and moneys advanced for other purposes, the lien and rights of the last creditor will be superior to those of the original junior lienholder as to the purchase-money, but not as to the other amounts advanced.
4. In a contest between the junior lienholder and the last creditor, under the Code, § 20-1006, providing that if the debtor does not direct how payments on indebtedness shall be applied, and the creditor has made no particular application, "the law will direct the application in such manner as is reasonable and equitable, both as to parties and third persons," the trial court should not apply all the payments to the part of the last creditor's indebtedness which did not represent purchase-money, so as to leave all of the purchase-money unpaid and give its *544 lien complete superiority over that of the junior lienholder; but the court should prorate the debtor's payments in proportion to the respective amounts of purchase-money and money lent for other purposes, which together constituted the indebtedness covered by the mortgage of the last creditor.
5. Under the undisputed facts, the court erred in holding that the original junior incumbrance was entirely superior to the rights of the last creditor, and in failing to decree as to the relative priorities of the parties in accordance with the preceding rulings.
In 1932 the Insurance Company, under a power of sale in its senior security deed, sold the land and at the sale acquired full title, free of the inferior lien of the Bank of Lenox. Subsequently, in 1934, the Insurance Company sold the land back to Medford for $7783.75; the two present plaintiffs, Federal Land Bank of Columbia and Federal Farm Mortgage Corporation, contemporaneously furnishing the purchase-money to Medford and taking security deeds from Medford therefor, plus $1216.25 representing the amount of an additional loan, the new security deeds covering a total loan of $9000.
Medford paid to these plaintiffs on the principal of the debt sums amounting to $1400 and also paid interest, without giving any direction as to whether such payments should be applied on the portion *545 of the loan representing purchase-money or on the additional advances of $1216.25. The record fails to show any application by the plaintiffs on any particular portion of the indebtedness.
In 1940 the Bank of Lenox advertised the land for sale under a power in its security deed. The Federal corporations filed this petition to enjoin the Bank from selling the land, and prayed for other equitable relief and for general relief.
The judge, hearing the case on the agreed statement of facts and other undisputed facts, without a jury, found in favor of Bank of Lenox, and that its security deed was entirely superior to the security deeds of the plaintiffs. The plaintiffs excepted to this final decree.
The defendant in error moves to dismiss the writ of error on the ground that the assignments of error in the bill of exceptions are not legally sufficient. The exceptions are as follows: "To the judgment and decree, . . as aforesaid, plaintiffs then and there excepted, and now except, and assign error thereon, as being contrary to law and contrary to the evidence. Plaintiffs say that the court erred in holding that the security deed of defendant, Bank of Lenox, is superior to the security deeds of plaintiffs, and that the court erred in denying the permanent injunction . . to enjoin the defendant bank . . from selling the land referred to in the pleadings in evidence, under the power of sale in the defendant's security deed. Plaintiffs further say that the court erred in denying the permanent injunction . . to enjoin the defendant . . from selling the land under the power of sale, in such manner as to affect the security deeds owned by plaintiffs, or the liens, rights, title, or interest of plaintiffs thereunder. Plaintiffs say that the court should have held that plaintiffs' security deeds are superior to the security deed of the defendant, Bank of Lenox, and that the court erred in holding otherwise. . . The court should have held, that although plaintiffs' loans to [the debtor] were greater than the amount of the purchase-money loaned for the repurchase of the land by [the debtor] from [the holder of the senior security deed], and parts of plaintiffs' loans were used for purposes other than the repurchase of the land, yet plaintiffs are not legally required to apply the amount paid by [the debtor] on the loans to the reduction of the amount loaned for the repurchase of the land; and that the court erred in not so holding. Plaintiffs say that the court *546
should have held that plaintiffs' security deeds are superior to the security deed of the Bank of Lenox, to the extent of the full amount of the unpaid balance of plaintiffs' loans to [the debtor] with unpaid interest thereon, that balance being less than the amount loaned for the repurchase of the land, with interest thereon; and that the court erred in not so holding."
