New England Mortgage Security Co. v. Fry

MoCLELLAN, C. J.

The bill in this case was filed on February 14th, 1898, by Mrs. Fry, for the foreclosure of a mortgage executed to the complainant on December 15th, 1880. by Thomas Gill Gayle. The mortgage originally covered an undivided interest in certain lands which were subsequently partitioned. The bill prays the sale of the lands, assigned in the partition proceedings to the mortgagor. It appears from the bill that the interest of the mortgagor in the land had been subsequently conveyed to the New England Mortgage Security Company, and it is properly made the sole party defendant.

The New England Mortgage Security Company filed several pleas to the bill, and also a cross-bill asserting equities claimed to be paramount to the lien of the mortgage to complainant. The defenses set up in the pleas and the equities claimed will be considered with the statement of facts pertinent to each.

It appears that before the execution of the mortgage to complainant, the interest of the mortgagor in the land embraced therein had been sold under execution, and the deed conveying such interest had been executed to the purchaser. After the mortgage was executed the title to the property had revested in the mortgagor by the exercise of the statutory right of redemption. The mortgage contained no express covenant of warranty, but used the. statutory words, “Grant, bargain and sell” implying the statutory warranty, that the-grantor was seized of an indefeasible estate in fee simple, free from incumbrances done or suffered by the grantor. It is con *644 tended by appellant that, by reason of tbe execution sale, tbe grantor bad no title at tbe time of execution of tbe mortgage- to complainant wbicb be could convey, and that tbe title subsequently acquired by tbe mortgagor by tbe exercise of tbe statutory right of redemption, did not inure to complainant’s benefit by virtue of tbe warranty implied by tbe use of tbe statutory words. “Tbe settled doctrine in this State is that if a. person having at tbe time no title conveys land by warranty, and after-wards acquires a title, such title will inure and pass eo instanti to bis grantee; and that tbe doctrine applies when tbe warranty is such as tbe law implies from tbe employment of tbe statutory words.” — Swann & Billups v. Gaston, 87 Ala. 569 ; Higman v. Humes, 127 Ala. 404 .

It appears that the money with wbicb Thomas Gill Gayle exercised tbe statutory right of redemption, amounting to $448.91, was furnished by Billups J. Gayle under the agreement or understanding with Thomas Gill Gayle, that be should have a first lien or mortgage on tbe land for bis reimbursement, and that in pursuance of said agreement a mortgage was executed by Thomas Gill Gayle to Billups J. Gayle on tbe 3rd of October, 1882. While the title acquired by Thomas Gill Gayle by virtue of tbe redemption inux’ed to tbe benefit of complainant by virtue of tbe words, “Bargain, sell and convey,” contained in tbe mortgage to her, tbe lien or claim then existing in favor of Billups J. Gayle, under bis contract with Thomas Gill Gayle for bis reimbursement of tbe money furnished for redemption, was not thereby displaced nor impaired. — Higman v. Humes, supra.

Tbonxas Gill Gayle being xxnable to pay this mortgage executed to Billups J, Gayle, conveyed said lands to him for that purpose. Billups J. Gayle thereafter, under these facts, held tbe land subject to complainant’s mortgage, wbicb was unsatisfied of record, with the right, however, to assert against complainant bis paramount intervening equity existing by reason of bis furnishing tbe money for tbe redemption, and tbe New England Mortgage Security Company claiming under him can assert the same equity. — Ohmer v. Boyer, 89 *645 Ala. 273 . As this equity is asserted by the New England Mortgage Security Company, as a lien-holder being in possession of the property subject to the lien and to complainant’s mortgage, it must as to- such equity account for the rents and profits acquired by it from the land, and the same must be applied, less the necessary repairs and expenses, to the satisfaction of the lien claimed by subrogation.

The cross-complainant, the New England Mortgage Security Company, has no equity of subrogation to the lien of the Wailes- mortgage. — Bigelow v. Scott, at al., 135 Ala. 236 .

