Rice v. Winters

Ragan, C. From the transcript of the record and the briefs of counsel we understand the facts in this case to be substantially these: On the 15th of June, 1887, William Winters became indebted to one R. A. Moore, and as an evidence of such indebtedness executed and delivered to Moore on said date two notes of $700, each due respectively on the 15th days of June, 1888 and 1889, and secured said debt by a mortgage upon certain real estate. On the 30th day of April, 1888, Winters also became indebted to Grommes & Ullrich in the sum of $3,829.76, and as an evidence of said debt gave to them a series of notes, the last two of which were for $600 and $429.76, respectively, and due October 31 and November 30, 1888. To secure this debt Winters executed to Grommes & Ullrich a mortgage upon the same real estate which he had previously pledged to Moore; the Grommes & Ullrich mortgage became a second lien upon the property, the incumbrance of Moore being a first lien. Winters subsequently paid all the mortgage debt owing to Grommes & Ullrich except the aforesaid last two notes of the series. In June, 1889, one John M. Lay, resided in the city of Kearney, Nebraska, and was in the habit of taking applications of persons desiring to borrow money and of referring such applications to one W. B. Rice, who, if the security proved acceptable, would make the loan applied for. About this date one E. B. Jones, an attorney at law at Kearney, seems to have had in his possession for collection the Moore mortgage, at least he was then pressing Winters for its payment. Lay, learning of this fact, took Winters’ application for a loan of $1,300, to be secured by a first mortgage on the premises already mortgaged by Winters to Moore, such loan to be used for the purpose of paying the Moore mortgage. June — 523 — 1, 1889, Rice accepted Winter’s application and loaned him $1,300, taking his note therefor, secured by a mortgage on the same premises mortgaged by Winters to Moore, and with the $1,300 the Moore mortgage was paid off and by Moore duly discharged of record on the 6th of June, 1889. About the same date said Jones released and discharged on the margin of the record where it was recorded the Grommes & Ullrich mortgage, or attempted to do so. It seems also that an abstract of the title of the real estate mortgaged was furnished to Rice before he parted with the money loaned to Winters, and that this abstract contained a notation of the abstracter that the Grommes & Ullrich mortgage had been released on the margin of the record where recorded. Rice brought this suit in equity in the district court of Buffalo county to foreclose the mortgage given him by Winters on the 1st of June, 1889, prayed for an accounting of the amount due him on said mortgage from Winters, and that he might be given a first lien upon the real estate described in said mortgage to secure the payment of the amount found due. Winters was made a party defendant to this action, but his connection with the case need not be further noticed. Grommes & Ullrich were made or became parties to the suit, and filed an answer in the nature of a cross-petition, settingout the execution and delivery to them of the mortgage, above mentioned, by Winters; that the last two notes which the mortgage was given to secure, namely, the notes for $600 and $429.76, with interest, remained past due and wholly unpaid; they prayed for an accounting of the amount due them from Winters, and that they be given a first lien upon said mortgaged premises for its payment. To this answer and cross-petition of Grommes & Ullrich, Rice replied: (1) That the Grommes & Ullrich mortgage had been fully paid and that there was nothing due thereon; (2) that it had been duly released and discharged of record by one E. B. Jones, acting as the agent and attorney for Grommes & Ullrich; (3) the execution of — 524 — the mortgage of the 15th of June, 1887, by Winters to Moore; that the mortgage he, Rice, sought to foreclose in this action was made for the purpose of and the proceeds used in paying off this Moore mortgage; and he prayed as in his petition he had already, and further, that he might be subrogated to the lien which Moore held against the premises by virtue of the mortgage which Winters had given him thereon, and which had been paid by the proceeds of the mortgage now sought to be foreclosed. The district court made, among others, the following special findings : “The court further finds that one E. B. Jones, an attorney at law, undertook to release the security mortgage of Grommes & Ullrich by a release entered upon the margin of the record, but that the said Jones undertook to release said mortgage without first obtaining authority therefor, and that said Jones never was authorized by the said defendants, Grommes & Ullrich, to release said mortgage, and that said mortgage was never released, and has been at all times since the recording thereof, and now is, a