1. As to the motion to dismiss the writ of error, the Code, § 6-901, requires that a bill of exceptions "shall specify plainly the decision complained of and the alleged error." The instant case does not fall within the rule inGreenfield v. Harvey,
2. It is the general rule that a sale under a regularly exercised power in a security deed or mortgage is equivalent to a foreclosure proceeding, and not only extinguishes the right of redemption, but divests all junior mortgages and other junior incumbrances on the property. Mutual Loan Banking Co. v.Haas,
The doctrine of estoppel, however, is not thus circumscribed or limited to cases where there have been false and fraudulent representations by the mortgagor as to the validity of his title or as to the professed priority of what in point of fact may have constituted only a second lien. This may arise under an extension of the rules of equitable estoppel or estoppel by deed. Code, §§ 29-111, 38-114; Thomas v. Hudson, supra, and cit.; Stewartv. Anderson,
Accordingly, it has been held by this court, in Bowlin v.Hemphill, *548
Where a deed otherwise purports to convey the fee, and contains no words such as would impose a limitation as to the quantum of the estate conveyed, a clause which does nothing more than inform the grantee that there is a prior mortgage or security deed on the property, and states that it is understood and agreed that such is the case, can not properly be construed as cutting down the quantum of the estate sought to be conveyed. The fact that the deed disclosed that the grantor was purporting to convey a greater estate than was in fact presently owned would not and could not nullify the language of the full and absolute conveyance as actually made. In other words, where the language of the deed purports to convey and warrant the full and absolute title, the fact that only the then owned equity of redemption may have been all the title which at that time could and did pass, would not change the legal effect of the language of the conveyance itself. Under such language, the grantee not only immediately took all title that the grantor then owned, but under such an instrument and in accordance with the Code he could await the time and tide of future events so as to thereafter appropriate all additional title that the grantor might subsequently acquire.
It can not reasonably be said that this interpretation would render the clause as to the prior security deed meaningless. It needs but be considered that we have in this State a law against cheating and swindling, and a person of reasonable prudence, in giving a second security deed, might wish it stated for his protection that a prior security deed or mortgage was in existence, and that the other party so understood. Persons have been convicted in this *550
State for fraudulently misrepresenting the condition of their title. See Code, §§ 26-7401, 26-7410, 61-9901; Holton v.State,
As was stated in Perkins v. Rhodes, supra, it has long been recognized that the rules of estoppel are much broader where the relation is one of mortgagor and mortgagee, where duties of the mortgagor as debtor or as continuing in possession of the property remain, than where the relation is one merely of vendor and vendee, where no duty by the vendor remains unless undertaken by covenant in his deed. The relation of mortgagor and mortgagee has been thus likened to that of landlord and tenant, where the relationship itself precludes the tenant from disputing the title of his landlord. 58 A.L.R. 357, 358, 391, note and cit.; 45 Am. D., note and cit.; Stewart v. Anderson, supra, quoting Powell on Law of Mortgages, 190. The security deed conveying full title to the Bank of Lenox, even had there been no unlimited warranty of title, clearly implied that the grantor would pay his own prior indebtedness and thereby clear the incumbrance, and not that he was turning the property loose on such second grantee with the burden on the latter to pay the debt in order to obtain a good title to what had been conveyed. The instrument contained nothing to show that the grantor expected to be relieved of this obligation, or that the second grantee intended to assume it, or even to have the burden of discharging it in order to protect his title, as between the immediate parties. Construing the instrument in its entirety so as to give effect to the intention of the parties, as of course we must do, it would seem that the very purpose and effect of the broad and unrestricted language of the conveyance, with an unlimited and unrestricted warranty of the title, was to provide for the exact situation which actually arose in the instant case; that is, where the grantor afterwards reacquired title to the property stripped and free of the prior incumbrance. In such a case, how could it be said that when one induces another to part with his money on the faith of a junior security deed, especially with a full and unlimited warranty of title, and afterwards reacquires the property freed of the previous recited lien, he should then be permitted to hold it against his own grantee merely because he may have *551 very properly recited the existence of the prior lien as being a fact at a time when in point of fact it was a fact.
