Peterborough Savings Bank v. Pierce , 54 Neb. 712 ( 1898 )

Ragan, C.

January 15, 1889,- A. W. Pierce was the owner of lot •3, in block 1, Brigg’s Place Addition to the city of Omaha.' On that date Pierce, being indebted to the Kimball-Ohamp Investment Company, executed and delivered to said company his three notes, one for $1,500 and two for $50 each. These notes were payable to the order of the investment company and due five years after date and bore .interest payable semi-annually. January 15, to secure the payment of said notes, Pierce executed and delivered to the investment company two mortgages upon the above described real estate, one securing the $1,500 note, which was made a first lien upon the property, and the other securing the two $50 notes, and' it was a second lien upon the property. These mortgages were duly recorded about the date of their execution. February 6, 1889, the investment company sold, assigned, and delivered, the $1,500 note and the mortgage securing the same to the Peterborough Savings Bank, a New Hampshire corporation, but the savings bank never placed of record the assignment of the mortgage made to it by the investment company. Subsequent to this date the investment company assigned the two $50 notes and the mortgage securing the payment of the same to one M. C. Patrick. In September, 1889, the investment company brought a suit in the district court of Douglas county, claiming that it was then and there the owner of the said $1,500 note and the mortgage securing the payment of the same; that Pierce had made default in the payment of an installment of interest due thereon, by reason of which the entire mortgage debt had become due, and prayed the court for a decree foreclosing that mortgage. To this suit Patrick was a party and he filed therein a cross-petition setting out that he was the owner of the two $50 notes above mentioned and the mortgage securing the same and prayed for a foreclosure of his mortgage. In December, 1890, this case came on for hearing, and the district court found that the investment company was then and there the owner of the $1,500 note and mortgage and that there was a large sum due to it on said mortgage from said Pierce. The court also found that Patrick owned the two $50 notes and the mortgage securing the same, what was due on that mortgage debt, and entered a decree foreclosing the Patrick mortgage and ordering the real estate sold for its payment. But the decree foreclosed the Patrick mortgage subject to the $1,500 mortgage and ordered the real estate sold subject to the lien of that mortgage. The real estate was so sold and purchased by Patrick, the sale confirmed, and a master’s deed executed to him for the real estate. This deed recited that the conveyance was made to him subject to the $1,500 mortgage. To this suit the savings bank was not a party, nor had it any knowledge, until years afterward, that such a suit had ever been brought, and at the time the suit was brought, and at all times after February 6, 1889, it owned the $1,500 mortgage and the debt which it secured, which the investment company claimed in that suit it owned and which the court found it owned. October 8, 1891, Patrick conveyed the real estate which he had purchased at the mortgage foreclosure sale and two other lots in the same block to the investment company, the conveyance reciting “that such premises are free and clear of all liens and incumbrances except three mortgages of $1,500 each and interest and taxes now due.” After the conveyance by Patrick to the investment company it became indebted to one Hendee, and she brought a suit against it and caused the property embraced in this controversy, fount, said lot-3, in said block 1, to be attached. Hendee procured a judgment against the investment, company for a considerable sum of money and an order that the attached property should be sold for the payment of such judgment. The sale occurred, and one Smith, as the assignee of the Hendee judgment, purchased the property. This sale was confirmed and in due time a sheriff’s deed executed to Smith. This deed was recorded December 28, 1893. June 14, 1894, Smith conveyed the property to one Wertman, and on July 5, 1894, Wertman conveyed it to Bert O. Carver, who still owns it. On this same date Carver executed to Smith a mortgage upon the real estate which he then or soon afterward assigned to Wertman, who now holds the same. June 20, 1894, one Mary Stack recovered a judgment against the said Hendee and the said Carver, and on October 22 of said year she brought a suit in the district court of Douglas county to subject the property in controversy here to the payment, of her judgment. Thus matters stood when on February 9, 1895, the savings bank brought this suit in the district court of Douglas county to foreclose the $1,500 mortgage. To this suit Pierce, the original mortgagor, Carver, the owner of the real estate, 'Wertman, the assignee of the' mortgage made by Carver to Smith, Stack, Hendee, and others were parties. Carver claimed to be the owner of the real estate discharged of the lien of the mortgage sought to be foreclosed. 'Wertman claimed to have a first lien upon the real estate by virtue of the mortgage executed by Smith and by the latter assigned to him.

Since the only title which Carver has to the real estate comes through Smith, the purchaser at the Hendee attachment sale, it is only necessary to inquire into the correctness of this decree as affecting Carver’s title. Before Smith purchased at the attachment sale he examined the public real estate records of Douglas county, and they did not disclose any assignment of the $1,500 mortgage from the investment company, but did disclose that the investment company, while the apparent owner of that mortgage, acquired the legal title to thé real estate upon which the mortgage was a lien, this conveyance of the legal title not evidencing any intention on the part of the investment company to keep the two estates separate. Smith at this time had notice neither actual nor constructive that the $1,500 mortgage had been assigned by- the investment company to the savings bank, and, relying upon the facts disclosed by the record, he was led to believe, and did believe, that at the time the investment company accepted the conveyance of the legal title it was then the owner of the $1,500 mortgage, and that a purchaser of the real estate at the attachment sale would take the title to such real estate discharged from the lien of such mortgage. Influenced by the knowledge and the notice thus furnished him by the records Smith purchased the real estate in cqntroversy at the Hendee attachment sale for a valuable consideration, obtained a deed therefor, and caused it to be recorded.