Assuming without deciding that the Mortgage Company on the facts averred in the cross-bill has, abstractly speaking, the right of subrogation to the lien of the Burns mortgage, the cross-bill is wanting in necessary averments and offers to do equity to present that right against the complainant. The equity of subrogation attempted to be asserted was and is a mere right of action in the company, a right to have such subrogation decreed, and thereupon to have the lien of the Burns mortgage effectuated by a decree foreclosing that mortgage for its benefit. That mortgage has never been foreclosed, and claiming under it the cross-complainant stands in tile shoes of the mortgagee. The foreclosure of its own mortgage did not affect Mrs. Fry’s rights as mortgagor in the Burns mortgage. In that capacity she had and still has the equity of redemption. The cross complainant has the equity of subrogation. Upon being subrogated, its further right is to foreclose that mortgage. Meantime the company is a mortgagee in possession. The cross-bill, while asserting the equity of subrogation, contains neither the averments nor prayer nor offer to do equity essential to a bill for foreclosure; but to the contrary proposes to cut off absolutely Mrs. Fry’s equity of redemption. It seeks to revivifv the Burns mortgage and to bind Mrs. Fry’s estate by it, while denying her all rights under it. The proposition of the cross-bill is to foreclose her rights under the Burns mortgage by force of the Gayle mortgage to the company, by which she was not bound at all except through the Burns *646 mortgage, without giving her any standing in court to effectuate her equity of redemption from the Bums mortgage. At the most, the Gayle mortgage to the company, and its foreclosure, gave the company as against Mrs. Pry only the rights of Burns against her; but the cross-bill purposes to cut off her rights against Burns absolutely because of the mere fact that the cross-complainant is entitled to have the Burns mortgage equitably ássigned to it. To such end the cross-bill is without equity, and the chancellor properly sustained the demurrer which challenged its sufficiency in this aspect.'

Nor could the mere fact that complainant had knowledge of and consented to the application for loan made by Billups J. Gayle to the New England Mortgage Security Company estop her from asserting the mortgage made to her. The evidence is insufficient to show that she did or said anything, or refrained from proper action or speech, to induce the action taken by 'the corporation, and certainly there Avas no duty resting on her to affirmatively object to that action. — New England Mortgage Security Co. v. Hirsch Bros., 96 Ala. 232 .

The partition of -the property averred in the bill was by bill in equity. Avhich averred that the mortgage executed to complainant was a lien upon the interest of Thomas Gill Gayle, one of the joint OAAmers. The complainant by the averments and prayer of the bill was required to propound her claim, and have the same, if anything Avas due thereon, enforced against the portion of the lands which might be allotted to Thomas Gill Gayle. Complainant neglected or refused to propound her claim under the mortgage in the partition suit. She had been in possession, as administratrix, of the lands sought to be partitioned, and she was required in the partition suit to account for the rents and profits so received by her. Upon such account she Avas decreed to owe Thomas Gill Gayle $73.00 as his share as joint owner of said rents. It is claimed that this decree, in favor of Thomas Gill Gayle against complainant, was thus a judicial ascertainment that he owned her nothing, and that she is estopped from *647 foreclosing her mortgage.

If complainant by appropriate pleading might have set off the indebtedness of Thomas Gill Gayle under the mortgage to her against his claim against her for rents received by her, and thus extinguished it, she was not required to do so. “The settled doctrine of this Court now is that a. set-off may or may not he pleaded at the election of the defendant, and that unless it is pleaded, the right, to sue upon it as an independent cause of action or to rely upon it in defense of another action by the same plaintiff, is not affected or impaired by a judgment against the defendant.” — Roach v. Privett, 90 Ala. 391, 395 .

