175 Ky. 300 | Ky. Ct. App. | 1917
Opinion op the Court by
Reversing..
The exceptions rested upon two ground's, one, of which, was that the Union Central Life Insurance Company held a prior mortgage lien upon the land to secure the payment of the principal sum of $1,500.00, with accruing interest, and that it had not been made a party to the suit by appellees and that while its lien was prior and superior to the lien sought to be enforced by the judgment and for which the land had been sold, that the debt, to secure which the insurance company’s lien
The court did not adjudge specifically as to whether or not the land was susceptible of advantageous division, and neither did it adjudge that a sufficiency of the land be sold to satisfy the judgment, but adjudged that the entire tract be sold in satisfaction of the debt sued for, and it seems to have been so sold and probably so offered, as there is nothing in the report of sale to indicate that the commissioner ever offered it for sale otherwise than as a whole.
That the parties to the action all well knew of the existence of the lien in favor of the Union Central Life Insurance Company at the time of the institution of the suit and the recovery of the judgment, there can be no
(1) The exceptions raised the legal question as to whether or not a sale of the land to enforce a junior mortgage lien can be lawfully made when a prior mortgage lien, which has not yet matured, exists upon the same tract of land and is owned-by a person other than the owner of the junior mortgage lien. The provisions of sections 692 and 694, of the Civil Code, are appealed to as authorizing such a sale, while the same sections of the code are appealed to as denying such relief for an inferior lienholder, and certain decisions of this court, which have been rendered in constructions of such sections, but not, however, upon the same state of facts as are involved in this action. Section 692, supra, provides : ' ;
“The plaintiff in an action for enforcing a; lien on property shall state in his petition the liens held thereon by others, making them defendants; and may ask for and obtain a judgment for a sale of the property to satisfy all of said liens, which are shown to exist, though the defendants fail to assert their claims. Such defendants shall not, however, be allowed to withdraw any of the proceeds of such sale until they have shown their right thereto by answer and cross-petition. But unless a personal judgment be prayed for in such cross-petition, there need not be any summons thereon; and it shall be treated with reference to the time of answering thereto as a set-off or counter-claim.”
This section by itself apparently authorizes the sale of a tract of land to satisfy all the liens upon it, if the plaintiff makes the other lienholders party defendants to the action and states their liens in his petition, but this section must necessarily be construed along with the provisions and requirements of section 694, Civil Code, and a disposition of such states of case made, as are not embraced by or governed by the provisions of either of the sections, supra. ■ Subsection 1, of section 694, imposes upon the trial court before ordering the sale of .real property for .debt the duty of determining, from the pleadings, by an agreement of the parties, from affidavits filed or from a report of commissioners, whether or not the property can be dividéd without materially impairing its value, and may cause it to be
Subsection 2 provides, that if it is necessary to sell a parcel of real property for debt, and the parcel can not be divided without materially impairing its value, the whole of it may be sold, and if it brings more than the sum to be raised, the court shall make proper orders for the distribution of the proceeds.
Subsection 3 makés substantially the following provisions:
(1) The plaintiff in an action to enforce a lien on real property shall state in his petition the liens, if any, which are held thereon by others and make the holders defendants.
(2) No sale of the property shall be adjudged, which is prejudicial to the rights of the-holders of any jof the liens.
(3) When it appears that several debts are secured by one lien or by liens -of equal rank, and they are all due at the commencement of the action or become so before judgment, the court shall order the sale for the pro rata satisfaction of them all.
(4) If the liens are secured by the same lien or the liens are of equal rank and the debts secured by them are owned by different persons and are not all due, a sale of the land shall not be ordered until they- all become due.
(5) If the liens described above (in 3 and 4) be all held by the same person, a sale may be ordered of enough of the property to pay the debts then due, unless it appears that 'the land is not susceptible of an advantageous division; or that for some other reason the sale would cause a sacrifice thereof or seriously prejudice the interests „of the defendants.