The rule which we have just discussed would manifestly have no application to a quitclaim deed merely renouncing or releasing title. Morrison v. Whiteside,
The decision in Beckcom v. Small,
The question here under discussion might be brought into confusion and doubt if we should lean too heavily on outside authorities, *552 some of which are admittedly in conflict with others, and also in conflict with previous decisions of this court — even contrary to our own Code, § 29-111; and while some decisions of other jurisdictions are cited in this opinion as persuasive authority, yet if all decisions by other courts should be laid aside, we could not reach any other conclusion than we do in this case.
There are cases of foreign jurisdictions, where, as here, the conveyance was absolute and conveyed the property itself, which have applied the doctrine of estoppel, even though the maker of the junior mortgage acquired title, not at the sale under the senior mortgage, but from the purchaser at such sale. In other cases, the principles, of estoppel and warranty have been blended. In still other cases, while refusing to apply the doctrine of estoppel in favor of the junior mortgagee, his rights have been held superior by reason of a covenant of warranty in his mortgage. In none of the cases, however, has the junior mortgage been held extinguished or subordinate to the rights of the mortgagor and his privies, where the instrument contained a covenant of unlimited warranty.
The status of a junior mortgagee, where the mortgagor reacquires title from the purchaser at a sale under a senior mortgage, has long troubled the courts, and there is a strange dearth of decisive authority on the subject. In 3 Jones on Mortgages (7th ed.), 602, § 1887, it is said: "Whether the mortgagor would stand in any better position as regards the subsequent incumbrance, if, instead of purchasing directly under the power, the estate had been sold under the power to a stranger and subsequently purchased from such stranger by the mortgagor, is a question raised but not decided in the case last cited." (Otter v. Vaux, 6 De Gex, MacNaughton Gordon, 638, 643, 43 English Rep. Reprint, 1381.) In that case, after following an earlier English decision, Toulmin v. Steere (3 Merivale, 210, 36 English Rep. Reprint, 81), and holding that where a mortgagor gave two mortgages and bought in the property himself at a sale under the senior mortgage, his purchase would not defeat the junior mortgage, the court raised the question: "Whether this would be the case if the estate has been sold to a Stranger and subsequently purchased from such stranger by the mortgagor — quaere?" No decision was made thereon.
The case of Martin v. Raleigh State Bank,
In California, a statute existed similar to our own Code, § 29-111, as to after-acquired property. Applying apparently the principles of estoppel, the Court of Appeals of that State held that, although under the general rule the foreclosure of a senior deed of trust extinguishes a junior mortgage lien, the mortgagor's acquisition of title through a deed from the purchaser will revive the junior lien; and that the reason for the rule of extinguishment "would seem not to apply as to the mortgagor acquiring the title from foreclosure of the first mortgage, whether he acquired title directly . . or indirectly as the grantee of a third party foreclosure-purchaser." See also Jensen v. Duke,
Also applying the doctrine of estoppel, in addition to the rules of warranty, where the senior mortgagee bought in the property at a sale under its mortgage, and then sold it to the wife of the mortgagor, who had joined with him in executing the instrument with its covenant of warranty, the New Hampshire Supreme Court, in Parsons v. Little,
There is another line of decisions which hold that the doctrine of estoppel alone would not preclude a mortgagor from acquiring a paramount title held by the purchaser at a senior mortgage sale, but fully recognize that a different rule obtains where the junior mortgage contains a warranty of title. Thus, in Jackson v. Littell,
There are a few other decisions holding that the doctrine ofestoppel will not be extended in favor of a junior mortgagee where the mortgagor bought from a purchaser at the sale under a senior mortgage; but none of those decisions refer to a covenant of warranty, and apparently none there existed. See Rauch v.
Dech,
While our decision might properly be grounded solely on the doctrine of estoppel, as in the Bowlin and Perkins cases, it is not necessary to do so, for the reason, as stated, that the junior security deed in this case not only conveyed the title to the land itself absolutely, and not "subject" to the senior lien, but contained an express covenant of unlimited warranty. See also, as to unlimited warranties, Code, § 29-304; Miller v.Desverges,
Accordingly, there would be no error in the holding of the trial court that the lien of the junior lienholder was wholly superior to the liens of the Federal corporations, acquired from the debtor after the senior lienholder bought the property at a sale under its security deed and resold it to the debtor, if the case did not also involve other principles next dealt with.
