Thomas v. Hudson , 190 Ga. 622 ( 1940 )

1. The due filing for record of a valid mortgage on realty affords good constructive notice of the instrument to subsequent purchasers and lienholders claiming under the mortgagor, even though the indexing and recording of the mortgage may be erroneously made on books not relating to realty.

2. Assignees from the mortgagee of such an instrument thus filed for record will not lose priority over subsequent purchasers or lienholders from the mortgagor by the fact that no assignment of the prior mortgage is recorded or filed for record.

3. As between the parties and their privies, including subsequent assignees of the mortgagor, except those without either actual or constructive notice, where a mortgage purports to create a lien in praesenti on property then owned by the mortgagor, although title may be in another, the subsequent acquirement of such title by the mortgagor will inure to the benefit of the mortgagee acting in good faith, or his assignee, and the lien will attach to the property the moment title is acquired.

4. A valid agreement not to sue on a demand until the happening of a certain event will suspend the running of the statute of limitations during such intervening period.

5. In so far as this petition by a purchaser from a subsequent grantee of the mortgagor sought a decree that the mortgage, if held valid, should be first enforced against those portions of the mortgaged land which were acquired by defendant purchasers and lienholders after the deed to the petitioner was recorded, and sought to adjust the equities of the defendants with respect to such mortgage, the provision in the mortgage that it could not be enforced during the life of the mortgagor's father, who is still living, rendered such part of the petition premature, whether or not any such equitable right may later exist.

6. In so far as the petition sought damages against the grantor in the deed to the petitioner and against the persons who conveyed the land to such grantor, on account of the alleged breach of their warranties of title, the petition showed no cause of action, since there was no averment that the petitioner had paid off the outstanding incumbrance.

7. Questions raised by other prayers, such as those for reformation of a subsequent recorded security deed, executed by the petitioner's grantor to a third person, so as to exclude petitioner's land from the description in such deed, not having been decided by the trial court, are not determined.

8. Under the preceding rulings, the court did not err in sustaining the general demurrers of the defendant assignees of the mortgage, and in dismissing the petition as to them.

No. 13186. JULY 10, 1940. The petition of F. G. Thomas against J. B. Waddell, J. B. Hudson, Grover F. Hudson, J. P. Bush, Mrs. Laura M. Bush, C. C. Duncan, and the First National Bank of Atlanta, as amended, alleged as follows: The petitioner, by warranty deed from J. B. Waddell, dated February 12, 1937, filed for record on the same date, holds title to eight acres of land, as described, in DeKalb County. J. B. Hudson and Grover F. Hudson, as heirs and next of kin of F. P. Hudson, who died in 1930, hold the legal or equitable title to a mortgage and note under seal, dated September 1, 1917, from J. P. Bush to F. P. Hudson, for $607.32. This instrument provided that it was due twelve months after date, with eight per cent. interest from date, but also contained under the same date a provision signed by the mortgagee, as follows: "I hereby covenant and agree with the giver of this note not to sue or enforce the collection of this note during the life of his father and mother, and also to give 12 months after their deaths." The mortgage note, signed by the mortgagor, contained this further provision: "I hereby covenant that I have the right to make this mortgage." While the mother of the mortgagor has died, the father is still in life. The mortgage covered twenty-four acres of land, containing petitioner's eight acres. While it was filed for record on December 16, 1929, and recorded on December 19, 1929, it was not indexed and recorded in any book which indicated that it affected the title to realty, in that it was recorded in a chattel-mortgage book and indexed in a book relating to chattel mortgages. It had been the custom of the clerk of the superior court for a long number of years, known and relied upon by the public, to keep a system of books in which deeds, liens, and instruments affecting title to realty were recorded, with a system of index books of grantors and grantees of such instruments, separate and distinct from a set of books for recording chattel mortgages and an index of such mortgagors and mortgagees, the wording of the index to realty deeds and mortgages being in substance, "Index to Deeds Mortgages," and the index to the chattel mortgage books being "Filing Docket General Index to Mortgages." Before buying his eight acres from Waddell on February 12, 1937, petitioner caused an attorney to search the records as to the record title; and a careful search of the books where instruments affecting realty had been recorded according to the long prevailing system of the clerk's office failing to show any outstanding lien, petitioner purchased his property in good faith, without notice; and by reason of said defective record petitioner's title is superior to said mortgage. On February 22, 1937, ten days after petitioner's purchase, a proper entry as to said mortgage was made on the index book of deeds and mortgages affecting real estate.

