Court Opinion

ID: 8265278
Source: CourtListenerOpinion
Date Created: 2022-10-16 16:00:23.490461+00
Date Added: 2024-06-11T16:43:19.694806
License: Public Domain

GOODE, J.
(after stating the facts).
To make clear the theory of counsel for defendant, it should be stated they assign as error the exclusion of the Baker deed of trust and note and testimony regarding why defendant foreclosed under the second or Pingree Mc-Ferren deed of trust, upon the notion that there had been a valid foreclosure of the Baker instrument which deprived plaintiff as grantor in the second incumbrance, of right to the surplus proceeds arising from the foreclosure of the second one. It is obvious this theory is the antithesis of the one under which defendant acted in turning over the surplus to Jacob S. Me*478Ferren, as pleaded in the answer and told by him in his testimony. He stated he paid the surplus to Jacob S. McFerren because he thought the attempted foreclosure of the Baker deed of trust was invalid and therefore McFerren "was left with a lien for five thousand dollars against the property and, in consequence, was entitled to receive the surplus. This, too, was the, purport of his excluded testimony. But now his counsel contend the foreclosure of the first deed of trust was valid and operated to exclude plaintiff from any participation in the surplus proceeds of the foreclosure of the second one, by transferring the right to those proceeds, in equity, over to Jacob S. McFerren. We remark upon this contention that the only evidence offered to prove the Baker deed of trust had been foreclosed, was an indorsement across the face of the note it secured, made by a deputy sheriff, which recited the note had been satisfied by sale made June 28, 1906, under a deed of trust securing the same. Whether Jacob S. McFerren purchased at the first foreclosure-sale and the trustee conveyed the title to him by deed, or attempted to do so, was not offered in proof. Hence, if we allow, for argument’s sake, that a valid foreclosure sale had occurred under the first -deed of trust, this fact was not supplemented by an offer of evidence which tended to prove McFerren acquired the- title to the property, or any greater right to the surplus proceeds of the second foreclosure than he would have as the holder of the note secured by the Baker deed of trust if there had been no sale under it. In other words, nothing was offered to prove defendant did right in paying the surplus to him. Hence, all that remains of this point is the question whether, if there was a good foreclosure of the first incumbrance, that circumstance deprived plaintiff of right to the surplus proceeds accruing from the sale under the second one, and cut out his cause of action against defendant for the surplus. This defense could, not be made under the answer, for, *479as said, it is in direct opposition to the averments therein, and allegations regarding it could not have been coupled in the answer with the other defense; for proof of the one defense would disprove the other. [Bell v. Campbell, 123 Mo. 1; R. S. 1899, sec. 606.] But if pleaded and proved, it would not have been a good defense. For one thing, if the first sale was valid, then according to the evidence relied on to prove its validity, the debt had been satisfied, and Jacob S. Mc-Ferren as holder of a fully paid note was entitled to no credit on it. We will consider the matter more at large. “Ordinarily Iioav a trustee who sells property under a deed of trust shall dispose of the proceeds, must be ascertained from the directions of the instrument, provided these are not in conflict with the law.” [2 Jones, Mortgages (6 Ed.), sec. 1927.] There were no incumbrances junior to the second or Jones deed of trust, and the provision therein requiring a surplus remaining of sale money, after paying the secured debt, expenses of sale, etc., to be paid to plaintiff as mortgagor, was in accord with the law. As between senior lienors and a junior mortgagor, the latter is entitled to the surplus, unless he had relinquished it in the instrument or aliunde, as against the former. The theory of the law is that the purchaser at a foreclosure sale buys subject to prior incumbrances; at least unless under some arrangement, the whole fee is sold. [Helweg v. Heitcamp, 20 Mo. 569; Scott v. Shy, 53 Mo. 478; Schmidt v. Smith, 57 Mo. 135; Tanner v. Taussig, 11 Mo. App. 534.] Junior incumbrancers will take precedence over the mortgagor, as regards the right to have their demands paid out of the surplus, because the execution of a junior mortgage amounts to an assignment of the mortgagor’s equity of redemption to the junior mortgagee and of the assignor’s right in equity to the the surplus in case of a sale under the prior incumbrance. [Cases supra; 2 Jones, sec. 1929; 27 Cyc. 1497.] So will a person to whom a mortgagor conveys *480or assigns Ms equity of redemption by way of sale. [Reid v. Mullins, 47 Mo. 306.] And in this and some other States, if a mortgagor’s equity of redemption is sold under execution or otherwise transferred in invitum the purchaser will step into his shoes in respect of his right to the surplus proceeds of a foreclosure sale. [27 Cyc. sec. 1497, and note 97; Foster v. Palmer, 37 Mo. 525, 534.] But we can conceive of no principle upon which the foreclosure of a prior mortgage, and especially one not given by the mortgagor in the second incumbrance, but by his grantor, will cut off the right of the second mortgagor to surplus proceeds arising from a sale under the second instrument. Pendency of the first mortgage as an outstanding incumbrance does not have that effect, and we perceive no reason why foreclosing it should have. It stands as an independent transaction, unrelated to the second mortgage or the equity to redeem from the second mortgage, though as a junior lienor he might redeem the first incumbrance, too. Neither is the first incumbrance, or the beneficiary therein, or a purchaser thereunder, in any way connected with the right of the second mortgagor to surplus money accruing from foreclosing the latter lien; at least we do not discern any connection. We find no direct authority on this question, but our opinion appears to be according to the principles- underlying the rules regarding what disposition shall be made of surplus