Cram v. Cotrell

Irvine, C. Prior to June, 1890, Nathan'B. Cotrell was the owner of a certain lot in David City, upon which there was a [647] mortgage in favor of William Stoddar. In June, 1890, Cotrell conveyed tbe premises to Catherine Neihardt, she and her husband executing as part of the purchase price three notes, and a mortgage securing such notes upon the same premises. In August, Cotrell sold one of the notes to Cram and Myatt. In December, Catherine Neihardt sold the property to Sylvester Youker. In connection with this transaction the Neihardts executed a conveyance of the property to Youker, December 11. On the same day Cotrell entered a marginal release of his mortgage. Youker executed a mortgage for $1,500 to the Security Savings Bank, and Stoddar released his first mortgage and took another, junior to that of the savings bank, for $900. Cram and Myatt then began this action against Cotrell, Youker, Stoddar, and the savings bank, setting up that at the time of the transactions referred to Youker and Stoddar knew that the plaintiffs were the owners of one of the Cotrell notes and that Cotrell had no authority to release the mortgage, and praying that the release be canceled in so far as it affected the plaintiffs’ interest, and for general relief. It is not contended that the savings bank had any notice of the plaintiffs’ rights, and it was conceded that its mortgage was superior to plaintiffs’. A default was entered against all the defendants, but no decree rendered thereon. Subsequently Stoddar appeared, and on his motion the default as to him was set aside and he was permitted to answer. The ■answer put in issue the claim of the plaintiffs; denied that Stoddar had any notice of their interest in the mortgage, and alleged that Stoddar released his former mortgage and took the latter one relying upon Cotrell’s release of record. Subsequently Stoddar filed a supplemental answer alleging that since the filing of his former answer his mortgage had been foreclosed and that he had purchased the mortgaged premises at the foreclosure sale and had later conveyed the same to his wife; that at the sale the premises did not bring enough to satisfy his mortgage; that the improvements had prior to the [648] foreclosure been destroyed by fire, and that since purchasing the property Stoddar had expended $2,000 in the erection of a hotel thereon; that the plaintiffs had notice of the pendency of said foreclosure proceedings and of said sale. There was a reply to this supplemental answer, but it is not necessary here to set it forth. The court found the issues in favor of Stoddar and dismissed the case. Plaintiffs appeal. It is elementary law that the transfer of a note secured by mortgage transfers the mortgage security to the purchaser without any assignment of the mortgage itself, and that where there are several notes secured by the same mortgage the assignment of one of the notes is an assignment of a proportionate interest in the mortgage. (Webb v. Hoselton, 4 Neb., 308; Studebaker Bros. Mfg. Co. v. McCargur, 20 Neb., 500.) By the assignment of one of the three notes by Cotrell to the plaintiffs they therefore became entitled to the benefits of the mortgage, and Cotrell was, after the assignment, without any authority to release the mortgage so as to deprive plaintiffs of their security. Nevertheless, the entry of satisfaction by the original mortgagee will protect a subsequent mortgagee in good faith without notice of the fact that the debt was assigned or the release unauthorized. (Whipple v. Fowlerr 41 Neb., 675; Mathews v. Jones, 47 Neb., 616.) In the case-cited certain earlier cases which might be taken to imply a different rule were distinguished. In addition to those cases the case of Bridges v. Bidwell, 20 Neb., 185, seems to afford some color to a contrary rule; but in that case the mortgage remained of record unsatisfied, and a third person, with such mortgage standing unsatisfied of record, took a joint conveyance from the mortgagor and the mortgagee. It is quite evident that the case proceeded upon the ground that the purchaser was charged with notice of the assignee’s rights from the fact that the mortgage appeared of record unsatisfied. We think, therefore, that the rule in Whipple v. Fowler, supra, is not in conflict with any other decisions and it should be ad [649] hered to. The question whether Stoddar at the time he took his second mortgage did so in good faith, without notice of the plaintiffs’ rights or Cotrell’s want of authority, is, therefore, the controlling question as to the relative priority of his and plaintiffs’ mortgage. The court found in favor of Stoddar, and while from a review of the evidence it seems to the writer that this finding was not in accordance with the preponderance of proof, still the evidence was conflicting, and in view of the superior facilities possessed by the trial court for weighing the evidence and the firmly established rule of this court, the finding cannot be disturbed. It does not follow, however, that the court was justified in dismissing the case. The plaintiffs’ cause of action stood confessed by all the defendants except Stoddar, and it is quite clear that but for the facts set up in the supplemental answer the plaintiffs were entitled to a decree re-establishing the Cotrell mortgage as security to the plaintiffs’ note, but junior to the Stoddar mortgage. The plaintiffs complain that the court erred in permitting the supplemental answer to be filed. There was no error in this, because while the facts therein set up constituted no defense to the action, they did, as will now be stated, require the relief granted plaintiffs to be different from that which should have been granted in the absence of such facts. The plaintiffs urge that there was no proof offered in support of some of the averments of the supplemental answer; but the reply thereto, either by a failure to deny or by negatives pregnant, admits all the essential averments. The plaintiffs were not made parties to the foreclosure suit, and were not bound by those proceedings. The mere fact that they had notice of its pendency did not make them parties or bind them by the decree. This is elementary. The foreclosure and sale were therefore utterly ineffectual to bar plaintiffs’ mortgage. A junior mortgagee who has not been made a party to the proceeding foreclosing the senior mortgage has thereafter a right to redeem from such senior mortgage; [650] (Renard v. Brown, 7 Neb., 449.) Therefore, -when this foreclosure was properly pleaded in the present case, the facts demanded that the plaintiffs, instead of merely having their mortgage re-established, should be permitted to redeem the Stoddar mortgage. Why the court denied this relief and denied plaintiffs any relief the record does not inform us. It is, however, argued in support of the action of the trial court that the proof showed that the land had not sold for sufficient at the foreclosure sale to pay the - Stoddar mortgage, and that in order to redeem the plaintiffs would not only be compelled to discharge this mortgage, but would also be compelled to reimburse Stoddar for the improvements made upon the land. To this argument there are at least two answers. In the first place the plaintiffs had a legal right to redeem, whether or not the exercise of that right would be profitable to them. It was for them to determine whether they should exercise the right, and not for the court to deny them the right, because in its opinion its exercise would not be profitable. In the second place, it is not true in this case that in redeeming Stoddar would be entitled to a credit for the improvements made by him. The case of Higginbottom v. Benson, 24 Neb., 461, relied upon by Stoddar as supporting that position, was a very different case. The rule there laid down was that where the purchaser at a judicial sale bought in good faith, believing he was getting a perfect title, he would be entitled to a credit for the improvements. Stoddar was not a purchaser in good faith within the meaning of this rule. If he did not know of plaintiffs’ rights when he took the mortgage, he learned them within a very few days thereafter. At the time of the foreclosure sale this very suit was pending in which he is a party. He had full notice of all the facts. A mistake of law would not protect him. The judgment of the district court is reversed and the cause remanded, with directions to take an account of the amount due upon the Stoddar mortgage and to permit the plaintiffs to redeem. Reversed and remanded.