Case ID: ohio-st_55/html/0538-01.html
Source: Caselaw Access Project
Author: {"author": "Williams, O. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Joyce v. Dauntz.
    
      Mortgage incumbered land — Right of person having interest in same — May pay or purchase incumbrance and be subrogated to rights of incumbrancer.
    
    1. As a general rule, any person having an interest in property subject to an incumbrance which may defeat or impair his title, has a right to disengage the property by payment of the incumbrance, and when he does so, if the debt is not one for which he is personally liable, he is entitled to be subrogated to the rights of the incuinbrancer against the property; and, subrogation arises by operation of law, whenever a mort. gage debt is extinguished by one entitled to redeem, other than the mortgagor or person ultimately liable for the mortgage debt.
    2. Where land incumbered by mortgage has been sold by the mortgagor for its full value, and the purchase money applied in satisfaction of the mortgage debt, equity will keep the mortgage security alive for the benefit of the purchaser, and enforce it forhis protection as against incumbrances subsequent thereto ; and where the purchase money so appilied is but a partial payment on the mortgage debt, the purchaser will be entitled to enforce the lien to the extent necessary for his reimbursement, when that will not interfere with the mortgagee’s security for the unpaid balance.
    3. The right of the purchaser to subrogation in such case is not affected by notice of the incumbrances when he bought and paid for the land ; nor is it necessary to his right that he show an, intention was then present to keep the mortgage on foot for his protection, for that being to his advantage, the intention will be presumed.
    (Decided December 15, 1896.)
    
      Error to the Circuit Court of Pickaway county. ■
    On the 7th day of February, 1887, Peter Ford gave a mortgage to John M. Shuster, on one small parcel of land in Franklin county, and' five parcels in Pickaway county,- containing altogether, something over four hundred acres, to secure his note of that. date to Shuster for $923.00, payable March 1,1889. Shuster being indebted to Eliza L. Joyce in an amount larger than the note and mortgage, transferred them to her as collateral security, and she brought the action below, which was to foreclose the mortgage on twenty-two acres of the Pickaway county lands; the Franklin county land, and one parcel of 68 acres of that situate in Pickaway county having been released by Shuster from his mortgage, for a sufficient consideration received by him, and the balance of the lands covered by his mortgage, except the 22 acres, having been sold in proceedings under an assignment made by Ford for the benefit of his creditors, and the proceeds exhausted in satisfaction of liens prior to the Shuster mortgage. The 22 acres involved in this suit were not included in the assignment because, as the petition alleges, that parcel had been sold and conveyed by Ford to Frederick L. Dauntz prior to the assignment. Dauntz was made a party defendant, and the petition prays that he be required to set up his claim, and for a sale of the premises, and the application of the proceeds in payment of the amount due the plaintiff:. Dauntz filed an answer in which he alleges, that he purchased the premises in question from Peter Ford, on the 21st day of Decemer, 1889, and on the same day received a conveyance of the land, duly executed by Ford and his wife; that at the time of the purchase and conveyance, the land was incumbered by two mortgages which had been given by Ford, one to Joseph S. Fullerton for $6,000.00, and the other to James Corry, for $1,800.00, both of which were prior and superior to the Shuster mortgage, and both included all the lands described in the latter mortgage; which two prior mortgages were held by W. G. Deshler, to whom they had been transferred, and the indebtedness secured by them was then past due; that Dauntz paid for the land so purchased by him the sum of $1,100.00, which sum was the full value of the land, and more than it would have sold for at forced sale. The answer then avers: “That $150.00 of said purchase money was paid to said Eliza L. Joyce, plaintiff herein, and applied as a payment on the said note of $923.00, in said petition mentioned, and sued on in this case, and-that $950.00 of said purchase money was paid by this defendant to said W. G. Deshler, who then owned and held said notes and mortgages given by said Peter Ford to said Fullerton and to said Corry, as aforesaid, to be applied on said mortgage liens, and the said sum of $950.00 was applied by said W. G. Deshler on said notes and mortgages, and thus went to reduce and did reduce the prior liens on said mortgaged premises to the lien of the plaintiff herein. And this defendant further says, that by reason of said payment of said purchase monejr, $150.00, on the said- note of the plaintiff, and the said $950.00 on the said prior liens, to the lien of the plaintiff on said land, the said plaintiff has received the full benefit of the entire value and proceeds of said sale of 22 acres of land held by him as aforesaid; and the entire value of said security having been applied by this defendant throug’h the said Peter Ford, to the payment of prior bona fide liens on said lands, held as said security as aforesaid, the plaintiff has received the benefit of the entire proceeds of said sale of said twenty-two acres of land, and ought not in equity to be allowed to ask or demand any further sum whatever out of said security.”
    The answer prays that the plaintiff may be ordered to release the lien she is asserting against the land, and enjoined from further proceeding to enforce it; or, if the defendant is not entitled to that relief, that he may be subrogated to the lien and rights of the prior incumbrancers to the extent that the purchase money paid by him reduced the amount due on those mortgages.
    The court of common pleas sustained a general demurrer to the answer, and the defendant not asking leave to amend or plead further, a judgment of forclosure and sale was rendered in favor of the plaintiff; which judgment was reversed by the circuit court for error in sustaining the demurrer, and to reverse that judgment this proceeding in error is prosecuted.
    
