Stewart v. Omaha Loan & Trust Co. ( 1920 )

This is a suit to quiet title to certain land in Texas County. The plaintiff prevailed below and the defendants have appealed. In April, 1901, Edwin McNinch and wife, the owners of the land in question, executed certain notes of even date to the Omaha Loan Trust Company, three aggregating $140, due respectively April 1, 1902, April 1, 1903, and April 1, 1904, and one other note for $1000 due April 1, 1908. To secure the payment of these notes the makers executed to the payee two separate deeds of trust, one to secure the payment of the three notes aggregating $140 and the other to secure the payment of the note for $1000; the same person was named as trustee in each. These deeds were acknowledged on the same day and subsequently they were simultaneously filed for record in the office of the recorder of deeds for Texas County. In neither is there any reference to the other, nor is there anything other than the respective dates of maturity of the notes therein described, if such can be so construed, to indicate a priority of lien of one over the other. On the 13th day of August, 1904, the deed of trust securing the payment of the three notes for $140 was foreclosed, the land sold, and one W.F. Cunningham became the purchaser. Two years later he conveyed the land by deed of general warranty to Byron DeForrest and Frank Mautz. The grantor covenants in this deed "against all claims, etc., except a deed of trust to the Omaha Loan Trust Co. and to G.P. Rodgers and judgments in Houseden suits." In December, 1909, Frank Mautz and wife conveyed the land by quitclaim deed to Byron DeForrest. This deed contains no reference to any incumbrance. Some ten or twelve days thereafter Byron DeForrest and wife conveyed the land by warranty deed to John D. Stewart, the plaintiff, who instituted the suit on which the appeal herein is based. After service by publication against unknown parties, a judgment by default was rendered; and within three years thereafter, under Section 2103, Revised Statutes 1909, the administrator of the estate of Eliza J. Leverich petitioned the court to set aside the judgment in which it had been found that the plaintiff was the owner in fee of the land in question for reasons, among others therein alleged, that Eliza J. Leverich was the owner of the note for $1000 and the deed of trust on said land to secure the payment of same given April 25, 1901, by Edwin McNinch and wife to the trustee of the Omaha Loan Trust Company; that said Eliza J. Leverich died testate in New York in February, 1907; that no service in the suit brought by John D. Stewart, the plaintiff herein, in any wise affecting her interest in said land was ever had upon her or anyone representing her other than the attempted service by publication upon unknown parties, and that no knowledge concerning said proceeding was ever had by said Eliza J. Leverich, and that the petitioner, her administrator, was not apprised of said suit until a short time before the filing of this petition to set aside the judgment. In brief, the petition contained other allegations appropriate and proper to a pleading of this character, not necessary to be set out herein. The petition prayed in conclusion that all parties in interest, referring specifically to those who had acquired title to portions of said land through the plaintiff, be made parties to this suit and that the judgment be set aside and that the petitioner be permitted to plead to plaintiff's petition theretofore filed upon which the judgment of default had been entered. Upon a hearing the court set aside the judgment and permitted the administrator to plead to plaintiff's petition. He thereupon filed an answer and a cross-bill alleging that the note for $1000 was still due and unpaid and that the deed of trust to secure the payment of same constituted a prior lien or claim upon said land to the right, title and claim of plaintiff; and that the deed of trust to secure the payment of the one-thousand-dollar note be foreclosed on account of its alleged priority as a lien. The sufficiency of the pleadings is not a matter at issue except in so far as plaintiff's contention is concerned that the answer does not plead any facts which would authorize a court of equity to subordinate the lien of the deed of trust under which plaintiff claims to that under which the defendant claims. Aside from this contention the vexing question is as to which of the two deeds of trust is entitled to priority.

The appellant relies for a reversal upon the following errors:

1. The court erred in finding the issues for the plaintiff and in rendering judgment accordingly.

2. The court erred in excluding evidence offered by defendant to prove that the deed of trust under which defendant claims is a first deed of trust and that the deed of trust under which plaintiff claims is a second deed of trust.

