Harvison v. Griffin

Fisk, Ch. J. This litigation arose in the district court of Stutsman county and comes here for trial de novo. The question for decision is whether defendant, J. I. Case Threshing Machine Company, possesses the right which it attempts to assert of compelling plaintiff to marshal the securities covered by his mortgage. None of the material facts are in dispute. Briefly stated, they are as follows: On December 26, 1906, defendants Louisa B. and Thomas P. Griffin being the owners of all of section 33, and the S.E.|- and S.-£ of N.W.J of section 27, township 137, range 67, mortgaged the same to one J. J. Nierling to secure the payment of $5,000 and interest. Nierling assigned such mortgage on March 11, 1907, to Amus H. Lamp, who on October 14, 1911, assigned same to the plaintiff, who seeks by this action to foreclose the same. On March 12, 1907, the Griffins mortgaged all of such lands to J. J. Nierling to secure the payment of $900, and on October 3, 1910, Nierling assigned the same to the Case Company. On September 10, 1907, the Griffins mortgaged to the Case Company the S.E.-i]; and the S.J of N.W.£ aforesaid to secure the payment of $2,895. After executing the three mortgages aforesaid, the Griffins on March 11, 1910, conveyed to F. A. Baylies by warranty deed, all of section 33, such grantee assuming and agreeing to pay a certain proportion of the encumbrances against said section 33. Such agreement is contained in the deed, and is as follows: “Subject to encumbrances amounting to five thousand five hundred fifty-eight and no-100 ($5,558) dollars, which said F. A. Baylies assumes and agrees to pay with all interest from the 25th day — 194 — of February, 1910. Said encumbrances consist of mechanics’ liens, amounting to seven hundred fifty and no/100 ($750) dollars; taxes, one hundred seven and 64/100 ($107.64) dollars; accrued and delinquent interest, four hundred seventy-six and 36/100 ($476.36) dollars; first and second mortgages, four thousand two hundred twenty-four and no/100 ($4,224) dollars, being the pro rata of first mortgage of five thousand and no/100 ($5,000) dollars, given to J. J. Nierling December 26, 1906, and pro rata of second mortgage of nine hundred and no/100 ($900) dollars, given to J. J. Nierling March 12, 1907, both mortgages covering 880 acres, being all of section 33 and the S.E.-f- of section 27, and the S.-j of the N.W.¿ of section 27, all in township 137, range 67, Stutsman county, North Dakota, the payment of said encumbrances to apply to the satisfaction of said liens on.section 33.” Thereafter and in June, 1911, F. A. Baylies conveyed said section 33 to the present owner, Jennie B. Baylies. The third mortgage running to the Case Company was foreclosed by it, the sale being made on June 4, 1910, at which sale said company became the purchaser, and no redemption having been made, it acquired title on June 6, 1911, by sheriff’s deed to the land covered by its mortgage. Subsequent to its foreclosure of the third mortgage aforesaid, the Case Company, as assignee of the second mortgage, caused foreclosure thereof, and at the sale F. A. Baylies became the purchaser of the S.E.¿ and S.-J- of N.W.|: of section 27 for $375, and all of section 33 was bid in by the Case Company for $854.98. Thereafter and on June 6, 1911, the Case Company as owner of S.E.^ and S.-|- of N.W.¿ redeemed such land from Baylies and on March 18, 1911, Baylies as owner of section 33 redeemed the same from the Case Company. Thereafter and on November 2, 1911, plaintiff, Harvison, in consideration of a pro rata payment in proportion to the relative acreage, satisfied his first mortgage as to section 33, and seeks by this action to foreclose on the land of the Case Company for the balance due him. The Case Company urges that it was the duty of plaintiff and his assignor to resort first to section 33 for payment of his mortgage, and that by releasing his security as to that section he has lost his right to the extent of the value of section 33 to look to its said lands for any balance Avhieh may be unpaid on such mortgage. In other Avords, it urges the equitable rule of marshaling securities as embodied in our Code at § 6716, Com — 195 — piled Laws of 1913. This section reads: “When one has a lien upon several things and other persons have subordinate liens upon, or interests in, some but not all of the same things, the person having the prior lien, if he can do so without risk of loss to himself or of injustice to other persons, must resort to the property in the following order, on the demand of any party interested: 1. To the things upon which he has an exclusive lien. 2. To the things which are subject to the fewest subordinate liens. 3. In like manner inversely to the number of subordinate liens upon the same thing; and, 4. When several things are within one of the foregoing classes, and subject to the same number of liens, resort must be had: (a) To things which have not been transferred since the prior lien was created. (b) To the things which have been so transferred without a valuable consideration; and, (c) To the things which have been so transferred for a valuable consideration in the inverse order of the transfers.” This statute is merely declaratory of the general equity rule, which rule was quite elaborately stated and applied hy this court in Union Nat. Bank v. Moline, M. & S. Co. 7 N. D. 201, 73 N. W. 527. Counsel do not differ as to such rule, but merely as to the proper application thereof. Respondent’s counsel state that they have no quarrel with any of the numerous authorities cited and relied on by appellant’s counsel; but they insist that such rule has no application to the facts in the case at bar. In other words, they in effect concede, as we understand their brief, that if the Case Company, instead of acquiring title to the S.E.