Case Name: Holliger v. Bates
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1885-01
Citations: 43 Ohio St. 437
Docket Number: 
Parties: Holliger v. Bates.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 43
Pages: 437–447

Head Matter:
Holliger v. Bates.
Mortgage — Foreclosure—Parties—Bights of owner of notes and junior mortgage not made party.
Z., a mortgagee, held a mortgage, which was of record, made by R. to secure his two promissory notes, dated March 1,1878, one due in eighteen months, and one in thirty months, payable to the order of Z. April 1, 1878, Z., for a valuable consideration, sold those notes and mortgage to B. The notes were indorsed, and, with the mortgage, were delivered to B., who thereby became the sole owner of the same, and the bonafi.de purchaser of said notes before due. There was no written assignment of such mortgage, nor any notice of record showing such assignment. October 1, 1878, H., wbo held a prior mortgage, commenced an action to foreclose his mortgage, making R. and Z., but not B., parties defendant, who were duly served, Neither Z. nor R. answered; an order of sale was taken forclosing H.’s mortgage, and he became the purchaser at sheriff’s sale, received a deed, and took possession, and now seeks to quiet his title as against the second mortgage held by B. Held:
1. Where a senior mortgagee forecloses his mortgage, and sells the property, without making a junior mortgagee a party, or giving him notice, the purchaser at such judicial sale, whether it be the senior mortgagee ora stranger, acquires his title subject to the right of redemption by the junior mortgagee, and the same rule applies where the junior mortgagee has assigned all his interest in the mortgage, and the notes secured thereby to a third person who is not a party and is without notice of such proceedings and sale.
2. In such a case, the owner of the notes and junior mortgage, not being a party to said proceedings to foreclose and sell, is not affected thereby, and may maintain an action against such purchaser to foreclose his mortgage. Childs v. Childs> 10 Ohio St. 339; Stewart v. Johnson, 30 Ohio St. 24.
3. The fact that B. did not take from Z. a written assignment of the junior mortgage, and have it recorded, nor obtain from R. a quit-claim deed of Ms equity of redemption, and have the same recorded, does not defeat his junior mortgage, nor estop him from foreclosing the same.
4. The record of the junior unsatisfied mortgage to secure notes unpaid at the time of such sale, put the purchaser upon inquiry. The lien of the junior mortgage was not a secret or latent equity, and the purchaser at such sale took the title subject to the right to redeem by the holder of the junior mortgage.
Error to the District Court of Tuscarawas county.
This action was commence March 30, 1880, to quiet the plaintiff’s title, as against claims of the defendant, Bates, to certain described land.
Bates for answer sets up that on March 1, 1878, one William H. Rolli was the owner of the land in controversy, and on that day executed and delivered to one John Zwald two promissory notes for $117.50 each, one due on October 1, 1879, and one October 1, 1880, with interest. And to secure the payment of the same, he executed a mortgage deed on the premises to Zwald, which was entered for record the same day.
That about April 1, 1878, Zwald, for a valuable consideration, indorsed the notes, and delivered the same, together with the mortgage, to him, Bates, and that he is still the owner of the notes and mortgage, whereby he is entitled to a lien on the premises. He also avers that the notes are still outstanding, and wholly unpaid, and the mortgage is in full force and unsatisfied. The reply, which is by way of confession and avoidance, is as follows:
“And now comes the said Nicholas Holliger, plaintiff, and for reply to the answer of the said Albert Bates, defendant, says that he ought not to be barred of his said action, because he avers that on or about the 1st day of October, a. d. 1878, he, the said plaintiff, commenced an action in the court of common pleas within and for the said county of Tuscarawas, wherein this plaintiff' was plaintiff, and John Zwald, Catharine Zwald, William Rolli, and Oliver Knisely were defendants, to foreclose a certain mortgage, which the said plaintiff then and there held upon the premises, in the petition described, and which mortgage was a prior lien to the mortgage set forth ip defendants’ answer, executed by the said William Rolli to the said John Zwald, as therein set forth, and which mortgage of the plaintiff was past due, aud had become absolute long before the mortgage set forth in defendants’ said answer was executed and delivered; that the said John Zwald, the party to whom the notes and mortgage set forth and described in the defendants’ answer were executed and delivered, was regularly and duly made a party defendant to said action to foreclose plaintiff’s said mortgage, and was duly served with summons therein; that the mortgage of the said John Zwald conveyed to him only the equity of redemption in said premises, but had been duly' recorded in the recorder’s office of said county of Tuscarawas, as averred in the answer of said Albert Bates, and was then a lien on said premises, in plaintiff’s petition described.