valid and subsisting mortgage lien against said premises; that there is due to the said defendants Grommes & Ullrich, from the said defendant William Winters, upon their mortgage the sum of $1,455.39, with interest thereon at the rate of eight per cent per annum from this date, and that the same is a valid and second mortgage lien against said premises. “The court further finds that the proceeds obtained from the mortgage given by the said defendant Winters to the said plaintiff Rice were used to pay off and obtain a release and discharge of the mortgage executed by the said defendant William Winters to the said R. A. Moore. “The court further finds that there is due to the said plaintiff Rice from the said defendant William Winters upon his said mortgage the sum of $1,600.65, with interest thereon from this date at the rate of ten per cent per annum ; and the court finds as a matter of law that the plaint — 525 — iff is, by reason of the facts found above, entitled to be subrogated to the lien of the mortgage so as aforesaid executed by the said William Winters to the said R. A. Moore, and that the plaintiff’s lien is accordingly prior and superior to the lien of the said Grommes & Ullrich, and is a valid first mortgage lien against said premises.” To reverse this decree Grommes & Ullrich have appealed. 1. The bill of exceptions in this case was settled by the clerk of the district court of Buffalo county in pursuance of a written stipulation that he might do so, signed by the counsel for the parties to this action; but said stipulation does not recite that what purports to be is in fact the correct bill of exceptions in the case. The mere stipulation of counsel in a case that the clerk of the court may sign and allow a bill of exceptions is not sufficient to confer authority upon, him to do so. To confer authority upon the clerk of a district court to sign and allow a bill of exceptions it must appear that the judge is dead, or that he is prevented by sickness, or absence from his district, from signing and allowing the bill; or the parties to the litigation, or their counsel, must agree upon the bill of exceptions and attach thereto their written stipulation to that effect. (Scott v. Spencer, 42 Neb., 632.) We are therefore precluded from looking into the evidence which accompanies the record of this case. 2. The sole question remaining is whether the pleadings in the case support the finding and decree of the district court. Had the finding of the district court been a general one, then it is clear that a decree based on such finding would have found ample support in the pleadings, and been conclusive upon this court; but the court has found specially that the Grommes & Ullrich mortgage was never releaséd, that it is a valid and subsisting lien upon the premises, and as. it stands of record, superior to the mortgage lien of Rice; but the learned court concluded as a matter — 526 — of law that solely because the Moore mortgage, which was a lien upon the premises superior to the mortgage of Grommes & Ullrich, was paid off and discharged with the money which the mortgage of Rice was given to secure, therefore Rice was entitled to be subrogated to the lien which Moore held against the premises by virtue of his mortgage thereon. Is this conclusion of law of the learned district court correct? The proposition may be thus stated: A owns real estate on which B has a first and C a second mortgage. D loans A money to pay off B’s mortgage. A agrees to and does secure D’s loan by an apparent first mortgage on the real estate. The loan made by D is used in paying off the mortgage of B, and he releases the same. When the mortgage of A to D is delivered, the mortgage records show a marginal release of C’s mortgage signed “C, by J.” It turns out that C’s mortgage has never been paid, and was released by J without authority. Is I) entitled to be subrogated to the lien B held, by virtue of his mortgage, against the real estate? There is some conflict in the authorities. In Emmert v. Thompson, 52 N. W. Rep. [Minn.], 31, it was held: “ Where one loans money upon real estate security for the express purpose of paying off and discharging liens or incumbrances on the same property, expecting and believing, in good faith, that his security will, of record, be substituted in fact in place of that which he discharges, he is not a volunteer, a stranger, or an intermeddler, nor is the original debt or lien or incumbrance considered extinguished, if justice requires that it should be kept alive for the benefit of the person advancing the money.” The facts in this case were very much like those in the case at bar, and the court answered the question we have propounded above in the affirmative. There are other authorities of eminent respectability which by their decisions have given the same answer to the question; but we are persuaded that the decided weight of authority affords a negative answer to the question. — 