|- and the S.J of the N.W.-J through the foreclosure sales, had retuained merely as owner of the mortgage liens thereon, the rule of the statute would have applied in full force, and the contention of appellant’s counsel would have been unanswerable. They point with much emphasis to the fact that the Case Company by foreclosing its mortgages and ser curing title had wiped out its liens and had fully satisfied its claims, ,and that it stands in the same relation to the land as would a stranger to the mortgages who had purchased at the foreclosure sales and secured sheriff’s deeds, and that it is conclusively presumed that its bid at such foreclosure sale was made with knowledge of the first mortgage and subject — 196 — thereto. In other words, by its voluntary bid, it placed a value upon the equity subject to the first mortgage of the amount of such bid. We think there can be no doubt as to the correctness of the proposition that the Case Company stands in no more favorable position than would a stranger who had purchased at the sale (27'Cyc. 1721 b, and cases cited), and we deem it entirely clear that such a stranger would not be heard to urge such a defense as is here urged. As is well stated by respondent’s counsel: “If a third party had purchased the S.E.¿ and S.-2* of the N.W.jj;- of 27 under the company’s mortgage foreclosures, at the same prices that were bid under these foreclosures, the purchase price would have been applied to the extinguishment of the Case Company’s indebtedness and the discharge of the lien, and Case Company could have found no fault because they would have received the entire amount of their debt against the Griffins, but the fact that the statute gives them the right to purchase at their own sale and under their own foreclosure and power does not give them any greater right than any other purchaser at the sale. Whatever amount they bid is credited on the indebtedness, and, if sufficient to pay the indebtedness, operates to wholly extinguish the same and to release and satisfy the mortgage, and they then become, when a deed is issued, the owner of the premises, ’subject to prior encumbrances, the same as any other purchaser. If the 'mortgagee purchaser at such a sale had any rights more valuable as a purchaser than a third-party purchaser, it would necessarily result in unfair competition at the public sale. The mortgagee after becoming the purchaser, for the full amount of the indebtedness, certainly cannot claim any rights by virtue of the mortgage, after having extinguished tho same and putting himself in the same position as any other purchaser. Avon-by-the-Sea Land & Improv. Co. v. Finn, 56 N. J. Eq. 808, 41 Atl. 360; Ledyard v. Phillips, 47 Mich. 305, 11 N. W. 170.” Had the Case Company desired to invoke the equity rale as against the owner of the first mortgage and the fee owner of section 33, it might have done so by foreclosing by action, making the holder of such prior 'mortgage and also the owner of section 33 parties. It, however, chose to foreclose by advertisement, and thereby ultimately acquired absolute -ownership of the land subject to plaintiff’s mortgage through its voluntary bid at the sale, without urging that the securities be marshaled tinder such statutory rule. By its purchase at the foreclosure sale, the — 197 — Case Company acquired the same title which the mortgagors possessed at the time the mortgage was executed and delivered which was a title encumbered by the prior liens. ' In other words, it acquired through the sheriff’s deed the same rights, and none other, that the mortgagors possessed at the date of the mortgage, or which were subsequently acquired by them, which was the equity subject to the prior liens. North Dakota Horse & Cattle Co. v. Serumgard, 17 N. D. 466, 29 L.R.A. (N.S.) 517, 138 Am. St. Rep. 717, 117 N. W. 453; Nichols v. Tingstad, 10 N. D. 172, 86 N. W. 694; 27 Cyc. 1488, 1491; Comp. Laws 1913, § 8087. The Case Company is presumed to have bought the land at its full value, less the amount of indebtedness secured thereon by prior liens, and its mortgage was thereby paid and extinguished. Belleville Sav. Bank v. Reis, 136 Ill. 242, 26 N. E. 646; 27 Cyc. 1383. “The sale of any property on which there is a lien in satisfaction of the claim secured thereby extinguishes the lien thereon,” Comp. Laws 1913, § 6721. Its liens having been extinguished, it leaves plainr tiff’s mortgage as the only existing lien from and after the date of the sheriff’s deed. How, therefore, can the Case Company successfully urge the application of the rule as to marshaling securities? Its demand for the marshaling of securities was not served upon the plaintiff’s assignor until after it had acquired title subject to such mortgage. It was at such time in no more favorable position to require of plaintiff or his, assignor such marshaling of securities than was the mortgagor, who was the owner previous thereto'. On the other hand, Baylies, the grantee of section 33, having purchased prior to the date of appellant’s purchase, might with propriety assert that section 33 should not be looked to for more, at least, than its pro rata share of the indebtedness secured by the plaintiff’s mortgage. 