Court Opinion

ID: 6693801
Source: CourtListenerOpinion
Date Created: 2022-07-20 21:44:08.053966+00
Date Added: 2024-06-11T16:01:10.188088
License: Public Domain

FueCHBs, J.:
This case comes before us by appeal from a judgment of the court below upon a case agreed. And the interpleading plaintiff, Howard, insists that the judgment appealed from is correct and should be sustained on two grounds: First, under the doctrine of subrogation; and, secondly, under the doctrine of trusts and the right to follow the fund.
The doctrine of subrogation is entirely one of equitable origin, arid means to substitute, to put one person in the place of another, and is usually exercised where one person has become liable for or has been compelled to pay money for another. In such cases equity will put such *142party so paying or so liable in the place of the other party for whom he lias become so liable, or for whom he has so paid his money, and will give him all the benefits of securities that the other party had. Sheldon on Subrogation, 1, 2, 3. Thus understanding the doctrine of subrogation, we see no grounds for its application in this case. The plaintiff, Howard, has paid the debt of nobody, nor has he obligated himself to pay the debt of anybody. To whose place or to whose rights will he be subrogated? Not to Vaughan & Barnes; he has paid no debt for them. They only collected a debt out of the defendant Jeffreys that he justly owed them, by enforcing a security placed in their hands. And the doctrine of subrogation never interferes with equal or superior rights of others. 3 Pom-eroy Eq. Jur., Sec. 1419, note 1. Pie cannot be subro-gated to the rights of Jeffreys. He has paid no debt for him. But he needs no subrogation to Jeffreys’ rights, as Jeffreys is his debtor, and he is entitled to such securities as he has for his debt on other principles. But the security which he alleges that Jeffreys held for his benefit has been legally paid and discharged. Pie cannot be subro-gated to the rights of Staton, the Trustee, who is but the hand of Jeffreys for the collection and administration of the assets of Jeffreys under the deed of assignment. And besides, he has paid no debt, nor has he obligated himself to pay any debt for Staton as Trustee, nor for the trust estate.
But it is contended that Vaughan & Barnes had two securities for their debt, the note and mortgage of Powell, assigned to them as collateral security by Jeffreys, and the trust deed of Jeffreys to the defendant Staton. And the plaintiff Howard had but one, to-wit, the note of Powell, assigned to him by Jeffreys as collateral security, and the mortgage of Powell to Jeffreys.
*143As it finally turned ont, after a long litigation and after the Powell mortgage had been foreclosed, the debt of Yanghan & Barnes was secured by the deed of trust of Jef-freys to Staton. And it is true that Vaughan & Barnes collected the Powell debt and applied it in satisfaction of their debt due from Jeffreys. And it is further contended by Howard that Yanghan and Barnes should have collected all their debt out of the trust funds in the hands of Staton; and as they did not, but collected it ont of the Powell debt and mortgage, that Howard should be subrogated to the rights of Vaughan & Barnes, and allowed to collect his note on Powell out of Staton.
But the fact that Yanghan & Barnes had two securities for their debt does not entitle Howard to the right of sub-rogation, unless he had a lien on the property of Powell conveyed in said mortgage, as he does not claim to have any lien on the funds in Staton’s hands, unless it be by subrogation.
This brings us to a consideration of the facts under which Howard claims. Jeffreys owed Howard, and Powell owed Jeffreys a note of $983.72, and Jeffreys assigned this note to Howard as collateral security. Some time after this Howard applied to Jeffreys for additional security, and Jeffreys promised to have Powell to secure the note, so assigned, by mortgage, which he afterwards told Howard had been done.
But it seems that Powell was owing Jeffreys other sums besides the note which Jeffreys had assigned to Howard, amounting to $1,618.47, including the Howard note, for which aggregated sum of $1,618.47, Powell executed a new note to Jeffreys, and secured this new note by mortgage.
This new note and mortgage Jeffreys assigned to Vaughan & Barnes to secure a debt he owed them.