The petition attacked the mortgage on the further grounds: that J. B. Hudson and Grover F. Hudson never recorded any assignment of the mortgage to them; that at the time J. P. Bush executed the mortgage in 1917, the title to the land was not in him but in his mother, who did not die until some time before 1930, and whose executor in that year executed a deed of the property to him, and therefore the mortgage was void as covering a mere possibility; and that the legal effect of the provision making the mortgage due twelve months after date, September 1, 1917, and of the mortgagee's covenant not to sue during the lives of the mortgagor's father and mother "and also to give twelve months after their deaths," the father being still in life, was to render the instrument barred by the statute of limitations, since more than twenty years have elapsed from the due date of the instrument.

The petition further alleged: In 1931, J. P. Bush and Laura M. Bush conveyed to C. C. Duncan a triangular tract which was part of the twenty-four acres covered by the mortgage, but is not a part of petitioner's eight acres. By a recorded warranty deed, dated January 22, 1937, J. P. Bush conveyed to J. B. Waddell title to the twenty-four acres, excepting only the tract previously conveyed to Duncan. After the warranty deed from Waddell to petitioner, conveying eight acres, had been filed for record on February 12, 1937, and after a proper entry of the mortgage had been made on February 22, 1937, on the clerk's index of mortgages affecting realty, Waddell executed to the First National Bank of Atlanta a security deed for $918.03, dated April 14, 1937, and recorded April 17, 1937, which remains unsatisfied, and which purports to cover twenty-two acres of the land conveyed by Bush, without excepting the eight acres previously conveyed to petitioner. He can not obtain a merchantable title to the eight acres until the 1917 mortgage to Hudson is canceled of record as invalid. Petitioner has unsuccessfully demanded of his grantor and warrantor, Waddell, that he clear the title to such property. In the event such mortgage should be held to be a valid lien, all persons interested in the land affected by the mortgage have been made parties to the petition, and the priorities and liabilities of all parties to the suit should be fixed by a decree. If the mortgage is valid, and the amount necessary to discharge it can not be made out of the land remaining in Waddell after his conveyance of the eight acres to petitioner, then Waddell, J. P. Bush, and Laura M. Bush, as warrantors of the title, are liable to petitioner "for any excess necessary to discharge said claim, together with costs" and a reasonable attorney's fee. If the property purchased by C. C. Duncan is also subject to said mortgage as valid, his rights and liabilities should be fixed in this suit; and if said mortgage is valid, "it should be first set up and enforced against the property which remained in Waddell after the part thereof deeded to petitioner, and especially so without reference to any sum owed to [said] bank;" and "since said bank is not entitled to any conveyance covering any part of the property purchased by this petitioner, said bank's . . security deed should be reformed to speak the truth and except your petitioner's land." The prayers were: that the mortgage to Hudson be decreed null and void, and be canceled; that if it can not be canceled, the remaining property of Waddell, on which the bank holds a security deed, be first subjected to the satisfaction of the mortgage; that, as between the petitioner and the defendant Duncan, the court adjust their rights and equities as may be reasonable and proper; that petitioner recover a reasonable attorney's fee; that in all events he recover a judgment against the defendants, Waddell, J. P. Bush, and Mrs. Laura M. Bush, as prior warrantors of the title, for all damage, attorney's fee, and costs; and that he have such other and further relief as may seem just and proper.