3 Pom. Eq. Jur. 3d ed. § 1224; 2 Jones, Mortg. §§ 1091, 1092, 1620, 1621. The record discloses that Baylies assumed and has paid the pro rata share of the first and second mortgages, and plaintiff by this action seeks to subject the land in section 27 which appellant owns, to its pro rata share. We see no valid reason why he cannot legally do so. The instant that appellant’s liens were satisfied, its right, to invoke the rule as to marshaling securities ceased. It was no longer necessary for its protection that it should invoke such rule. The object sought to be accomplished — 198 — thereby no longer existed. In support of these conclusions are the following: 1 Story, Eq. Jur. § 633; Union Nat. Bank v. Moline, M. & S. Co. 7 N. D. 201, 73 N. W. 527; Franklin v. Warden, 9 Minn. 124, Gil. 114; Hull v. Carnley, 17 N. Y. 202; State v. Weston, 17 Wis. 108; Manning v. Monaghan, 23 N. Y. 539. It should be borne in mind that the appellant acquired title through the foreclosure sale, not as mortgagee, but as purchaser, and consequently, as before stated, its rights are no greater than those of a stranger, had such a third party purchased the premises. Appellant suggests that a court of equity may treat a mortgage as still alive where the interests of the mortgagee require this to be done. This is, no doubt, abstractly correct, but this equitable doctrine is invoked only where the equities demand that it be done. Having purchased the premises, not as a mortgagee, but as any other purchaser, a mere stranger to the mortgage, might have done, we see no tenable ground for invoking such doctrine. Furthermore, we fail to see wherein appellant’s equities preponderate over those of respondent. We have carefully considered § 6716 of the Compiled Laws of 1913 (§ 6140, Bev. Codes 1905), as herein quoted at length, as well as the many authorities cited by appellant’s counsel, and we are unable to perceive how they support appellant’s contention. Upon a careful reading of such cases, they all may, we think, be readily distinguished and differentiated from the facts in the case at bar. Appellant places much reliance upon the case of Whittaker v. Belvidere Holler Mill Co. 55 N. J. Eq. 674, 38 Atl. 289. At first blush, the 6th paragraph of the syllabus wotdd seem to support appellant’s contention. It reads: “The purchaser at a foreclosure sale under a second mortgage receives the title which the mortgagor had at the time of the delivery of that mortgage, and, attendant upon that title, he takes the right which the second mortgagee received to have the assets marshaled, and he may assert this equity against the subsequent voluntary and fraudulent grantee of the mortgagor.” The facts of that case are somewhat complicated and too numerous to justify a restatement in this opinion. What was really held, however, in so far as such holding is pertinent to the case at bar, was that the title acquired by one Miller, who purchased at a foreclosure sale under a second mortgage which covered only a portion of the lands covered — 199 — by tbe first mortgage, related back to the title which passed by such second mortgage, and conveyed to him the estate which such mortgagor possessed in the mortgaged premises on the date of the delivery of that mortgage, with all its attendant equities. And, “attendant npon that title,” he obtained the right which the second mortgagee received to have the assets marshaled as against the mortgagor and his fraudulent grantees. In other words, having purchased the estate covered by the second mortgage which the mortgagor possessed at the date of the delivery of such mortage, and there being no prior valid conveyances of the lands covered only by the first mortgage or other accrued equities intervening, Miller was entitled as against the mortgagor, Adam B. Searles, and his fraudulent grantee, Roderick B. Searles, to have the lands not owned by him first sold and the proceeds applied towards the satisfaction of the first mortgage. The controversy merely involved the respective rights of Miller and of Adam B. Searles, the mortgagor and his said fraudulent grantee. The first mortgagee did not resist Miller’s claim to have the securities marshaled, nor, for that matter, could he successfully do so under the facts, for Miller was the only valid purchaser of any portion of the mortgaged premises, except the Roller Mills Company, which company purchased the lot covered by the second mortgage and by the deed assumed and agreed to pay both mortgages. It is quite apparent that the holding would have been otherwise had there been, as in the case at bar, a transfer of the portion of the lands covered by the first, and not by the second, mortgage, to a good-faith purchaser for value prior to Miller’s purchase under the foreclosure of the second mortgage. The New Jersey court, -in so far as the point here involved is concerned, merely recognized and enforced the general rule which requires a resort, first, to the mortgaged property which has not been transferred. In other words, it ordered that the security be marshaled in the inverse order of its alienation subsequent to the delivery of the first mortgage, and it recognized Miller as a purchaser from the mortgagor of the lot embraced in the second mortgage, and as such purchaser entitled to invoke the rule in his behalf, there having been no valid transfer of the other security. As we read it, the case does not support appellant’s contention. It follows from what we have above stated, that the judgment appealed from was correct and it is accordingly affirmed.