Court Opinion

ID: 7809075
Source: CourtListenerOpinion
Date Created: 2022-09-07 17:10:32.44471+00
Date Added: 2024-06-11T16:30:25.016846
License: Public Domain

ON REHEARING. HART, J. (4) Counsel fqr appellants admit the correctness of the conclusions of law of the court but claim that they are not applicable to the facts of this case. The property involved in this suit is the homestead of Willie Shurn. As pointed out in our original opinion, the mortgage of March 16, 1907, was executed in conformance with our statutes in regard to the conveyance of the homestead, and was valid. Wilkinson was a merchant and Shurn continued to trade with him so that on the 11th day of April, 1908, Shurn owed Wilkinson $860 and gave a new mortgage on the same property to secure the indebtedness. Bettie Shurn, the wife of Willie Shurn, did not join in the execution of this mortgage as provided by our statute; but only relinquished dower in the land. Shurn continued to buy goods from Wilkinson and on the 8th day of April, 1911, owed him $1,075. Shurn executed a new mortgage on this homestead to Wilkinson to secure this sum. His wife did not join in the execution of this mortgage but only relinquished her dower in the property. For this reason, as pointed ont in onr original opinion, this mortgage was invalid. For the same reason, the mortgage dated . April 11, 1908, was also invalid. It is fairly inferable from the whole record that it was the intention of the parties that the new mortgages should be executed in the place of the old ones. In their motion for rehearing counsel set out payments to the amount of several hundred dollars, which have been made since the execution of the mortgage of March 16, 1907. They claim that these payments should be applied to the extinguishment of the mortgage of March 16, 1907. This is in application of the general rule of payments. That is to say, in the absence of an agreement or instruction to the contrary, payments and credits should be applied to the extinguishment of those items which are earliest in point of time. But the application of this general rule would defeat the equities upon which our decision was based. Equity looks through the mere form of a transaction to the substance. In the application of this maxim in Wooster v. Cavender, 54 Ark. 153, the court held that when a senior mortgagee in good faith and without culpable negligence satisfied the lien of his mortgage on the record, in ignorance of the existence of an intervening mortgage on the same premises, and took a second mortgage as a substitute, equity will restore the lien of the first mortgage provided it can be done without working hardship or injustice to innocent parties. In discussing the principle in an opinion on rehearing in American Savings Bank & Trust Company v. Helgesen et al., Ann. Cas. 1913, A-390, the Supreme Court of the State of Washington said: “The cancellation of the old mortgage and the substitution of the new one were contemporaneous acts. The manifest intention of all parties interested and participating was not to discharge the lien of the mortgage but to continue it. The purpose was not to create a new incumbrance but merely to change the form of the old. A court of equity will look straight to the substance of the transaction, rather than give heed to the mere form which it may assume. As between the parties it would be plainly inequitable to permit the release of the old mortgage, which was intended only to give place to a valid new one, to have any operative force when the new mortgage contrary to all intention was ineffectual. The new notes and mortgage were not given in satisfaction, but in renewal of the debt and on the same security. By a doctrine closely akin to that of equitable subrogation — and it seems to us one founded in equal equity and reason — the old mortgage, though released, must be substituted for the new one and treated as a continuing lien securing the continuing debt. This is certainly true as between the original parties. The new mortgage failing, the release was without consideration and also fails.” In Swift v. Kraemer, 13 Cal. 526, 73 Am. Dec. 603, the court said: “We regard the cancellation of the old mortgages and the substitution of the new as contemporaneous acts. It was not creating a new incumbrance, but simply changing the form of the old. A court of equity, looking to the substance of such a transaction, would not permit a release intended to be effectual only by force of, and for the purpose of giving effect to the last mortgage to be set up, even if the last mortgage was inoperative.” The .same equitable principle applies here, and a court of equity will afford relief and restore the lien on the 'homestead for the security of the debt of March 16, 1907. If this debt could be reduced by the subsequent payments instead of applying them to the satisfaction of the new debt, this equitable principle would afford no relief. We have thought it best, however, to change the directions to the chancery court. The cause will be remanded to the chancery court to apply the payments made subsequently to the execution of the mortgage of March 16, 1907, first to the payment of the indebtedness which has accrued since that time and the remainder, if any, to the payment of the mortgage executed on March 16, 1907. A foreclosure of this mortgage will then be decreed for the payment of the amount so found to be due under it. It is so ordered.