Case ID: ohio-st_43/html/0427-01.html
Source: Caselaw Access Project
Author: {"author": "Atherton, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Building Association v. Clark.
    
      Unrecorded mortgage — Subjection of interest of mortgagor — Notice—Rights of judgment creditor — Pleadings— Traverse.
    
    1. The mortgagor in an unrecorded mortgage, who sells and conveys the mortgaged property, and concurrently takes back a mortgage from the purchaser to secure the purchase-money, retains such an interest in the property as may be taken in equity and applied on the debt secured by the unrecorded mortgage.
    2. An assignee from such mortgagor who takes an assignment of the claim of the assignor and mortgagor, with full knowledge of the facts, and after maturity, and during the pendency of a suit in which the rights of the parties appear of record, acquires no better title than his assignor, and such interest, as against the assignee, will be decreed to be taken and applied to the payment of the unrecorded mortgage.
    3. The purchaser from the mortgagor of lands incumbered by an unrecorded mortgage, takes title thereto free from such incumbrance, even if he has full knowledge and notice of its existence, and that it is unpaid at the date of his purchase.
    4. If a judgment creditor procures a judgment against such a purchaser after such unrecorded mortgage has been recorded, his lien thereunder is valid as against such mortgage, and, upon a judicial sale of the mortgaged property, the proceeds of sale will be applied to pay such judgment lien, in preference to the mortgage which was not recorded at the date of such purchase.
    5. An averment in a reply that the pleader can not admit or deny the allegations of the answer, but demands proof of the same, is no traverse of the facts so alleged, and the defendant in such case will not be called on to adduce proof of the truth of his averments.
    Error to the District Court of Franklin county.
    The Home Building and Loan Asssociation of Columbus, Ohio, being the owner of lot No. 36 in R. E. Neil’s addition to the city of Columbus, Ohio, on November 20, 1876, for the consideration of $2,000, sold and conveyed the same to Augustus Johns.
    On the same day Johns executed and delivered to such association his notes for $1,250, being for deferred payments of purchase-money, and a mortgage deed re-conveying the realty to the association to secure the payment of the notes.
    
      Oil the same day Johns also executed and delivered to the Capital Building and Loan Association his note for $1,000, and secured the same by a mortgage to the latter association upon the same premises.
    The money so procured was used to make the down payment on the premises to the Home Building and Loan Association.
    These mortgages were not filed for record until December 17,1877, and were then both recorded as of the same time.
    On July 25, 1877, Johns, for the consideration of $1,800, as expressed, sold and conveyed to William J. Waters the south half of Lot No. 36, who took such conveyance with full knowledge and' notice of the unrecorded mortgages, and that the same were wholly unpaid. At the same time, and as a part of the same transaction, Waters re-conveyed the premises to Johns, by mortgage deed, to secure the payment of $500, being for so much of the purchase-money of the south half; which mortgage was filed for record July 26, 1877.
    On December 28, 1877, Wesley Royce, assignee, etc., filed, in the clerk’s office of Franklin county, a transcript of a judgment for execution against Waters, for $72.76 debt and $17.10 costs, and, on the same day, a lieu was acquired thereunder on the south-half of lot No. 36 as the property of Waters.
    On July 16, 1878, Waters and wife, by a deed of general warranty, conveyed the south half to Michael Wackerman, for the alleged consideration of $2,500 and, on March 30, 1880, Wackerman, by deed, duly executed, and for the alleged consideration of $25, conveyed the same to Kittie Waters, the wife of William J. Waters.
    Ou August 1, 1878, the Home Building and Loan Association brought suit, in the court of common pleas of Franklin county, against Augustus Johns and wife, the Capital Building and Loan Association, and William J. Waters, to foreclose its mortgage ; and, by an answer and cross-petition, filed August 16, 1878, the Capital Building and Loan Association also sought to foreclose its mortgage on lot No. 36. September 17, 1878, Johns filed his answer, in which, among other things, he alleged that, on or about July 23, 1877, he sold and conveyed, by deed, to William J. Waters, the south half of lot No. 36, and took notes and a mortgage from Waters, as a part of the purchase-money, for $500; that, at the date of such purchase, Waters was fully aware of the two unrecorded mortgages to the building associations, and prayed that if it became necessary to sell the premises to pay the liens, the north half of lot No. 36 be first exhausted, and, if the south half should be sold, then that the amount duo to Johns from Waters, under his mortgage, be applied to pay the amount due the associations.
    After filing that answer and during the pendency of the action, Johns sold and assigned the notes and mortgage to the defendant, Charles T. Clark. The latter, on his own motion, was afterwards made a defendant, and, by leave of the court, on May 9,1881, filed his answer and cross-petition, alleging the execution and delivery of the notes and mortgage from Waters to Johns, and that for a valuable consideration the latter had sold, assigned, indorsed, and delivered the same to himself.
    In his answer he also alleged the recovery of the judgment by Royce, assignee, etc., against Waters, and that in January, 1880, Royce assigned such judgment to him (Clark). Ho averred that at the time Johns convoyed to Waters, and Waters mortgaged the property back to Johns, the mortgages of the associations had not been filed for record, and by reason thereof, as assignee of the Johns notes and mortgage, he had a lien on the south half of lot No. 36, superior to the liens of the associations, and that the lien by reason of the Royce judgment, was superior to the lien of the associations.
    The associations replied to the answer of Clark, and, after certain other averments, recite that they have no means of knowing, except from the allegations of the answer, any thing in regard to the averments in the answer; that “ after the maturity of said note the said Augustus Johns,for a valuable consideration, indorsed and delivered said note to said Charles T. Clark, and he is now the lawful owner and holder thei’eof,” and that they “ can not admit or deny the same, but demand proof thereof.”
    Since the pendency of the proceedings the north half of lot No. 36 has been sold and the money applied to pay the liens of the associations, and the south half has also been sold, and the proceeds thereof are in the custody of the court for distribution.
    On trial in the district court, the court ordered the proceeds of sale to be distributed, first, to pay taxes; second, costs; third, to pay Clark $685.75 on the Johns mortgage; fourth, to pay Clark $113.16 on the Royce judgment; and fifth, the residue, if any, to Kittie Waters; and the court further ordered that the mortgages to the associations be canceled.
    The associations prosecute petitions in error to reverse the judgment of. the district court.
    