The New England Mortgage Security Company pleaded the adverse possession by Billups J. Gayle and itself, for ten years. The evidence to sustain this- plea is the execution .and registration of the deed from Thomas Gill Gayle to Billups J. Gayle, January 24th, 1885, and the fact that in 1890 Billups J. Gayle, in his application to the company for a loan, stated that there were no incumbrances upon the property except the mortgage to Burns. As Thomas Gill Gayle, complainant’s mortgagor, did not prima facie hold adversely to complainant, the presumption is that Billups J. Gayle, as alienee, held in the same right, and asserted no higher claim of title. “To convert such possession into an adverse holding, there must be a renunciation or disclaimer of the mortgagee’s right, and that renunciation must be traced to his knowledge. Until this is done, such possession is not- regarded as adverse.” — Smith v. Gilliam, 80 Ala. 296 -301.

It is contended that the registration of the deed to Billups J. Gayle was sufficient notice to the appellee of an adverse holding. Complainant’s mortgage was recorded in 1880, and she is not charged Avith constructive notice of the subsequent conveyance to Billups J. Gayle. The record of a deed or mortgage is notice to subsequent purchasers of incumbrances, but not to prior ones. But if complainant was charged with knowledge óf the deed co Billups J. Gayle from its registration, and the subsequent one executed to correct a mistake in the descrip *648 tion of the former, they were both quit-claim deeds, purporting to transfer only the interest of Thomas Gill Gayle in the property. Complainant would therefore have had the right to assume that the conveyance was in subordination to her mortgage, and not adverse. Complainant denies that she had any notice that her title as mortgagee was disputed until 1897, when the New England Mortgage Security Company offered to sell her lands to a third person;, and we do not think the evidence sufficient to charge her with notice of an adverse claim for the period named.

The foregoing disposes of all the questions raised by the New England Mortgage Security Company upon the appeal in chief, adversely to its contentions, and the decree, so far as brought into question upon its appeal, must be affirmed.

The complainant, Anna M. Pry, prosecutes a cross-appeal, the first error assigned being the subrogation of the New England Mortgage Security Company to the paramount lien held by Billups J. Gayle for money advanced by him to Thomas Gill Gayle for the redemption of the property sold under execution against him. As stated above this was proper.

It appears from the answer of the New England Mortgage Security Company, that on the 15th day of December, 1880, the same day the mortgage was executed by Tlromas Gill Gayle to complainant, he executed a mortgage to Billups J. Gayle to secure indebtedness of 1916.31. This mortgage to Billups J. Gayle was filed for record on the same day. It is averred in the answer that, while the mortgages to complainant and Billups J. Gayle bore the same date and were filed for record on the same date, “Still as a matter of fact, the said mortgage by the said Thomas Gill Gayle to said Billups J, Gayle, was prior in point of time to that executed to complainant.” In the absence of any testimony upon this point, the chancellor held that it would be presumed that both- mortgages were executed at the same time and that they were therefore of equal dignity, that neither was superior to the other, and ordered a reference to *649 ascertain the amount due upon each.

When complainant proved the execution of the mortgage to her and the existence of the indebtedness thereby secured, she was entitled in the absence of defensive facts' to a decree of foreclosure. If the respondent, the New England Mortgage Security Company, had any defense or a paramount or equal equity, the burden was upon it to allege such defense or equity and establish it by proof. There is, as has been said, no evidence to support the allegation that the mortgage to Billups J. Gayle dated December 15th, 1880, was paramount to the mortgage to complainant, and there is no proof that it was equal thereto except the fact that both mortgages were executed and recorded on the same day. This fact can be held sufficient proof only upon the application of the legal fiction that there are in law no divisions or fractions of a day. This fiction does not apply to transactions between parties where priority of right becomes a question of fact. — 8 Am. & Eng. Ency. Law, p. 743, and authorities there cited.

The New England Mortgage Security Company having therefore failed to prove that the mortgage in question was executed at the same time as the mortgage to complainant, the court erred in holding it an equal lien. For this error on the appeal of complainant in the original bill, the decree will be modified as indicated, and as modified will be affirmed.

Modified and affirmed.

Tyson, Dowdell and Denson, J. J., concurring.