Dunn v. Chapman

The opinion of the Court was delivered by Mr. Justice Cothran. We think that the decree of his Honor Judge Bonham, overruling' the demurrer of the defendants to: the plaintiff’s complaint, should be affirmed for the reasons which follow. The facts alleged in the complaint and admitted by the demurrer are these: On January 5, 1921, the plaintiff bought from one Gil-strap a tract of land containing 55.8 acres. He paid a part of the purchase price, and gave his note for $3,240.67, secured by a mortgage of the tract for the remainder. At the maturity of the note, Dunn borrowed from the Federal Land Bank $1,600, and from the Liberty Bank $1,995.42, $3,-595.42 in all, with which to meet his note. The notes secured by mortgages upon the tract to these two banks were dated respectively January 16, 1922, and February 27, 1922; with their proceeds Dunn paid off the Gilstrap note and mortgage, and had the mortgage marked satisfied. (Why he needed $3,595.42 to meet a note of $3,240.67 which had run a little over a year, the interest upon which, even at 8 per cent., would not have amounted to more than $285, is not explained.) Later and before the maturities of the two mortgages given to the banks, Dunn reconveyed to Gilstrap *167 27.5 acres of the 55.8-acre tract, the consideration therefor being the assumption by Gilstrap of one-half of the Federal Land Bank mortgage $1,600, $800, and the whole of the Liberty Bank mortgage $1,995.42 (I assume with unpaid interest). Dunn and Gilstrap went to the Liberty Bank oh February 28, 1922, explained to the cashier the trade between them, and had him to prepare a deed from Dunn to Gilstrap of the 27.5 acres, possession of which was surrendered to- Gilstrap. Thereafter on February 17, 1923, Gilstrap executed a note to the Liberty Bank (the amount not appearing), and secured it by a mortgage upon the 27.5-acre tract conveyed to- him by Dunn. On December 17, 1923, Gilstrap conveyed the 27.5-acre tract to the Liberty Bank, it is assumed in payment of his note and mortgage of February 17, 1923. Gilstrap- has paid nothing upon his obligation to pay one-half of the Federal Land Bank mortgage and all of the Liberty Bank mortgage, as the consideration of the conveyance by Dunn to him of the 27.5 acres, and has left the State, leaving Dunn responsible alone for both the $1,600 Federal Land Bank mortgage and the $1,995.42 Liberty Bank mortgage. Upon the insistence of the Liberty Bank and to save the remaining 28.3 acres of the original 55.8-acre tract, Dunn paid to the Liberty Bank the whole of the $1,995.42 mortgage with accumulated interest up to December 31, 1925, at which time the Liberty Bank canceled and had marked satisfied of record the $1,995.42 mortgage. The Liberty Bank surrendered the note to Dunn, but retained the mortgage, and refuses to deliver it to Dunn. The present action was instituted by Dunn who, alleging the facts substantially detailed above, asked for the following remedies: (1) That he be allowed to redeem the 27.5 acres, I assume upon the payment of the note of Gilstrap to the Liberty Bank; (2) that the deed from him to Gilstrap be declared a conditional sale, dependent upon the payment by Gilstrap of one-half of the Federal Land Bank mortgage and all of the Liberty Bank mortgage; that the failure of *168 Gilstrap to perform the same rendered said conveyance void, and entitled him to a reconveyance of the 27.5 acres; (3) that failing in these two remedies he be declared subrogated to the rights of the Liberty Bank in the $1,995.42 mortgage which he has paid. The defendants interposed a demurrer to the complaint upon the general ground with specifications, which appear in the written demurrer, which will be reported. The demurrer came on to be heard by his. Honor, Judge Bonham, who, on October 19, 1927, filed an order which bears evidence of earnest and intelligent consideration, and exceedingly logical conclusions. We need not advert to the first and second remedies sought by the plaintiff, which are satisfactorily disposed of by the learned Circuit Judge. The crucial issue in the case, as to the solution of which the Circuit Judge and Mr. Acting Associate Justice Ramage are at variance, is whether the facts outlined entitle the plaintiff to be. subrogated to the rights of the Liberty Bank in the $1,995.42 mortgage which he has paid, and the interesting question as to the extent of that subrogation, in the event that the general issue be determined in favor of the plaintiff. In the opinion of Mr. Justice Ramage, it is correctly stated that no issue of fraud by, or collusion between, the Liberty Bank and Gilstrap is raised by the pleadings, and his observations in reference thereto are without criticism, except that the real issue in the case, subrogation, is not at all affected, one way or the other, by the presence or absence of any such issue. The opinion declares: “Under the clearly established law in this State, subrogation cannot be set up by one who has simply paid his own note, as was done by the plaintiff in the case at bar. Plaintiff was primarily liable and no amount of argument can get us away from that fact. There is no escaping the conclusion that plaintiff was simply paying his own *169 note and mortgage, and no amount of