      Thomas E. Steele and Henry P. Folsom, for plaintiff in error.
    It cannot be seriously maintained that Dauntz is entitled to an injunction, one of the remedies prayed for.
    The only question in the case is whether the court will decree an equitable assignment from Deshler to him as against the plaintiff in error. It is immaterial whether the money was pa'id by Ford or by Dauntz. If Dauntz paid this money to Deshler with the consent or procurement of Ford, he of course should be exonerated to that extent from any claim that Ford might have against him. As to the $150 said to have been paid to Mrs. Joyce, it will be noted that the answer nowhere discloses that she knew the source from which it came. So far then as the $150 payment goes, if such payment was ever made, Dauntz has had the benefit of it.
    The remaining question therefore, is whether Dauntz is to be subrogated to the senior mortgage lien of $950 in favor of Deshler. Gerrish v. Bragg, 55 Vt., 337; Am. and, Eng. Ency. of Law, Vol., 15, 865.
    We think the doctrine well settled that subrogation is not invoked for the benefit of volunteers. Bier v. Smith et al., 25 W. V., 830.
    In this ease the lien was discharged. Dauntz took no assignment from Deshler and we do not believe. that against Mrs. Joyce it would have availed him anything if he had. But the fact remains that he did not. The intention of - the parties, which is the crucial test in determining whether subrogation shall be decreed, is here manifest. It was not the intention to keep this lien alive.
    Again, subrogation can never be invoked in favor of one who is a primary debtor. We say that Dauntz stands in this place. He stands in no better position than though he had assumed the Deshler mortgages as part of the purchase-price. Carter v. Goodin, 3 Ohio St., 76; Pom. Eq. Jur., section 1213 and note; Starr v. Ellis, 6 John. Ch., 393; Willson v. Burton, 52 Vt., 394; Cox v. Garrett, 105 Ill., 342.
    It seems clear, therefore, that the defendant in error must take either horn of this dilemma: either this $950 was paid to Deshler by Ford, or it was paid by Dauntz. If it was paid by Ford, Dauntz can claim no benefit therefrom, unless Ford paid it as his agent, or as part of the purchase-price. If it was paid by Dauntz, it clearly was paid as part of the purchase-price. To that extent Dauntz would be exonerated from any claim for purchase money that Ford might make against him. He also would be entirely vindicated from any claim that Deshler by reason of Ford’s mortgage might make against him. But we insist that he will not be subrogated to Deshler’s former lien as against Mrs. Joyce. Aetna Life Insurance Company v. Middleport, 124 U. S., 49.
    
      P. C. Smith and Milt. Morris, for defendant in error.
    The most common instance where the doctrine of subrogation is applied is in the case of purchasers of the equity of redemption with or without notice of existing liens. Thus, when a purchaser of land pays off a debt of his grantor, secured by a deed of- trust upon the premises as a part of the purchase money, to protect his own property from sale, he will be subrogated to the deed of trust as against an intervening lien of the grantor. Here the payment is not voluntary as if made by a stranger, but is made by the purchaser to protect his own interest in the property. And in such a case a court of equity will keep alive the lien in his favor, notwithstanding it has been formally released without knowledge and consent. Semon v. Terhune, 25 A. L. Reg., 465, n.; 3 Pomeroy’s Eq., section 1211; Stayner v. Bower, 42 Ohio St., 314 ; 8 Am. L. Reg., 63; Etna life Ins. Co. v. Middleport, 124 U. S., 549; Memphis R. R. v. Dow, 120 U. S., 301; Meyer v. Mintinye, 106 Ill., 414; Acer v. Hotchkiss, 97 N. Y., 402.
    