      Gilbert 11. Stewart, for plaintiffs in error.
    The lien of the Home Building and Loan Association is superior to that of Clark, because it is a vendor’s lien of which he had notice.
    The plaintiffs are entitled to the first lien upon the south half of the lot as against both Johns aud his assignee, Clark, because the notes and mortgage were taken by Johns with full knowledge of the amount, existence, and non-recording of the association mortgages. He was not a subsequent bona fide purchaser without notice, but took his notes and mortgage with full knowledge of all the surroundings, and of the existence and non-payment of the association mortgages. Under such circumstances the vendor’s lien is paramount. Williams v. Roberts, 5 Ohio, 39; Perkins v. Gibson, 51 Miss. 699; 1 Hilliard Mort. (3rd ed.) 238, 681; Briscoe v. Bronaugh, 1 Tex. 326; Mounce v. Byars, 11 Ga. 180; Frail v. Ellis, 17 Eng. L. & Eq. 457 ; Toft v. Stephenson, 9 Eng. L. & Eq. 80 ; Pierson 
      v. David, 15 Ia. 23; Webb v. Robinson, 14 Ga. 216; 1 Jones Mort. (3rd ed.) §§ 192, 193, 204.
    The vendor’s lien of the Home Building and Loan Association, is not impaired by the fact that notes and a mortgage were taken for the balance of the purchase money. Neil v. Kinney, 11 Ohio St. 58; Anketel v. Converse, 17 Ohio St. 11-20.
    Under the prayer of the petition for general relief, a court of equity may grant any needful and proper relief in the enforcement of the liens and distribution of the proceeds that may be equitable.
    Johns and his assignee, Clark, are estopped to claim a lien superior to the building associations. They are affected with notice, and as to them it was not necessary that the mortgages should be recorded at all. Fosdick v. Barr, 3 Ohio St. 471; Sidle v. Maxwell, 4 Ohio St. 236; Gill v. Pinney, 12 Ohio St. 38-46 ; Stewart v. Hopkins, 30 Ohio St. 502-526; Riley v. Rice, 40 Ohio St. 441.
    The estoppel extends as well to prevent the claim to the proceeds, as it would to the title. Big. Est. (2d ed.) 250, 301, 382; Jones v. King, 25 Ill. 383; Mills v. Catlin, 22 Ver. 98; Steiner v. Baughman, 12 Pa. St. 106; Douglas v. Scott, 5 Ohio, 198; Philly v. Sanders, 11 Ohio St. 490.
    The rights of Clark as a judgment creditor are fixed by statute, and his lien extends only to the lands of the judgment debtor, and to the debtor’s interest in the same, subject to all equities existing against him. Walton v. Hargroves, 42 Miss. 18; Tucker v. Hadley, 52 Miss. 414; Thompson v. McGill, Free. Ch. (Miss.) 401; Lewis v. Caperton, 8 Gratt. 148.
    
