Cowling v. Britt ( 1914 )

Hart, J.,

(after stating the facts). The cause was heard and determined before the chancellor at the April term, 1913, of the Columbia Chancery Court. Neither the plaintiff Cowling, nor the defendant Payne, perfected the appeal granted to the Supreme Court by the chancery court. But on the 8th day of April, 1914, the plaintiff, Cowling, obtained an appeal from the clerk of the Supreme Court. Subsequently, the defendant Payne prayed a cross-appeal, which was granted.

(1) When the plaintiff filed his transcript and obtained an appeal from the clerk of the Supreme Court, this brought the whole record before the court .and the defendant, under our statute, had a right to pray and obtain a cross-appeal at any time before the cause was submitted to us for decision. Beidler v. Beidler, 71 Ark. 318; Sow-ell v. Jackson, 86 Ark. 530;

It will be noted from the statement of facts, that the deed of trust from W. W. Britt and wife on the lands in controversy to secure the defendant E. N. Payne for an indebtedness of $500 and the accrued interest, owed him by Britt, was executed on the 12th day of April, 1909, and that the execution under which the plaintiff purchased was delivered to the sheriff of Columbia County on the 14th day of August, 1909. Subsequently, on the 9th day of September, 1910, Britt and wife conveyed the land to Payne in satisfaction of his indebtedness secured by the deed of trust, and for other indebtedness owed by Britt at that time to Payne.

It is conceded by counsel for plaintiff that the deed of trust gave Payne a prior lien on the land in controversy to the lien of the execution under which plaintiff purchased, but it is the contention of counsel for plaintiff that there was a merger when Britt conveyed the lands to Payne in September, 1910, and that this made the execution a prior lien on the land.

It will be remembered that the case was transferred to equity and tried there. “Where a mortgagee takes a conveyance of the land from the mortgagor ór from a grantee of the mortgagor, if the transaction is fair, the presumption of an intention to keep the security alive is very strong. It is generally for the interests of the party in this position that the mortgage should not merge, but should be preserved to retain a priority over other encumbrances. As the mortgagee acquiring the land is not the debtor party bound to pay off either the mortgage or the other encumbrances on the land, there is nothing to prevent equity from carrying out his presumed intent, by decreeing against a merger.” Pomeroy’s Equity Jurisprudence (3 ed.), vol. 2, § 793.

In 27 Cyc., page 1381, the doctrine is stated as follows: “Where a mortgagee receives a conveyance of the equity of redemption, his estate under the mortgage will not merge, but will be kept alive to enable him to defend under it against all liens of third persons, whether by mortgage, judgment, or otherwise, attaching between the execution of the mortgage and the giving of the deed, if his intention to that effect is shown, or if there is nothing to rebut tbe presumption tbat bis intention corresponded with bis interest.”

Many cases are cited in support of tbe rule, and among them is tbe case of Cohn v. Hoffman, 45 Ark. 376. In tbat case tbe court beld: “Tbe purchaser of mortgaged land at a sale under execution issued upon a judgment rendered against tbe mortgagor since tbe recording of the mortgage, acquires only tbe mortgagor’s equity of redemption, and can not maintain ejectment against tbe mortgagee in possession after tbe breach of tbe condition of tbe mortgage. His remedy is by bill in equity to redeem.”

In the case of Neff v. Elder, 84 Ark. 277, the court said that the doctrine of the merger of the mortgage lien with the legal title when they are united in the same person has no application in a case where the principles of equity demand that they be treated as separate.

(2-3) In the application of this doctrine to the facts in the present case, it may be said that the lien created in favor of Payne by the execution of the deed of trust on the lands in controversy to him by Britt is not extinguished in equity by the subsequent conveyance of the land to him by Britt, so as to let in a junior lienor in preference to him. The mortgage will be treated as existing, and the land, in the bands of Payne, is not liable to any greater extent to the payment of the ben acquired by the issuance and levy of the execution than it would have been if the land bad remained in the bands of Britt. Tbe judgment is subordinated to the lien of the mortgage and the junior lienor may redeem.

It follows that tbe chancellor did not err in bolding tbat tbe plaintiff could acquire possession of tbe premises only by paying off tbe $500 and tbe accrued interest which was secured by tbe deed of trust executed by Britt to Payne.

