Harvey v. Kinston Knitting Co.

*182 BeogdeN, J. 1. Does the purchase of an equity of redemption at a judicial sale “subject tó and burdened with the lien” of mortgage or deed of trust, constitute an assumption by the purchaser of the indebtedness secured by such lien and imply a promise to pay the same ? 2. If not, what is the status of said purchaser of said equity of redemption with reference to the proceeds in the custody of the lien-holder derived solely from a prior sale of a portion of the mortgaged premises ? The law answers the first question in the negative. The Supreme Court of California, in the case of Fontana Land Co. v. Laughlin, 250 Pac., 669, declared: “The greater weight of authority and the better reasoning is that, unless the grantee in the deed assumed or agreed to pay the mortgage, or unless the amount of the mortgage was deducted from the purchase price, a purchaser who merely takes subject to the mortgage is not estopped from showing that it has been paid or that the amount claimed is not legally owing upon it.” The same principle is stated in Jones on Mortgages, (7 ed.), Vol. 2, sections 748 and 865, as follows: “A deed which is merely made subject to a mortgage specified does not alone render the grantee personally liable for the mortgage debt; to create such liability there must be language which clearly imports that the grantee assumes the obligation of paying the debt.” Crawford v. Nimmons, 54 N. E., 209; Brunswick Realty Co. v. University Co., 134 Pac., 608; Metropolitan Bank v. Dispatch Co., 149 U. S., 436, 37 Law Ed., 799; Capital National Bank v. Holmes, 95 Pac., 314, 16 L. R. A. (N. S.), 470. An imposing list of authorities to sustain the proposition appears in the ease of Allgood v. Spearman, 101 S. E., 193, and also in a comprehensive note upon the subject found in L. R. A. 1917 C., 592. See, also, Ayers v. Makely, 131 N. C., 60, 42 S. E., 454. The answer to the second question requires a brief review of the pertinent facts. Prior to the institution of the receivership action the Virginia Trust Company held a deed of trust upon certain real estate of Kinston' Knitting Company. Payments had been made from time to time upon the indebtedness, reducing it- to around $90,000 exclusive of. accrued interest. The Kinston Emitting Company conveyed a small portion of the mortgaged property to C. E. Kaynor for the sum of $20,000. Kaynor paid $1,000 in cash and executed notes evidencing the deferred payments, which said notes were secured by deed of trust upon the property so conveyed. These notes were immediately sent to the lien-holder. The cash paid by Kaynor was applied by the lienholder to the item of accrued interest on the loan.. Thereafter the receivership action was instituted and by consent of all parties certain machinery covered by the mortgage, was sold for cash by the receivers, and the proceeds *183 delivered to tbe lienholder, and by it was applied to the indebtedness. The Raynor notes, of course, were not to be applied to the indebtedness until they matured and were paid. On the day of the sale there was approximately $91,200 due the Virginia Trust Company and it had in its hands the Raynor notes aggregating approximately $19,000. The trial judge finds as a fact that the receiver, on the day of the sale, announced to bidders that the proceeds of the Raynor notes would be credited on the mortgage -indebtedness, and that Harvey, the purchaser at the sale, relied upon such announcement. The vital question, therefore, is: Must the proceeds derived from collection of the Raynor notes, if they are paid, be credited to the mortgage indebtedness, or must said notes be turned over to the receiver to be distributed among the general creditors of the Kinston Knitting Mill? The execution of the mortgage was in itself an application of all the property embraced in the mortgage to the payment of the debt secured therein. Bonner v. Styron, 113 N. C., 30, 18 S. E., 83; Lee v. Manley, 154 N. C., 244, 70 S. E., 385. The Raynor notes represented and were a substitute for that portion of the mortgaged premises theretofore sold and conveyed before the receivership proceedings. Thus, it would seem apparent that the law, nothing else appearing, applied the proceeds of the Raynor notes to the mortgage debt, irrespective of any announcement of such application by the receiver on the day of the sale. Clearly, the purchaser of an equity of redemption at a public sale is entitled to the property as it exists at that time. Moreover, it has been held by this Court in Dameron v. Carpenter, 190 N. C., 595, 130 S. E., 328, that “equity subrogates the purchaser of the equity of redemption to the rights of the mortgagor to clear the title and procure the legal estate only as to the mortgaged premises, and no further.” McKinney v. Sutphin, 196 N. C., 318. Certainly, in the case at bar the mortgagor would have the right to require the lienholder to apply the proceeds of the Raynor notes, when collected, to the mortgage debt, and when Harvey purchased the equity of redemption he became entitled to the same right. Harvey’s contention that he ought not to be required to take and pay for the equity of redemption cannot be. sustained. Hpon the former appeal the objecting creditors were resisting confirmation and Harvey was requesting the court to confirm the sale, and, therefore, he cannot at this time, in the same case, be permitted to take a contrary position. Ellis v. Ellis, 193 N. C., 216, 136 S. E., 350. There are certain other questions with respect to the claim filed by Harvey. The judge continued the decision of this matter until the determination of a suit against Harvey, brought by the receiver, in compliance with an order of the court. It is to be assumed that in the final *184 judgment the equities of all parties will be properly protected, and for this reason we deem it unnecessary to discuss that aspect of the case. The result is, as we interpret the law, that Harvey is required to accept the deed for the equity of redemption and to pay to the receivers the purchase money in accordance with his bid; and further that the proceeds of the Raynor notes, when and as paid, shall be credited to the mortgage indebtedness by the lienholder. Modified and affirmed.