Traders Bank v. Myers

The opinion of the court was delivered by Gilkbson, P. J. : The principle which governs in all cases of subrogation is one of equity merely, and is to be carried out in the exercise of an equitable discretion, with due regard to the legal and equitable rights of others, and, being a purely equitable right, it ought to be denied in all cases where its exercise would produce injustice. Mr. Justice Valentine says : “It always requires something more than the mere payment of the debt in order to entitle the person paying the same to be substituted in the place of the original creditor. It requires an assignment, legal or equitable, from the original creditor, or an agreement' or understanding on the part of the party liable to pay the debt that the person furnishing the money — 643 — to pay the same shall in effect become the creditor, or the person furnishing the money must furnish the same either because he is liable as surety, or liable in some other secondary character, or for the purpose of saving or protecting some right or interest, or supposed right or interest, of his own. But the right of subrogation or of equitable assignment is not founded upon contract alone, nor upon the absence of contract, but is founded upon the facts and circumstances of the particular case and upon • principles of natural justice.” (Crippen v. Chappel, 35 Kan. 499.) And Mr. Chancellor Johnson, in Gadsden v. Brown, Spears’s Eq. (S. C.) 37, 41, says : “ The doctrine of subrogation is a pure, unmixed equity, having its foundation in the principles of natural justice, and from its very nature could never have been intended for the relief of those who were in any condition in which they were at liberty to elect whether they would or would not be bound; and, so far as I have been able to learn its history, it never has been so applied. If one with the perfect knowledge of the facts will part with his money, or bind himself by his contract in a sufficient consideration, any rule of law which would restore him his money or absolve him from his contract would subvert the rules of social order. It has been directed in its application exclusively to the relief of those that were already bound who could not but choose to abide the penalty. ' But I have seen no case, and none has been referred to in the argument, in which a stranger, who was in a condition to make terms for himself and demand any security he might require, has been protected by the principle. ’ ’ Mr. Justice Miller, citing the above in Ætna Life Ins. Co. v. Middleport, 124 U. S. 534, says: “This is perhaps as clear a statement of the doctrine on this subject as is to be found anywhere.” 1 ‘ Subrogation is a matter of light, as it exists in the civil law, from which the term has been borrowed — 644 — and adopted in our own, is never applied to a mere volunteer.” (Shinn v. Budd, 14 N. J. Eq. 234.) The supreme court of Illinois, in Suppiger v. Garrets, 20 Bradw. 625, states the rule : “ Subrogation in equity is confined to the relation of principal and surety and guarantors, to cases where a person to protect his own junior lien is compelled to remove one which is superior; any one who is under no legal obligation or liability to pay the debt is a stranger, and, if he pays the debt, amere volunteer.” The supreme court of Wisconsin, in Watson v. Wilcox, 39 Wis. 643, says: P 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 be subrogated to the rights of the mortgagee therein.” • Chief Justice Ryan, in this case, says: “ We know of no case that has ever carried the doctrine of subrogation so far as to hold that a mere loan of money, for the purpose of enabling the borrower to pay a debt, entitled the lender to be subrogated to the rights of the creditor whose debt was thus paid.” But where a person is in no manner bound, and on his own motion, in the absence of contract Or expectation that he may be substituted in the place of a creditor, pays the debt, he will be regarded as an intermeddler and not entitled to subrogation. (Shinn v. Budd, 14 N. J. Eq. 234; Coe v. Railway Co., 31 id. 136; Building Association v. Thompson, 32 id. 133 ; Kitchell v. Mudgett, 37 Mich. 81; Gilbert v. Gilbert, 39 Iowa, 657 ; Wormer v. Agricultural Works, 62 id. 699.)’ The doctrine of subrogation, in equity, requires : (1) That the person seeking its benefit must have paid the. debt due to a third party before he can be — 645 — substituted to that party’s rights ; (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 other person to whom he pays the debt. The right is never accorded in equity to one who is a mere volunteer in paying a debt of one person to another. (Ætna Life Ins. Co. v. Middleport, 124 U. S. 534.) It would seem therefore, from the authorities, that a claim for subrogation, to be successful, must arise from the payment of a debt from legal or moral obligations or interest, and must be equitable and work no injustice or hardship. Let us apply the doctrine thus laid down to t'he case at bar. Was there any contract or expectation of subrogation when this trust deed was made? We can best answer this by repeating the allegations of the petition: That at the time of the making of said loan the applicant, Moore, represented to the Kansas City Investment Company that tlie lands were in no way incumbered, except