Savings Deposit Bank v. Ellingson

Burke, J. The plaintiff bank was the owner of a promissory note and interest coupons secured by real-estate mortgage. The first instalment of interest being unpaid, foreclosure was begun and the premises bid in by the bank for the sum of $63.90. Some seven months later the bank assigned the said sheriff’s certificate to the defendant Ellingson by an instrument in writing which contained the following clause: “This assignment is made without recourse, . . . and also made subject to the balance of the mortgage not included in foreclosure.” No redemption was made from this sale, and a sheriff’s deed was issued in due time to Ellingson. When a later interest coupon became due, the bank declared the entire mortgage due, and fore [520] closed the same by a sale of premises, which were bid in by the bank. No redemption was made from this second sale, and in due course sheriff’s deed issued to the plaintiff bank. It is stipulated by the parties that both of the foreclosures were in all things valid. This dispute arises upon action to quiet title brought by the bank against Ellingson and a party claiming under him, as well as the original mortgagors. The facts were all stipulated by the parties, and adopted as findings of fact by the trial court. This appeal challenges the correctness of the conclusions of law announced by the trial court, and which were to the effect that the sheriff’s deed issued to Ellingson passed title to the premises, clear of the lien of the mortgage and remaining interest coupons. We find many interesting questions raised, but will confine ourselves to one proposition, which is decisive of this appeal. (1) Appellant contends, and we think correctly, that notwithstanding the statutes or terms of the mortgage the parties have the right to determine the priority of their respective claims by contract, and that the assignment quoted is such a contract, and determines that the rights of the bank should constitute a first mortgage, and the rights of the defendant Ellingson in effect the second mortgage upon the premises. This conclusion is supported both by reason and authority. It is hard to believe that the bank would consent to a sale of the first coupon for the sum of $63, with any other understanding than that it should be inferior to their rights under the original mortgage and interest coupons. It is unreasonable to believe that they would jeopardize their principal loan to collect such a small sum of money. On the other hand, Ellingson would be anxious to obtain this interest coupon and the sheriff’s certificate issued thereupon, because it would give him the land, subject only to the mortgage of less than $200. It seems clear to us that that must have been the intention of the parties at the time the assignment was made, and when the sheriff’s deed was issued to Ellingson he became the owner absolutely of the premises, subject only to the mortgage held by the bank. It was his duty, however, to pay this mortgage, or be deprived of his property by foreclosure. This seems to be the holding of other courts upon the same state of facts. Thus, in Morgan v. Kline, 77 Iowa, 681, 42 N. W. 558, it is said: “The mortgagee owned them and the mortgage absolutely, and [521] had a right to sell such interest therein as he might elect. It ivas his privilege to sell the last two notes, and to relinquish all claim to the mortgage, or to make the claim he retained junior to that he sold. He adopted the latter plan, and executed an assignment which fixed the respective rights of the mortgagee and the plaintiff. It was duly acknowledged, and represented different interests in real estate, and the record thereof was constructive notice of the interests of the parties thereto.” To the same effect see Grattan v. Wiggins, 23 Cal. 31, where it is said: “It is clear that the mortgagee has the right by agreement to fix the rights of the holders of the several notes to the mortgage security, and such an agreement may be implied from the circumstances of the transfer.” Also in Bank of England v. Tarleton, 23 Miss. 173, it is said: “The priority rights of the holder of any note and the lease securing the same may be regulated by contract of assignment so that the usual rules of maturity or pro rata distribution would not apply.” See also Dunham v. W. Steele Packing & Provision Co. 100 Mich. 75, 58 N. W. 627, and a long list of cases compiled and digested in 20 Century Dig. § 1746. Note at page 802, vol. 24 L.R.A. It is clear, therefore, that the defendant Ellingson lost all his interest in this land when the prior mortgage thereon was foreclosed and sheriff’s deed issued to plaintiff. The mortgage given by Ellingson to the defendant Minneapolis Iron Store Company falls with this title. The trial court is directed to vacate the order hereinbefore made, and enter judgment in favor of the plaintiff for the relief demanded.