3. The foregoing rules, however, are themselves controlled by still another principle, long settled in this State and recognized with little dissent in other jurisdictions, that a mortgage or deed to land, securing its purchase-money, and executed as a part of the same transaction in which the purchaser acquires title, will exclude or take precedence over any prior lien against the property arising through or against the purchaser. Where the contracts are simultaneously made, so as to constitute one transaction, "it makes no difference that the purchase-money mortgage may be made to a third person who advances the purchase-money at the time the purchaser receives his conveyance." Protestant Episcopal Church v. Lowe Co.,
(a) This priority in favor of a purchase-money security deed or mortgage does not, however, extend beyond money advanced or paid in buying the property, so as to cover sums used for other purposes. See Sherrod v. Hollywood Holding Corporation,
(b) Under the preceding holdings and the agreed facts, where the Federal corporations, holding security deeds for $9000 principal, paid to an insurance company the entire $7783.75 purchase-money of the land, and, in the same transaction in which the security deeds were executed, the insurance company conveyed the land to the debtor after the insurance company had acquired good title, without dispute, to the land by a sale under a power in its senior security deed, the security deeds of the Federal corporations, as to this purchase-money, were superior to the junior security deed of the defendant, Bank of Lenox, even though, under the preceding holdings, such junior deed was not extinguished by the sale under the senior deed, but reattached to the land by virtue of the covenant of unlimited warranty contained in the junior deed. As to such purchase-money and interest thereon, the plaintiff corporations were entitled to priority. However, as to the $1216.25 balance covered by the plaintiffs' security deeds, and representing sums used for purposes other than purchase-money, the defendant bank was entitled to priority.
4. The Federal corporations contend, that, even though it should be held that their security deeds are inferior to that of the Bank of Lenox as to the $1216.25 of their $9000 loan not representing purchase-money, nevertheless they are entitled to priority both as to that part and the $7783.75 purchase-money under legal and equitable rules controlling the application of the $1400 of payments made by the debtor on the new $9000 indebtedness. The record shows no direction by the debtor as to how the payments should be applied, and no application by the creditor to either the purchase-money portion or the non-purchase-money portion of the $9000 notes on which the payments were made. The Federal corporations contend that under the Code, § 20-1006, and under legal and equitable rules and the facts, the court must apply the payments to any unsecured or inferior indebtedness rather than the better or fully secured indebtedness; and that the defendant bank has no equity, and they have superior equities. The equities which they urge are: that if they had not made the loan, the bank would have no lien by virtue of the debtor's reacquirement of the property; that they lent all of the money in one transaction; and that, although the bank's debt was due in 1931 and the land was sold in 1932 under the senior lien and reacquired by the debtor in 1931, *558 the bank did not buy in the property or bid at the senior-lien sale, and did not take any other action until it advertised the property in 1940 under a power of sale in its security deed.
In the absence of any direction by the debtor or application by the creditor receiving payments, it is too late after the litigation for either party to claim the right; and an application must be made, under the Code, § 20-1006, "in such manner as is reasonable and equitable, both as to parties and third persons," bearing in mind the additional provision that, "as a general rule, the oldest lien and the oldest item in an account will be first paid," where that provision is applicable.
There is no merit in the argument that the Federal corporations have the only or the exclusively superior equities, or that the bank is barred by laches and has no equity as to its lien, which would not be barred before 1951. The contention that the bank would have had no lien, after the sale under the senior security deed, if these corporations had not made the loan which enabled the debtor to buy back the property, applies only to the purchase-money paid to obtain the title, and manifestly has no relevancy when applied to the part of the loan used by the debtor for other purposes. The preceding rulings have already recognized the priority of the Federal corporations as to the $7783.75 purchase-money. Expressed otherwise, the bank has the superior lien as to the $1216.25, and the plaintiffs have the superior lien as to the $7783.75; or, as against the bank, the plaintiffs have a first lien indebtedness of $7783.75 and a second lien indebtedness of $1216.25.