It seems that the provisions of subsection 1, of section 694, supra, apply to all sales of real property for debt, which may be ordered by a court of equity. Likewise, the provisions of section 692 and subsection 2, of section 694, apply to all sales ordered by a court of real property for debt, except as. modified and governed by the requirements of subsection 3, of section 694. The provisions of subsection 3, of section 694, which re-, quire the plaintiff seeking to enforce a lien for debt upon real estate to make all other lienholders defendants to the suit, and that, which forbids any sale of the prop
In the instant case, the debt of the Union Central Life Insurance Company, which is a prior lien upon the land sold, is not due and will not be due until 1923, unless there should be a default in the payment of one of the coupon notes for interest and the insurance company should then elect to treat the note for the principal sum to be due. The debt sued upon and for which the lands were adjudged to be sold was due at the institution of the suit. The two debts are owned by different persons. They are not secured by the same lien, nor are the liens of equal rank, and hence, the provision of subsection 3, of section 694, which prohibits a sale of encumbered land when the debts are secured by liens of equal rank and are owned by different persons and are not all due, until all the debts become due, does not apply and does not prescribe the rights of the parties. 'Neither can the provision of subsection 3, of section 694, supra, which provides that, “If all such liens be held by the same party, that the court may order a sale of enough of the property to pay the debts then due,, unless it appear that it is not susceptible of an advantageous division; or that for some other reason the sale would, cause a sacrifice thereof or seriously prejudice the interests of the defendants,” be made applicable to the case in hand, because the debts are not owned by the same person nor secured by the same lien nor are the liens of equal rank. The cases cited and relied upon, as well as others holding a similar doctrine, as forbidding a sale, in the instant case, as Gray v. Grimm, 157 Ky. 603; Leopold v. Furber, 84 Ky. 214; Gentry v. Walker, 93 Ky. 405; Gunn v. Orendorff, 23 R. 2369; Burton v. McKinney, 6 Bush 428; Emerson v. Risk, 9 Bush 24; Melton v. Brown, &c., 20 R. 882; Faught v. Henry, 13 Bush 471; and Roemer v. Motley, 164 Ky. 313, do not have application. Those cases involve the construction of the last provision of subsection 3, section 694, supra, and are entirely in accordance with it. Each of these cases was a suit upon notes executed for the purchase money of lands, and to enforce the vendor’s lien upon the lands to secure the payment of the notes, some of which were due at the institution of the. action or became so before judgment, and
It will be observed, that the only provisions of section 694, supra, which are applicable to the instant case, are subsections 1 and 2, and those provisions of subsection 3, which require one seeking to enforce a lien on real estate, for debt, to make all other lienholders defendants, and to state the liens in his petition, and which forbid the sale of encumbered real estate when a sale would be prejudicial to the rights of holders of any of the liens, but section 692 must be construed with subsections 1, 2 and 3, of section 694. There is nothing in sections 692 or 694, which specifically forbids a judgment for a sale of a tract of land at the suit of a junior mortgagee and in satisfaction of the lien of the junior mortgagee, or in satisfaction of both liens, though there exists upon the land a senior mortgage and the debt which it secures has not yet become due,- except the provision of section 694, which forbids a sale prejudicial to either of the liens. In McKibben v. Worthington, 103 Ky. 356, it was apparently broadly held, that the existence of other liens upon a tract of land, which was not susceptible of an advantageous division, was not an obstacle to a judgment for a sale of the land at the suit of one lienholder for the enforcement of his lien, where he had stated in his petition the liens held' by others and made them defendants. In that case, however, the debts, although held by different persons, were secured by the same lien. The liens were of equal rank and the debts were all due and the judgment was for the sale in satisfaction of all the liens. Hence, the judgment was in entire harmony with subsections 2 and 3, of section 694. However, the fact that the land was not susceptible of an advantageous division was not a controlling factor,
: “Where the foreclosure suit is by a junior mortgagee, the priority and rights of the senior mortgagee may properly be adjudicated, and the sale ordered to be made subject to his lien, although he can not be prejudiced or his rights in any way injured by the second mortgagee’s proceedings.”
In 27 Cyc. 1545, the text is:
*310 “Although a junior mortgage encumbers only the equity of redemption remaining in the mortgagor, subject to the senior mortgage, yet a foreclosure may be had against this estate- at the suit of the holder of the second mortgage. And such holder is under no obligation to pay off the elder lien before bringing his own suit.”