3. The court erred in rejecting testimony to prove that when the deed of trust claimed by defendant was sold to Eliza J. Leverich it was represented to her to be a first mortgage.

I. The rules of procedure in suits to quiet title are the same as in other civil actions. This is clearly contemplated by Section 2535, Revised Statutes 1909, and is expressly so provided in Section 2536, Revised Statutes 1909. This being true, the relief afforded in a proceeding under this statute is to be measured by the pleadings in each particular case. ToPleading. rule otherwise, as BOND, J., tersely said in Toler v. Edwards, 249 Mo. l.c. 160, would be "to destroy the symmetry of the law." Confirmatory of this conclusion, LAMM, J., said in effect in Wolz v. Venard, 253 Mo. l.c. 86, that "this statute is to be administered in conformito the Code of Civil Procedure, that is, within the lines of scientific pleading and practice. Any other view would make of that remedial act a fruitful source of confusion and wrong." The ruling seemingly to the contrary in Noble v. Cates, 230 Mo. l.c. 202, "that defendants in an action based upon this statute may, under a general denial, show as a defense any title, legal or equitable, vested in themselves," does not therefore correctly state the law.

The defendants' answer herein denies plaintiff's ownership of the land and alleges generally that the deed of trust thereon to secure the payment of the one-thousand-dollar note is a prior lien over plaintiff's claim, right and title. The remainder of the answer is descriptive of the deed of trust and prays for a foreclosure. The defense should have been limited to the issue thus made. This was not done, and it is now contended by the plaintiff that no facts were pleaded by the defendants which would authorize a court of equity to postpone the lien of the deed of trust under which plaintiff claims to that alleged to be held by defendant administrator and that he should have been limited in his defense to that made by his answer. As an abstract statement of the rules of procedure this is correct. But the limitation now sought to be imposed is not timely and was waived by the plaintiff in not objecting at the time to the claim of priority thus interposed. During the trial the plaintiff contented himself with technical objections to the introduction of certain evidence, principally documentary, but having no tendency to determine the question of priority between the two deeds of trust. The trial was conducted as though the answer had set up the equitable defense now objected to by the plaintiff. The case will be reviewed, therefore, upon the theory sanctioned by the parties and recognized by the trial court. [McMurray v. McMurray, 258 Mo. l.c. 416; Honea v. Railroad, 245 Mo. l.c. 645; Williams v. Railroad, 233 Mo. l.c. 675; Brier v. Bank, 225 Mo. l.c. 684; Degonia v. Railroad, 224 Mo. l.c. 588; Riggs v. Railroad, 216 Mo. l.c. 304; Hof v. Transit Co., 213 Mo. l.c. 470; Taylor Brick Co. v. Railroad, 213 Mo. l.c. 726; Earls v. Earls, 182 S.W. 1020.]

When a case has been tried without the objection that the pleadings did not raise a certain issue, this objection when made for the first time in the appellate court will not be entertained. But two exceptions may be noted to this rule, one that of the court's jurisdiction and the other that a cause of action has not been stated. These cardinal defects are not affected by waiver and may be raised at any time. [Williams v. Keef, 241 Mo. l.c. 375; Jackson v. Johnson, 248 Mo. 692.] In view of all of which we need not further concern ourselves with the limitations now sought by plaintiff to be placed upon the defendants' right to persist here in the attitude which, free from plaintiff's challenge, was maintained in the trial court. [3 C.J. sec. 621, p. 725.]