Only the defendants, J. P. Hudson, Grover F. Hudson, and the First National Bank of Atlanta, filed any defense. Only the Hudsons filed general and special demurrers. Only these demurrers were passed on. The court dismissed the action only as to the Hudsons, on the grounds that no legal reason was set out as to why the mortgage to Hudson should be canceled, and that no cause of action was set out against such defendant assignees of the mortgage. 1, 2. By section 1 of the act of 1889 (Ga. L. 1889, p. 106; Code, § 67-2501), it is provided that "deeds, mortgages, and liens of all kinds, which are now required by law to be recorded in the office of the clerk of the superior court of each county within a specified time, shall, as against the interests of third parties acting in good faith, and without notice, who may have acquired a transfer or lien binding the same property, take effect only from the time they are filed for record in the clerk's office." The act has the usual repealing clause. The Code, § 67-111, contains provisions, which were in existence at the time of that act, and have been embodied in all the Codes since the Code of 1863, that: "A mortgage recorded in an improper office, or without due attestation or probate. or so defectively recorded as not to give notice to a prudent inquirer, shall not be held notice to subsequent bona fide purchasers or holders of younger liens. A mere formal mistake in the record shall not vitiate it." Construing though "the act approved March 24, 1933 . . , adopting the present Code of Georgia, had the effect of enacting into one statute all of the sections of that Code," the rule of construction obtains that "where two sections of the Code are found to be in irreconcilable conflict, and both sections are derived from acts of the legislature, this conflict must be settled by resort to the original acts from which the conflicting sections are derived, and that section which is derived from the later act of the legislature must control."Atlanta Finance Co. v. Brown, 187 Ga. 729, 731 (2 S.E.2d 415), and cit.; Lamar v. Allen, 108 Ga. 158, 165 (33 S.E. 958). With respect to deeds, the later statute (§ 67-2501) has been given effect in numerous decisions. In Willie v.Hines-Yelton Lumber Co., 167 Ga. 883 (5), 891 (146 S.E. 901), it was held: "Where a deed which appears on its face to be entitled to record is filed for record in the office of the clerk of the superior court of the county in which the land lies, it takes effect, as against third persons without notice, from the time it is so filed. The actual recording is the duty of the clerk, and the statute does not contemplate that . . an erroneous performance of [such duty] shall operate to defeat the grantee who has properly filed his deed." To the same effect areDurrence v. Northern National Bank, 117 Ga. 385, 386 (43 S.E. 726); Greenfield v. Stout, 122 Ga. 303 (2), 305 (50 S.E.

111). With respect to mortgages, the later statute has been given similar application in Touchstone Live Stock Co. v. Easters,172 Ga. 454 (157 S.E. 683), where it was held that "the lien of [a] mortgage on . . realty will be effective as against subsequent purchasers from the mortgagor from the date of . . filing;" and the fact that the clerk of the court might have kept two books for such entries or records, and might have made his entry of the mortgage relating to realty in a book relating to personality, would not vary the rule. See Merchants MechanicsBank v. Beard, 162 Ga. 446 (5), 454 (134 S.E. 107), to like effect with regard to bills of sale to secure debt. Accordingly, under the above rule of construction and these decisions, the mortgage on land here in question, having been duly filed for record in 1929, although it was not then indexed in a book relating to instruments affecting realty, and although it was recorded in a chattel-mortgage book, was not for those reasons subject to cancellation on this petition of a purchaser, who, though without actual notice of the mortgage, bought part of the mortgaged land after the mortgage had been duly filed. This is true even though it be assumed, as alleged by the petition, that the prudent inquiry and search, by the attorney for the purchaser, of the record books relating particularly to realty would not have disclosed the record of the mortgage. Nor did the defendant assignees of the mortgage lose their priority over the subsequent purchaser and his predecessor in title by the fact that no assignment of the prior mortgage was recorded.

