Case ID: ohio-st_44/html/0260-01.html
Source: Caselaw Access Project
Author: {"author": "Spear, J. Minsiiall, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Anderson v. Sharp.
    
      Mortgage — Foreclosure—Sale—Application of proceeds.
    
    K, executed and delivered to T. three notes, payable to T.’s order, due in one, two, and three years from date, and a mortgage to secure their payment. Before either note became due T. indorsed the notes, waiving demand and notice, and delivered both to A., with an assignment of the mortgage. The note maturing in one year not being paid when due was put in judgment against E. as maker and T. as indorser. E, being insolvent, T. paid the judgment. He then commenced suit to foreclose the mortgage, claiming the benefit of the mortgage security and a lien prior to the lien of A., who held the remaining two notes, which were then past due. A., by answer and cross-petition, alleged facts showing T.’s liability as indorser upon the two notes, that K. was insolvent, that the lands would prove insufficient to satisfy the whole mortgage debt, claiming priority of lien, praying foreclosure and full relief. Later, S., on his motion, became plaintiff and filed supplemental petition averring purchase from T., and assignment of all his rights and interest in the mortgage and as plaintiff in the suit, and claiming priority of lien. The land was sold. The sum realized was not sufficient to satisfy the whole indebtedness. Held, that A. was entitled to payment in full from the proceeds before application of the money to the claim of S.
    Error to the District Court of Eranklin county.
    
      F. W. Wood, for plaintiff in error.
    It may be conceded that when Thompson paid Anderson the amount of the judgment obtained on the first note he became thereby re-invested with an interest in the mortgage securing payment of the three notes; and that Sharp, by his purchase from Thompson, acquired all the interest held by Thompson in the mortgage security at the time he sold to Sharp. But the interest so purchased by Sharp is subject to all the equities in favor of Anderson that existed against Thompson. Bennet v. Williams, 5 Ohio, 461; Decamp v. Gaskill, 1 C. S. C. R. 337; Walker v. Dement, 42 Ill. 272; Rev. Stat., sec. 4993; 18 Ohio St. 546; 25 Ohio St. 652; Jones Mort., secs. 822, 1701; 9 Vt. 299; 30 La. Ann. 618; 6 Gray, 564; 9 Wend. 410; Hopk. Ch. (N. Y.) 569.
    It may further be conceded to be the well settled law in this state that where a mortgage has been given to secure several notes falling due at different times that the note first due is entitled to preference, and the fund arising on sale shall be applied to the satisfaction of the notes in the order in which they fall due. Bank of U. S. v. Covert, 13 Ohio, 240; Bushfield v. Meyer, 10 Ohio St. 334; Kyle v. Thompson, 11 Ohio St. 616; Schwartz v. Liest, 13 Ohio St. 419; Fithian v. Corwin, 17 Ohio St. 119; Beresford v. Ward, 1 Dis. 169.
    
      And tho same rule obtains where the notes have beeu transferred to several persons. Winters v. Franklin Bank, 33 Ohio St. 250.
    Thompson, by his indorsement, undertook, in effect, to nlake good any deficiency, and in case of insolvency of the maker and insufficiency of the mortgage security, to pay the same. To compel Anderson to bring a personal action on tho indorsement on tho note last due against Thompson would lead to circuity of action and is against the spirit and reason of the code. Thompson’s indorsement was simply an additional security, and Auderson had the right to pursue either or both securities until he obtained payment.
    The utmost that Thompson could claim was that he should be regarded as having an interest in the mortgage similar to that of a junior mortgagee. Fithian v. Corwin, supra.
    
    The following cases will be found to bear upon the question: Bank of England v. Tarleton, 23 Miss. 173; Saltzman v. Creditors, 2 Rob. (La.), 241; Donley v. Hays, 17 Serg. & Rawle, 400; Hancock’s App., 34 Pa. St. 155; Perry’s App., 22 Pa. St. 43; Cullum v. Erwin, 4 Ala. 452; Bryant v. Damon, 6 Gray, 564; Mechanics’ Bank v. Bank of Niagara, 9 Wend. 410; Van Rensselaer v. Stafford, Hopk. Ch. 569; Waterman v. Hunt, 2 R. I. 298; Gwathmey v. Ragland, 1 Rand. (Va.), 466; M’Vay v. Bloodgood, 9 Porter (Ala.), 547; Ewing v. Arthur, 1 Humph. (Tenn.), 537.
    
