Anderson v. Kain

Birdzell, J. This is an appeal from a judgment in favor of the defendants entered in an action to foreclose a mortgage. The facts .are as follows: The defendants, John Fain and Mattie S. Fain, on December 17th, 1909, gave to A. C. Anderson a promissory note for $518 which was due approximately two years after its date and was secured by a real estate mortgage on the east half of the northwest quarter and the northeast quarter of the southwest quarter of Section 27, Township 150 N., Range 64 W. of the 5th P. M. The land described in the mortgage was government land upon which John Fain had filed but upon which he had not, as yet, earned a patent. The note and mortgage were afterward transferred and assigned to the State Bank of Warwick, the Farmers’ & Merchants’ Bank of Warwick, and to the plaintiff in this, action. In so far as the circumstances in connection with these transfers are material to a consideration of the questions raised on this appeal, they will be later considered. In December, 1911, there was a settlement of mutual accounts between .A. C. Anderson and the defendants, as a part of which the defendants gave some notes to Anderson, among which was a new note for $622.23. All the notes given as a part of this settlement were secured by a chattel mortgage. Following the settlement, Charles Anderson, attorney in fact for A. C. Anderson, gave the defendants a statement showing that the $622.23 note was a renewal of the $518 note above referred to. In the fall of 1912, some conferences were had between representatives of the Andersons and defendants at which the question of raising the necessary money to enable the Fains to make final proof on their homestead was discussed. The plaintiff contends that at these conferences an understanding was reached whereby Siver Serumgard, who represented the Andersons, was to endeavor to raise an amount — 635 — of money sufficient to enable the Kains to make their final proof and obtain their patent. The defendants contend that such an agreement was not reached; but that, on the contrary, Mr. McClory, who represented them at the conference, was to raise the money, and that they definitely refused to accept the money that had been obtained for them by Serumgard and preferred to let the matter of the final proof go for another year. In this respect there is a clear conflict between the testimony of Serumgard and that of the defendants. It appears, however, that final proof was made in December, 1912, and that the money required to make the necessary payment to the government Land Office was raised by the Andersons under the direction of Serumgard. The defendant John Kain received the patent and accepted it with knowledge that the proof money was supplied by Charles Anderson, •or by Serumgard as agent for Anderson and his wifé, A. O. Anderson. A further fact of some significance is that, though the pleading in the case foreshadowed the issue as to the source of the money with which final proof was made and the authority to apply it on behalf of defendants, the record does not account for the failure of the defendants to procure the testimony of P. J. McClory who represented them in the conference which was had with Serumgard. Among other findings, the trial court found that the Farmers’ & Merchants’ Bank of Crary, of which the plaintiff, Edgar Anderson, is an officer, advanced to Charles Anderson $300 on a note executed by him, and as security the bank held the oral guaranty of Edgar Anderson, the plaintiff; that Edgar Anderson took an indorsement and assignment of the notes and mortgage in suit; that at the time the renewal note for $622.23 was given it was given with the express understanding that “Charles Anderson would return to the said defendant, John Kain, the note sued upon in this action.” From these findings the court concluded “that the defendants, by the payment of the said notes and mortgage in December, 1911, extinguished the lien of said mortgage as to the plaintiff, Edgar Anderson,” and “that the defendants are entitled to a judgment canceling and satisfying said mortgage of record. . . . That the plaintiff does not have any lien on the lands of the defendants for the sum of $323 paid into the United States Land Office at Devils Lake as the government price of said lands, nor for any portion of the sum.” — 636 — The vital question presented upon this appeal is whether or not the indebtedness represented by the $518 note and secured by the mortgage sought to be foreclosed has been paid. The findings of the trial court are favorable to the respondents as to this question, and in support of these findings" upon this appeal the respondents’ main argument is from the testimony which tends to support the finding. The testimony principally relied upon is that of the defendant, John Kain, Sr., and John Kain, Jr. Upon direct examination, John Kain, Sr., testified that Charles Anderson had requested him to give a new note in place of the original $518 note; that the subject of his indebtedness to Charles Anderson and the security given therefor was discussed, and that Charles Anderson, as agent for A. C. Anderson, had expressed the desire to have chattel security in view of the questionable nature of the mortgage -security upon the homestead upon which final proof had not been made or patent earned. He testified that it was the understanding that the old notes were to be given back and that after the new notes were given,' Anderson, being unable to find the old notes about the store, gave him, at his request, a receipt showing for what the new notes had been given. On cross-examination he testified in answer to questions as follows: Q. Hid you ever make a demand on Charles Anderson or anyone else for the satisfaction of the real estate mortgage securing exhibit 1? A. We made a demand on Charles Anderson and he tried to get it for me but said he couldn’t find it, he didn’t know just where it was but he would get it for me and give the notes to me the next time I came in. Q. You never asked for a satisfaction? A. When I saw that he could not produce the notes or didn’t produce the notes I asked for a receipt for those notes. Q. You never asked for a release of the mortgage on this piece of land? A. I asked for a release of everything and he was to record his new notes and hold them in the place of the old notes. That was the agreement. There is nothing in the testimony of John Kain, Jr., going to establish an understanding that the mortgage was to be satisfied. His — 637 — testimony fully corroborates that of his father to the effect that it was agreed that the new notes should operate as a renewal of the old notes .and that the old notes should be surrendered up. The testimony above quoted, together with that which goes to establish the understanding with which the new notes were given, does not satisfactorily establish that it was any part of the understanding that when the new notes were given the mortgage was to be satisfied. In the receipts that the Kains took the new notes were referred to as renewals of the $518 note and there is no showing that they ever attempted to have the mortgage satisfied. Even though it were the understanding that the old notes were to be surrendered, it does not necessarily follow that it was also agreed, that the debt was to be regarded as paid. The debt is the principal thing and the notes are but the evidence thereof. The law is that the taking of a new note does not operate to discharge the indebtedness unless it is agreed that the indebtedness should be discharged. The burden of establishing such an agreement is upon the party who asserts it. 22 Am. & Eng. Enc. Law, 555-563. This rule is not altered by the fact that additional security is given for the new notes. 