“ And the plaintiff further says that, on or about the 29th day of October, a. d. 1878, the said plaintiff’s petition came on to be heard by said court, and the said John Zwald, still failing to answer or demur to the petition of the plaintiff, the said court did find from the testimony that there was due to the plaintiff upon his said mortgage the sum of $152.36; and the said court did further adjudge, order, and decree that, in case the said defendants did not pay the said sum, 152.36, so found due, as aforesaidj within a short time named in said decree, that these said premises should be appraised, advertised, and sold by the sheriff of said county, and the proceeds of said sale applied in payment of the amount so as aforesaid found due to the plaintiff; that on the 9th day of December, a. d. 1878, the said time having expired for the payment of said sum so found due, and the defendants in said cause still neglecting and failing to pay the same, an order of sale was regularly issued to the sheriff of said county, commanding him to appraise, advertise, and sell said premises according to law, to satisfy said amount; that said sheriff proceeded upon said order, and caused said premises to be duly appraised and advertised for sale in pirrsuance of said order; and, on the 23d day of January, A. d. 1879, did sell the same, at public auction, according to law, to the said plaintiff for the sum of $150, the same being more than two-thirds of the appraisement, and the plaintiff being the highest bidder therefor; that afterward, at the January term of the said court, the said sale was by said court duly confirmed, and the said sheriff, by said coui’t, was ordered to make the said plaintiff a deed in fee simple for said premises; that said plaintiff paid the said sheriff’ the costs in said action, and a sufficient amount of the said sum so found due him was applied to pay said sum of $150, the purchase-price of said premises, in full; and, in accordance with said order of the court, the said sheriff executed and delivered to the plaintiff a deed, conveying said premises and the appurtenances thereto to the plaintiff in fee simple, and that said deed is duly recorded in the office of the recorder of said county.
“ And the plaintiff further says, that at the time he so purchased said premises, and received said sheriff’s deed therefor, he had no notice or knowledge that said Zwald had indorsed said notes, and delivered the same, with the said mortgage, to the said defendant, but supposed the said Zwald was still the owner and holder thereof; that the said defendant wholly failed and neglected to have the said mortgage assigned to him in writing, and wholly failed and neglected to have the quit-claim deed of the said Zwald of his interest in said premises, or an assignment, or any memorandum of said transaction recorded by the recorder of said county, but that the records of said county, ■at the time the plaintiff so purchased said premises, and at the time said action was brought, showed the said Zwald to be the owner and holder of said notes and mortgage, and that no other person had any interest therein; and that plaintiff, relying upon said records, and believing that all persons'interested in said mortgage and premises had been made parties to said action, and having no knowledge whatever that said Albert Bates had any interest in or title to said notes and mortgage, he purchased said premises in good faith, and paid the purchase-price thereof.
“ Plaintiff avers that the said Albert Bates, having neglected to have his assignment of said mortgage recorded, and having neglected to take the quit-claim deed of the said Zwald’s equity of redemption in said premises, is estopped ffrom now claiming under the same as against the plaintiff; ■that plaintiff is an innocent purchaser of said lands and tenements, and of right holds the same, freed from all pre tended title, interest, claim, or demand, and of all equities of redemption of the said Albert Bates therein; and that his said title to said land should be quieted by the order, judgment, and decree of this court, and that the pretended mortgage lien of the said Albert Bates should be held and adjudged to be wholly void.
“Wherefore, plaintiff prays that said pretended title of the said defendant may be held to be void as against the plaintiff; and for such other and further relief as to the court may seem j ust and equitable.”
To this reply Bates demurred, on the ground that the facts therein stated did not constitute a bar to defendant’s rights under his mortgage. This demurrer was overruled, and judgment rendered for plaintiff, quieting his title. On error, this judgment was reversed by the district court; and the case is now here to review this judgment of reversal.
F. Douthüt and J. H. Booth, for plaintiff in error.
In an action to quiet title, it is not necessary that the adverse claim should relate to or affect the 'present possession or the right of possession. Rhea v. Dick, 34 Ohio St. 420.
Bates should have taken the legal title to the conditional estate held and owned by Zwald. Had this been done by quit-claim deed, duly recorded, it would have been constructive notice to all the world that he was claiming an interest in the premises, and if not then made a party upon the foreclosure of the prior mortgage, he could well assert his interest.
There was authority under our statutes for recording the same, if Bates had taken an assignment of the mortgage.
The rights of Bates, if any he had, were purely equitable. No title or estate in the mortgaged premises had been conveyed to him. A legal title to lands can not, either at common law or under our statutes,’pass by the sale and delivery of a promissory note. The legal title to the conditional estate granted by the mortgage remained in Zwald as fully after the transfer of the notes and mortgage to Rates as before. True, as stated in Swartz v. Leist, 13 Ohio St. 419, Zwald may have held it as trustee for the benefit of Bates. But the trust was not apparent on the face of the mortgage deed, was evidenced by no record, and was unknown to the world, and could in no way affect the rights of bona fide purchasers.