      James E. Wright and Walter B. Page, for defendant in error.
    The rule in this state is that promissory notes, secured by mortgage, falling due at different dates are, on sale of the mortgaged premises, to be paid in the order in which they become due. Winters v. Bank, 33 Ohio St. 250.
    “The several notes being equivalent to so many successive mortgages.” Jones Mort., sees. 1699,1700.
    Sharp, in purchasing the first note from Thompson, had a right to rely upon its priority.
    
      The objection that to force Anderson to his action against Thompson upon his indorsement of the last note would lead to circuity of action might be tenable if Thompson was the party seeking payment of the money to him.
    We do not think that a simple indorsement which was necessary to clothe Anderson with the legal title to these notes amounts to a warranty that the security was adequate' to meet these notes. It is a personal contract at large and not a pledge of any particular fund. If the indorsee is not fully paid he has his personal remedy against the indorser, and this, in the case at bar, has been asserted, for Thompson has been compelled to make the first note good by payment, and when he did pay it had a right to it; and he stood precisely, after payment of it, to Anderson, as if he had never parted with the note; and he had a right then to transfer and assign it to any one he pleased, if he could have had any such right in case he had never sold it to Anderson, but had kept the note himself. Donley v. Hays, 17 Serg. & Rawle, 400; Perry’s App., 22 Pa. St. 43; Massie v. Sharpe, 13 Iowa, 542; Ewing v. Arthur, 1 Humph. 537; Wood v. Trask, 7 Wis. 566.
    The effect of the indorsement was to carry all its accessories with it by implication of law, as the mortgage given to secure the payment, but it did nothing more, by the common law, and the assignment of a judgment -upon a note secured by mortgage has the like effecf. Bolen v. Crosby, 49 N. Y. 183; Funk v. McReynolds, 33 Ill. 182.
    And the same effect will be given to an assignment of only a part of such judgment. It will carry a proportionate interest in the mortgage, Pattison v. Hull, 9 Cow. 747.
   Spear, J.

The original action was one to determine, as between defendant in error, Abram Sharp, and plaintiff in error, James II. Anderson, which had the prior lien on certain lands, and the right to first payment from proceeds of sale. The court of common pleas found in favor of Anderson and decreed distribution accordingly. On error the district court found in favor of Sharp and reversed the decree of the common pleas. To obtain a reversal of this judgment and decree the present proceeding in error is prosecuted. The facts are sufficiently indicated in the syllabus.

The court of common pleas was clearly right in finding in favor of Anderson, and ordering that he should be paid in full, and that only the balance .should be paid to Sharp. Sharp stood, to all intents and purposes, in the place of Thompson. Upon familiar principles he could have no highet rights in any respect than Thompson had. He could not, by substituting himself as plaintiff, deprive Anderson of any right he had against Thompson at the time of the substitution, nor was the power of the court to render any decree which might have been rendered against Thompson and necessary for the full protection of Anderson thereby in the least abridged or impaired. The suit was one which under the pleadings not only authorized the court to order a foreclosure of the mortgage, but as well to find that Thompson was- indebted to Anderson upon the two notes; and, if necessary in order to give full relief to Anderson, to render a judgment in his favor and against Thompson for any balance that might remain due after application of purchase-money upon Anderson’s decree. Indeed, Thompson had not been dismissed from the case, and as regards the rights of Anderson, upon the allegations of his cross-petition, if it were necessary to keep him in court, Thompson was still a party. True, as plaintiff he had been succeeded by Sharp. This relieved him of further responsibility as to costs of prosecution, but did not send him out of court. The court, therefore, upon any aspect, having before it the proper parties, and having jurisdiction of the subject-matter, could by one judgment and order dispose of all the claims arising upon the pleadings and do full and exact justice to all the parties.

