Garrard v. Hibbard , 152 Ky. 672 ( 1913 )

Opinion of the Court by

Judge Settle

Reversing.

Tbe appellee, Scott Hibbard, being the owner of two notes on Charles R. White and his wife, Eliza White, one for $433.00, dated February 27th, 1908, due one year-after date and bearing eight per cent interest from date-until paid, the other of $100.00 dated December 19,'1910, due one year after date, bearing eight per cent interest from date until paid and each secured by a mortgage on the same lands, viz., two tracts lying in Clay County, executed simultaneously therewith, brought this suit in the Clay circuit court to recover personal judgment thereon against the obligors, and to enforce each mortgage lien in satisfaction of the note it was executed to secure. The appellants, W. T. Garrard, E. G. Garrard, J. W. Reid and G. G. Carnahan, as partners under the firm name and style of Garrard & Company, were made defendants, because, as alleged -in the petition,* they caused to be levied upon the two tracts of lands covered, by appellee’s mortgages, three several executions issued upon judgments in their favor, and when the lands were sold by-the sheriff under these executions they became the purchasers thereof at their bid of $369.48.

It was alleged in the petition that the sale of the lands under the executions was void because of the existence of appellee’s mortgages which were then and when the executions were issued and levied, of record in the office of the cleric of the Clay County court.

Appellants filed an answer and counter claim containing two paragraphs. In the first it was denied that the two notes or any part of either remained unpaid, and also denied that appellee by virtue of the mortgages mentioned acquired or had any liens upon the lands, or any part thereof, described in the petition. While the pleading did not attack the validity of the mortgages, its denial that the notes were unpaid, in effect, alleged their satisfaction end the discharge of the liens.

The second paragraph set out the several executions issued in appellants favor against C. R. White, the levy jof the same upon the lands embraced in the mortgage, ¡the sale thereof and its purchase by appellants; and also alleged that the amount realized by the sale did not fully satisfy the execution debts or amount to two-thirds of the. appraised value of the lands, and that for this reason, other executions for what remained unpaid of appellants’ judgment debts, were issued and levied upon [White’s equity of redemption in the lands and same, when- sold by the sheriff, was also purchased by_ appellants. The answer and counterclaim failed to give the ¡dates of the issuance of the executions or of the levies, ¡but alleged May 1, 1911, as the date of the sale of the lands thereunder. The date of the sale of the equity of redemption was not stated.

By an amended answer and counterclaim, filed after the taking of all the evidence, appellants admitted that the $100.00 note secured by the second mortgage was wholly unpaid, but alleged that the note for $433.00, secured by the first mortgage had been reduced by payments made by White to appellee to $25.00 or $30.00, which amount, with its accrued interest, was all that was due thereon. C. R. White and wife made no defense to the action.

Following the submission of the case the circuit court gave appellee a personal judgment against White and ¡wife for the amount of the two notes and interest and directed a sale of the mortgaged lands, or enough thereof to pay same and appellee’s costs, but declared the levies upon the lands and their sale under appellants’ execution void; and from that judgment the latter have appealed.

Appellants failed to prove, as alleged in their answer, that all of the $433.00 note secured by the first mortgage executed' by White and wife, save $25.00 or $30.00, had been paid. The appellant, E. G. Garrard, testified that C. R. White told him this was so, and White in some sort reluctantly admitted that he might have so informed Garrard, but that the information was "not true. This admission of White was incompetent as to appellee, as it was not made in his presence or with his knowledge. It was, however, admissible to contradict and thereby discredit White as a witness.

Both appellee and White admitted that some time in May of the year 1908, the former, by direction of the latter, and out of the proceeds of a $500.00 land note, which he discounted for him in bank, entered with a pencil a credit of $398.00 upon tbe back of the $433.00 noté which was, however, as they testified, in December, 1910, by request of White, rubbed off the note by appellee and the $398.00 applied in liquidation of several smaller! and unsecured notes which White was owing Jhim.