II. Under well established principles of law there can be no controversy as to the purpose for which the deeds of trust were given, which was to secure the payment of the notes described in each. [Anderson v. Baumgartner, 27Priority Mo. l.c. 87; Potter v. Stevens, 40 Mo. 229; Allen v.of Deeds Goodrich, 111 Mo. App. 61; Watson v. Hawkins, 60 Mo.of Trust. 550.] To effect this purpose it was provided in each of these deeds in the conventional terms employed in instruments of this character that upon default in the payment of the notes therein described the land should be sold to satisfy same. These provisions, in the absence of prior equities or any express condition to the contrary, gave the deed of trust securing the notes first maturing priority. Otherwise the purpose for which the deeds were given would be rendered ineffectual. This for the reason that a note constitutes the obligation and defines its terms, while a deed of trust is merely collateral and is intended to secure the payment of the note. [Morgan v. Martien, 32 Mo. 438; Owings v. McKenzie, 133 Mo. 323; Frye v. Shepherd, 173 Mo. App. l.c. 209; Westminter College v. Peirsol,161 Mo. 270.] This conclusion as to priority is based upon what is termed the earlier-maturing rule, recognized as controlling in this State as contradistinguished from the pro-rata and prior-assignment rules which obtain in some other jurisdictions. The earlier-maturing rule was first definitely promulgated in this State in Mitchell v. Ladew, 36 Mo. 526, 88 Am. Dec. 156, to the effect that notes secured by the same deed of trust have priority in the order in which they fall due. Subsequent rulings under which the minor facts are different, conform to this rule. To illustrate: In Thompson v. Field, 38 Mo. 320, several notes, in the hands of different assignees, were secured by the same mortgage and fell due at different times. They were held to be payable out of the proceeds of the sale of the property in the order in which they fell due. In Hurck v. Erskine, 45 Mo. 485, we held that the assignee of an earlier-maturing note was entitled, as against the mortgagee holding other notes, to priority in the proceeds of the sale of trust property, even though the latter's notes had become due by their own terms before the action was commenced. Ellis v. Lamme, 42 Mo. 153, does not announce a contrary doctrine. In that case there was an express provision in the deed that a later-maturing note should be first paid out of the proceeds of the sale of the property, thus showing that the primary object of the deed was to protect the independent sureties on the later-maturing note. Following the earlier-maturing rule, the Kansas City Court of Appeals; in Freeman v. Elliott, 48 Mo. App. 74, held that where two notes secured by the same deed of trust are made payable to two separate payees, the rule of priority in the order of maturity will apply, despite the terms of the deed that both notes become due on default in the payment of either. The St. Louis Court of Appeals in Weary v. Wittmer, 77 Mo. App. 546, held that priority of maturity authorized a presumption of priority of payment; and, to overthrow this presumption, the burden was on the appellant to show that the notes first maturing had been paid or that the plaintiff was estopped to assert priority of payment.

In these cases a single mortgage or deed of trust was given to secure several notes. The rule of priority cannot, however, be held in reason to be different where, as here, separate deeds of trust were given, each to secure the notes therein described. We held in the early case of Thayer v. Campbell, 9 Mo. 280, where a mortgage was executed to secure three distinct debts, that although there was but a single deed of conveyance, yet, as it was executed to secure three several and distinct debts due to three several individuals, it must be regarded as clearly several in its nature, as if those several instruments had been simultaneously executed. The nature of the security afforded is the same whether one mortgage be given to secure each debt or one be given to secure several, if it be kept in mind that the terms of the obligation must be determined from the note and that the mortgage or deed of trust is collateral and simply intended to secure payment.

The legal situation, therefore, in the instant case is exactly the same as if McNinch and wife had only executed one deed of trust securing all of these notes. Had the latter been done it would scarcely be contended, in the face of our uniform rulings on the subject, that if the land described in the deed of trust had been sold after maturity of the first note the purchaser would have obtained a complete title.