sophistry can wipe this fact out of the case.” There can be no doubt of the proposition that equity will deny the right of subrogation to one who pays or has paid a debt for which he was at the time primarily liable. That has been thoroughly settled by many cases. The doctrine can be invoked only by one who has paid a debt for which he was at the time secondarily liable, in relief of his own property upon which such debt was a lien. The opinion assumes as a fact that Dunn, at the time he paid the Liberty Bank $1,995.42 mortgage, was primarily liable to the bank therefor. The facts of the case do not warrant this assumption. The test is not whether or not Dunn originally was primarily liable for the mortgage debt; but whether or not at the time he paid it off he was primarily or secondarily liable. As to that issue, we cannot see any room for doubt. Of course, at the time that the debt was contracted Dunn was primarily and solely liable for it; he had bought the land from Gilstrap; given him a mortgage for the balance of the purchase price; the mortgage was due or about to become due; he borrowed the money from the Liberty Bank for the purpose of paying off the mortgage; and executed his note and mortgage therefor. No one else was interested in that transaction, and of course Dunn was then the only and primary debtor. But subsequent events put an entirely different light upon his relation to the debt. A striking illustration of the change of the relation of a debtor, from that of the primary obligor to that of the secondary obligor, is found in the case of Beattie v. Latimer, 42 S. C., 313, 20 S. E., 53. In that case Irvine & Mooney, attorneys of the Greenville bar, had represented Hewlett Sullivan in many legal matters; they had difficulty in collecting their fees from him; needing money they borrowed from Beattie $1,000 upon their personal note signed also by Hewlett Sullivan as surety. After the death of Hewlett *170 Sullivan, Irvine & Mooney had a settlement with the executors of Sullivan in which the estate was credited with the $1,000 note upon condition that the executors would assume its payment. Thus Irvine & Mooney, who were the primary obligors, and Hewlett Sullivan, the secondary obligor, reversed positions upon the note, the executors becoming the primary, and Irvine & Mooney the secondary obligors, and, in the action by Beattie against all of them, Beattie was allowed judgment against all, but the rights of Irvine & Mooney, as secondary obligors, were protected by requiring Beattie to exhaust the executors before going upon Irvine & Mooney. The principle of subrogation is discussed at length in the cases of Prudential Co. v. Connor, 120 S. C., 42, 12 S. E., 539; Walker v. Queen Ins. Co., 136 S. C., 144, 134 S. E., 263, 52 A. L. R., 259; Enterprise Bank v. Federal Land Bank, 139 S. C., 397, 138 S. E., 146; see, also, Sutton v. Sutton, 26 S. C., 33, 1 S. E., 19, Rivers v. Bank, 135 S. C., 107, 133 S. E., 210; the authorities cited in those cases need not be repeated here. In the final precipitation of the matter it has been settled by these and other cases that the essential elements of the right of subrogation are: (1) ■ That the party claiming it has paid the debt; (2) that he was not a volunteer, but had a direct interest in the discharge of the debt or lien; (3) that he was secondarily liable for the debt or for the discharge of the lien; (4) that no injustice will be done to- the other party by the allowance of the equity. We think that the facts show that Dunn has supplied every one of these essential elements. As the learned Circuit Judge observes, the case of Walker v. Queen, 136 S. C., 144, 134 S. E., 263, 52 A. L. R., 259, is precisely in point. It is there held that, where a mortgagor (Dunn) conveys the mortgaged premises upon the assumption by the grantee (Gilstrap) of such mortgage, “the premises become the primary fund out of which the mortgage is collectible,” regardless of the acquiescence of *171 the mortgagee in that arrangement, and “the mortgagor (Dunn) then becomes secondarily liable for the mortgage debt.” This is the precise situation presented in the case at bar. Therefore, as Dunn has paid the debt, had a direct interest in taking up the mortgage as a lien upon all of the tract, was secondarily liable for the debt, and no' injury will result to the bank by the allowance of the equity, it should be allowed. Certainly the bank has no right to complain. As the Circuit Judge pertinently observes: “Dunn’s equity is heightened by the fact that the bank knew of the arrangement between Dunn and Gilstrap.” Upon the admitted facts, we think that the plaintiff is entitled to enforce the $1,995.42 mortgage against the 27.5 acres conveyed by him to Gilstrap, subject, of course, to prior liens, but not subject to the mortgage of Gilstrap to the bank, or to his subsequent conveyance to it. Of course, our observations have been made upon the assumption, justified by the demurrer, that the facts stated in the complaint are true. This assumption is subject to the establishment of them upon the trial. The decree of the Circuit Judge, in our opinion, should be affirmed in all matters consistent with the foregoing, and it is so ordered. Messrs. Justices BeEase and StabeEr concur.