      The doctrine claimed injures.no one. If this land had not been sold and the proceeds applied to the reduction of the plaintiff’s said lien and the prior liens the land would have been found among the assets of Peter Ford, but his debts would have been $1,100 larger, and his debt secured by-prior liens, to plaintiff’s lien would have been $950 larger, and the proceeds of the twenty-two acres would have been wholly exhausted in paying these liens. The plaintiff would be in no better position than she now is. 2 Pomeroy’s Eq. Jr., sections 798; Brown v. Lapham, 3d Cush., 554; Gibson v. Grehore, 3d Pick., 475; 3d Pomeroy’s Eq. Jr., section 1419; Dempsey v. Bush, 18 Ohio St., 376.
    Dauntz, by purchasing the twenty-two acres, became a junior incumbrancer of that part of the mortgaged premises, and had a right to pay the prior mortgage and be subrogated, either by assignment or by act and operation of law to the rights of the prior mortgagees. Patterson v. Birdsall, 64 N. Y., 298; Baldwin v. Moffett, 94 N. Y., 82.
    Where a junior incumbrancer pays the amount due on a prior incumbrance he is entitled to be subrogated to the rights of such prior incumbrance as against the mortgagor. Penn v. Ry. Co., 11 Am. L. Reg., 576 ; 1 Story Eq. Pl., 121; 2 Pleading Cases of Equity, 238; 1 Jones on mortgages, sections 674, 869; Cate, Ex'x, v. Feck, Guard., 30 W. L. B., 5.
    The same doctrine has been extended to corporations where the contract of loan was ult/ra vires. Peter v. Beverly, 10 Peter, 506; Steel v. McDowell, 9 S. & M., 193; Conger, Adm'r., v. Atwood, 28 Ohio St., 142; Lucht, Admr., v. Behrens, 28 Ohio St., 240; Unger v. Leiter, 32 Ohio St., 210; Sidener v. Hawes, 37 Ohio St., 532; 37 A. R., 794; 31 N. J. E., 135; 23 Wis., 30; 64 N. Y., 400; 57 A. R., 187; 30 A. Dec., 174; Jones, Mort, section 874
    One ground of defense set forth and relied on in the defendant Dauntz’ second defense, was a partial payment.
    To that defense the plaintiff demurred, and the court of common pleas sustained the demurrer. To the extent of the payment, viz., $150, it was a complete defense, but the court of common pleas sustained a demurrer thereto, holding that partial payment is no defense. The common pleas court in so holding erred. Peebles, Ex'r, v. Isanimger, 18 Ohio St., 490; Van Ransselear v. Price, 4 Paige Ch. 174; Lube’s Eq. Pl., 178; Mitf. Eq. Pl., 249; Van Santword Pl. (2 Ed.) 460-461, 472, 705. Tried by these rules it is hardly necessary to say the answer in question is sufficient. Carter v. Longworth, 4 Ohio, 384 ; Shamokin Bank v. Street, 16 Ohio St., 1; Shroyer v. Richmond, 16 Ohio St., 455.
   Williams, O. J.