      S. Hambleton, for Charles T. Clark.
    The liens of mortgages in Ohio take effect from the time of their delivery to the recorder. 1. S. & C. 465, sec. 7; 1 S. & C. 469, sec. 13 ; Revised Statutes, sec. 4133; Magee v. Beatty, 8 Ohio, 396; Stansell v. Roberts, 13 Ohio, 148; Bloom v. Noggle, 4 Ohio St. 45; Mayham v. Coombs, 14 Ohio 428; Astor v. Wells, 4 "Wheat. 466; Jones Mort. §§ 513, 573 ; Bercaw v. Cockerill, 20 Ohio St. 163.
    The judgment creditors of Waters, from whom Clark purchased the judgment, had no notice or information of the claim of the associations. They could not be required to search the record outside of the chain of title. Leiby v. Wolf, 10 Ohio, 83; Calder v. Chapman, 52 Pa. St. 359; Farm. Loan and T. Co. v. Maltby, 8 Paige, 361; Cook v. Tracis, 20 N. T. 402; Losey v. Simpson, 3 Stock. (N. J.), 246.
    
      J. Wm. Baldwin, for defendant in error, Kittle "Waters.
   Atherton, J.

The principal controversy in this case is between the two building associations on the one side and Charles T. Clark on the other, touching the disposition of the proceeds of the sale of the south half of lot No. 36. The former claim the funds in the hands of the court under their unrecorded mortgages, and the latter under the mortgage made by Waters to Johns, and under the lien of the judgment obtained against Waters by Royce, assignee, etc. What are the relative rights of the associations and Clark to the fund, and which of them is entitled to it?

It is claimed on behalf of the associations that inasmuch as Johns and those claiming under linn, had knowledge of the amount, existence and non-payment of the mortgages, and that one of the mortgages was given to the Home Building and Loan Association for purchase-money, and the other was given to the Capital Building and Loan Association for money borrowed to make the down payment to the former association, their equity is superior to that of Clark, and that Johns and Clark are not bona fide purchasers, and that the unrecorded mortgages are first to be satisfied; and further, that the judgment held by Clark on these premises is confessedly subsequent to the record of these mortgages and so must be postponed to them. It is quite clear that the mortgage to the Capital Building and Loan Association is not a better lien because loaned to enable Johns to make the first payment upon the premises in question or to secure money borrowed to pay for the land. Stansell v. Roberts, 13 Ohio, 148.

As to the Home Building and Loan Association, it does appear that their mortgage was given for purchese-money, and that the subsequent purchasers and incumbrancers took whatever interests they had with full knowledge of that fact. It is, however, claimed on behalf of Clark that the Home Building and Loan Association has not declared upon its supposed vendor’s lien, but relies simply upon its mortgage and has filed a petition the sole object and prayer of which is to foreclose its mortgage. The petition does ■seem to be so framed, and, conceding it to be simply a ease to foreclose the mortgages, how then stand the rights of the parties ?

Both mortgages were made by Johns to the associations at the same time, but were not filed for record for more than a year, and not until long after the conveyance of Johns to "Waters of the south half of lot 36, and his mortgage back to Johns had been executed and recorded. The statute provides, “ Sec. 4133. All mortgages executed agreeably to the provisions of this chapter shall be recorded in the office of the recorder of the county in which the mortgaged premises are situated, and shall take effect from the time the same are delivered to the recorder of the proper county for record.” In construing this statute this court formerly held and announced that “ a mortgage has no effect, either in law or equity, previous to its delivery to the recorder of the county for record.” Holliday v. Franklin Bank, 16 Ohio, 533.

This declaration of the law had reference to third parties who were not parties to the unrecorded mortgage, and when the question of the effect of the unregistered instrument came to be adjudicated between the parties to it, the court, in Sidle v. Maxwell, 4 Ohio St. 236, held that, “ the object of the statute requiring the record of mortgages being notice to persons other than those who are parties to the instrument, a mortgage may be valid and binding without such record as between the parties to the instrument.

