Carpentier v. Brenham

Crockett, J'., delivered the opinion of the Court, Temple, J., and Rhodes, C. J., concurring. This is an action brought by the plaintiff as special administrator of the estate of Catherine Hayes Bushnell, deceased, to foreclose a mortgage made by the defendant Brenham in the year 1855 to the said Catherine Hayes in her lifetime. A judgment of foreclosure having been rendered in the Court below, the defendants moved for a new trial, which was granted, and the plaintiff has appealed from the order granting, the new trial. It becomes necessary, therefore, to inquire into the merits of the action, inasmuch as the order granting the new — 233 — trial will not be reversed, if on tbe whole record it appears to have been correct. It appears from tbe record, tbat pri- or to tbe execution of tbe mortgage to Catherine Hayes, Sanders & Brenham executed, in due form, to one Samuel Moss, Jr., a mortgage upon tbe same premises, to secure a debt of $50,000, which mortgage was duly recorded and afterward assigned to J. Mora Moss, who afterward commenced an action to foreclose tbe same, but omitted to make tbe said Catherine Hayes (tbe bolder of tbe subsequent mortgage) a party thereto. A decree of foreclosure having-been duly rendered in said action, tbe mortgaged premises were sold thereunder to tbe said J. Mora Moss, and the purchase money therefor was credited on said judgment of foreclosure, leaving a considerable portion of said judgment still unpaid. There having been no redemption from said sale, the said Moss in due time, obtained the Sheriffs’ deed for said premises, and the defendants, other than the defendant Brenham, deraign title to separate and several portions of said premises under the said Moss. The present action was brought within less than four years from the time when the demand to Catherine Hayes from Sanders & Brenham became due and payable, but more than four years had elapsed after the judgment of foreclosure in the case of Moss before the commencement of this action. It further appears in the case, that the said Catherine Hayes died, leaving a last will and testament in which she appointed one Power her executor and residuary legatee, and that said will has been duly admitted to probate in this State, and the plaintiff has been duly appointed special administrator of said estate. It also appears that after the purchase by said Moss at his foreclosure sale of the said mortgaged premises, and after obtaining the Sheriffs’ deed therefor, he released the said Brenham from the balance remaining unpaid of his said mortgage debt. If the mortgage to Moss had not been foreclosed, and had remained a valid, subsisting and unsatisfied lien upon the mortgaged premises, it would, of course, have been entitled to priority over the junior mortgage, so long as it was not barred by the Statute of Limitations, — 234 — The most important question in tbe case is, what change was effected in the status of the two mortgages by the foreclosure of the first, and the sale of the mortgaged premises, and the release of the remainder of the mortgage debt, as hereinbefore stated. In discussing this question it may be assumed as definitely settled in this State: first, that a mortgage does not convey the title to the mortgaged premises, but only creates a lien thereon for the security of the mortgaged debt; second, that a foreclosure of the first mortgage, to which the junior mortgagee was not a party, does not affect the rights of the latter. Nevertheless, such a foreclosure is valid as between the holder of the first mortgage and the mortgagor; and the purchaser at the foreclosure sale acquires the legal estate of the mortgagor, subject only to the lien of the junior mortgagee. On behalf of the plaintiff it is insisted, that if the debt secured by the first mortgage is either wholly satisfied by the sale, or if it is only partially satisfied, and the remainder of the mortgage debt is released, as in this case, the effect of the transaction will be wholly to extinguish the lien of the first mortgage and to substitute the purchaser only to the rights of the mortgagor, leaving the junior mortgagee at liberty to assert and enforce the lien of his mortgage in the same manner as if the first mortgage had been absolutely released by the mortgagee, and the purchaser had acquired by a direct conveyance the legal title of the mortgagor. In other words, it is claimed that the effect of the proceeding is wholly to extinguish the lien of the first mortgage, and that thereafter the junior mortgagee may proceed to foreclose his mortgage by a simple foreclosure suit, in the same manner as if the first mortgage had never existed. Ón the other hand, it is insisted for the defendants that whilst the rights of the junior mortgagee are not prejudiced by the foreclosure of the first mortgage, the purchaser at the foreclosure sale succeeds not only to the legal estate of the mortgagor, but also to the rights of the first mortgagee as against the junior mortgage; and that for the purpose of protecting the purchaser against the lien of the second mortgage — 235 — except subject to tbe lien of tbe first, a Court of Equity will treat tbe debt secured by tbe first mortgage as still subsisting and unsatisfied. In discussing tbis point, tbe District Judge, in granting tbe motion for a new trial, says: “The point seems to be that tbe plaintiff should not be compelled to redeem tbe first mortgage, because it has become merged in tbe legal title by a proceeding which tbe plaintiff disavows and bolds for nought. “But, in tbe first place, tbe foreclosure in favor of Moss is not void, and, in tbe second place, Moss, tbe purchaser at tbe foreclosure sale, did not, as against tbe plaintiff, merge bis