It is contended that, inasmuch as Sharp’s claim grew out of payment of the first note by Thompson, Sharp was entitled to a decree finding his lien prior to that of Anderson, and to order of distribution accordingly. Suppose Sharp’s lien were found to be first, how would that help the him upon the record here presented ? It has already been found that for all purposes of the case Sharp was Thompson ; so that whatever might be accorded to Thompson might be accorded to Sharp, and whatever might be refused to Thompson might be refused to Sharp. If Sharp’s lien were found to be first an order to pay him in full from the proceeds would, pro tanto, reduce the amount going to Anderson. Then, Anderson being entitled to a finding and judgment against Thompson, why should Sharp have-money which the court having under its control had the power to award to Anderson in satisfaction of his claim against Thompson ? In other words, Sharp being Thompson, should the court, after making the order in favor of Sharp and finding the amount due Anderson from Thompson, and after rendering a judgment therefor in favor of Anderson and against Thompson, refuse to order the amount going to Sharp to be paid to Anderson, but pay it over to Sharp and remit Anderson to his collection by process of execution? Surely such a roundabout way would favor circuity of action rather than discourage it.

The effect of the judgment of the common pleas Avas to settle the entire litigation in one proceeding, and in so doing the court Avas, to use the language of this court in Morgan v Spangler, 20 Ohio St. 54, “ but carrying out the spirit and intention of the code of civil procedure, a leading object of which seems to be the avoidance of circuity and multiplicity of suits.”

Whether the position of Thompson upon paying off the judgment obtained upon the first note was that of a junior mortgagee as to the amount so paid, or whether he became subrogated to the rights of Anderson in such sort as to be in a position to claim a first lien on the mortgaged property, it is not proposed here to consider. The question is ably argued by the counsel in their respective briefs. But, inasmuch as the views of the members of the court are not in entire harmony upon the question, and inasmuch as in tlie opinion of the writer a determination of it is not necessary to a proper disposal of the case, and believing that, under the ciroumstauces, it is sufficient to discuss and determine only the phases of the case which are indispensable to a disposition of it, the writer refrains from entering upon such discussion.

The judgment of the district court is reversed, and that of the common pleas affirmed.

Minsiiall, J.

We fully concur in the opinion that the judgment of the district court should be reversed and that of the common pleas affirmed; and we as fully concur in the opinion that Sharp stands in the shoes of Thompson, to whose rights he has succeeded since the commencement of the suit by Thompson; for nothing can be better settled than that one who buys into a lawsuit must abide by the case of the one from whom he purchases.

We think, however, that the decision should be placed5 not upon the ground that there is any circuity of action to be avoided, but upon the ground that as against Anderson, Thompson has no right to any part of the fund arising from the sale of the mortgaged premises until the amount due Anderson upon the notes secured by the mortgage has been paid in full. Thompson for a full consideration sold the notes to Anderson, and to secure their payment not only indorsed them, but also transferred the mortgage to' Anderson. Hence, whatever his rights may be as against Kilbourne, the mortgagor, growing out of the fact that he was compelled to pay the j udgment rendered against both of them upon the first note, he can not, without violating the plainest principles of justice, be permitted to appropriate any part of the fund arising from the sale of the mortgaged premises until it has answered the purpose for which he transferred the mortgage to Anderson. To do so would be to permit him to impair the security he gave Anderson when the latter purchased the notes and paid his money therefor.

The decided weight of authority is iu support of this' view. “ When,” says Pomeroy, “ the mortgagee assigns one or more of the notes, and retains the remainder of the series, it is generally held that the assignee is entitled to a priority of lien as against the mortgagee, with respect to the note or notes so transferred; and this rule operates without regard to the order in which the notes held by the two parties mature.” 3 Pom. Eq. Juris., § 1203. And in a note to this section he adds that: “ The mortgagee having transferred the note and received the consideration therefor, it would be inequitable for him to deprive the assignee of any part of its value, by insisting upon a priority or even- an equality of right in sharing the insufficient proceeds.”