Neither of the debts being unsecured, the rule, under decisions in this and other States, that where the parties have made no application, the law will direct the payments to be applied first to an unsecured rather than a secured debt, can not be given application; nor could such a rule be given effect for the additional reason that it is made applicable only as between the debtor and creditor themselves (High Co. v. Arrington,
In Andrews v. Exchange Bank,
Nor does the instant case involve payments made by the mortgagor from the proceeds of property on which either of the claimants held a lien. In such a case the general rule is that the creditor receiving payment from property on which the other creditor holds a lien can not apply the payment to his own unsecured or less secured claim against the objection of the other lien creditor. See, in that connection, Cofer v.Benson,
As to the precise question here involved, there has been no decision by any appellate court of this State. However, there are Georgia decisions which have applied the rule of pro rata
distribution *560
or application to other situations involving controversies between lienholders or claimants of equal dignity or equity. SeeSemmes v. Boykin,
Outside authority, in cases similar to that before the court, supports the rule of pro rata application, where there are two lienholders, and the one receiving payment seeks to have it applied solely to his own unsecured or inferior lien indebtedness. In Coles v. Withers, 33 Grattan, 203, 204, the Virginia court held that in such a case both claimants had equities; that neither was entitled to entirely exclude the other; and that "the only proper solution of the difficulty is in applying the credits pro rata to all the debts." That decision, as an additional basis, referred to the fact that the debts were included in one instrument, and that "there are numerous cases which sustain the pro rata application, especially where there are several claims secured by one instrument or judgment;" citing Blackstone Bank v. Hill, 10 Pick. (Mass.) 128; Whitev. Trumbull, 3 Green (N. J.), 314 (40 Am. D. 207); Shaw v.
Picton, 10 Eng. C. L. R. 443. See also other cases, supporting the rule of pro rata application as between secured and unsecured, or secured and less secured, indebtedness, where a note or notes have been taken for an indebtedness, part of which is secured and part unsecured, or the debts have been cast into one account, and payments are made generally toward the whole debt, and credited generally on the obligation: Sheldon v.
Bennett,
In a similar situation, the same rule of pro rata application was given effect by the Michigan court in a case which did not involve two lien creditors, but the holder of a conditional-sale contract having also a claim for unsecured indebtedness, and general creditors of the debtor represented by a receiver. It was there held, *561
where the indebtedness had been carried and the payments made on one general account, that such payments would be applied prorata on unsecured and secured indebtedness of the holder of the conditional-sale contract. McMullen Machinery Co. v. Grand Rapids Trust Co.,
Nothing was held in Cherokee Fertilizer Co. v. Federal LandBank (
Accordingly, on the question of a proper application of the $1400 paid in this case, the court in applying equitable principles should have made a pro rata application between the $7783.75 representing purchase-money and the $1216.25 not representing purchase-money. Therefore it should have been decreed that only $189.19 of the total payment should be applied to the $1216.25 of inferior lien indebtedness, leaving $1027.06 principal due thereon, as to which the defendant bank has priority over the liens of the Federal corporations; and that the remaining $1210.81 of the $1400 payment should be applied to the $7783.75 superior-lien indebtedness, as to the balance of which with interest the Federal corporations have priority.
Judgment affirmed in part and reversed in part. All theJustices concur, except Duckworth, J., who dissents from theaffirmance, and concurs in the reversal.