The case of Isett v. Lucas, 17 Iowa 503, 85 Am. Dec. 572, is so nearly parallel in all its material features with the case at bar, that a statement of the facts and the conclusions reached by the court in regard thereto are not inappropriate. The proceeding was to foreclose a mortgage. One Hall purchased of Patterson certain land, giving his two notes payable in one and two years and mortgages to secure each of same. Patterson assigned one of the notes to Tufts. Patterson subsequently obtained judgment of foreclosure against Hall, the maker, on the note first due, no other persons being parties to the proceeding. He assigned this judgment to Lucas. Tufts sold the note last due to Isett and Brewster, who brought this suit to foreclose against Hall and Lucas, claiming that the agreement between Hall and Patterson was that the two mortgages were to be equal liens and that neither was to have priority over the other.

The court, in ruling upon these facts, at page 573, said: "Independent of any legal and binding agreement, where a mortgage is executed to secure two or more notes maturing at different times, the proceeds arising from a foreclosure of the mortgaged premises should be applied to the payment of the notes in the order in which they fall due. The different installments in a mortgage securing such notes are regarded as so many successive mortgages, each having priority according to the time of its maturity; and, where, instead of one mortgage being executed to secure several notes given for the same indebtedness, a separate mortgage is given to secure each note, the rights of the parties are identical. [Citing cases.] Whether the notes thus secured are retained by the payee and mortgagee, or are assigned to different parties, the right of priority of payment still attaches to them; nor does the time of or order in which they are assigned, affect such right of priority. The legal effect, then, of executing two mortgages to secure installments of the same debt, being to give priority as to the proceeds of the mortgaged property to the installments first due, such legal effect cannot be altered or varied by parol testimony, any more than the language of the written instrument itself. [Citing cases] The parol testimony of Hall, therefore, as to the agreement between him and Patterson in relation to the two mortgages being equal liens, neither to have priority over the other, which is contrary to the legal effect of the mortgages themselves, is incompetent, and cannot be considered for the purpose of altering or varying such legal effect and priority."

Under this ruling, which is in accord, in principle, with our own cases, the conclusion is authorized that where two mortgages or deeds of trust are simultaneously executed by the same grantor to secure different notes to the same grantee, the legal effect is the same as if one mortgage or deed of trust had been executed to secure notes maturing at different times. [Schultz v. Plankington Bank, 30 N.E. (Ill.) 346; Allen v. White, 60 N.E. (Ind.) 599; 1 Jones, Mortgages (5 Ed.), sec. 607.]

III. Granting, as we have on account of the manner in which the case was tried, the defendants' right to insist here upon the postponement of the lien of the deed of trust securing the notes first maturing to that securing the payment of theSecret one-thousand-dollar note, the plaintiff cannot beAgreement. held to be bound by any agreement which may have been made between the original payee in all of said notes, the Omaha Loan Trust Company, as to the priority of the deeds securing such notes. Neither the purchaser of the land at the foreclosure sale nor any subsequent owner, including the plaintiff, had any knowledge of this agreement. Absent actual notice, the title of a purchaser at a foreclosure sale of land cannot be affected by secret equities between third parties. [Hume v. Hopkins, 140 Mo. 65; Powers v. Kueckhoff, 41 Mo. l.c. 431; Beatie v. Butler, 21 Mo. 313.] The agreement referred to seems to have been sedulously withheld from the knowledge of the public until March, 1913, or three years after the foreclosure sale, when its first pronouncement is made in the petition for review and the answer filed by the administrator of Eliza J. Leverich. At the time, therefore, of the foreclosure sale and the purchase of the land by Cunningham, no one other than the parties to the agreement having had any means of knowing that any other than the original payee in all of the notes, to-wit, the Omaha Loan Trust Company, was the owner of same, and the burden being upon the defendants to establish such notice (Hendricks v. Calloway, 211 Mo. l.c. 561; McMurray v. McMurray, 258 Mo. l.c. 417), which they have failed to do, no probative force, as affecting plaintiff's rights, is to be given the testimony in regard to said agreement (Potts v. Smith, 178 S.W. 881).