*144It is admitted that Vaughan & Barnes had no notice of the existence of the Howard note until after the failure and assignment of Jeffreys. There was no mention of the Howard note in the mortgage that could constitute constructive notice, nor was the registration of the mortgage any notice to them on the Howard debt, as it was not mentioned in the mortgage. The date of the assignment to Vaughan & Barnes not being stated, it is presumed that it was before the note became due. And Vaughan & Barnes, taking it without actual or constructive notice» took it discharged of all equities of either Powell or Howard. It. therefore appears that Howard had no claim on Vaughan & Barnes. Howard does not claim that he has, but claims that he has a right to be subrogated to their rights as against Staton. To en title him to this equity, he must show that he had a lien on the property appropriated by Vaughan & Barnes. 1 Pomeroy Eq. Jur., Secs. 165, 166. This he attempts to show by the mortgage of Powell to Jeffreys. But this mortgage, in our opinion, fails to show this. It is to secure a note of even date with the mortgage for $1,618.47, payable to Jeffreys. Neither Howard nor the note he holds is mentioned in it. The mortgage does not therefore secure the Howard note by its terms and conditions, and can only be made to do so by extrinsic evidence, that would induce the Court, in the exercise of its equitable jurisdiction, to declare the lien. This the Court cannot do, for the reason that Howard took, this note long after it was due, and therefore subject “ to any sets-off, or any other defense existing at the time of or before notice of the assignment.” Code, Sec. 177. There is nothing in the case to show that Powell had any notice of the assignment to Howard at the time he renewed the note and made the mortgage, or at the time the money was collected by Vaughan & Barnes. *145And this being so, the mortgage and payment of the new note was a satisfaction and discharge of the Howard note, so far as Powell is concerned. If Howard were to sue Powell on this note, the facts disclosed in this case make a good defense for Powell, and Howard would not be able to recover judgment againpt him. Code, Sec. 177. If Howard is entitled to the right of subrogation he claims, it is upon the ground that property has been taken by Vaughan & Barnes, upon which he had a lien and the right to have it applied to the payment of a debt due him from Powell. But, as we have seen, his right as against Powell is gone — that Powell, in legal contemplation, has paid off the debt and discharged himself from any liability on account of this note. And it would be a legal solecism to say that a Court of Equity would enable a man to collect a debt that bad been paid.
But if the note assigned to Howard had not been past due at the date of the assignment, so as not to affect him with the new note, mortgage and payment, there still appears to us to be another reason why he is not entitled to this right of subrogation. The mortgage, as we have stated, was not made to him, nor does it mention his debt or pretend in any way to secure the same. This being so, he had no estate in or lien on the property. At most, he only had a right — an equitable interest — which equity might declare and enforce. But until it is declared there is no specific lien on the property. And after the property has been taken and appropriated to the payment of another debt, under a mortgage that was a specific lien, there is no property for the court to declare a lien upon, and the plaintiff Howard’s equitable relief against the property must fail on that account; and if he had no lien on the property taken, he has no right to be subro-gated to.
*146There is no doubt but lie lias a right of action against Jeffreys and the other obligors on their note, and also an action against Jeffreys on his breach of trust; but he has no lien on their property. And the defendant Jeffreys having assigned his property to the defendant Staton, in trust for creditors, it is his duty to. administer and pay it out as the trust deed directs.
So it seems clear to us that the judgment below cannot be sustained under the doctrine of subrogation.
Neither can it be sustained under the doctrine of trusts and of following the fund. The mortgage from Powell to Jeffreys, at most, was only an equitable mortgage to the plaintiff Howard, as is stated above. It was not taken to him, nor was the debt assigned to him named in it, though it appears that this debt constituted a part of the consideration of the new note taken by Jeffreys and assigned to Yaughan & Barnes. And it is expressly agreed that Yaughan & Barnes had no notice of the note that Howard held. It may be that Howard might have enforced his equitable lien against Jeffreys and Powell before this mortgage was paid off and discharged by a sale of the property. But the foreclosure sale of the property and the payment thereby of the mortgage due from Powell, in which the note assigned to Howard was a part, discharged any equitable claim Ploward may have had in it. And the only thing remaining to be considered is as to whether he can follow the fund arising from the sale under the mortgage. This, it seems to us, he cannot do, as between him and Yaughan & Barnes, as they took the note in the course of business for a valuable consideration and without notice of any equity the plaintiff Howard had upon it. Sheldon on Subrogation, p. 239, sec. 155. Indeed, it was not contended on the argument that Howard had any claim on *147"Vaughan & Barnes. And it is stated in the record that they are discharged from any liability on account of said transaction.
But plaintiff Howard contends that he may follow the fund in the hands of the trustee Staton. But he cannot do this, as the proceeds of sale under the Powell mortgage (under which Howard claims be had an equitable interest) are not in the hands of Staton, and never have been. This is admitted. And it is impossible to follow a fund into the hands of a party, when it is not in his hands and never has been. There is error and the judgment below is reversed.
Reversed.