3. It is the general rule that where a person executes a mortgage creating a lien in praesenti on property expressly or impliedly purporting to be then owned by him, even though he may not have title, after-acquired title inures to the benefit of the mortgagee taking in good faith, and the mortgage lien attaches against the mortgaged property the moment the mortgagor's title is acquired or vested. Swift Co. v. First National Bank,161 Ga. 543, 547 (132 S.E. 99); Parker v. Jones, 57 Ga. 204 (3), 205; Terry v. Rodahan, 79 Ga. 278, 292 (5 S.E. 38, 11 Am. St. R. 420); Lathrop v. White, 81 Ga. 29, 35 (6 S.E. 834). "The idea upon which this rule is based is, that when one gives a mortgage upon land to secure a debt, he is estopped by the recitals in his contract creating the lien from denying his title to the mortgaged premises." Hill v. O'Bryan, 104 Ga. 137, 143 (30 S.E. 996); Usina v. Wilder, 58 Ga. 178 (2); Allen v. Lathrop, 46 Ga. 133 (2), 137; Sutlive v. Jones, 61 Ga. 676 (3), 679;Boisclair v. Jones, 36 Ga. 499; Mims v. Wight, 78 Ga. 12 (2) (3 S.E. 447); Marable v. Mayer, 78 Ga. 60; Carter v. Jackson, 115 Ga. 676 (3) (42 S.E. 46). The Code, § 29-111, declares: "The maker of a deed can not subsequently claim adversely to his deed under a title acquired since the making thereof. He is estopped from denying his right to sell and convey." There is a line of decisions of this court, laying down this principle, which refer to the fact of warranty of title contained in the conveyance or mortgage, without, however, going to the extent of directly holding the warranty necessary in order that the subsequently acquired title may inure to the benefit of the vendee or mortgagee. Sikes v. Seckinger, 164 Ga. 96 (1,c), 102 (137 S.E. 833), and cit.; Oliver v. Holt,141 Ga. 126 (2) (80 S.E. 630); Morris v. Butler, 184 Ga. 845 (193 S.E. 883). This principle has been summarized in 41 C. J. 478, § 395, as follows: "It is a general rule, that where a mortgage contains full covenants of warranty, a title acquired by the mortgagor after its execution inures to the benefit of the mortgagee and is bound by the mortgage lien, and that without the aid of such covenants an after-acquired title does not pass in the absence of a statute to that effect. In some cases, however, the rule has been stated, without qualification, that an after-acquired title will inure to the benefit of the mortgagee generally upon the equitable theory that the mortgage operates as an executory agreement attaching to the property when acquired, or on the ground of an estoppel of the mortgagor to defeat or impair the security which . . is given by the hostile use of a subsequently acquired right or title." In Goodson v. Beacham,24 Ga. 150 (2), 153, it was held that where one made a deed to another without a title, but with a warranty, "his deed was an attempt to convey the fee;" and "such being the intention, the consequence would be that if [the grantor] should afterwards acquire the title, he would be bound to convey it to [the grantee], as much so as if the contract were one standing in the form of a bond for titles. Perhaps, this would be the consequence, even without the warranty." It was further held that upon the acquiring of such title, "a perfect equity vested in" the grantee.

While it is true that the Code, § 29-302, provides that "in a sale of land there is no implied warranty of title," no question as to breach of warranty is involved in a case such as this; but, as already indicated, since the creation of a lien in praesenti on particularly described land at least impliedly asserts title thereto, even though there is no express warranty, it is upon the doctrine of estoppel that, unless the instrument shows on its face that no such purpose was intended, as in Dailey v.Springfield, 144 Ga. 395, 400 (87 S.E. 479, Ann. Cas. 1917D, 943), the mortgagor himself and those claiming under him, except purchasers or lienholders without either actual or constructive notice, are precluded, as against the mortgagee acting in good faith, or his assignees, from denying the title which has been asserted. We think, therefore, that the general rule as set forth by this court in the cases first cited in this division of the opinion should not be qualified by imposing as a condition the existence of an express warranty of title by the mortgagor. A different rule might obtain in a conveyance which went no further than merely to disclaim title. See Morrison v. Whiteside,116 Ga. 459, 461 (42 S.E. 729); Taylor v. Wainman, 116 Ga. 795 (43 S.E. 58); Citizens Southern National Bank v.Ellis, 171 Ga. 717 (2, a), 729, 730 (156 S.E. 603). As to whether the rule would apply to a voluntary conveyance need not now be considered. There is, however, still a third line of cases in this State, in which possession by the mortgagor at the time of the execution of the instrument might seem to have been made a factor in upholding the effectiveness of the lien on property thetitle to which is afterwards acquired. Hill v. O'Bryan, supra; Wood v. Dozier, 142 Ga. 538, 540 (83 S.E. 133). The idea behind these references to "possession" is perhaps derived from the language of the Code, § 67-103, which, with an exception as to mortgages securing bond issues, provides that "A mortgage may embrace all property in possession, or to which the mortgagor has the right of possession at the time, or may cover a stock of goods, or other things in bulk, but changing in specifics, in which case the lien is lost on all articles disposed of by the mortgagor up to the time of foreclosure, and attaches to the purchases made to supply their place." This section, as construed by decisions, has manifest reference, not to mortgages purporting to create liens in praesenti upon property then owned by the mortgagor, but to such instruments as "purported to create . . a lien upon any interest in the described [property] which the mortgagor might acquire after the time of [the] execution" of the instrument, which provisions are made invalid with the exceptions stated in the statute.Durant v. Duchesse D'Auxy, 107 Ga. 456 (2), 463, 464 (33 S.E. 478); Penton v. Hall, 140 Ga. 235, 238 (78 S.E. 917);Real Estate Bank Trust Co. v. Baldwin Locomotive Works,145 Ga. 831 (4) (90 S.E. 49); Ga. So. Fla. Ry. Co. v.Barton, 101 Ga. 466 (1, 4) (28 S.E. 842); Lubroline OilCo. v. Athens Savings Bank, 104 Ga. 376, 382 (30 S.E. 409);Hogg v. Fuller, 17 Ga. App. 442 (87 S.E. 760); Passieu v. Goodrich Co., 58 Ga. App. 691 (199 S.E. 775).

