Court Opinion

ID: 9778034
Source: CourtListenerOpinion
Date Created: 2023-08-29 20:30:37.543078+00
Date Added: 2024-06-11T07:33:03.240443
License: Public Domain

KAROHL, Presiding Judge,
dissenting.
The trial court made the following finding, “19. Landmark’s failure to discover Royal Bank’s superior lien precludes Landmark from asserting equitable subrogation.” [Our emphasis]. On the basis of this finding the trial court denied Landmark’s claim for relief in the form of equitable subrogation. This finding was an erroneous application of the law. For that reason I respectfully dissent. I would reverse and remand to the trial court for further consideration of Landmark’s claim.
Neither of the parties briefed or argued the Supreme Court decision in Anison v. Rice, 282 S.W.2d 497 (Mo.1955). The trial court was apparently unfamiliar with this decision of the Supreme Court. Anison is important to a proper resolution of the present dispute for the following reasons: First, the doctrine of equitable subrogation was noticed and applied by the court in a case where the remedy was not requested by the plaintiff.
Second, funds loaned by the plaintiff to one of the joint owners of real estate were *930used for the intended purpose of paying off an existing note and deed of trust. The note and deed of trust for the new loan were not executed by the other joint tenant. The lender thus had actual notice of a defect it created by dispersing funds without the signature of the other joint tenant. The court found that the other tenant could not be ordered to execute the note and deed of trust because plaintiff failed to prove an agency relationship with the borrowing joint tenant. Accordingly, when the suit was filed there was no lien on the property. By adapting the equitable remedy the court denied the other joint tenant unjust enrichment and restored her to the same position she was in before her note was paid.
Third, the court generally reviewed the doctrine of equitable subrogation. Id. at 503. Briefly, the court acknowledged that no general rule can be laid down which would afford a test in all cases for its application. Although the facts did not compare lien priorities the court considered the lien priority of mortgages in terms of the doctrine. The Supreme Court observed that, “[b]y means of the payment, the mortgage is not satisfied and the lien of it destroyed, but equity regards the person making the payment as thereby becoming the owner of the mortgage, at least for some definite purposes, and the mortgage as being kept alive, and the lien thereof as preserved, for his benefit and security. This equitable result follows, although no actual assignment, written or verbal, accompanied the payment, and the securities themselves were not delivered over to the person making payment, and even though a receipt was given speaking of the mortgage debt as being fully paid, and sometimes even though the mortgage itself was actually discharged and satisfied of record.” Id. at 503. This language fits the facts in the present case. The court also noted Restatement of the Law of Restitution, Section 162, which notes that where the property of one person [Landmark] is used in discharging an obligation owed by another [Danzigs directly, Royal indirectly] or a lien upon the property of another [Nationwide], under such circumstances that the other [Royal] would be unjustly enriched by the retention of the benefit thus conferred, the former is entitled to be subrogated to the position of the obligee or lien-holder. In such cases, “... the plaintiff can maintain a proceeding in equity to revive it for his benefit; in such a proceeding the court will create for the benefit of the plaintiff an equitable obligation or lien similar to that which was discharged ....” Comment (a), Section 162, Restatement of the Law of Restitution.
Fourth, the basis of the court’s decision in Anison is equally applicable to the present facts. Although the facts related only to a single loan and the payment of a single deed of trust the interest of the non-borrowing joint tenant became subro-gated to a debt secured by an imposed lien. As a result, application of the doctrine the court created an obligation upon the interest of the non-borrowing joint tenant in front of the record title position.
In the present case, plaintiff Landmark loaned money on the basis of a second deed of trust. The Danzigs signed a note and deed of trust which by its terms was to be a second deed of trust. However, on the venerable authority of Bunn v. Lindsay, 95 Mo. 250, 7 S.W. 473 (Mo.App.1888), Landmark was not entitled to equity relief if it failed to discover Royal’s deed of trust where “the fault being entirely with plaintiffs’ agent for failure to look and failure to find the intervening judgment.” Bunn, 7 S.W. at 476. [Our emphasis]. The facts in Bunn are distinguishable on two grounds. First, in Bunn there was no fault, wrong or mistake by any other person including the superior lienor. The borrower did not mislead the lender as in the present case the Danzigs mislead Landmark. Second, and of greater importance, Landmark did look. A title company was retained either by the Danzigs or Landmark to issue a title report. Landmark, therefore, was entitled to rely on the report of a reputable title company where there is no contention, nor any evidence to support *931a finding, that it was negligent in relying on the report. Under these circumstances the fault was not “entirely with plaintiff” or “plaintiff's agent.” It is unlikely that a title company was an agent of Landmark. In the present case it was either an independent contractor or, if an agent, the agent of the Danzigs who affirmatively mislead Landmark in failing to disclose the Royal lien.
The majority opinion cites State Sav. Trust Co. v. Spencer, 201 S.W. 967 (Mo.App.1918), Baker v. Farmers’ Bank of Conway, 220 Mo.App. 85, 279 S.W. 428 (1926) Anison and Bunn. Another significant case involving the doctrine is Greenfield v. Petty, 145 S.W.2d 367 (Mo.1940). In Greenfield, plaintiff sought equitable subrogation as the holder of a note and deed of trust who refinanced an existing obligation and recorded a new note and deed of trust which was identical with the first deed of trust which had been marked paid and released. The Supreme Court noted, “the general rule that where the holder of a senior mortgage discharges it of record, and contemporaneously takes a new mortgage, he will not, in the absence of paramount equities, be held to have subordinated his security to an intervening lien unless it was his intention to do so.” Greenfield v. Petty, 45 S.W.2d at 370.