Assuming, as is contended in behalf of the plaintiff in error, that in the ascertainment of the amount found due her, in the decree of foreclosure, Dauntz obtained cr.edit for the $150.00 he alleges was received by her out of the purchase money which he paid for the land, the question remains, whether he is entitled to the benefit of the two prior mortgages, and to enforce them against the plaintiff, as liens superior to hers, to the extent that the purchase money paid by him fob the land was applied in payment of the indebtedness they secured. It is a well settled' general rule, that “when any person having a subsequent interest in the premises, and who is therefore entitled to redeem for the purpose of protecting such interest, and who is not the principal debtor primarily and absolutely liable for the mortgage debt, pays off the mortgage, he thereby becomes an equitable assignee thereof, and may keep' alive and enforce the lien so far as may be necessary in equity for his own benefit; he is subrogated to the rights of the mortgagee to the extent necessary for his own equitable protection.” Pom. Eq. Jur., section 1212. Among the persons so protected are grantees of the mortgagor, and any subsequent grantee who has taken the land simply subject to the mortgage. And in Jones on Mortgages, section 869, it is said that: “If a mortgage be paid by a person not personally liable, for the purpose of protecting his estate, he may have the benefit of it in aid of his title without any assignment to him, or proof of any intention on his part to keep it alive.” The rule, it is held, does not include a purchaser who buys the naked- equity of redemption as such, and pays for nothing more, nor one who assumes the payment of the mortgage debt and receives a corresponding reduction in the purchase price of the land, for the reason, that in the one ease he receives all the estate he purchased and paid for, and in the other he becomes the principal debtor; and in neither case can have any equitable right against the mortgagor, or other incumbrancer. The answer in this ease will not admit of a construction warranting the conclusion that the purchase by Dauntz was of the equity of redemption eo nomine, nor that he assumed the p’ayment of the mortgage indebtedness, or any part of it, with a reduction on that account in the price paid for the land. Neither conclusion is consistent with the allegation that he purchased the land at its full value; for that fairly indicates an intention to acquire and be invested with the complete title; and that intention is further shown by the fact that the purchase price was applied toward the payment of existing incumbrances. That application, though made with the assent of the vendor, did not constitute an assumption of the mortgage debt by the purchaser, nor render him liable to the mortgagee, nor exonerate the mortgagor. The purchaser became the owner of the land subject to the unsatisfied incumbrances upon it. True, at the time of the conveyance to Dauntz, the condition of the mortgages had become broken, and the estate he acquired was the equity of redemption; but that is .sufficient to sustain his right to subrogation, if otherwise entitled to it. He is not in the situation of a stranger or mere volunteer discharging anincumberance. Any person having an interest in property subject to an incumbrance which may defeat or impair his title, has a right to disengage the property from the incumbrance by payment, and upon payment, if the debt is notone for whichhe is ultimately liable, he is entitled to subrogation to the fights of the incumbrancer against the property. Sheldon on Subrogation, section 12. “Subrogation arises by operation of law whenever the mortgage debt is extinguished by one, other than the mortgagor, who is entitled to redeem.” Jones on Mortgages, section 874. There can be no doubt that Dauntz, after his purchase, had the right to redeem, by payment of the mortgages. And the rule above stated is frequently applied in favor of the owner of the equity of redemption who has discharged an incumbrance on the land, which was in existence when he became the owner. Redemption consists in payment, and hence, in such case, subrogation by operation of law results from payment of the mortgage debt; and it is not essential to that result that there be an avowed intention at the time to keep the mortgage alive for the protection of the owner of the equity of redemption ; an intention to that effect will be presumed. “Where an owner of lands who is not primarily and personally liable to pay a debt secured by mortgage or other charge on the land, pays it, he may keep the lien alive as a security for himself against other incumbrances or titles. Whether he does so is a question of intention, and when it is evidently for his benefit, that intention will be presumed.” Pom. Eq. Jur., section 798. “The rule that payment by a mortgagor extinguishes the mortgage, is founded upon the reason that there could generally be no advantage to him in keeping on foot his own mortgage against his own estate. But no such reason exists when a purchaser pays an incumbrance existing before the time of his purchase. Frequently there is an advantage in keeping the mortgage on foot as a security; and whenever there is such advantage, the purchaser is entitled to • hold it as a separate title.” 1st Jones on Mortgages, section 869.

Nor is it necessary, as counsel contend, that in order to secure.the purchaser in this right, he should be ignorant of the mortgage, or of the subordinate liens, at the time of his purchase. “The most common instance where the doctrine of subrogation is applied is in the case of purchasers of the equity of redemption with or without notice of existing liens. Thus, when the purchaser of land pays off a debt of his own grantor, secured by a deed of trust upon the premises as a part of the purchase money, to protect his own property from sale, he will be subrogated to the deed of trust as against an intervening lien of the grantor. Here the payment is not voluntary as if made by a stranger, but is made by the puchaser to protect his own interest in the property. And in such a case a court of equity will keep alive the lien in his favor, notwithstanding it has been formally released without his knowledge and consent.” Semon v. Terhune, 25 A. L. Reg., 465, n. It is not believed, however, that equity, will so keep the lien on foot after its cancellation of record, as against rights intervening between that and the assertion, in the proper mode, of the right of subrogation. But that question does not arise in this case. The Shuster mortgage was taken while the two- prior mortgages were subsisting liens, and before Dauntz made his purchase.