527 — In South Omaha Nat. Bank v. Wright, 45 Neb., 23, this court said : “ The doctrine of subrogation is not administered by courts of equity as a legal right, but the principle is applied to subserve the ends of justice, and to do equity in the particular case under consideration. It does not rest on contract, and no general rule can be laid down which will afford a test in all cases for its application. Whether the doctrine is applicable to any particular case depends upon the peculiar facts and circumstances of such case.” In the article entitled “ Subrogation,” 24 Am. & Eng. Ency. of Law, at page 281, the authorities are collated, and the result of their holding is thus stated: “One who advances money to pay the debt of another, in the absence of agreement, express or implied, for subrogation, will not be entitled to succeed to the rights and remedies of the creditor so paid, unless there is some obligation, interest, or right, legal or equitable, on the part of such person in respect of the matter concerning which the advance is made, as otherwise he is a stranger, a volunteer, an intermeddler, to whom the equitable right of subrogation is never accorded.” In Fort Dodge Building & Loan Association v. Scott, 53 N. W. Rep., 283, the supreme court of Iowa said: “One who loans money to satisfy several mortgages on property, and takes another mortgage on the property, without examining the records, and relying merely on an abstract not entirely up to date, which fails to notice the rendition of a recent judgment, is not entitled to subrogation under said mortgages to rights paramount to the judgment.” In Kitchell v. Mudgett, 37 Mich., 81, it was said: “K. paid off and discharged the first two out of three mortgages on certain property, and then took a new mortgage for the amount paid. Held that this was subsequent to the one left unpaid, and that K. was not entitled to be subrogated to the rights of the first two mortgagees.” In Watson v. Wilcox, 39 Wis., 643, "that court held: — 528 — “One who, having no interest to protect, voluntarily loans money to a mortgagor for the purpose of satisfying and canceling the mortgage, taking a new mortgage for his own security, cannot have the former mortgage revived and himself subrogated to the rights of the mortgagee therein.” Ryan, C. J., speaking for the court, said: “Before the appellant took his own mortgage from George and Harriet Harvey, he was a stranger to the title, and had no connection with the mortgage debt due to Sarah Ann Hodson. His action in the premises was voluntary. He first proposed to purchase the Hodson mortgage, but subsequently abandoned that intention and advanced the amount due upon it for the Harveys, for the express purpose of satisfying and canceling the Hodson mortgage. This was done. The appellant thereupon took a new mortgage for his own security. It is difficult to see how the doctrine of subrogation can aid him.” In Sandford v. McLean, 3 Paige Ch. [N. Y.], 116, the chancellor, speaking to the point under consideration, said: “It is only in cases where the person advancing money to pay the debt of a third party stands in the situation of a surety, or is compelled to pay it to protect his own rights, that a court of equity substitutes him in the place of the creditor, as a matter of course, without any agreement to that effect.” In Ætna Life Ins. Co. v. Middleport, 124 U. S., 534, the supreme court of the United States, discussing the doctrine of subrogation, held: (1) That the person seeking its benefit must have paid a debt due to a third party before he can be substituted to that party’s rights; and (2) that in doing this he must not act as a mere volunteer, but on compulsion, to save himself from loss by reason of a superior lien or claim on the part of the person to whom he pays the debt, as in cases of sureties, prior mortgagees, etc. The right is never accorded in equity to one who is a mere volunteer in paying a debt of one person to another. — 529 — In Banta v. Garmo, 1 Sandf. Ch. [N. Y.], 383, the facts are thus stated in the syllabus: “B. loaned money to G. to pay off a mortgage on the security of a new mortgage on the same lands. The old mortgage was paid off, and a discharge of the same duly executed. W. recovered a judgment against G., which was docketed after the first mortgage, and on which the lands were sold to him by the sheriff', prior to the mortgage to B. This sale was overlooked in B.’s examination of the records for liens. Held that B. was not entitled to be subrogated to the old mortgage, or to set it up in order to give him a lien prior to the judgment and sheriff’s sale.” It is argued by counsel for Rice that the facts here make a proper case for the application of the doctrine of subrogation by a court of equity, for the reason that while Moore’s mortgage remained unsatisfied Grommes & Ullrich’s lien upon the mortgaged premises was subject thereto, and they would not be injured or