Case Name: B. F. GIESY v. THE AURORA STATE BANK et al.
Court: Oregon Supreme Court
Jurisdiction: Oregon
Decision Date: 1927-04-29
Citations: 122 Or. 1
Docket Number: 
Parties: B. F. GIESY v. THE AURORA STATE BANK et al.
Judges: Burnett, C. J., and Bean and Belt, JJ.,. concur.
Reporter: Oregon Reports
Volume: 122
Pages: 1–19

Head Matter:
Argued March 31,
affirmed April 29,
rehearing denied May 31,
second petition for rehearing denied June 29, 1927.
B. F. GIESY v. THE AURORA STATE BANK et al.
(255 Pac. 467; 256 Pac. 763.)
For appellant there was a brief and oral argument by Mr. Robert R. Rankin.
For respondent there was a brief and oral argument by Mr. Alfred P. Dobson.

Opinion:
BBOWN, J.
Does the decree rendered in appellant's foreclosure suit — case number 17607 — constitute an estoppel by judgment against the plaintiff in this suit? This is the question involved herein. There appears to be no question concerning the facts. The unpaid promissory notes, made and delivered to the plaintiff, and the trust deed given to secure their payment, were made in good faith and for a valuable consideration, and that deed was duly recorded in the mortgage records of Marion County. About a month after the execution and recordation of the deed, Eobert Krims and Marie N. Krims, Ms wife, for a vaMable consideration, made and executed to J. F. Duffy their promissory note for $10,000, secured by mortgage upon the same real property described in the above deed, which mortgage was duly placed of record. The record clearly shows that, before the entry of the decree in case number 17607, the mortgage which the plaintiff now seeks to foreclose was prior in time and prior in right. How does that foreclosure proceeding affect the paramount mortgage?
Section 423, Or. L., provides:
"Any person having a lien subsequent to the plaintiff upon the same property or any part thereof, or who has given a promissory note or other personal obligation for the payment of the debt, or any part thereof, secured by the mortgage or other lien which is the subject of the suit, shall be made a defendant in the suit, and any person having a prior lien may be made defendant at the option of the plaintiff, or by the order of the court when deemed necessary."
There is a wealth of authority sustaining the proposition that, as a general rule, persons holding mortgages or liens prior to the mortgage sought to be foreclosed are neither necessary nor proper parties to the suit, and that the decree can have no effect upon their rights. See 1 Wiltsie on Mortgage Foreclosure (3 ed.), §209, and authorities cited in note 99; 2 Jones on Mortgages (7 ed.), § 1439; 19 R. C. L., Mortgages, § 332; 41 C. J., p. 892; 9 Ency. Pl. & Pr. 134; 19 Stand. Ency. of Proced. 1008; Pomeroy's Code Remedies (4 ed.), pp. 333, 334.
From our statement, it will appear that the only allegation in reference to the lien of the Willamette Yalley Mortgage Loan Company is the assertion of Weiner to the effect that it claims to have some right or interest in and to the real property described in the mortgage, but that such right is subordinate in time and inferior in right to his (Weiner's) rights, powers and privileges. This is a mere legal conclusion. If the company's mortgage had been paid but was unsatisfied of record, or if it was fraudulent or invalid and for that reason inferior to Weiner's claim, the pleader should have set forth the facts showing such to be the case. Whenever a litigant in a suit to foreclose a mortgage lien seeks to challenge the validity of a prior recorded mortgage, or the right of the mortgagee therein named to a superior lien, it is mandatory upon him to allege facts from which it would appear that the prior mortgage was invalid, or that it would be inequitable that such mortgagee's lien be made superior to his. Among the many authorities supporting our position in this regard, see Gregory v. Suburban Realty Co., 292 Ill. 568 (127 N. E. 119), where it is written:
"Where a first mortgagee is made defendant to a bill to foreclose a second mortgage under the general allegation that he claimed some interest in the premises, and a decree for foreclosure and sale is entered in the usual form (of foreclosure decree) barring all defendants of any right or claim, the lien of the first mortgage will not be affected." Point 5, Syl.
See, also, Smith v. Roberts, 62 How. Pr. (N. Y.) 196; Burns v. Sholl, 111 Neb. 628 (197 N. W. 393); Strobe v. Downer, 13 Wis. 10 (80 Am. Dec. 709), and valuable note; Dawson v. Danbury Bank, 15 Mich. 488, opinion by Mr. Justice Cooley.
As illustrating the exceptions to the general rule that prior mortgagees are neither necessary nor proper parties defendant, we quote the following:
"A prior encumbrancer by mortgage, judgment or otherwise may be made a defendant to the foreclosure of a junior mortgage for the purpose of having the amount of his claim ascertained and paid out of the proceeds of the sale; but such a purpose must be specifically indicated and the prior claim set forth in full in the complaint." 1 Wiltsie on Mortgage Foreclosure (3 ed.), § 211.
To like effect, see 19 R. C. L., § 333; 19 Stand. Ency. of Proced., p. 1008.
In 2 Jones on Mortgages (7 ed.), section 1139, the rule is stated thus:
"When a prior encumbrancer is made a party to a foreclosure suit, there should be an allegation of the purpose for which he is made a party; as, for instance, that the rank and amount of his mortgage may be ascertained and determined by the judgment of the court, so that the mortgage can be paid out of the proceeds of the sale, or so that the sale may be made subject to the known amount of the lien. If such purpose is not indicated in the complaint nor provided for in the judgment, the prior encumbrancer will not be affected by the judgment."
See, also, Barnes v. Anderson et al., 108 Or. 503 (217 Pac. 836), and local citation. In that case, after declaring the general rule that questions relating to titles adverse or paramount cannot be litigated in a suit to foreclose a mortgage, we held that, if a person sued as a defendant in a foreclosure suit by his answer alleges paramount title, praying that such title be adjudicated, and is heard upon that issue, he is bound by the resulting decree. However, in rendering the opinion, Mr. Justice McCourt, speaking for the court, said:
"When summoned as a defendant in a foreclosure suit, plaintiff might have made default, or, if so advised, might have answered, setting up her adverse title with the prayer that the suit be dismissed as to her; and in either such case the subsequent decree of foreclosure would not be a bar to her right to maintain a suit or action based on her claim of paramount title."
In the Weiner suit, neither the company nor its trustee tendered to the court for adjudication any issue relating to the priority or validity of the company's lien, and Weiner made no averment that identifies the company's lien as the lien he was attempting to subordinate to his own. His pleading sought relief against the company's claim of "right, title or interest in real property" that "is subordinate in time and inferior in right to the right of plaintiff herein."
The rule calling for a liberal construction of pleadings has no application here. The record before us does not reveal a defective statement of a good cause of suit. It does, however, afford an excellent example of the Code requirement that a statement of facts, and not legal conclusions, be pleaded.
This case is affirmed. Aeeirmed.
Burnett, C. J., and Bean and Belt, JJ.,. concur.
For the petition, Mr. Robert R. Rankin.
No appearance contra.