In reference to the issues raised by the cross-appeal, it may be said that the statement of facts shows that the land was sold under the execution after the sixty days within which the sheriff bad to return the execution bad expired. In the ease of Hightower et al. v. Handlin & Venneys, 27 Ark. 20, it was held: “The sale of real estate, under an execution, after the return day, is without authority and void.”

In the subsequent case of Huffman v. Gaines, 47 Ark. 226, the court held that a debtor may waive an improper notice of the sale of his property under execution, and does waive it when he suffers the execution to be satisfied, and accepts the surplus of the proceeds of the sale and retains them, after notice of the irregularity. The court further said: “It has been held that even where the sale is void, receiving the purchase money by the debtor would make it valid.”

In the present case, there was no surplus arising out of the sale under execution and consequently the execution debtor did not receive any of the proceeds of the sale under execution. But the land was purchased for the amount of the judgment against the execution-debtor, and was applied to the satisfaction of the judgment, and, as far as the record shows, no objection was made thereto by the execution-debtor. In other words, Cowling bid in the land for the amount of the judgment and costs against Britt, and paid that amount to the sheriff, which was applied in satisfaction of the judgment.

In the case of Neff v. Elder, supra, the court held that a purchaser of land whose money was used in discharging a valid mortgage lien thereon, upon failure of his. title, will be subrogated to such lien as against the intervening rights of another.

In the case of Bond v. Montgomery, 56 Ark. 563, Mr. Justice Battle, speaking for the court, said: “Upon the right of purchasers at void execution or judicial sales to subrogation to the rights of creditors to the payment of whose claims the purchase money paid by them has been appropriated, courts are not. agreed. Many consider them as volunteers acting without compulsion and for no purpose of protecting any interest of their own, and under a mistake of law, and therefore not entitled to the protection of courts of equity. On the other hand, others hold that the doctrine of subrogation rests upon the natural principles of equity and' justice; that purchasers at such sales who are entitled to the benefit of subrogation are not volunteers that they purchase at a sale made under the coercive process of law, under the honest belief that they are getting the property sold, and their money is actually applied to the benefit of the owner in paying his debts or removing charges or liens upon his property; and that it would be in the highest degree inequitable and against good conscience to permit the owners, the administrators or creditors, as the case may be, to hold or enjoy at the same time the benefit of the property sold, and the money of the purchaser without recompense, and that, in order to prevent this injustice and wrong, they should be subrogated to the rights of the creditors, or to the benefit of the liens or charges, to the payment of whom or which their money has been applied. According to the latter view, it is the belief of the purchaser that he is getting the property sold, and the actual application of the money to the benefit of the owner in paying his debts in removing a charge or lien on his estate, which constitute the equity. There is no conflict between this view and the maxim of caveat emptor. That maxim applies where there is a failure of title, ‘because of a want of ownership in the property by the defendant in the execution or in the intestate,’ or testator, ‘but it does not apply to the defects in the title of the purchaser occasioned by a failure of the sale to pass the title of the defendant’s intestate,’ or testator. The later view has been adopted by this court, and is sustained by the- decided preponderance of authority.” (Citing authorities.)

(4-5-6) Subrogation is a doetrineof purely equitable origin, and in its operation is always controlled by equitable principles. In the application of the doctrine to the facts in the present case we are of the opinion that Cowling is entitled to be subrogated to the lien of the judgment-creditor in the case of Stanley v. Britt, et al., and is entitled to have the land sold for the repayment of the amount to him of the purchase money paid by him for the land under the execution sale, and, upon the payment of the amount of the mortgage debt of $500, and the accrued interest to Payne, he will be subrogated to Payne’s rights under the mortgage, and will be also entitled to have the land sold for that purpose.

It follows that so much of the decree as holds that the hen of Payne for the sum of $500 and the accrued interest, secured by the deed of trust executed to him by Britt, was a prior lien on the land will be upheld. And,' in the application of the doctrine of subrogation, if the plaintiff, Cowling, elects to discharge this debt of Britt to Payne and redeem from the mortgage, he will be entitled to be subrogated to the rights of Payne and to have the land sold for that purpose.

As above stated, he will be subrogated to the rights of the judgment-creditor, and will be entitled to have the land sold for the purpose of repaying him the amount he paid under the execution sale for the land.

The decree will therefore be reversed and the chancellor directed to enter a decree in accordance with this opinion.