proceeds, and Hooper v. Castetter, 45 Neb. 67, is nearly in point. In that case the holder of junior mortgages brought suit to have them foreclosed, and after decree of foreclosure, but before sale under the decree, bought the senior mortgage, and having bid in the property at the foreclosure sale, for more than the amount of the incumbrance foreclosed, sought to have the surplus credited on the senior incumbrance he .had acquired. Effis claim was denied and it was decreed the surplus should go to the intervening creditors of the mortgagor, *481less a homestead exemption of two thousand dollars in favor of the latter and his wife, which was ordered paid them. The Nebraska case is relevant to the point involved here in several respects. The court pointed out that under the decree of foreclosure, the sheriff could, sell only for cash and hence could not accept the debt secured by the senior incumbrance as part payment, though under the law he could give credit on the purchase price for the amount of the debts secured by the deeds foreclosed. By parity of reasoning, as Sheppard Avas required to sell for cash, he had no right to give credit on the Baker note. The Supreme Court of Nebraska said it was optional with the second mortgagee who had foreclosed those instruments, and had purchased the first mortgage whether the ' latter lien Avould be merged in the title he acquired by buying at the foreclosure sale; that the question of his right to the surplus did not turn on whether the first incumbrance had merged in his fee, but he had no more right to the surplus by virtue of the assignment to him of the first mortgage than a stranger would have had, or the original first mortgagee. If the title to the property passed to whomsoever bought at the sale under the Baker mortgage, then the sale under the second or Jones deed of trust, passed no title to the purchaser at the latter sale. Nevertheless, if Jacob S. McFerren was willing to buy in the property and pay a price for it which would more than discharge the debt secured, the surplus ought to go to plaintiff as mortgagor; because whatever title was purchased or attempted to be purchased, was one which had belonged to him and he had conveyed to the trusteemaking thesale. An effort is made to treat the case as analogous to one in which the mortgagor in a second mortgage assigns his equity of redemption by way of a third mortgage, or by voluntary sale or sale in invitum. But there is no analogy between the two cases. The foreclosure of a prior mortgage cuts off a junior in*482cumbrance, and any equity to redeem therein, but does not transfer that equity to the purchaser at the sale under the first incumbrance, and therefore does not carry any right to surplus proceeds arising from a sale under a junior incumbrance.
The second error assigned is the refusal of the court to permit defendant to inquire into the consideration plaintiff paid for the property in controversy-when he purchased it from Pingree McFerren. The purpose was to prove defendant assumed, as a part of the consideration, the payment of the Baker deed of trust for five thousand dollars. He certainly did not assume it in the deed Pingree McFerren made to him, but such an assumption may be established by parol evidence. [Cook v. Bensieck, 110 Mo. 173; Nelson v. Brown, 140 Mo. 580.] The offer to prove a parol assumption was vague, at best, and really we think the testimony of plaintiff by whom defendant’s counsel attempted to prove the fact, amounted to a denial that he had agreed to assume and pay the first mortgage. However, it might be contended he only denied having assumed it in Pingree McFerren’s deed to him, and not that he did so verbally. Let us then take for granted he agreed verbally to pay said note as part of the purchase price of the property, and the question occurs whether this fact would be a defense to the present action; whether it justified defendant in ignoring plaintiff’s demand for the surplus proceeds of the foreclosure sale and turning the surplus over to Jacob S.' McFerren, as holder of the Baker note. No doubt such an assumption of the debt would have given Jacob S. McFerren a right of action against plaintiff personally, or to attach the surplus, or reach it by suit in equity, as the circumstances might warrant. But it was no authority or justification for defendant’s turning the surplus over to McFerren; was no equitable assignment of the surplus, such as goes with the assignment of an equity of redemption. Plaintiff might have had ground to contend *483the debt had already been paid, or that he had. offsets or counterclaims against the holder of the note, or that the money, or part of it, was exempt from execution or liability for the debt, like the surplus in the Nebraska case, or might have preferred to pay other debts with it. To say defendant could hand the money over to Jacob S. McPerren to pay the Baker incumbrance, would amount to investing defendant with the functions of a court and allowing him to settle the rights of the respective parties. He was a stranger to any such agreement, if it was made, and obtained no warrant from it for disposing as he did, of the greater part of the price bid for the property. We are cited to the passage in a treatise wherein it is said the purchaser at a mortgagee’s or trustee’s sale, takes the property subject to all prior liens and “no part of the proceeds should be applied to their extinguishment in the absence of an express provision therefor in the deed of trust or other agreement binding cm the mortgagor [28 Am. and Eng. Ency. Law (2 Ed.), 833.] The italicised words are argued to mean a trustee is entitled to pay the surplus to the holder of the note secured by a prior mortgage, if the party named as mortgagor in the junior deed of trust under which, the trustee sells, had promised payment of the prior mortgage as part of the purchase price of the land when he bought it. We think those words have no such meaning, but refer to contracts aliunde the deed under which the trustee sells, by which the grantor in said deed agrees regarding what disposition shall be made of surplus money accruing from a sale and authorizes the application of it to prior liens.
The judgment is affirmed,
Nortoni, J., concurring, Reynolds, P. J., having been of counsel, not sitting.