Dissenting Opinion
1. The transactions by which Medford reacquired the land here involved were simultaneous, and hence it can not be correctly said that any one conveyance preceded the other in point of time. Therefore Medford did not reacquire *562
title to the fee, but only an equity subject to the Federal Land Bank deed securing the purchase-money and the excess loaned to him. Given the most liberal interpretation that its language will permit, Code § 29-111 is still limited in its application to the actual title, no more and no less, subsequently acquired. That section was never intended to refer to the fee-simple title when in fact the subsequently acquired title is to the equity only. This view is sustained in Raleigh State Bank v. Williams,
2. At the beginning of division 2 of the majority opinion a sound statement of law defining the consequences upon the title of a sale under a power of sale is made. It is there said that such a sale "not only extinguishes the right of redemption, but divests all junior mortgages and other junior incumbrances on the property." That opinion goes on to state that such junior liens are detached from the property sold and attach to any proceeds from the sale in excess of the first lien. Having thus stated the law that is plain and explicit, and which enables every one to ascertain with certainty the condition of the title after such sale and eliminates all necessity for giving further attention to junior liens, the majority opinion then proceeds to obliterate this certainty by writing into the opinion a will o'the wisp, thereby placing the title to such property in doubt and uncertainty so long as the debts represented by junior liens have not been paid. There can be no dissent from the assertion that an unambiguous Code section must be given the meaning that its language clearly implies and that the legislative intent as indicated by the language of the statute must be given effect. Every word of section 29-111 manifests a clear legislative intent to require a grantor to live up to his word and to estop him from profiting by his own wrong. Nothing in that section indicates a legislative intent or purpose to impose any restriction or obligation upon a grantor who has been guilty of no *563 wrong, and who has conveyed only property which he had a right to convey, and whose conveyance has never been challenged. Medford purported by his deed to the Bank of Lenox to convey an equity of redemption in the lands therein described. His deed has not been challenged, nor has his right to execute the same, nor indeed can the grantee therein at this time deny that it received everything that the deed purported to convey. Yet the majority opinion, claiming authority under the above Code section, deals with Medford as if he had been guilty of wrong, by imposing an unauthorized restriction upon his right to subsequently become the owner of that property.
Medford conveyed to the Bank of Lenox, not the legal title to the land described, but only the equity of redemption therein.Hockenhull v. Oliver,
The above authorities establish the rule that the warranty clause applies only to the property conveyed by the deed; and I assume that the majority will not dissent from this principle. But the majority contend that the deed from Medford to the Bank of Lenox conveyed the legal title to the land therein described free from incumbrance and that the warranty clause contained therein therefore applies to the land itself. They concede that the deed makes some reference to the pre-existing deed to Metropolitan Life Insurance Company, but assert that the language of the Bank of Lenox deed does not make it subject to the pre-existing lien. The deed to the Bank of Lenox contains the following clause: "It is agreed and understood that the Metropolitan Life Insurance Company holds first mortgage deed on the above described tract in the amount of $6000." The cardinal rule to be applied in construing deeds is that effect must be given to the intention of the parties as disclosed by the provisions of the deed as a whole. Code, § 29-109; Huie v.McDaniel,
The majority correctly hold that, under the Code, § 29-111, if the grantor expressly or impliedly asserts that his deed or mortgage is a first lien when in fact there is an outstanding prior lien on the property, his after-acquired title will inure to the benefit of the grantee. But, not content with announcing this sound interpretation of the meaning of the Code section, that opinion goes further and erroneously asserts that the section applies where the second security deed expressly recites that it is subject to a prior security deed. As authority for this ruling they quote from Bowlin v. Hemphill,
The majority cite a number of decisions from other jurisdictions. Admittedly courts of other jurisdictions are not agreed upon the question here under consideration, but I think an examination of the published decisions will disclose that none are better considered and contain sounder reasoning than Zandriv. Tendler, supra. There it is pointed out by the Connecticut court that many of the decisions of other jurisdictions announcing the other view contain obiter, are controlled by statute, or go off on points other than the main question here under consideration, and therefore are not persuasive as authority. The majority cite Ayer v. Philadelphia c. Brick Co.,
3. The further ruling by the majority that on principles of equity, under the Code, § 20-1006, the Bank of Lenox as the holder of a junior lien was entitled to be heard on the question of applying the $1400 previously paid to the Federal Land Bank, is unsound and can find no support in equitable principles. The fallacy of the majority ruling is found in its treatment of the question as if the fund were subject to some lien or some claim of the Bank of Lenox. That money was the private property of Medford, and he had a perfect right voluntarily to apply it to the legitimate and legal claims of the Federal Land Bank. The Bank of Lenox had no title to or interest in any part of that fund. That bank made no effort to collect any part of that money for application to its claim against Medford, but stood idly by while the Federal Land Bank, diligently and energetically looking after its own interests and affairs, made the collection from its debtor. In Newton v. Nunnally,