From these cases, including Anison, we learn that the doctrine of equitable subro-gation has been recognized and applied and is a part of the common law of this state. It is a doctrine of equity. As such, it is a benevolence. It may be applied to prevent an injustice. It is not necessarily based on contract or privity. As any equitable remedy it is not a matter of right, 70 A.L.R. 1396, 1397, but rests upon the principles of natural equity. It has been granted to the extent a subsequent lender loans money to pay off a superior lien where the lender intends to have a superior lien and “denial of the right would be contrary to equity and good conscience.” State Sav. Trust Co. v. Spencer, 201 S.W. at 969.
“Subrogation not being a matter of strict right, but purely equitable in its nature, dependant upon the facts and circumstances of each particular case, no general rule can be laid down which will afford a test in all cases for its application.” 70 A.L.R. 1397; Anison v. Rice, 282 S.W.2d at 503. The right of subrogation has been regarded as resting on the intention of the parties, i.e., borrower and lender, that the latter’s securities shall be a prior lien. Huggins v. Fitzpatrick, 135 S.E. 19, 20-21 (W.Va.1926).
Mere negligence of a party advancing money to discharge a prior lien who does not discover other liens does not necessarily bar his right to subrogation as against a junior lienor who is not prejudiced. 70 A.L.R. 1407. On its face, the holding in Bunn v. Lindsay, appears contrary. However, as noted the present facts and the facts in Bunn are not the same.
Landmark is not disqualified from application of the doctrine for “failure to discover Royal Bank’s superior lien.” There is no question that: (1) Landmark Bank loaned funds for the express purpose of paying and discharging a second deed of trust held by Nationwide Financial Corporation; (2) the payment was made and the superior lien discharged; (3) Landmark Bank was unaware of the recorded Royal third deed of trust because: (a) Danzig failed to disclose the Royal deed of trust and affirmatively told Landmark it would have a second deed of trust and, (b) because the title company failed to report its existence; (4) Royal was not prejudiced by the payment and will not be prejudiced by applying the doctrine of equitable subrogation to the extent of Landmark’s loan which paid Nationwide; (5) Royal was enriched by its advanced lien, and, (6) application of the doctrine will effect the intention of Danzigs and Landmark Bank without prejudice to the position of Royal on the date Nationwide Financial was paid. The holdings in Anison and Greenfield dispose of any absolute prohibition of application of the doctrine because of the provisions of Section 442.390 RSMo 1986 and previous similar statutes.
*932The majority opinion emphasizes the language of Section 442.390 RSMo 1986 regarding constructive notice. It concludes that Landmark is not entitled to equitable subrogation because the recording statute grants a priority which should not be denied by applying the doctrine except in “extreme circumstances.” It is not clear what extreme circumstances may be. However, in Anison the doctrine was applied in contradiction to Section 442.390 where the same elements were considered: a misrepresentation of authority by the borrower, payoff of an exiting note and deed of trust which served to advance the non-borrowing joint tenants’ interest, an intention of the lender and borrower to payoff a superior lien, and unjust enrichment under these circumstances. Clearly, Royal was not prejudiced and its lien position was not “at great risk and insecurity.” Royal was never at risk, it only benefited. The application of Section 442.390 to “law and equity” merely covers suits at law and in equity, such as an equitable mechanics lien suit where priorities are an issue. In State Sav. Trust Co. v. Spencer, 201 S.W. 967 (Mo.App.1918) a lender was advanced by application of the doctrine above a known superior lien. The integrity of the recording statute was not violated. There was no resulting “great risk and insecurity.” Further, contrary to the observation in the majority opinion, there was no “complicity by the superior lien-holder in obtaining the loan.” The recorded lien-holder who was actually noticed to the new lender was wholly unaware of the transaction. The fault was wholly in a deceptive act of the borrower, not unlike the borrower in the present case.
It is not clear why Landmark had no right to rely on the Danzigs’ statement that they were giving a second deed of trust where the statement was supported by an opinion of a reputable title company. Nor is it clear that Landmark had the title searched. It is more likely that the Dan-zigs provided a title report in order to obtain the new loans and that the Danzigs retained Chicago Title Insurance Company. In fact, there is no evidence that Chicago Title Insurance Company was an agent of either the Danzigs or Landmark Bank. It is also more likely that they acted as an independent contractor. In light of Bunn, the disqualifying characteristic is failure to look. In the present case Landmark had the benefit of the opinion of a title company which failed to disclose the Royal lien. That fact is not in dispute and, accordingly, there is no issue of negligence on the part of Landmark. The trial court did find that Landmark acted without any knowledge of the existence of the Royal lien and that Landmark would not have made the loans had it not relied on the accuracy of the title opinion.
The majority opinion comments that Landmark objected to evidence of title insurance. If there was title insurance it was irrelevant to any of the issues. If anything, the existence of title insurance was further evidence of prudence on the part of Landmark in contravention of any contention that it was at fault or failed to rely on the statements of Danzig and on the accuracy of the title report. The principles of the doctrine of equitable estoppel do not depend upon whether an insurance company or a third person may be obligated to Landmark. Application of the doctrine of equitable subrogation on the facts would not necessarily protect Chicago Title Insurance Company from an injured party. Royal was enriched, not damaged, by the circumstances. It loaned funds subject to an existing lien protecting an obligation to Nationwide. Nothing that was done in the present case caused Royal damage. The foreclosure and subsequent sale of the real estate was done by Royal when they were aware from the recorded deed of trust between Danzig and Landmark that Landmark believed it had a superior lien.
I would reverse and remand to the trial court to reconsider plaintiff’s petition for equitable subrogation because the mere failure to discover Royal’s superior lien does not preclude Landmark from having the benefit of the doctrine of equitable *933Landmark may not prevail subrogation because reconsideration is for the trial court. It should not fail on an erroneous finding.