If it had been made to appear from the evidence that the erasure of this credit from the $433.00 note and the application of the $398.00 to the payment of the other debts White was owing appellee, occurred after the levy of appellants’ executions or while they were in the hands of the sheriff, the law would have required the circuit court to declare the act illegal as to appellants and compel the application of the $398.00 as a. credit on the $433.00 note; but the evidence is silent on that subject. It is alleged in the original answer and undenied by the .reply that the sale of the lands under appellants’ executions occurred May 1, 1911, which was five months after the erasure of the credit from the note and the application of the amount thereof to the satisfaction of . other-debts- owing appellee by White. It does not therefore appear from the pleadings or proof when appellants’ executions were issued, when they went in the sheriff’s hands or .were levied, or even when the judgments, authorizing their issuance were rendered. In view of such want of proof the right of appellee and White to erase the credit from the $433.00 note and apply it on other indebtedness of the latter, cannot be questioned by appellants, who must be regarded as subsequent creditors.

It is, however, insisted for appellants that-as appellee’s reply failed to specifically deny the allegations-of its amended-answer and counterclaim as to. the payment of all the $433.00 note, except- $25.00 or $30.00, the- court should have only given appellee judgment on the - note in question for such balance and its accrued interest.

. This contention cannot prevail, for the allegation of the petition that the $433.00 note was wholly unpaid rendered a denial of any subsequent allegation in appellants’ pleadings that it had been in whole or in part paid unnecessary. Logan Co. Nat. Bank v. Barclay, 104 Ky., 97; Ermert v. Dietz, 19 R. 1639.

The circuit court was in error, however, in refusing' appellants all relief. The levy of their executions -on the lands embraced in appellee’s mortgages was not invalid, nor was the sale of the lands by the sheriff, under the executions void. On the contrary, appellants by their purchase of the lands under the executions acquired a lien thereon for the amount of their bids subject to the mortgage liens in favor of appellee.

Section 1709, subsection 1, Kentucky Statutes, applying to sales of encumbered property under execution provides:

“The purchaser at the sale shall acquire a lien on such property for the purchase money and interest at the rate of ten percentum per annum from the day of sale until paid, subject to the prior encumbrance.”

Subsection 2 provides:

“The defendant in the execution may redeem the property so sold by paying the original encumbrance with legal interest thereon, and by paying the purchaser his purchase money with ten percentum per annum interest thereon.”

In Wilson, &c., v. Flanders, &c., 114 Ky., 534, quoting from Atkins v. Ellison, 10 Bush, 13, we said :

“It has been repeatedly held by this court that since the adoption of the revised statutes, the purchaser at the sale of real or personal estate, upon which there was a bona fide encumbrance by mortgage, etc., acquired only a lien on the property for the purchase money paid by him and ten per cent interest, subject to the prior encumbrance. * * * The defendants in the execution having failed to redeem the land, the only remedy left the appellant (purchaser) for the collection of his money was in resorting to a court of equity to enforce his lien, and in doing so it was incumbent on him to make all the parties interested defendants to the action. * * * The Legislature never intended by the act in question to deprive the owner of his title, but, on the contrary, not only permitted him to redeem it, but gave to the purchaser only a lien .subordinate to the bona fide encumbrances preceding it, and in the disposition of the property, or its proceeds, under the judgment of a court of equity enforcing these liens, the remnant of the mortgaged estate belongs to the mortgagor. * * This lien for purchase money, made so by the statute, is in effect a junior mortgage, with the exception that when the purchaser acquires this lien by . sale under execution it extinguishes the original debt, and the liability on the part of the original execution debtor no longer exists. The debt for execution having .been satisfied the purchaser must look to the property on which this lien exists by reason of the execution* sale for his indemnity, and no where else, as he agrees in making the purchase to pay the debt for the lien subject to the prior encumbrance.”

So in this case the circuit court in enforcing the mortgage liens for the satisfaction of appellee’s two notes should at the same time have determined the rights of appellants as purchasers of the lands at the execution sale. To this end, however, appellants should have been required, by an amended answer, made a cross petition against C. E. White and wife, to assert the lien acquired by them under their purchase of the lands at the execution sale and ask its enforcement by a sale of the land, subject to the liens created by the mortgages executed by the Whites to secure the payment of appellee’s two notes.

Upon the return of the case to the circuit court it will require appellants to file such amended answer and cross petition, and, when White and wife shall have been brought before the court thereon, judgment shall be entered directing a sale of the lands in question, or enough thereof, to pay, first, the mortgage debts due the appellee and his costs, and second, to pay appellants the amounts bid by them for the lands at the execution sale, with interest at the rate of ten percentum per annum from the date of their purchase, and costs.

For the reasons indicated, the judgment is reversed and cause remanded for proceedings consistent with the opinion.