Zwald, holding the legal title to the conditional estate, was made a party, and the secret equity of Bates was unknown to the world. The equities of Holliger, as a bona fide purchaser in such case, are stronger than those which arise from such latent trust; Holliger is in no way in fault. He examines the record and sees that every person having any apparent interest in the premises has been made a party, even to Zwald, the secret tnistee of Bates. . But how is it with Bates ? He is not equally faultless. He negligently or confidingly permitted Zwald, the mortgagee, to retain the legal title conveyed by the mortgage and the power of control over it. Had Zwald released it and Holliger became the purchaser without knowledge of Bates’ secret and latent equity, Bates would have been estopped from setting up any claim under his notes. Bates might have insisted upon a transfer of the legal title to the mortgage held by Zwald, and had the same duly recorded, thus notifying the world of his claim. But he unwisely reposed confidence in Zwald, and he should suffer the consequences of permitting Zwald to hold such legal title. Bates has been negligent and careless, and has lost his equity in the real estate thereby. Swartz v. Leist, supra; Jones Mort., sec. 820.
A purchaser of real estate in good faith is never bound to take notice of secret equities, liens, interests, trusts, or incumbrances which can not be discovered from an inspection of the public records, or ascertained from the parties in possession. Lewis v. Kirk, 28 Kan. 497; s. c., 42 Am. Rep. 173, 179.
In an action to foreclose a mortgage the plaintiff is not bound to ascertain whether the defendants were in fact judgment creditors, nor trace the judgments into the hands of the assignees. He maj^make the assignees parties upon alleging assignments, or may make the assignors parties without noticing the assignments. Grant v. Ludlow, 8 Ohio St. 1, 83, 34.
The rule that purchasers at judicial sales purchase subject to the rule of caveat emptor has no application to latent equities. Oviatt v. Brown, 14 Ohio, 285; Paine v. Mooreland, 15 Ohio, 435; Morris v. Daniels, 35 Ohio St. 406.
J. T. O’Donnell, for defendant in error :
The purchase by Bates of the notes secured by the mortgage, and delivery of the same, together with the mortgage to him, made him the absolute owner of the mortgage. Paine v. French, 4 Ohio, 318; 1 Bates Pl. & Pr. 18.
The statutes do not contemplate the recording of a written assignment of a mortgage.
Such record, if not contemplated by the statute, would not operate as notice, but would be a mere nullity. Foster v. Dugan, 8 Ohio, 87.
Holliger, who was plaintiff, becáme the purchaser at the sheriff’s sale. A purchaser at judicial sale takes subject to the rule of caveat emptor, and must look to his title. Rorer Jud. Sales, secs. 174, 476.
And this is especially true where the purchaser is the plaintiff in the action. Collins v. Smith, 57 Wis. 284.
Making Zwald a party in the foreclosure suit after he had parted with his title to the mortgage, was a mere nullity. He was not a necessary party. Grant v. Ludlow, 8 Ohio St. 1; McGuffey v. Finley, 20 Ohio 474.
The purchaser at judicial sale is to be charged with con, structive notice of the existence of a mortgage and of the continuance of its lien by its record in the proper office. Purdy v. Huntington, 42 N. Y. 334; s. c., 1 Am. Rep. 532; Jones Mort., sec. 474.

Opinion:
J ohnson, J.
It will be seen by tbe statement of facts, that Zwald's mortgage and notes became effective March 1,1878 ; that one note was doe October 1, 1879, and one October 1, 1880, and that long before due, they became the property of Bates by purchase from the mortgagee, Zwald, by indorsement and delivery of the notes, and by delivery of the mortgage, without such indorsement, so that Bates thereby became the legal owner and holder of the notes by purchase for a valuable consideration, before due, and the sole and absolute owner of the mortgage to secure the same by delivery without written assignment of the same. The reply of Holliger admits these facts and seeks to avoid their legal effect by setting up that he had a prior mortgage on the same premises, on which he commenced an action October 1,1878, one year before the first note held by Bates became due, and two years before the second, which mortgage was executed by Rolli, and was entered for record the day of its date. That, in said action, Rolli, the mortgagor, and John Zwald, the second mortgagee, were defendants. Zwald, though served, failed to answer or demur to the petition, and such proceedings were had that the plaintiff had a decree in his favor for the amount due on his prior note and mortgage, and an order of sale of the premises.
