Southern Cotton Oil Co. v. Napoleon Hill Cotton Co. , 108 Ark. 555 ( 1913 )

Kirby, J.,

(after stating the facts). It is not contended that there was any express agreement between Martin and appellant that it should be subrogated to the rights of the prior mortgagees upon the payment of their debts out of the money which it loaned for that purpose, but, it is insisted that since it made the loan with the expressed understanding and agreement that its security upon the property therefor should constitute a first lien, the other mortgage debts having been paid off with its money, and that it is entitled to subrogation to the rights of said mortgagees as against the judgment lien of appellee, of which it was ignorant when it made the loan and took its security. It was not a volunteer in the payment of these other mortgage debts, the loan having been negotiated from it by the mortgage debtor for the express purpose of paying them. “One who pays a debt at the instance of a debtor is not a volunteer.” Rodman v. Sanders, 44 Ark. 504.

The doctrine of subrogation is an equitable one, having for its basis the doing of complete and perfect justice between the parties without regard to form, and its purpose and object is the prevention of injustice. Cyc. also says, “And generally, where it is equitable that a person, not a mere stranger, intermeddler, or volunteer, furnishing money to pay a debt, should be substituted for or in the place of the creditor, such person will be so substituted.” 37 Cyc. 371.

In Chaffe & Bro. v. Oliver, 39 Ark. 542, this court said: “Subrogation, in its literal and equitable significance, is the demanding of something under the right of another, to which right the claimant is entitled for the purposes of justice to he substituted in place of the original holder. Its phases are various, but it preserves its characteristic features throughout. It is the machinery by which the equity of one man is worked out through the legal rights of another. It rests upon the maxim that no one shall be enriched by another’s loss, and may be invoked wherever justice and good conscience demand its application in opposition to the technical rules of law, which liberate securities with the extinguishment of the original debt. This equity arises when one not primarily bound to pay a debt, or remove an incumbrance, nevertheless does so; either from his legal obligation, as in case of a surety, or to protect his own secondary right; or upon the request of the original debtor, and upon the faith that, as against the debtor, the person paying will have the same sureties for reimbursement as the creditor had for payment. And this equity need not rest upon any formal contract or written instrument. Like the vendor’s lien for purchase money, it is a creation of a court of equity from the circumstances.” The theory of equitable assignment, as laid down by Pomeroy is: “In general, when any person having a subsequent interest in the premises, and who is therefore entitled to redeem for the purpose of protecting such interest, and who is not the principal debtor, primarily and absolutely liable for the mortgage debt, pays off the mortgage, he thereby becomes an equitable assignee thereof, and may keep alive and enforce the lien so far. as may be necessary in equity for his own benefit; he is subrogated to the rights of the mortgagee to the extent necessary for his own equitable protection. The doctrine is also justly extended, by analogy, to one who, having no previous interest, and being under no obligation, pays off the mortgage, or advances money for its payment, at the instance of a debtor party and for his own benefit; such a person is in no true sense a mere stranger and volunteer.” Pomeroy, Equity Juris.,, vol. 3, § 1212.