equitable rights as first incumbrancer in tbe legal title. Tbe Moss decree is not void. It is not absolutely essential to make subsequent incumbrancers parties to a foreclosure suit. If not so made they are not bound by tbe decree, but they are not necessary parties as between tbe mortgagor and tbe mortgagee, and in many cases where tbe value of tbe property is less than tbe mortgage, it may be unimportant to tbe mortgagee to make them parties, and it would be a great hardship to compel him to make them so. (Montgomery v. Tutt, 11 Cal. 307.) Subsequent in-cumbrancers are not necessary, though proper parties, to an action to foreclose a mortgage. (14 Cal. 549; Story Eq. Pleadings, 196; 33 Cal. 32.) “Tbe decree, therefore, is valid for every purpose, except that it cannot be used to deprive tbe representatives of Catherine Hayes of any rights which she possessed when tbe Moss suit was brought, or tbe decree therein entered. “ Nor do tbe proofs sustain tbe allegations in tbe plaintiff’s complaint, that tbe purchasers at tbe Moss foreclosure sale acquired only a title, subsequent and subject to tbe lien of tbe plaintiff’s mortgage. As to tbe rest of tbe world, tbe purchaser took tbe whole estate and interest of tbe mortgagor and mortgagee, as tbe same existed at tbe date of tbe Moss mortgage, and that lien was swallowed by tbe title. ( 7 Paige, 250; 16 Barb., 25.) But equity will keep tbe two estates — or tbe legal title and the-mortgagees’ interest — although held by tbe same person, separate, whenever — 236 — this is necessary for tbe full protection of sucb person’s just rights. Tbe purchaser at sucb a sale became, as against tbe plaintiff, tbe equitable assignee of tbe claim of tbe first mortgagee, and held a lien on tbe premises to that extent. (Besser v. Shultz et al.; Supreme Court of Oregon.) ‘ ‘J. Mora Moss brought bis suit to foreclose bis mortgage within four years after tbe maturity of tbe note, to secure which tbe mortgage was executed. He obtained a valid decree, binding upon tbe mortgagor and all persons brought into Court, and tbe purchaser under sucb decree, as against them, acquired tbe legal title, freed of tbe first mortgage; while as against tbe plaintiff, be held tbe legal title, subject to both mortgages, and this, although be still retained bis rights as first mortgagee, “When tbe mortgagor and mortgagee contract, tbe former agrees that, in case of a breach of tbe agreement on bis own part, tbe latter shall sell tbe land, and that tbe purchaser at sucb sale shall acquire tbe legal title, relieved of tbe lien, as of tbe date of tbe execution of tbe mortgage. A subsequent mortgagee knows of this relation between tbe parties, and what be agrees to accept as a security for bis money is a claim upon tbe surplus of the proceeds of tbe first foreclosure sale beyond tbe prior debt. He has no estate in tbe land itself, nor any lien upon tbe land, except subject to tbe prior lien; that is, be has aright to be paid out of tbe excess. This is, in effect, a right to redeem, and incidentally — if made a party to a foreclosure suit — a right to defend by pleading tbe Statute of Limitations, or tbe invalidity in whole or in part of tbe plaintiff’s claim, or that it is paid. These are not, however substantive and primary defences, but grow out of bis right to redeem — bis right to have tbe fund proceeding from tbe sale as large as possible. Hence, whenever be files a bill to redeem tbe former mortgage, or to redeem tbe former and to foreclose bis own, be may allege and show that tbe claim of tbe prior mortgagee has been exaggerated, or any other kindred fact which will increase tbe fund. “ Of course, a mortgagee may also be entitled to relief by showing that an apparent prior incumbrance is fraudulent or — 237 — not supported by any consideration, and no decree in a proceeding to which he was not made a party can deprive him of that right. But no suggestion is made by the pleadings or proof herein that the Moss claim was not a valid and just one, or that the decree in his favor was for a greater amount than was actually due. A junior mortgagee possesses the right to extinguish the senior incumbrance. By whatever mode he may seek to exercise this right, it operates a satisfaction of the claim of the prior mortgagee and a release from his lien. When Catherine Hayes’ own debt became due she was entitled to redeem the prior mortgage, and to foreclose the equity of redemption. I use this form of expression for convenience. But a second mortgagee never was compelled to institute two separate actions to secure this result. In England, where the practice is to foreclose strictly, the mode is by bill to redeem from the first mortgage and requiring .the junior incumbrancers to redeem from both the prior mortgages or be foreclosed. But here, the practice has been to sell to satisfy the mortgage, whether it be a first or subsequent mortgage, and the prior incum-brance is protected by the application of sufficient of the proceeds in the first instance to pay his debt and costs. (13 Abbott, 39.) There is no reason in such case why the offer to redeem should be made in the bill in terms, since the very object of the bill is to redeem out of the proceeds of the sale. “ No doubt a subsequent mortgagee may bring his action against the mortgagor, without making the prior incum-brancer a party, but any decree in the suit cannot affect the prior incumbrancer, whose rights are paramount. But if the junior mortgagee shall bring his senior into Court, shall he be permitted to ignore his claims as senior mortgagee ? The right then of the plaintiff as against the purchasers at the Moss-foreclosure sale, was a right to redeem. “A suit of foreclosure, as against younger mortgagees, is a suit to cut