by the mortgage mentioned in the application ; that the company sent an abstract to the register of deeds (prior to putting the release on record) and by accident, inadvertence and mistake the register of deeds failed to enter on said abstract the record of the mortgage to the Traders Bank, and that neither plaintiff nor the Kansas City Investment Company had any actual notice or knowledge thereof, and were wholly ignorant and uninformed thereof, and relied upon the statement and representations of said Moore; that said release and satisfaction of the same would not otherwise have been made and obtained, and plaintiff would not have paid out and loaned the money as aforesaid for said purpose. EÉow, then, can it be said that there was a contract or expectation of subrogation with reference to that — 646 — ■which was totally unknown to them, and of which they allege, if they had known, they would not have made the loan. While it is true that Moore testified as to his recollection, and what he understood, yet the party making the loan — the agent who transacted the business — is silent upon this proposition, and the understanding of one of the parties does not make a contract. The case was tried upon the theory that plaintiff was entitled to subrogation on account of the mistake of the register and the misrepresentations of the applicant. Testimony was offered, and its introduction was insisted upon, for the express purpose of showing "that the plaintiff below had been diligent, and had been induced to make this loan by the fraud and deceit of Moore, and that the Traders Bank could not take advantage or keep to its advantage what was procured through Moore’s fraud.” No claim was ever made for subrogation on the ground of having paid this claim, or upon any equitable right known to or recognized by the doctrine of subrogation. Under what obligation was the plaintiff to pay this debt? What interest did he have to protect? None. He was in a position to make this loan or not, just as he chose, and the payment in this case was a voluntary interference. If he had not made the loan and thereby, paid off this mortgage, but stood off and allowed the parties to work out their own relations to each other, he would have suffered no loss or harm. There was no obligation on account of which or reason why the plaintiff should have connected himself in any way with this transaction, except the ordinary desire on the part of his agent to make a profit out of the transaction, yiz., the $70 commission which he did make, as shown by the second mortgage given therefor. But — 647 — it is contended by the plaintiff below that on account of the neglect of the register of deeds, and the misrepresentations of the applicant, he was entitled to be subrogated, and that the rights of the Traders Bank are to be totally ignored by reason of this neglect and fraud to which it was not a party, and is not shown to have ever known of, and contends that he had no actual notice or knowledge of the existence of this mortgage. Paragraph 1128, General Statutes of 1889, provides : “Every instrument in writing that conveys any real estate, or whereby any real estate may be affected, proved, or acknowledged, and certified in the manner hereinbefore prescribed, may be recorded in the office of the register of deeds of the county in which such real estate is situated.” Paragraph 1129 : “Every such instrument in writing, certified and recorded in the manner hereinbefore prescribed, shall,, from the time of filing the same with the register of deeds for record, impart notice to all persons of the contents thereof; and all subsequent purchasers and mortgagees shall be deemed to purchase with notice.” He is therefore to be considered as having acted with full knowledge of the facts. The trial court seems to have taken the view that the only rights to be considered in this case were those of the plaintiff, and to have ignored the principle which governs all cases of subrogation — ‘ ‘ that it is one of equity, and is to be carried out in the exercise of an equitable discretion, with due regard to the legal and equitable rights-of others.” Yet it specially found ‘‘that 0. B. Moore (the applicant) agreed with the Traders Bank to pay off this mortgage (that the plaintiff below paid ) and make their mortgage a first lien, and that this agreement was made at the time — 648 — olie said bank made Moore the loan and as one of the inducements therefor:” We have failed to discover, either from the record, the brief of counsel for defendant in error, or on authority, why the rights of the Traders Bank should be ignored. It had complied with the law in all respects; its mortgage is not questioned; while the plaintiff has been guilty of neglect that cannot be justified under any pretext, by not examining the records of the county as a prudent man should, and by law he is required to do or act at his peril; and as he chose to rely upon the register of deeds and the statements made in the application he should be compelled, to stand by his own acts. The supreme court of Iowa, in a case not as strong as this, Building Association v. Scott, 53 N. W. Rep. 283, held: 4 4 One who loans money t'o satisfy several mortgages on property, and takes another mortgage on the property without examining the records, and