The purpose of the statute being thus to prevent (save as to the exceptions mentioned) the inclusion in mortgages of clauses designed to reach forward and create liens on properties, interests, or increment, such as income or increase, then non-existent and subject to the cotingencies of the future, neither the statute nor those decisions control a case such as this, where, although the title was afterwards acquired, the mortgage purported to create a lien in praesenti on a described tract of land, which the mortgagor must at least impliedly have purported to own. Such an implied assertion of title necessarily carries with it a claim of possession, actual or constructive, which, under the doctrine of estoppel, he should not be permitted subsequently to deny as against the mortgagee acting in good faith, or the assignees of the mortgagee. We are of the opinion, therefore, that the general and unqualified rule stated in the numerous decisions by this court should be followed, in a case between such parties and their privies, and as here, between the assignees of such a mortgagee and subsequent purchasers from the mortgagor who had constructive notice of the instrument. It might be mentioned, however, that so far as this particular case is concerned, even if an express warranty or covenant were necessary to make this mortgage on realty operative upon the after-acquired title, such a requirement was fulfilled by the language of the mortgage, which expressly declared, "I hereby covenant that I have the right to make this mortgage." This, under the authority of Moore v. Crawford, 130 U.S. 122, 130 (9 Sup. Ct. 447,32 L.ed. 878), and earlier United States Supreme Court decisions there cited (Van Rensselaer v. Kearney, 11 How. 297, 325,13 L. ed. 631; Irvine v. Irvine, 9 Wall. 617, 625, 19 L. ed. 800), would be the equivalent of an express warranty. See also Code, § 38-114. Likewise, so far as this case is concerned, even if possession of the land by the mortgagor at the time of the mortgage was vital, since the petition of the subsequent purchaser, attacking the validity of the mortgage, merely set up a lack of ownership in the mortgagor at the time of the instrument, and failed to negative possession, the dismissal of the petition on demurrer, for this additional reason, was not erroneous.

4. "A valid agreement not to sue upon a demand until the happening of a particular event [suspends] the running of the statute [of limitations] until such event occurs." 17 R. C. L. 887, § 245; 755, § 121; 37 C. J. 811, § 154; 953, § 323. Accordingly, where, as in this case, the mortgage itself provided, in an alleged valid covenant signed by the mortgagee, that he agreed "not to sue or enforce the collection of this note during the life of [the mortgagor's] father and mother, also to give 12 months after their deaths," and the father still remains in life, the mortgagee being thus deprived of the right to enforce his security until after the agreed period, the statute likewise is suspended. And this is true irrespective of whether or not the effect of the quoted agreement was to change thematurity of the note until twelve months after the death of both parents, or was to leave the maturity the same as expressed in the note, that it was due "12 months after date [September 1, 1917], with interest at 8 per cent. per annum from maturity." The right to sue being suspended in either event, the instrument was not barred by the statute, even though more than twenty years had elapsed from its date.