off the right of redemption; and as the plaintiff was not made a party defendant by Moss in the former suit the right to redeem was unaffected by the decree and sale — 238 — under it. (22 Cal. 32; 14 Id. 559; Story’s Eq. 196, note; Calvert's Parties in Eq. 132, 137; 11 Cal. 314; 10 Id. 547; 3 John. Cb. 459; 4 Id. 606; 47 Barb. 91; 10 N. T. 356; 31 Id. 157; 1 Paige, 284.) “ It is not necessary at this time to pass on any of the other questions presented. New trial granted.” These views, in my opinion, correctly define the law; and I could add nothing to the force and clearness with which they are expressed. On the argument some questions were raised in respect to the basis on which the plaintiff would be entitled to redeem, as, for example, whether the defendants would be entitled to receive only the purchase price paid for the lands in contest by Moss .at the foreclosure sale, with interest, or whether there should be paid the full amount of the judgment on foreclosure. These questions are not before us on this appeal, not having been passed upon by the District Court; if we were to decide them in advance of the action of the District Court we should be exercising, pro Jiao vice, original and not appellate jurisdiction. But the defendants claim that the plaintiff has released Brenham, the mortgagor, from all personal liability for the debt secured by the mortgage to Catherine Hayes, and is, for that reason, entitled to no relief whatever in this action. The argument is that the defendants are entitled to pay off the junior mortgage, and thus release the land from this incum-brance; and'that upon such payment, they would be entitled to be subrogated to all the rights which Catherine Hayes originally had against Brenham, .including the right to hold him personally liable for any deficiency that might remain after exhausting the mortgage security, and that, inasmuch as the plaintiff has released Brenham from this liability, he has thereby, pro tanto, defeated this right of subrogation, and cannot for that reason subject the mortgage premises to the lien of said mortgage. This argument assumes that on payment of the junior mortgage the defendants would be entitled, as a matter of law, to be subrogated to all the rights which the junior mortgagee ever had against the mortgagor. But this proposition cannot be maintained. — 239 — The purchasers at the foreclosure sale sustained a twofold relation to the junior mortgage: First, as baying acquired the legal title of the mortgagor; and second, as having become in equity, the assignees of the debt secured by the first mortgage, or at least so much thereof as was satisfied by the foreclosure sale. In either capacity, if they should select to discharge the debt secured by the junior mortgage, the most that they could claim, if entitled to any relief of that character, would- be the right to be subroga-ted to such rights as the junior mortgagee had at the time of the payment. As assignees in equity of the debt secured by the prior mortgage, they would be under no obligation or necessity to discharge the junior mortgage for the protection of their rights, inasmuch as the first mortgage, by operation of law, had priority over the second; and therefore, if they voluntarily discharged the second mortgage, being under no necessity to do so, they would be simply removing an incumbrance, which could not impair or affect their rights as assignees of the prior mortgage debt; and sub-rogation is only allowed as a matter of right in such cases, when a party is forced, for the protection of his own interests, to discharge an incumbrance which might otherwise jeopardize them. It is evident that, as having succeeded to the legal title of the mortgagor, they would not be entitled to subrogation on payment of the junior mortgage. On acquiring the title of the mortgagor, they toot it cum onore, and as his successors in interest, whethér by a voluntary conveyance or at a forced sale, they took the property subject to the incumbrance of the junior mortgage, and, so far as their rights are derived from the mortgagor by means of the foreclosure sale, they stand, in his shoes; that is to say, the legal estate acquired from the mortgagor remains in their hands, subject to the junior mortgage, precisely as it was before: and if they have any right of sub-rogation, it proceeds, not from the fact that they have succeeded to the rights of the mortgagor, but that they are the assignees in equity of the debt secured by the first mortgage, which is kept alive for their protection — 240 — But, as we bave already seen, as such assignees, if tbey would be entitled to subrogation at all, on which, point I express no opinion, it would only be to such rights as the junior mortgagee had at the time of the payment of his mortgage debt. I do not, therefore, deem it material whether or not the plaintiff had released Brenham from his personal liability. The defendants insist that the mortgage to the plaintiff is void, because, ás they claim, the proofs show that no promissory note was ever executed or delivered by Bren-ham to Catherine Hayes, as recited in the mortgage, but I deem it useless to discuss that question, inasmuch as the cause is pending in the Court below, and that Court, since the new trial was granted, has not passed upon this point. The same remark will apply as to the question raised in respect to the necessity of having all the parties in interest before the Court before any decree can be rendered for a sale of the mortgaged premises, which question is yet pending and undecided in the Court below. The order granting a new trial is affirmed. Wallace, J., having been of counsel in the Court below, did not sit in this case. Sprague, J., expressed no opinion.