71 S.E. 222 | N.C. | 1911
Lead Opinion
after stating the case. We think it may fairly be inferred from the record that A. E. Williams bought the notes and the mortgages from Ered Martin during the pendency of this action and after the complaint had been filed therein. If so, he acquired his interest in them subject to any judgment rendered herein, for this suit would be a complete Us pendens.
The defendant Williams failed to make the plaintiff, who was a junior encumbrancer, a party to the foreclosure suit brought by him against Rufus Branch, the mortgagor. The plaintiff is
It is suggested that the rule applied in this case does not obtain in States where the legal title is held to pass by the conveyance to the mortgagee, as in this State, but only in those where a mortgage is considered merely as a lien, or a security for the payment of the debt. But an examination of the authorities will disclose that they recognize no such distinction. In the States of New Jersey, Oonneeticut, Maryland, Illinois, Ohio, and others, from the reports of which we have cited cases, it has been held that the legal title passes .to the mortgagee. 20 Am. & Eng. Enc. (2 Ed.), p. 900 and note 5. The rule rests upon the reasonable assumption that the junior encumbrancer has an interest which should be protected by the courts, and which cannot be taken from him or impaired without notice and an opportunity to be heard. “It has long been the received rule (expressed in the maxim audd alter am partem), that no one is to be condemned, punished or deprived of his property in any judicial proceeding, unless he has had an opportunity of being heard.” Broom Legal Maxims (8 Ed.), p. 112.
The defendant Williams further contends that he had as good a title as if he had foreclosed under the power of sale, as the
There is no analogy between this case and those where sales are made under a power contained in a mortgage or deed of
Our conclusion is that the court erred in its rulings. The verdict will be set aside and a‘ new trial granted, the case to proceed further in the court below, in accordance with the law as herein declared.
New trial.
Dissenting Opinion
dissenting. It has always been held for law in this State that a purchaser at a sale under a second mortgage acquires the property subject to the lien of the first mortgage. But that the purchaser at a sale under the first mortgage acquires the property absolutely free from the liens of subsequent mortgages. Purchasers at such sales are required therefore to examine only for prior encumbrances not as to subsequent ones.
In Gambrill v. Wilcox, 111 N. C., 42, it was held that the purchaser at the execution sale under a junior docketed judgment acquires the property subject to the lien of prior docketed judgments, but that the purchaser at an execution sale under a senior docketed judgment acquires the property free from the liens of all junior judgments. This is put upon the express ground, therein stated, that “the lien of a docketed judgment is in the nature of a statutory mortgage.” This case has been cited since in Baruch v. Long, 117 N. C., 511; Bernhardt v. Brown, 118 N. C., 710, and other cases.
When the sale is made under foreclosure proceedings, the purchaser is not required to examine for subsequent encumbrances. He takes with notice only of the judgment which adjudges the validity of the mortgage and decrees the sale thereunder. He is not required to examine for subsequent encumbrances, any more than a purchaser at a sale under a docketed judgment or a purchaser at a sale under a mortgage with power of sale.
It has been repeatedly and most explicitly declared by this Court, Kornegay v. Steamboat Co., 107 N. C., 117; Lumber Co. v. Hotel Co., 109 N. C., 658; Williams v. Kerr, 113 N. C., 311; Gammon v. Johnson, 126 N. C., 66; that in a proceeding for foreclosure it is not necessary that the holders of junior mortgages be made parties. But if the purchaser could not get a good title at such sale unless subsequent mortgagees are made parties, then they would be necessary parties beyond question. Those decisions hold that it is advisable to make such junior mortgagees parties, and even that the court may add them ex mero motu. The reason given is that thereby they may have opportunity to participate in the surplus, if any, derived from the sale over and above the payment of the first mortgagee and the cost of proceedings, which surplus the mortgagor might otherwise dissipate. This reason looks to the convenience and advantage of the second mortgagees, but does not affect the title acquired by the purchaser.