In Capen v. Garrison, 193 Mo. 335, 92 S. W. 368, 5 L. ít'. Á: (N. S.) 838, the court said: “Equity will not in-graft this doctrine on the transaction in the face of á contract' that negatives the idea. of subrogation. In other words, the contract may be silent on the subject, yet not inconsistent with the idea of subrogation; or, on the other hand, it may be silent on the subject, yet its terms expressly or by implication forbid the application of the doctrine. So it may be said that equity may apply the doótrine, although the contract does not either expressly, or by legal implication, call for itbut it will not apply if the contract either expressly or by legal implication forbids it. The parties may not have had subrogation in their minds at all when they made the contract; but that fact (alone would not control in a question of application of the doctrine. Equity will apply it, though the parties may never have thought of it, if it is not inconsistent with the contract or in violation of any one’s legal rights, and if justice demands it. * * * The usual application of this principle occurs where a person, at the request of the debtor, pays the mortgage debt, or where one interested in the property pays an encumbrance to protect his own interest, or where he stands in the relation of surety to the debt. ” It is undisputed that both the mortgagor, Martin, and the mortgagee, appellants, understood when the mortgage was executed that the debt secured by the two prior mortgages were to be paid with the money advanced on this mortgage, and that it would be a first lien against the property for the money so advanced. It was not agreed, and it was not the intention of the parties that said other mortgages should be assigned to appellee upon, the payment of the debts secured by them with money advanced by it, it is true, but it would have had the right to insist upon such assignment, and since its security failed to constitute a first lien because of the judgment of appellee, of which appellant was ignorant at the time of taking its mortgage, we see no reason why equity should not treat it as an assignee of the first mortgages, discharged with, the money advanced by it 'and under its doctriné of equitable assignment and effectóate the agreement with the lender that its security should be a first lien. It had the right after its morfi gage was made to apply the money advanced in payment of the other mortgages and take an assignment thereof to protect itself, and in holding that appellant became the equitable owner of said mortgages upon their payment with the money so advanced by it, and in applying the doctrine of subrogation the appellee company is in no worse position than it would have been if said mortgages had not been paid and no injustice is done it, for it can not complain that the subrogation makes its position less favorable than it would have been if appellant company had not made the loan and advanced the money to pay off said mortgages. It can, by a proper procedure for the payee to have the credit or satisfaction of the judgment set aside, if it has been entered, and the said judgment will continue and remain a binding obligation against the judgment-debtor constituting a lien against his property as though no such credit or satisfaction was entered. Having made the payment, it was entitled to the benefit of the doctrine of subrogation, and became the assignee of the claims paid, and not being a volunteer or stranger, it is immaterial that a release instead of an assignment was made. No rights of innocent third persons having intervened the release does not prevent the person making the payment or furnishing the money therefor from becoming the equitable assignee of the claims paid. Sidener v. Parey, 77 Ind. 241 ;Loan Assn. v. Sparks, 111 Fed. 652; Rachel v. Smith, 101 Fed. 159; Wilkins v. Gibson, 38 S. E. 382. See also 5 L. R. A. (N. S.) 3 div. ease-note to Capen v. Garrison, p. 845. Appellees insist that the case should be affirmed as controlled by the decision in Cohn v. Hoffman, 50 Ark. 108. In that case á person furnished the money to pay the remaining note due for purchase money of the land, and there was no agreement' nor understanding that he was to succeed to the vendor’s lien, ■qnd no assignment of the note was taken by him. Nor was there any element of mistake therein as in this case, and the court said: “No circumstance connected with the transaction manifested an intention to keep the lien alive for his protection.” Here the parties expressly agreed that the appellant, mortgagee, was to have a first lien upon the premises, and while it is true they thought that the record of its mortgage and the payment of the debt secured by the two prior mortgages and their release would effectuate that purpose; it failed to do so because of the lien of the judgment of appellee intervening, of which appellant was ignorant and should not be charged with negligence in failing to discover it since an examination of the index to the record of judgments would not have disclosed it.

It follows from the principles announced that under the doctrine of equitable assignment and subrogation, appellant, the Southern Cotton Oil Company, was entitled to subrogation to the rights of the prior mortgages to the amount of their claims paid by the money advanced by it, and to the satisfaction therefor out of the property prior to the payment of the lien of appellee, which must be postponed to such payment. The decree is reversed and the cause remanded with directions to enter a decree in accordance with this opinion, subrogating appellant to the right to foreclose liens against said property for the amount so paid the prior mortgagees; and, if the same is not paid, that the property shall be sold and that amount of the proceeds thereof paid to said The Southern Cotton Oil Company free from the lien of the judgment.

Hart and Smith, JJ., dissent.