prejudiced if Rice should be subrogated to the lien which Moore held, as their lien would occupy the same relation to the property after subrogation that it did prior to the satisfaction of the Moore mortgage. In Bohn Sash & Door Co. v. Case, 42 Neb., 281, a mortgage lien existed against an owner’s real estate. He entered into a contract with B. to furnish certain labor and material and erect for him certain improvements on said real estate. B. complied with his contract and furnished labor and material to a considerable amount. After B. had furnished the labor and material the owner procured a loan from C. with which to pay off and discharge the mortgage on his real estate, agreeing to secure such loan by a first mortgage. C. made the loan to the owner and the latter executed to him a mortgage, which was duly recorded, and the prior mortgages were released and discharged of record. The owner not having paid for the labor and material furnished by B., the latter brought suit to obtain a lien against the property — 530 — under the mechanic’s lien statute. C. was made a party to the action and asked the foreclosure of his mortgage, and sought to be subrogated to the liens held by the mortgagees whose mortgages had been paid and discharged with the proceeds of C.’s loan made to the real estate owner. It was urged in that case as a reason why the doctrine of subrogation should be applied that B.’s lien for labor and materials, when the same were furnished, waa subject to the then existing mortgages on the real estate, and that he would not be prejudiced by allowing C. ta be subrogated to the liens of the mortgagees whose mortgages he had discharged. The district court adopted this view, but this court on appeal reversed the decree of the district court, and held that C. was not entitled, under the facts, to subrogation. The fact that a subsequent mortgagee’s lien will occupy the same relation to the property, if one who has advanced money, secured by a mortgage on the real estate, to pay off the prior mortgage is subrogated to the rights of the holders of such mortgage, affords no reason why equity should permit the party so advancing the money to be subrogated to the rights of the holder of the first mortgage. When the Moore mortgage was voluntarily paid off and discharged the mortgages of Grommes & Ullrich became at once a first lien upon the mortgaged premises, and they thereby acquired the legal right to hold and enforce said lien as a first lien against the mortgaged premises. This right and lien were property, and the mere fact that the money which Rice’s mortgage secures was used to pay off and discharge the Moore mortgage affords no reason, not the slightest, why a court of equity should deprive Grommes & Ullrich of the legal right which they had acquired by the voluntary act of Rice and Moore. Neither Grommes nor Ullrich said or did anything, or omitted to say or do anything, which caused Rice to make this loan and pay off the Moore mortgage, and the saying or doing, or omitting to say or do, which estops Grommes — 531 — & Ullrich from asserting the lien which they have acquired against this property by operation of law in consequence of the release of the Moore mortgage. What right has a court of equity, even under the guise and in the name of subrogation, to deprive Grommes & Ullrich of the vested rights which they have acquired against this property, simply because to do so would be a benefit to Rice? Courts of equity apply the doctrine of subrogation to subserve the ends of justice and to do equity in the particular case under consideration. Would it be doing justice in this case to-deprive Grommes & Ullrich of the lien they have acquired against this property by operation of law resulting from the voluntary act of Rice and Moore and without the consent, request, knowledge, or solicitation of Grommes & Ullrich? We confess that to our minds to do this would be to do injustice, and furthermore, it would be using the powers of a court of equity to strike down a legal right,, and deprive a citizen of his property. Equity follows the-law, it does not thwart it. -It enforces and gives effect to-the legal rights of parties when the law is powerless to-afford a remedy. It does not take away these legal rights. The second argument of counsel for Rice in support of the decree is that the mortgage records were not in fact in-the condition they appeared to be; that is, as we understand it, that the record in which the Grommes & Ullrich, mortgage was recorded showed on its margin a release-signed by one Jones, and that the abstract of title made of this property, and on which Rice acted in making this-loan, recited that the Grommes & Ullrich mortgage had been released on the margin of the record where it was recorded. In other words, that Rice in making this loan acted at a disadvantage and under a mistake; but the mistake of Rice,, whether of law or fact, was the result of his own