The fights of the senior mortgagee are not affected by a sale of the mortgaged interest under a second mortgage, and the sale must be made, according to tñe common law, subject to the lien of the senior mortgagee, who retains the right to enforce his lien as before. Before the enactment of. the statute, which requires all of the lienholders to be made parties to a suit to enforce a mortgage lien, it was generally held that the senior mortgagee was not even a necessary party to a foreclosure suit by a junior mortgagee, and if the senior mortgagee was not made a party, he was not concluded in any way by anything in the suit, nor his rights interfered with or affected by it. Combs v. Stewart, 10 B. M. 463; Shively v. Jones, 6 B. M. 274. The purchaser at a sale of encumbered land to enforce a junior mortgage lien must necessarily take such title as he buys, subject to all valid mortgage liens upon the land, which were created prior to the mortgage lien under which he buys. Cornwall v. Falls City Bank, 92 Ky. 38. Upon the other hand, if property encumbered by a senior mortgage lien, which has not matured, can not be sold subject to the senior mortgage in satisfaction of a junior mortgage lien, a debtor could create a lien upon his property to secure a debt, which will not become due for many years, and could thereby render himself practically immune from the collection -from him of his debts of later date, and while it might be said that a subsequent lienholder had acquired his lien with a knowledge of the prior one and the effect of it upon his lien, and for that reason should not complain of having the collection of his debt deferred to the maturity of the prior lien, an execution creditor would be in no better attitude, as the sale of the debtor’s property under execution would only create an inferior lien upon it, when it was encumbered by a lien, when levied upon and sold. The result would be to save the debtor from the payment of his debts and the performance of his contracts and prevent the junior creditor from enforcing the collection of his lawful de
(b) Before a valid order of sale of real estate for debt, however, can be made, it is necessary to bring all of the lienholders before the court, and it is made the duty of the plaintiff in the action to do so. This- is expressly required.by both section 692 and subsection 3, of section 694, supra. While section 692, supra, in certain instances authorizes a judgment for the sale of property where the liens are stated in the petition, whether the lienholder defendants assert their claims or not, it does not in any instance authorize an order of sale, unless all of the lienholders are made parties- to the action and the failure to knowingly do so, has been held to be a reversible error, both before and since the
“Though that judgment can not be now reversed or considered, because not appealed from in time, the judgment order confirming the sale made thereunder can be considered, and as the court clearly erred in oyer*314 ruling the exceptions and confirming that sale, it must be reversed and cause remanded with directions to set aside the sale, and if desired to order a resale, as both notes are now due. ’ ’
In Roermer v. Motley, 164 Ky. 313, which involved a similar question, it was held that such question could be properly raised upon exception to the sale and to the same effect is Callebs v. Buble, 172 Ky. 113. In Mills v. Brown, 2 Met. 404, a tract of land was levied upon by an attachment and ordered sold, subject to the lien of a person, who was not made a party to the suit nor brought before the court, and the amount of his debt was not ascertained. Exceptions were filed to the sale upon that ground and overruled and the sale confirmed, and upon appeal from the order confirming the sale, it was held that it was error to so adjudge a sale of real property and reversed the order of confirmation and remanded the ca.se with direction to bring the lienholder before the court and to ascertain the amount of his debt by appropriate supplemental proceedings. This, of course, would necessitate a new order of sale in conformity with the opinion of the court.
(c) "While mere inadequacy of price is ordinarily -not a sufficient ground to justify the setting aside of a sale under a judicial proceeding, but where the inadequacy of price, for which the land, sold arises from representations from interested parties, at the time of the sale, as to the property or the state of its title, and which have a tendency to chill bidders and to mislead and confuse them and to discourage competition and to depress the price of property and results in its sale for less than it would have brought at a fair auction, it is sufficient to justify the setting aside of the sale. Dale v. Shirley, 5 B. M. 492. The uncontradicted affidavit of the appellant is to the effect, that the real value of the property was $9,500.00 and the highest bid was only $4,700.00. The attorney for the appellees and purchasers of the land, in their presence, and presumably with their approval, announced to the bidders that the sale would be made subject to the prior lien of the Union Central Life Insurance Company to secure a debt of $1,500.00, while the commissioner of the court declared that the sale would be made in accordance with the judgment of the court under which he was acting. The judgment of the court contained no mention of the prior
■ The court should have sustained the exceptions and set aside the sale, and the judgment appealed from is reversed and the cause remanded for proceedings consisted with this opinion.