relying merely on an abstract not entered 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 passing upon this question that court says: 4 4 The loan was made upon the understanding and agreement. that the. money loaned should be applied to the satisfaction of said mortgages. The money loaned was so applied, and the mortgages canceled and satisfied. The purpose of this agreement was manifestly that the plaintiff’s mortgage might be a first lien. . . . There is no evidence that the plaintiff had any actual knowledge of the action or judgment, but the records were such as to impart a constructive notice thereof. By the satisfaction of the said three mortgages the defendant’s judgment became a first lien, unless, under the law and the facts in — 649 — the case, the plaintiff is eatitlccl to be subrogated to the rights of' the mortgagees in said three prior mortgages. Plaintiff’s contention is that, as it furnished the money with which said mortgages were paid, under an agreement that it.should be so applied, it is entitled to have the satisfaction of said mortgages canceled, and be subrogated to all the rights of the mortgagees. The right to subrogation rests upon equitable ground and is never granted as a reward for negligence. While it may be true that no equities inhere in defendant’s lien, thafcit is simply a lien given by law, it is certainly as true that the plaintiff’s claim is equally void of equities. The position of the plaintiff is the result of its own negligence. It relied upon an abstract of title which was not brought up to date, and which failed to note the pendency of the defendant’s suit or the judgment in his favor. ‘ ‘ An examination of the court records on the day the day the loan was made would have informed plaintiff of the existence of this judgment, and that it was a lien upon these lots, whether owned by both or either of the Baehrings. Without making this examination, which the most ordinary care required, plaintiff made the loan and accepted its inortgage. Surely equity will not reward such negligence by applying the doctrine of subrogation in favor of the negligent party. To do so would encourage carelessness in taking such security. The language used in Mather v. Jenswold, 72 Iowa, 550, is directly applicable, and decisive of this question: ‘ The only question in the case is whether the plaintiff is entitled to have the satisfaction of Simmons’s 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 diligencé required in the examination of the records, and therefore failed to discover the existence of tbe — 650 — judgment and the sale thereunder. No one can be blamed, but he must suffer loss, simply because he was negligent. There is no principle that will allow him to .'take advantage of that to the injury of the diligent.’ (Wormer v. Agricultural Works, 62 Iowa, 699 ; Weidner. v. Thompson, 69 id. 39.)” The law as thus given has always been enforced where intervening incumbrances occur. And the supreme court of this state has followed this rule in Everston v. Central Bank, 33 Kan. 352, with respect to money advanced on defective mortgages : ‘ ‘ Where monóy is loaned upon the security of what is supposed to be a valid mortgage, but which in fact is a forged and void mortgage, and the money is loaned for the purpose that a prior valid mortgage may be discharged, which is done, the mortgagee of the void mortgage may be subrogated to the rights of the prior mortgagee, there being no intervening liens or. incumbrances.” I am clearly of the opinion that the judgment should be reversed — that the plaintiff below is not entitled 'to be subrogated. As was said by the supreme court of Iowa, supra, he got all he bargained for — a mortgage; the agent, all he was working for — the $70 commission. If he did not get a first mortgage, no one can be blamed but himself. Pie must suffer on account of his negligence. There is no principle that will allow him to take advantage of his own wrong to the injury of the innocent party. - The majority of the court, however, differ with me in these views of this case. They are of the opinion that the equities are sufficiently strong to entitle the defendant in error to be subrogated to the first lien on the premises, which his money paid and discharged; that the plaintiff in error, so far as the prior mortgage was concerned, relied entirely upon the promise of — 651 — Moore that it should be discharged out of the $1,000 loan, and took its mortgage knowing that it was a second lien and subject to the first-mortgage lien of of $700 ; that the defendant in error cannot be said to have been culpably negligent in relying upon the statement of Moore and of the register of deeds that there was no other lien; and that, by subrogating Myers to the lien of the first mortgage, both plaintiff and defendant in error are placed in no worse situation than they were before. They are of the opinion that Myers cannot be held, to be a mere intermeddler or stranger, and that, under the rules recognized by our supreme court in such cases, the decision of the lower court was correct. In support of their opinion they refer to Crippen v. Chappel, 35 Kan. 495 ; Yaple v. Stephens, 36 id. 680 ; Farm Land Co. v. Elsbree, 55 id. 562. The judgment will be affirmed.- Garver and Clark, JJ., concurring. Gilkeson, P. J., dissenting.