It has been held in many cases that a docketed judgment, though a lien upon the land, does not divest the estate out of the debtor nor transfer his title and does not even make the land primarily liable for the debt. Dysart v. Brandreth, 118 N. C., 968, and cases cited in Clark’s Code (3 Ed.), p. 592. If therefore in such case, where the title and the estate still remain in the judgment debtor, the purchaser at the execution sale under 'a senior judgment takes the property divested of the lien of sub
The subsequent mortgagees take only a mortgage upon the equity of redemption. The legal title and the estate are in the first mortgagee and the purchaser at the sale under the first mortgage can be no more affected by any subsequent liens than the first mortgagee himself. Indeed the purchaser at such sale is in a better condition than the mortgagee, for he takes the legal title which was vested in the mortgagee discharged of the trusts thereto attached. The purchaser is not required to see to the application of the purchase money. He has discharged his duty when he has paid the money into court at a sale under a decree of foreclosure, or has paid it to the mortgagee at a sale under power of sale, and has taken his deed.
In foreclosure proceedings, as the Court has always held, Gammon v. Johnson, 126 N. C., 66, and other cases above cited, it is advisable to make subsequent mortgagees parties that they may look to their liens upon the surplus. If not made parties in the summons, they can ask to be joined, or the court ex mero motu can make them parties. But their not being parties cannot impair the title of the first mortgagee who by virtue of his prior contract holds the legal estate, nor can it affect the purchaser who acquires the estate and title of the first mortgagee.
For the above reasons this Court has always held that junior mortgagees are advisable parties to foreclosure proceedings upon a prior mortgage, but not necessary parties. Hence, if they are not made parties the purchaser at the sale acquires, nevertheless, a good title.
It will place a new burden upon purchasers at such sales to impair their title by a constructive notice of junior* encum-brancers whom the court ordering the sale has not seen fit to make parties.
The purchaser at the foreclosure sale under the first mortgage
If, as- is suggested, the assignment by the first mortgagee is defective, the assignee (who was also purchaser at the foreclosure sale) must be made a party, and the decree should direct a repayment to him of the purchase money out of so much of the proceeds of the sale, now to be made, which are to be applied to the discharge of the lien of the first mortgage.
The foreclosure sale under the first mortgage was either valid or invalid. If valid, the purchaser got a good title. If invalid, then at the foreclosure sale under the second mortgage the lien of the first mortgage must first be paid off out of the proceeds of the sale. The first registered mortgage cannot be deprived of its priority given by statute.
Lead Opinion
After stating the case: We think it may fairly be inferred from the record that A. F. Williams bought the notes and the mortgages *150
from Fred Martin during the pendency of this action and after the complaint had been filed therein. If so, he acquired his interest in them subject to any judgment rendered herein, for this suit would be a complete lis pendens. Lord Bacon stated the common law rule (184) to be that "no decree bindeth any that cometh in bona fide by conveyance of the defendant before the bill exhibiteth, and is made no party, neither by bill or order; but when he comes in pendentelite, and while the suit is in full prosecution, and without any order of allowance or privity by the court, then regularly the decree bindeth. This rule had its origin in the civil law, and was pungently stated in the legal maxim, pendente lite, nihil innovetur." 4 Bacon's Works, 515. SirWilliam Grant said in Bishop of Winchester v. Paine, 11 Vesey, 194201, that "he who purchases during the pendency of the suit, is bound by the decree that may be made against the person from whom he derives the title; the litigating parties are exempted from the necessity of taking any notice of a title so acquired; as to them it is as if no such title existed, otherwise suits would be interminable, or, which would be the same in effect, it would be the pleasure of one party at what period the suit should be determined. The rule may sometimes operate with hardship, but general convenience requires it." Wiltsie Mortgage Foreclosures, sec. 41 and notes. It may therefore be taken as well settled that a judgment in an action in rem or one to foreclose a mortgage binds not only the parties actually litigating and their privies, but also all others claiming or deriving title under them by a transfer pendente lite. The filing a formal lis pendens is not required for the application of this recognized principle when the suit is brought in the county where the land is situated. Dancy v. Duncan,