This decree Avas dated December 9, 1878. January 23, 1879, the sheriff, in pursuance thereof, sold-the land to the plaintiff for more than two-thirds of the appraisement, Avliich sale was confirmed and conveyance made to the plaintiff, who took possession. He avers that he had no notice or knowledge that Zwald, the second mortgagee, had sold the notes and mortgage to defendant, and supposed he aves still the owner and holder thereof. He charges negligence upon Bates in not having the assignment of the mortgage in writing entered of record, or in not taking a quit-claim deed from Zwald made to him and recorded. He says he believed that he had made all necessary parties to his action to foreclose; that he was a purchaser in good faith, having no knowledge of Bates' inter est in the titles to said notes and mortgage, and that Bates by his neglect in the premises is estopped from setting up his claim against the plaintiff, who was an innocent purchaser of the land, and holds the same free from all title, interest, or demand, and of all equities of redemption of Bates therein. "Wherefore he prays that the title and pretended interest of Bates be adjudged void, and for other and further relief.
The answer of Bates shows that by his purchase from Zwald of the second mortgage and the notes thereby secured, he acquired an interest in the premises as second mortgagee, and by the well-settled rule in Ohio was entitled to institute proceedings to foreclose his own mortgage when the notes became due, and, by making the prior mortgagee a party, to foreclose that also; and a sale made under such a decree, if the mortgagor was also a party, would confer the complete title upon the purchaser. This being the right of Bates, as sole owner of the notes and mortgage he held, the only question raised by the reply is, did the proceedings instituted by the first mortgagee, to which he was not a party, bar his right to such foreclosure ?
At the time that proceeding was instituted and consummated, the notes secured by the Zwald mortgage were not yet due; one had a year to run, and one two years. The record of mortgages made known to the plaintiff this important fact. It is not claimed by the reply that he made any effort whatever to ascertain who owned these notes and mortgage. He did not inquire of Rolli, the mortgagor, if the debt secured thereby had been paid, neither did he inquire of Zwald, the second mortgagee, if he still held the mortgage. The presumption was that this mortgage being unsatisfied of record was still outstanding, and the notes secured thereby being commercial paper, and not yet due, were liable to be transferred in the open market to a bona fide holder for value. Under these circumstances the decree in favor of the first mortgagee had no effect whatever upon the rights of Bates as the holder of the second mortgage. The sheriff's deed passed all the lights and interests of the first mortgagee and of Rolli's to the purchaser. It did not, however, divest any right acquired by the second mortgage. It is true Zwald was a party to that proceeding, and as to him the decree was taken by default, but he had long before that parted with all his interest in' the second mortgage to Bates, who was not a party. Plaintiff's purchase, therefore, did not divest Bates of his equity of redemption. The plaintiff, by such purchase, acquired the whole title, subject only to the right of the second mortgagee to redeem. The principles established in Frische v. Kramer, 16 Ohio, 125; McGruffey v. Finley, 20 Ohio, 474; Childs v. Childs, 10 Ohio St. 339, and Stewart v. Johnson, 30 Ohio St. 24, settles this question, as above stated.
¥e refer to these cases, especially the last two, which are directly in point. They leave no room for controversy. The plaintiff, however, seeks to avoid their force upon two grounds: first, that Bates, as assignee of the second mortgage, took no written assignment of the mortgage, and failed to have such assignment noted on the margin of the record of his mortgage so that plaintiff might know the fact; second, nor did he take from the mortgagor a quitclaim deed to the title and have the same recorded.
The claim is, that by reason of such neglect, and by reason of plaintiff being a bona fide purchaser at a judicial sale, this equity of redemption, which was a secret equity, is barred, though the decree of the court as to him is a nullity.
Conceding that a written assignment of the mortgage may, under the statute, be recorded and thus be notice to others, yet the statute does not require it, and a failure to have it done can not divest the assignee of his rights and equities. Again, neither Zwald nor Bates had any right to demand of Rolli a quit-claim deed which would surrender the mortgagoi''s equity of redemption. Therefore, the failure to get one and have it recorded could not estop them or either of them from enforcing their second mortgage.
It is said, however, that the plaintiff was a purchaser at a judicial sale and is in possession under the legal title, and that his equities are stronger than those of Bates, whose equities are secret. It is a inisnomer to call Bates' equity-secret. It was of record as the law required, and was notice to all the world of the outstanding notes not yet due and presumptively unpaid.
No effort had been made by the plaintiff to ascertain the ownership of these notes, nor did the decree under which plaintiff purchased in any way notice or effect them.
Again, it is said that the rule of caveat emptor does not apply as to latent equities.
Assuming, without deciding that this is true, it has no application to the case at bar. Here, by an inspection of the mortgage record, or by an inquiry of Rolli, the mortgagor in possession, or of Zwald, the second mortgagee, the facts could readily have been known.
The second mortgage being of record, as the law required, was not a latent or secret equity, but a lien of record, and the purchaser at a judicial sale took his title subject to the same, in whosever hands it might be.
Judgment affirmed.