5. With respect to the remaining averments and prayers of the petition, in so far as they might affect the right to any other relief against the defendant assignees of the mortgage, and the correctness of the judgment dismissing the petition only as to such assignees, the petition sought: (a) A decree setting up and enforcing the mortgage, if held to be a valid lien, first against the land the title to which still remains in the petitioner's grantor, who bought from the mortgagor part of the mortgaged land, and against the defendant bank, which holds a security deed from petitioner's grantor, made after the filing for record of the deed to petitioner, without excepting the land conveyed to petitioner, and a decree adjusting the equities of those parties and of another purchaser, who bought a small part of the mortgaged land from the mortgagor before other purchases; (b) a judgment against the petitioner's grantor and against the mortgagor and another grantor, upon their warranties made in deeds to the petitioner and his predecessor in title, for all damages including attorney's fees and costs sustained by reason of the defect in title from the existence of said mortgage, if held valid; and (c) a reformation of the bank's security deed so as to exclude petitioner's eight acres from the twenty-two acres covered by the description without exception. As to the first stated question, the petition showing on its face that the holders of the mortgage have no right to foreclose it during the lifetime of the mortgagor's father, who is still in life, and this court having no right to assume that when such holders have the right to proceed they would do so otherwise than in accordance with what would be the correct rules of law and equity, the petition is premature in so far as it seeks at this time what would be in effect merely a declaratory judgment as to the future rights and equities of the several parties. Nothing, therefore, is decided as to whether the holders of the mortgage would be required to proceed first against property other than that owned by the petitioning purchaser, or the defendant prior purchaser; or whether such a rule as to the order of subjecting the mortgaged property would not apply to the holders of the mortgage, but merely control in adjusting the equities of the purchasers from the mortgagor as between themselves. See Code, § 39-118;Cumming v. Ware, 3 Ga. 460, 471; Barden v. Grady,37 Ga. 660; Craigmiles v. Gamble, 85 Ga. 439, 442 (11 S.E. 838); Hollinshed v. Woodard, 124 Ga. 721 (2), 723 (62 S.E. 815); City of Leesburg v. Forrester, 59 Ga. App. 503, 505 (1 S.E.2d 584).

6. With regard to the averments and prayers relating to warranties in deeds made by the petitioner's grantor and two previous grantors, it is true that a general warranty, by the terms of the Code, § 29-303, will include all existing incumbrances; that "where an alleged breach of warranty is based upon the existence of an outstanding incumbrance which it is the duty of the grantor to discharge, it is not necessary to allege or prove that the grantee in the deed has been evicted, or has lost possession of the property;" that "in such case the grantee may voluntarily pay off a valid outstanding lien . . against the property, of which the grantor has knowledge and refuses to pay, and which is due; and after such payment the grantee may recover of the grantor upon the breach of the warranty that the property is free from incumbrance." Cheatham v. Palmer, 176 Ga. 227 (2, 3, b), 235 (167 S.E. 522); McEntyre v. Merritt, 49 Ga. App. 416 (175 S.E. 661); Pone v. Barbre, 57 Ga. App. 684 (2) (196 S.E. 287). The petition in this case, however, not only fails to allege any loss of possession of the land, but fails to allege any payment of the outstanding mortgage. Accordingly, whether or not the defendant assignee of the mortgage could under any theory be taken as a necessary or at least proper party to the averments and prayers relating to the alleged warranties of title in the deeds to the petitioner and his grantor, the petition showed no cause of action.

7. As to the final question raised — the right of the petitioner to a reformation of the security deed held by the defendant bank so as to exclude the land alleged to have been previously conveyed by the bank's grantor to the petitioner — the demurrers having been sustained only as to the defendant assignees of the prior mortgage, without passing upon such right of reformation, that and other undecided questions affecting other parties to the case are not determined.

8. Under the preceding rulings, the court properly dismissed the petition as to the defendant assignees of the mortgage.

Judgment affirmed. All the Justices concur, except Atkinson,P. J., and Bell, J., disqualified.