IV. The excepting of the deed of trust securing the one-thousand-dollar note from the covenants of warranty in the deed made by the purchaser Cunningham to the land only operated to except it from such covenants and did not estop plaintiff from contesting the lien of the deed thus excepted. [Brooks v. Owen, 112 Mo. l.c. 260 and cases; Wood v. Broadley, 76 Mo. 23; Livingstone v. Murphy, 72 N.E. (Mass.) 1012; Weed Sewing Mach. Co. v. Emerson, 115 Mass. 554; Stough v. Badger Lbr. Co.,70 Kan. 713; Gerdine v. Menage, 41 Minn. 417; Calkins v. Copley,29 Minn. 471; Boyer v. Price, 45 Wash. 667; Bennett v. Keehn,67 Wis. 154.]

The exception in the covenants of warranty to the deeds of trust made by Cunningham to G.P. Rodgers is subject to the same rule, so far as its application to the plaintiff is concerned, as that in regard to the exception in the covenant of warranty in the deed of trust securing the payment of the one-thousand-dollar note. Furthermore, the plaintiff was not a party to these deeds, does not claim under them and cannot be bound by their recitals; nor can the defendant, as the administrator of Eliza J. Leverich, not being a party to these instruments, set up these recitals in his favor. [Jones on Mortgages (5 Ed.), sec. 746, and cases.]

The deed of trust given to secure the payment of the one-thousand-dollar note, upon being recorded, constituted constructive notice of its contents, but the rights of the parties were affected by such notice only to the extent disclosed by the record. There was nothing in the latter to indicate that this deed of trust was to be given priority over the deed under which the foreclosure was had and the land purchased by Cunningham. [Powers v. Lafler, 73 Iowa 283; Robinson Bank v. Miller, 153 Ill. 244.]

The two deeds of trust were of record when Eliza J. Leverich is alleged to have purchased the one-thousand-dollar note and she took the same with constructive notice of the priority of the deed securing the notes first maturing. [Smith v. Boyd,162 Mo. 146; Patton v. Eberhart, 52 Iowa 67.]

In Patton v. Eberhart, supra, the doctrine is explicitly announced that a mortgagee of real estate is a purchaser within the meaning of the recording laws, and his mortgage, when taken in good faith, is subject only to such prior liens as are of record at the time of the execution of the mortgage. The doctrine thus announced, so far as it relates to the character of the mortgagee's or trustee's interest in the land, is too broadly stated to accord with our rulings. Here a mortgage or a deed of trust, until entry by the mortgagee or trustee for condition broken, is a mere lien for the debt, the substantial ownership remaining in the mortgagor or trustor. [Jackson v. Johnson,248 Mo. 680; Standard Leather Co. v. Mutual Ins. Co., 111 S.W. 631.] When, therefore, the statement appears in our cases, and it is not infrequent, that the legal title after condition broken is vested in the mortgagee or trustee we do not mean an unlimited investiture of title, but one for effectuating the purpose of the mortgage or trust. [Feller v. Lee, 225 Mo. l.c. 332; Benton Land Co. v. Zeitler, 182 Mo. 251.] However, the latter part of the doctrine as announced in the Patton-Eberhart case, supra, viz., that within the meaning of the recording laws when a mortgage or deed of trust is taken in good faith it is subject only to such prior equities as are of record at the time, applies with full force in the instant case. There were no prior equities of record, nor did either the purchaser at the foreclosure sale, nor any subsequent owner of the land in the chain of title through which the plaintiff holds, have any knowledge of such equities as were sought to be established at the trial. This conclusion, however, is but a reiteration of that before reached when reviewing the facts from another point of vantage.

The plaintiff was not required to make the parties to the deed of trust to secure the one-thousand-dollar note defendants. [Thayer v. Campbell, 9 Mo. 280.]

Defendants established no equities authorizing a decree in their favor. There were no errors authorizing a reversal, and the judgment of the trial court is therefore affirmed. All concur.