22 Am. & Eng. Enc. Law, 558. The receipt which Anderson gave in January 1912, following the settlement and the execution of the notes in December 1911, shows that the Kains were indebted to A. C. Anderson in an amount exceeding $2,000, and for this indebtedness the chattel mortgage security was apparently inadequate. We do not know to what extent it was inadequate, but it appears that an attempt has been made to realize upon the chattel security by foreclosure, .and it is not established that the amount realized upon the foreclosure sale was adequate t.o discharge the indebtedness. In view of the amount of the indebtedness and the character of the security, it would seem quite improbable that the creditor had agreed to discharge the security that he already held. Furthermore, if it was any part of the understanding that the real estate security was to be satisfied, it would seem that the Kains, instead of merely refusing, as they claim they did refuse, to accept the aid of the Andersons in procuring money with which to make final proof, would have insisted upon the mortgage being satisfied and would have definitely told the Andersons that they had no interest whatever in the making of the final proof. It is difficult to believe that any person possessed of even the slightest — 638 — business ability would interest himself to the extent of raising over $300, as the Andersons did in this case, with which to enable another to make final proof upon a homestead, if it were understood, as theFains contend it was, that the mortgage, which is responsible for the interest manifested was satisfied. In our judgment, the defendants have failed to sustain the burden which is upon them to establish that the mortgage was satisfied. If the indebtedness for which the mortgage is security has actually been paid, it would apparently be an easy matter to establish that fact and there would be no occasion for counsel to argue, as respondents’ counsel do, that the indebtedness was paid by virtue of the fact that the $622.23 note was included in the chattel mortgage foreclosure advertisement. In this argument, respondents rely upon the fallacy that the foreclosure of the security wipes out the indebtedness for which the security is given. It is elementary that a foreclosure only extinguishes the security and that the indebtedness is affected only to the extent that payment is realized through the foreclosure sale. It is contended that the plaintiff has no lien for the final proof money amounting to $323. This contention is based upon the fact that this money was supplied by the Farmers’ Bank of Crary and upon security furnished by Charles Anderson. It is claimed that these facts show conclusively that the plaintiff, who is indorsee of the $518 note and assignee of the mortgage in suit, has no interest in the lien, if there is one, for the advancement made to protect the security of the mortgage. It is undisputed that the Fains have received a patent for the land and consequently enjoy the full benefit of the payment made to the government as owners of the land. Neither is there any question as to the right of the plaintiff, as indorsee of the note and assignee of the mortgage, to maintain the suit in question. He is the party who holds the legal title to the security and to the indebtedness, and is in the position of one in whoso name a contract is made for the benefit of a third person, within § 7397 of the Compiled Laws of 1913. See Hays v. Hathorn, 74 N. Y. 486. It may be that the plaintiff is under obligation to account to others for the recovery in this action, but there can be no doubt as to his right to recover in so far as there may be an enforceable lien. The question, as respects the lien for the advancement of the purchase money, narrows down to this: May a — 639 — secured creditor who advances money to enable the giver of the security to perfect his title and right to the property which forms the security, add to the mortgage indebtedness the amount so advanced? This identical question has not, so far as we are aware, been decided by any court of last resort, but cases involving analogous situations and identical in principle are of more or less frequent occurrence. The amount that the homesteader must pay in order to make proof is regarded as the purchase price and, so far as the holder of a preliminary mortgage is concerned, the amount required to be paid to perfect the proof is in every way analogous, if, in fact, it does not amount to, a superior lien. Section 6718, Compiled Laws of 1913, gives to the holder of an inferior lien a right to satisfy a superior lien, when necessary for the protection of his interest, and the further-right to be subrogated to all the benefits of the superior lien. It seems to us that when money has been advanced for a mortgagor by a. mortgagee, under the circumstances shown in this case, and when the mortgagor' has received all the benefits that could possibly accrue from the discharge of his purchase price obligation to the government, as have the Kains in this instance, he should be precluded from denying the right of the mortgagee to be subrogated to the creditor’s right to treat the land as security for the payment. In the case of Beyer v. Investors’ Syndicate, 31 N. D. 247, 153 N. W. 476, the equitable doctrine of subrogation was held applicable to. the payment of taxes by a stockholder in a corporation upon the property owned by the corporation. It was there held that there was nothing' in the nature of the county’s lien for taxes that would prevent the application of the doctrine of subrogation where it was relied upon in order to effect justice. For similar reasons we can see nothing in the nature of the interest of the government to have the purchase price paid that will prevent the doctrine of subrogation from applying where its application is necessary in order to safeguard the interests of justice. The judgment of the District Court is reversed and the cause remanded for further proceedings not inconsistent with this opinion.