negligence.. He was bound to know the law, and if the record showed that the Grommes & Ullrich mortgage had been released by Jones, he was bound to know whether Jones had authority — 532 — to execute that release. If the abstract had recited that the Grommes & Ullrich mortgage had been released and it had turned out that in fact no release had ever been made or attempted to be made, then he would have acted under a mistake of fact; but if he suffered an injury from acting on such mistake, the injury would have still been the result •of his own negligence. An intending purchaser or mortgagee of real estate relies and acts upon the recitals of an .abstract made of the title to such real estate at his peril. In Fort Dodge Building & Loan Association v. Scott, supra, the court, speaking to this point, said: “The only question in the case is whether the plaintiff is entitled to have the satisfaction of the Simmons mortgage set aside, and that he be subrogated to all the rights of Simmons. It seems to •us that he is not entitled to such relief. The plaintiff made the loan to Lord for the express purpose of paying the Simmons mortgage. It was well understood that the plaintiff was to accept a new mortgage, and plaintiff got all he bargained for. There was no mistake, except that the plaintiff failed to exercise the diligence required in the examination of the records, and therefore failed to discover the existence of the judgment and the sale thereunder. No one can be blamed, but he must suffer loss, simply because be was negligent. There is no principle that will allow him to take advantage of that to the injury of the diligent.” In Kitchell v. Mudgett, supra, the supreme court of Michigan, speaking to the same point, said : “It is said, with great show of reason, that complainant would never have taken up those mortgages had she not supposed she was to have a first lieu, for the land was then worth only about the amount of the three mortgages. Now this may be true, and still it may be equally true that if she has taken a mortgage negligently on land covered by another she can have no relief. Now complainant was notified by the record and by the Phibbs mortgage that Mrs. Mudgett also held one on the same lands, yet it is not claimed that she — 533 — required Mrs. Mudgett to release hers or to postpone the lien. How can the court know that Mrs. Mudgett would, have consented to release or postpone if it had been required of her? And how can the court compel her to do that.which, with competent authority to assent to or reject, she might perhaps at the time have rejected?” And in Banta v. Garmo, supra, the assistant vice-chancellor, speaking to the question under considei-ation, said: “A further argument is made in behalf of the complainant, on the ground of mistake in canceling the prior mortgage. This is not sti'ictly the fact, as that act was done intentionally, and the mortgagee in that mortgage is content. The mistake consisted in the belief that the complainant was acquiring an unincumbex-ed title by his mortgage. This kind of mistake is of frequent occurrence, but I never bear'd of an instance where the suffering lender was permitted to trace back his money into the hands of a stranger who had received it in discharge of an elder lien than the one newly discovei'ed, and thereupon to set up such stranger’s lien to overreach the intervening incumbrance. * * * No case can be found where a thix’d person, after voluntarily and intentionally dischax-ging a lien in which he had no prior interest, and on the faith of another security, has been permitted, as against other incumbrancers, to l’evive such lien on ascertaining that his own security was worthless.” In the case at bar Rice knew, and was bound to know, when he loaned Winters the money to pay off the Moore mortgage, that Grommes & Ullrich had mortgage liens upon this real estate, and the very moment that the Moore mortgage was satisfied of-record that the Grommes & Ullrich mortgage would become a fii-st lieix upon the px-emises. Had he exex-cised ordinary care and diligence he would have secux-ed from Grommes & Ullx-ich a valid release and discharge of their mortgage before he advanced the money and paid off and allowed to be satisfied the Moore mortgage. If he has suffered loss or shall suffer — 534 — loss, he has no one to blame but himself, and a court of equity will not apply the doctrine of subrogation to a case, where to do so would be to deprive one party of a legal right and at the same time reward the other party for his negligence. The decree, in so far as it postpones the lien of Grommes ■& Ullrich to that of Rice, is reversed, the caiise remanded to the district court with instructions to enter a decree giving Grommes & Ullrich a first lien upon the mortgaged premises for the amount found due them by the district court, and give to Rice a second lien upon the premises for the amount found due him by the court. Reversed and remanded.