. . . The language of the court in the case of Holliday v. The Franklin Bank of Columbus, 16 Ohio, 533, declaring ‘ that the delivery of a mortgage for record is a part of the .execution of the instrument, and that, before the filing for record, a mortgage has no validity either in law or in equity,’ must be received with the qualification that it has exclusive reference to the effect of the instrument as to those not parties to it.” To the same effect are Fosdick v. Barr, 3 Ohio St. 471; Grill v. Finney, 12 Ohio St. 38; Stewart v. Hopkins, 30 Ohio St. 502 ; Riley v. Rice, 40 Ohio St. 441.

It follows from these authorities that, as between the • building associations and Johns, the mortgages were as valid and binding as if recorded. Waters took the land, so far as he acquired an interest, freed from the lien of the mortgages, although he had full notice and knowledge of their existence. As to Waters, the mortgages of the building associations did not take effect, because not recorded, when he acquired his interest in the south half of lot No. 36. Magee v. Beatty, 8 Ohio, 396; Stansell v. Roberts, 13 Ohio, 148; Mayham v. Coombs, 14 Ohio, 428; Bercaw v. Cockerill, 20 Ohio St. 163.

“ The legal rights of such persons can not be displaced at the instance of the holder of a prior unrecorded mortgage or contract for a mortgage, although acquired with notice of such mortgage or of the existence of such contract; the object of the law being to avoid all the vexed questions of notice, actual or constructive, in determining priorities of lien.” Bloom v. Noggle, 4 Ohio St. 46.

After the conveyance of Johns to Waters and his concurrent mortgage back to Johns, Waters owned the south half of lot No. 36, subject to a mortgage lien of $500, and Johns still held and owned an interest in the land, and a lien upon it for $500.

As to Waters, the unrecorded mortgages created no lien on his equity of redemption; but as to Johns he, and the interest he retained, was subject to the unrecorded mortgages, and when the property was sold by j udicial process, • and converted into money, the fund, to the extent of the $500 and interest, was applicable pro rata to the payment of the unrecorded mortgages, unless the sale and transfer of the notes and mortgage to Clark requires the application of a different rule.

As will be observed, on September 17, 1878, Johns filed an answer and cross-petition, in the case, in which he alleged that there was due and to become due to him, on the mortgage from Waters, $500 and interest, and insisted if the south half of lot No. 36 should be sold, that the sum Waters owed him should be applied to pay the unrecorded mortgages to the associations.

After this answer was filed, and long after the suit had been pending, and after the association mortgages had been filed for record, Clark bought, the Johns notes and mortgage. He admits in his answer that he bought after their maturity, but alleges that Johns, for a valuable consideration, indorsed, assigned, and delivered the notes and mortgage to him. The plaintiffs insist that there was no proof offered on the trial of the payment of any consideration for the notes. But Clark alleges directly a full consideration, and the only supposed traverse of that averment of Clai’k in the plaintiffs’ reply is as follows: “ That plaintiffs have no means of knowing, except from the allegations of said answer, any thing in regard to the following allegation therein contained, that, ‘ after the maturity of said note, the said Augustus Johns, for a valuable consideration, indorsed and delivered said note to said Charles T. Clark, and he is now the lawful holder and owner thereof,’ ” and “ therefore can not admit or deny the same, but demands proof thereof.” This was no denial of the facts alleged by Clark, and did not put him on proof, as the averments were admitted by that form of pleading.

But assuming Clark paid a valuable consideration, he purchased the notes and mortgage of a person bound by the unrecorded mortgages; he purchased them after due; he procured them of a person whose answer filed in the ■case admitted substantially the superior equity of the plaintiffs, and sought to have the money otherwise coming to him applied to pay the claims which he admitted himself legally and equitably bound to pay; he purchased pending the suit and long after the association mortgages were recorded, and he takes no better right or title to the Johns notes than Johns himself had; and the proceeds of the Waters mortgage should have been applied to the payment of the association mortgages pro rata according to the amounts secured by them respectively.

Another question remains, whether the lien of the judgment held by Clark or the liens of the unrecorded mortgages are superior. When the sale of the south half of lot No. 36 was made to Waters, he took such interest as he then acquired free from the lien of the unrecorded mortgages. The subsequent, recording of these mortgages could not and did not create or revive their lien against the interest he acquired under his deed.

When the judgment lien was obtained by Royce upon the equity of redemption Waters owned in the land, it was a valid incumbrance subject only to the mortgage to Johns, and was valid against the mortgages to the building associations.

It follows, therefore, that, after satisfying the Johns mortgage (the proceeds of which are to be paid to the associations), the Royce judgment is to be next satisfied, and the residue of the purchase-money, if any, is to be paid to Kittie Waters.

Judgment reversed, and cause remanded.

Johnson, J., dissented.