The decree of the district court, as we understand it, is based upon the following proposition: That bad the investment company actually been the owner of the $1,500 mortgage at the time it received the conveyance of the legal title of the real estate from Patrick, there being no intervening estate, that then, by operation of law, the two estates would have merged and the mortgage been satisfied; and from the condition of the record and Smith’s want of notice that the $1,500 mortgage bad been assigned, be was justified in supposing that the mortgage bad been merged in the legal estate, and is, therefore, a purchaser in good faith without notice, within the meaning of section 16, chapter 78, Compiled Statutes, and entitled to bold the real estates purchased discharged of the savings bank’s mortgage. It is a general rule that where two unequal estates vest in the same person at the same time without an intervening estate the smaller is thereupon merged in the greater. (2 Cooley’s Blackstone [3d ed.] 277; 2 Washburn, Real Property 564.) But merger does not always or necessarily result when two unequal estates coincide in the same person without an intervening estate. Whether the two estates will be held to have coalesced will depend upon the facts and circumstances in the particular case, the intention of the party acquiring the two estates, and the equities of the parties to be affected thereby. (See the rule stated and the authorities collated in 15 Am. & Eng. Ency. Law 321; Miller v. Finn, 1 Neb. 254; Wygant v. Dahl, 26 Neb. 562; Henry & Coatsworth Co. v. Fisherdick, 37 Neb. 207; Mathews v. Jones, 47 Neb. 616.) Had the investment company then owned the $1,500 mortgage at the time it acquired the legal title to the real estate upon which it was a lien, it could not be held, as a matter of law, that Smith, by purchasing this real estate under the Hendee attachment suit, would have taken it discharged of that mortgage, even as against the investment company. The conduct of the investment company might have been such in the premises that it would have been estopped from asserting the mortgage against Smith’s title; but simply because it held the mortgage at the time it acquired the legal estate upon which the mortgage was a lien, and that Smith purchased this legal estate at execution sale, would not, without more, have entitled him to hold the real estate discharged of the mortgage. The doctrine of caveat emptor has always been applied by this court to purchasers of real estate at execution sales, and, except when controlled by the registry acts, a purchaser of real estate at an execution sale acquires only the interest which the execution debtor had in such real estate when the lien attached under which the sale occurred; that the sheriff’s or master’s deed has only the effect that a quitclaim deed from the execution debtor to the purchaser would have if made and delivered at the date when the lien attached on which the judicial sale is based. (Miller v. Finn, 1 Neb. 254; Norton v. Nebraska Loan & Trust Co., 35 Neb. 466; Butler v. Fitzgerald, 43 Neb. 192; Hargreaves v. Menken, 45 Neb. 668; Nye v. Fahrenholz, 49 Neb. 276; Motley v. Motley, 53 Neb. 375.)

We do not think that Mr. Smith was a subsequent purchaser in good faith without notice .within the meaning of the section of the statute just quoted. That he purchased the real estate in good faith, that he paid value for it at the time, having no notice or knowledge that the savings bank held this mortgage, stands undisputed in the record. But before he purchased this real estate he examined the real, estate records of Douglas county and they disclosed that in January, 1889, Pierce owned this real estate; that at that time he executed and delivered to the investment company the mortgage in controversy; that subsequently Pierce’s equity of redemption in this real estate was sold to Patrick subject to the mortgage, and that Patrick subsequently conveyed Pierce’s equity of redemption to the investment company. At the time Mr. Smith purchased the real estate the investment company held the title to the land and the mortgage upon the land as disclosed by the record. But Smith made no inquiry, so far as the record before us shows, of the investment company as to whether it intended, by taking the conveyance of the legal title to the land, that the mortgaged estate should be merged in such legal title; nor did he make any inquiries of the investment company as to the whereabouts of the $1,500 mortgage or the note which it secured; and he was not justified in presuming that the two estates had merged in the investment company. This mortgage secured a negotiable promissory note which was not then due, and the record of this mortgage was of itself a notice and a warning to all persons dealing with this real estate to beware. The presence of the mortgage upon the record unsatisfied was of itself sufficient to put an intending purchaser of this real estate upon inquiry as to the whereabouts of the note which it secured and as to whether it had been satisfied by operation of law or otherwise. The presence of the mortgage upon the record unsatisfied was a notice to an intending purchaser of this real estate that, if the investment company owned the mortgage and the legal title to the land upon which it was a lien, as well by keeping the mortgage upon the record unsatisfied, it intended at the time of acquiring the legal title to keep the two estates separate.

This case is not ruled by Whipple v. Fowler, 41 Neb. 675, nor by Porter v. Ourada, 51 Neb. 510, but is controlled by Mathews v. Jones, 47 Neb. 616, which holds that one who purchases the legal title of real estate from a mortgagee thereof, the mortgage securing a negotiable, unmatured promissory note being of record, is not a purchaser without notice, within the meaning of recording acts, and entitled to protection against such mortgage then in the hands of a Iona fide purchaser thereof, although such purchaser had neglected to record his assignment. Furthermore, the record discloses that, when the property was appraised for sale in the attachment suit, the mortgage in suit was deducted from the appraised value of the property. Smith, therefore, purchased subject to the mortgage in suit, as the record in the attachment suit disclosed.

The decree appealed from is reversed and the cause remanded to the district court with instructions to enter a decree in favor of the savings bank foreclosing its mortgage as prayed for in its petition.

Reversed.

Harrison, C. J.-, and Norval, J., concurring in the above opinion of Ragan, O.