The defendant Williams failed to make the plaintiff, who was a junior encumbrancer, a party to the foreclosure suit brought by him against Rufus Branch, the mortgagor. The plaintiff is therefore (185) not bound by the proceedings and judgment in that case and his lien upon the land was not affected thereby. In treating of this question, Wiltsie, in section 60, says that persons who have acquired an interest in the equity of redemption by encumbrance, such as a mortgage, subsequent to the execution of the mortgage under foreclosure, are *151
necessarily parties to the foreclosure suit in order to extinguish their claims. "The theory of the law is, that such an encumbrance is a pledge of the equity for the debt, and gives the lienor an equitable interest in the mortgaged premises. As the owner of the equity may, by an absolute conveyance, transfer his entire interest, and thereby make his transferee a necessary party, as we have seen, so he can on the same principle pledge, by a mortgage, judgment or otherwise, a part or the whole of his interest in the premises, and thereby render the encumbrancer a necessary party in order to wipe out his interest. Though a lienor does not acquire the fee title to the equity, he acquires an interest in the premises which the statutes of the various States have long established, and which the courts have long recognized and sustained; and which parties, dealing with the premises, cannot ignore, except at their own peril." He thus sums up the law upon the subject: "All authorities in all countries where mortgages are foreclosed by equitable actions, are agreed that subsequent and junior mortgagees are necessary parties to the foreclosure of a prior mortgage in order to extinguish and cut off their liens. The action can be sustained without them, but a defective title would be offered at the sale which no court would compel a bidder to accept. The rule has long been settled that in a bill to foreclose a mortgage, the rights of encumbrancers not made parties to the suit, are not barred or affected by the decree. If a junior mortgagee is omitted as a party, his remedy is to redeem from the sale under foreclosure." Wiltsie, sec. 61. He cites numerous and well considered cases to sustain his views. In Gagev. Brewster,
It is suggested that the rule applied in this case does not obtain in States where the legal title is held to pass by the conveyance to the mortgagee, as in this State, but only in those where a mortgage is considered merely as a lien, or a security for the payment of the debt. But an examination of the authorities will disclose that they recognize no such distinction. In the States of New Jersey, Connecticut, Maryland, Illinois, Ohio, and others, from the reports of which we have cited cases, it has been held that the legal title passes to the mortgagee. 20 A. E. Enc. (2 Ed.), 900 and note 5. The rule rests upon the reasonable assumption that the junior encumbrancer has an interest which should be protected by the courts, and which can not be taken from him or impaired without notice and an opportunity to be heard. "It has long been the received rule (expressed in the maxim audi alteram partem), that no one is to be condemned, punished or deprived of his property in any judicial proceeding, unless he has had an opportunity of being heard." Broom Legal Maxims (8 Ed.), 112.
The defendant Williams further contends that he had as good a title as if he had foreclosed under the power of sale, as the court in the foreclosure suit was merely selling in accordance with the (191) power by substituting a commissioner in the place of the mortgagee, and that therefore Dunn v. Oettinger,
There is no analogy between this case and those where sales are made under a power contained in a mortgage or deed of trust, or under an execution issued upon a judgment, for in the former case (193) when the party acts under a power he is proceeding out of court, and in the case of an execution sale he is proceeding under a statutory power or mandate, and the court is not called upon to exercise its equitable jurisdiction and do what is manifest justice as between all parties interested. The plaintiff is merely enforcing a right acquired at law by legal process in accordance with the statute, and that is all. In such cases, third parties must be vigilant and take care of their interests. But when a court of equity or a court having equitable jurisdiction, is invoked to grant relief quite a different case is presented. It strives to do justice and will not deprive a party of his property without a hearing. The distinction is too familiar and manifest to require further elucidation. Menzel v. Hinton,
Our conclusion is that the court erred in its rulings. The verdict will be set aside and a new trial granted, the case to proceed further in the court below, in accordance with the law as herein declared.
New trial.