It does not appear from the answer, whether, when the money paid by Dauntz on the land was applied on the mortgages held by Deshler, the amount then due on them exceeded the payment, or the pay • ment was sufficient to satisfy the balance then remaining due. But that does not seem important here, for if it were only a partial payment of the mortgage debts, leaving an unsatisfied balance due on them, as against which, and the holder of the mortgages, there could be no equity in favor of Dauntz that could interfere with the enforcement of the mortgage security, his right of subrogation as against the later liens, to the extent of the payment, would nevertheless exist. It has been held that a purchaser of an equity of redemption incumbered with four different liens, who paid off the first two liens and part of the third, was subrogated by the payment to the rights of the creditors under their respective liens to the extent they were so paid, and entitled to set them up and enforce them as against the holder of the fourth lien. Walker v. King, 45 Vt., 526. The same principle is recognized in Sidener v. Hawes, 37 Ohio St., 532. And see Simpson v. Hoyo, 94 N. Y. 189. Deshler was not made a party to the foreclosure suit, which probably would have been done if anything remained unpaid on his mortgages. At all events, he is not asserting any claim against this land, nor interposing any objection to the right asserted by Dauntz; and a consideration of his rights will be in time when' properly brought before the court.

But it is insisted that, as subrogation is founded in equity and can be invoked only when necessary to secure some equitable right, the remedy is inappropriate in this' case, because it would operate unjustly to the plaintiff. If it would, the remedy should be denied; but such we think, will not be its effect. Payment of the full value of land purchased, ordinarily entitles the purchaser to a good title; and when that payment is made toward the satisfaction of a paramount incumbrance, an intention to protect the title by relieving the land of the incumbrance is sufficiently obvious. There is no room for an inference that by payment on the first mortgage liens, there was an intention merely to advance the lien of the later mortgage, or to benefit its holder; although the plaintiff, as a partial holder of that mortgage, was benefited to the full amount of the payment, by reducing to that extent the prior liens on the other lands included in all of the mortgages, and thus augmenting the value of her security. Her position has in no way been changed for the worse on account of the payment, and, in ease the defendant is allowed the benefit of the prior mortgages for his reimbursement, her security remains precisely what it was when she took a partial transfer of the Shuster mortgage. While on the other hand, if the defendant is denied that remedy, he must lose the property he bought and paid for, or pay for it twice in order to keep it. It is here his equity arises which enables him to call to his aid the doctrine of subrogation.

The case of Carter v. Goodin, 3 Ohio St., 75, cited, and apparently much relied upon by counsel for plaintiff in error, we do not regard as irreconcilable with the claim of' the defendant in error. There, it was sought by the grantees of land under a deed that was defective as a release of dower, to avail themselves of a mortgage executed by the grantor, in which the wife had joined, before the conveyance, to defeat an action brought by her for dower in the land, after the husband’s decease. The purchase money paid, was applied in discharge of the mortgage before the debt became due, and before there was any breach of its condition. The mortgage was given to secure the debt of the husband, and the grantees, in taking the conveyance, relied entirely on the release of dower contained in their deed; which, however, proved to be insufficient. The decision is placed upon these grounds, as shown by the opinion in which it is said: “This conveyance, therefore, upon which it was the evident intention of the parties to rely for their title, failing to contain a valid release of the dower, the grantees cannot help themselves by a resort to a satisfied mortgage, and especially one which was discharged by the mortgagor himself before condition broken, and, therefore, before even the mortgagee himself had acquired any right which he could enforce against the premises.”

A more satisfactory ground for the decision, perhaps may be found in the fact that the charge created by the mortgage on the wife’s dower interest was for the security of her husband’s debt, and not her own; so that, the relation which she and her dower interest sustained to the creditor was analogous to, if not strictly that of a surety, which gave her the right to insist on the application of her husband’s estate to the satisfaction of the mortgage, to the exoneration of her own; and, as his property, the consideration paid him for the land, was so applied, the release of her estate thus accomplished, from the mortgage, simply secured to her what she was equitably entitled to. Mandel v. McClave, 46 Ohio St., 407. If her interest in the land had been subjected to the payment of the mortgage debt, leaving any part of her husband’s estate therein unappropriated to that purpose, she would herself have been entitled to be subrogated to the mortgage as against later liens, and would not be estopped from maintaining that right against the grantees in the deed, for the deed was not binding on her. See 24 Am. & Eng. Encyclopedia of Law, p. 228, and cases there cited.

The answer of Dauntz is sufficient to entitle him to priority over the plaintiff’s lien, to the extent that the consideration paid by him on the land was applied toward the satisfaction of the prior mortgages.

Judgment affirmed.