And in 2 Jones on Mortgages it is said, sec. 1701: “Where a holder of a.mortgage assigns a part of it, although he warrants only the existence of the debt at the time of the transfer, it would he contrary to good faith to permit him, after receiving tbe money for this part of the claim, to come into competition with his assignee, if the property prove insufficient to pay'the claims of both.” Again the author adds : “ Unless the intention be plainly declared on the face of the assignment that the assignee is to share pro rata in the security with the assignor, the equitable construction of it is that it must in the first place be applied for the.payment of the part of the debt which was assigned.” He cites the following eases: Waterman v. Hunt, 2 R. I. 298; Salzman v. Creditors, 2 Rob. (La.), 241, and Barkdull v. Herwig, 30 La. Ann. 618, which will be found to fully support the text. Iu the latter case the judge, delivering the opinion, says: “ It is settled that a mortgagee, who transfers part of the mortgage debt to another, can not compete with his transferee for the proceeds of the mortgaged property, where the amount is not sufficient to satisfy both ;” and quotes approvingly what is said in Salzman v. Creditors, supra, that “it would be contrary to good faith, that the vendor of a claim, after reeeiving the price of it from the assignee, should by his own act prevent the latter from receiving the sum he has paid.”

As supporting what has been said, we cite also the following cases: McClintic v. Wise, 25 Gratt. 448; Cullum v. Ervin, 4 Ala. 452, approving the dissenting opinion of Gibson, C. J., in Donley v. Hays, 17 Serg. & Rawle, 400; Foley v. Rose, 123 Mass. 557; Forwood v. Dehoney, 5 Bush, 174.

There is no doubt but that the transfer of a mortgage, or of a note secured by it, is subject to the convention of the parties; they may stipulate that the mortgage shall inure as a security for a note or notes retained by the assignor, but in the absence of any agreement the presumption is that the assignee is to be first paid from the avails of the mortgaged property. Noyes v. White, 9. Kan. 640.

Such being the rule in cases where the mortgagee retained one or more of the notes, it must, a fortiori, be so where he not only transferred the mortgage, with all the notes secured by it, but also indorsed the latter. In such case, the fair construction of the. transaction is, that he parts with all his interest in the mortgage as a security for the notes, and personally guarantees their payment. No case presenting such a state of facts is to be found, where, as against his assignee, the mortgagee has been permitted to claim any interest in the mortgage until the amount due the assignee has been fully satisfied.

No doubt exists but that between the assignees of notes, maturing at different times and secured by the same mortgage, the holders, in the absence of any agreement to the contrary, are entitled to be paid in the order that the notes mature, and, in the case of a sale of the land, the proceeds are tobe marshaled accordingly. Bank v. Covert, 13 Ohio, 240; Winters v. Bank, 33 Ohio St. 250.

Again there is no doubt but that Thompson having paid the judgment upon which Kilbourn, the mortgagor, was primarily liable, has the right as against him to keep the mortgage on foot as indemnity for the amount so paid. The right is of equitable origin and is governed by principles of equity. Sheldon on Sub., ch. 1. It can not be asserted against or to the prejudice of the creditor. Crump v. McMurtry, 8 Mo. 413. Anderson has the right to the entire fund arising from the sale of the mortgaged property, if necessary to satisfy the notes held by him. The right of Sharp, in the place of Thompson, is to succeed to the place of Anderson, by paying him the amount.due. upon the mortgage debt. Langdon v. Keith, 9 Vt. 299. Until the mortgagee has, in •such cases, redeemed the mortgage from the assignment, he can not,for the purpose of obtaining indemnity against his principal, the mortgagor, be permitted, as against his assignee, to appropriate any part of the mortgage funds. He must, in such case, be content to follow and take what is left after the assignee has been satisfied; he may glean,but can not reap the field.

Owen, C. J., and Follett, J., concur, the former upon the grounds stated in both opinions, and the latter upon the grounds stated in the opinion of Minshall, J.