Appeal of Robeson ( 1888 )

Opinion,

Mr. Justice Clark :

This case is to be determined upon the general principles of equity which govern in the marshaling of assets or in subrogation. The doctrine of subrogation is of purely equitable origin; its application is always controlled for the promotion of justice; it will never be enforced therefore to defeat a superior or even an equal equity in another. That this is the rule which governs in all cases of subrogation, is, of course, unquestioned. What are the respective rights and equities of the parties to this appeal ?

The Hale • tract was conveyed to Graham April 1, 1864.( The Hale mortgage of June 14, 1864, for 1989.07, was tlm first, the S. S. Woods’ executor’s judgments, entered February 17, 1871, the second, and the appellants’ mortgages, entered at various dates from June 1, 1871, to February 23, 1875, the third lien against it. The Decatur tract was conveyed to Graham August 26, 1875, which was several months after all of the above stated liens had been entered. The S. S. Woods’ executor’s judgments, however, by revival, became, on December 27, 1875, the first lien upon this tract, and the appellees’ mortgage on March 14, 1876, the second lien. On the revival of the Woods judgments, therefore, Woods acquired a lien on both the Hale and the Decatur farms; on the former by virtue of the original entry, on the latter by virtue of the revival, whilst the appellants’ mortgage remained a lien upon the Hale farm only. It is true that when the appellants’ mortgage was entered Graham did not yet own the Decatur tract, and they could not therefore have placed any reliance upon this tract at that time as a means of satisfying the Woods judgments; but, after the purchase of the Decatur tract, and the revival of the Woods judgments, it is plain that Woods had a lien upon two funds, and the appellants upon one of them only, in the hands of a common debtor, for the payment of their respective claims. If the contest were one between the appellants and the debtor alone, can it be doubted that the appellants would in equity be entitled to have Woods resort to the proceeds of the Decatur tract in order that they might avail themselves of the proceeds of the Hale tract? As the equity is against the debtor himself, certainly he would not be allowed to insist upon a pro rata payment of the Woods judgments from the two funds respectively, in order that he might pocket part of the money.

But when the appellees subsequently recorded their mortgage upon the Decatur tract, it is contended that, as mortgagees, they acquired a lien, and that their equity was equal to that of the appellants; that the equities were in equilibrio. We do not think so. The appellants acquired against Graham, the mortgagor, the right to have his other lands, not included in the mortgage, applied first to the payment of the earlier judgments which were liens against them. This right it was •not in tbe power of tbe mortgagor to defeat by confessing judgments to other creditors or by contracting subsequent debts; Bona fide purchasers, and perhaps mortgagees, might be unaffected by an equity of which they had no notice in fact: Hoff’s App., 84 Pa. 42. But when the appellees took their mortgage they could plainly see that the Woods judgments were entered as the first liens against the Decatur tract, and that their mortgage in the regular course of distribution could not be paid, until these judgments were satisfied. It is true that it appeared by the records that the Woods judgments were liens also upon the Hale tract, but the same search would show the existence of the appellants’ mortgage. The appellees, in the absence of proof to the contrary, will be presumed to have taken their mortgage with full knowledge of all the facts disclosed by the record, and would thus be affected with notice of all the equities, which, owing to the peculiar condition of the respective liens, the appellants had as against the Woods judgments.

This equity, we have said, was against the debtor; and it is equally such against his subsequent mortgage creditors, with notice, who can have no greater rights than the debtor had at the time .the mortgage was given. This equity existed in favor of the appellants before the appellees acquired their lien; prior in tempore potior in jure. . The appellees must be considered to have taken their mortgage subject to the prior equity of the appellants-: McDevitt’s and Hays’s App., 70 Pa. 377; Hastings’ Case, 10 W. 305. Hoff’s App., supra, although somewhat similar in its facts, is readily distinguishable from the case at bar. In that case, Adams, a judgment creditor of Phillips, had a lien on two properties, whilst Hoff, a mortgagee, had a lien upon one property only of the same debtor. After these liens were entered, Phillips sold the property upon which the mortgage was not a lien, to Reiff. It will be observed that Reiff was a purchaser, not a mortgagee, and Phillips, under the implied covenant in his deed, was bound to make the title good to him; he was a bona fide purchaser for full consideration wholly paid, without notice in fact of the Ren of the judgment. As subrogation is not of right, but is a mere benevolence, this court, under the special facts of that case, sustained the court below in setting aside a decree of subrogation. Chief Justice Ag-new in that case said: “ Phillips-then stood in the relation of principal to Reiff, for by the covenant in his deed contained in the words, grant, bargain and sell, he was bound to Reiff to 'remove the incumbrance from his property. We have, therefore, the case of one, who, in fact, stands superior to a surety; who was a bona fide purchaser of the property for a full consideration; who had no knowledge in fact of the lien of Henrietta Adams’ judgment; who owed no duty to Hoff; upon whose land Hoff had no legal claim, and from which the burthen of Henrietta Adams’ judgment-was removed by a legal extinguishment of her debt. It is clear, therefore, that Hoff has no equity which he can work out, except by displacing a bona fide purchaser, who is prior in time, superior in claim on Phillips, the common debtor, and who must lose all his money in case he is displaced. When he purchased, Hoff had no lien on his land, and no equity to-look to property not owned by Phillips when Hoff took his mortgage, and which then was not bound to others as a security for their liens. It would not be pure benevolence to substitute him to the injury of Reiff.”

In this case there was no covenant of title to be implied from the words of the mortgage; and in the absence of proof to the contrary, the appellees will be presumed to have known what was clearly exhibited to them by the record. We think the appellants, upon the plainest principles of justice and equity, would have been entitled to subrogation to the rights of Woods’ executor against the Decatur tract, and if so, the distribution of the proceeds should now be made as if that had been done, which, in equity, ought to have been done.

The decree of the Common Pleas is reversed, and the record is remitted, in order that distribution may be made in accordance with this opinion, the appellees to pay the costs of this appeal.