Powell v. Stephens , 1913 Tex. App. LEXIS 1077 ( 1913 )

KEY, C. J.

W. H. Stephens, as assignee of the Drought & Co. notes and mortgage, brought this suit against E. E. McClain and all subsequent purchasers under him, seeking a recovery upon the notes and a foreclosure of the mortgage lien. Some of the defendants did not answer; others did, but it is not necessary to state anything more concerning the pleadings, except to say that the answer of Mrs. Powell, who alone has appealed, raised the issue and presented the contention that she was substituted, by contract and subrogation, to the rights of Walker, Smith & Co., as to four of the vendor lien notes against the land held by them as collateral security. With the foregoing preliminary statement, and reserving the right to add thereto, if deemed necessary, we copy the following statement from appellant’s brief, which is substantially correct:

“E. E. McClain was the owner of 1,476 acres of land out of the Joseph "Leflore survey in Coleman county, Tex., and on the 1st day of August, 1906, McClain and wife executed a deed of trust in favor of H. P. Drought & Co. to secure four notes for $200 each, and one note for $2,700, together with some smaller interest notes. Two of these notes were paid; the remainder of the notes, together with the lien securing same, were transferred by H. P. Drought & Co. to W. H. Stephens, who brought suit to foreclose the lien on said notes. Subsequent to the execution of this trust deed McClain sold off this tract of land in small quantities to different purchasers, as follows:

“On August 24, 1906, he'conveyed to P. D. Vanhoose 250 acres, and retained a lien on this 250 acres to secure the payment of ten purchase-money notes for the sum of $250 each, due October 1, 1907, and October 1st each year following for nine additional years.

“On September 25, 1906, McClain sold 192Vio acres to M. R. Cheatam, and retained a vendor’s lien to secure the payment of ten purchase-money notes of $110 each, due from one to ten years after date, respectively.

“On September 25, 1906, McClain sold to T. N. Monroe 100 acres out of said large tract, and retained a lien to secure the payment of five purchase-money notes aggregating $800.

“September 25, 1906, McClain sold and conveyed to J. J. and G. H. Vo well 200 acres out of said large tract, and retained a lien to secure eight notes for the sum of $200 each.

“November 1, 1906, McClain sold to T. T. Cooper 100 acres out of said larger tract, and retained a lien to secure ten notes for $66.-66⅝ each.

“October 12, 1906, McClain conveyed to J. M. Garner 274 acres out of said larger tract, and retained a lien to secure ten notes for the sum of $178.16½ each.

“November 1, 1906, McClain sold to J. S. Gibbens 200 acres out of said larger tract,' and retained a lien to secure ten notes for $133.33½ each.

“The M. R. Cheatam notes became the property of W. N. Cañieron, who sought to foreclose same in this cause. The Monroe notes were transferred to W. H. Stephens, who sought to foreclose two of them in this cause. Stephens likewise became the owner of five of the Vowell notes, and sought to-foreclose same in this cause. Mrs. Anna Boog-Seott became the owner of eight of the Cooper notes, and sought to foreclose same in this cause. W. H. Stephens became the owner of five of the Garner notes, and sought to foreclose same in this cause. Mrs. Anna Boog-Seott became the owner of eight of the Gibbens notes, and sought to foreclose same in this cause.

“After P. D. Vanhoose bought said 260 acres on the 1st day of January, 1907, he conveyed ii to J. H. Quinn, and Quinn assumed the payment of the ten notes executed by Vanhoose for the original purchase money. On December 1, 1907, J. H. Quinn conveyed this 250 acres to Joe Toland and E. E. McClain, and said deed recited as consideration therefor the cancellation of the notes given by Vanhoose to McClain on the 24th of October, 1906.

“On the 16th day of April, 1908, E. E. McClain conveyed to Joe Toland his interest in the Vanhoose tract of 250 acres, and said deed contained a recital that Joe To-land assumed all the indebtedness against said 250 acres. On January 29, 1908, E. E. McClain executed a deed of trust in favor of Mrs. M. E. Powell on said Vanhoose tract of 250 acres to secure Mrs. Powell in the payment of a note for $1,050, executed by the said McClain to the said Mrs. Powell, which note was sued upon by Mrs. Powell in said cause.

“On February 17, 1909, Joe Toland executed a deed of trust on this Vanhoose tract in favor of the Coleman National Bank, to secure a note for $2,500, due 90 days after date. The Coleman National Bank sold said 250 acres under its deed of trust, and purchased same thereunder on the 4th day of April, 1911.

“Prom the year 1906 up to the year 1909, E. E. McClain was indebted to Walker, Smith & Co. for merchandise in the sum of about $2,800, and to secure said indebtedness McClain indorsed over to Walker, Smith & Co. the ten Vanhoose notes for $250 each; said indorsement and delivery being somewhere between September 27, 1906, and May, 1907. McClain paid $1,600 on the Walker-Smith indebtedness on the 15th day of March, 1909, and on the 1st of November, 1909, he paid the balance, amounting to $1,700, and Walker, Smith & Co., delivered back to McClain these Vanhoose notes which had been held by them as security, and this delivery back to McClain was made after December 31, 1909.

“The $1,050 was loaned by Mrs. Powell to McClain on January 29, 1908, and prior to the actual loan of the money on that date it was agreed by and between McClain and Mrs. Powell that the latter should have four of the Vanhoose notes to secure her in the payment of the loan of $1,050. When McClain negotiated with Mrs. Powell, for the loan, he represented to her that the Vanhoose notes were pledged, and that he wished to borrow $1,050 from her to redeem these notes, and, when they were redeemed, she should hold the first four of said notes for $250 each to secure her for said loan. Mrs. Powell relied upon this representation and promise, and would not have made the loan but for same. As a matter of fact the money obtained from Mrs. Powell was not used by McClain to redeem the Vanhoose notes from Walker, Smith & Co. He did not redeem said notes and get them back for more than a year after he secured this $1,-050 from Mrs. Powell, and did not actually deliver them to Mrs. Powell until the winter or early spring of 1911. When McClain agreed with Mrs. Powell that she should have the Vanhoose notes ⅛ secure her on the note for $1,050, the 250 acres of land for which the Vanhoose notes were given had been reconveyed, and the title vested in Joe Toland and E. E. McClain jointly, and recited a cancellation of the Vanhoose notes; but the Vanhoose notes at the time of said reconveyance were actually in the hands of Walker, Smith &'Co., and held by them as security for McClain’s indébtedness. Mrs. Powell had no actual notice of this recon-veyance or the attempted cancellation of said notes; the only notice to her, if ^my, being the recording of the deed. The indebtedness of McClain to Mrs. Powell was never paid, which at the time ' of the judgment herein amounted to $1,575, and was secured by the deed of trust given in her favor on said 250 acres of land and by (the pledge of the four Vanhoose vendor’s lien notes.

“The foregoing statement is taken from the court’s findings of fact.

“Two issues of fact were by agreement of all parties submitted to a jury, and all other issues of fact were submitted to the court, and in response to those submitted to a jury they found that it was agreed between McClain and Mrs. Powell that the' latter should have four of the Vanhoose notes as security for said loan, and that said agreement was made prior to the execution of said note for $1,050.

“The trial court in his conclusions of law held that the undivided one-half of the Van-.hoose 250 acres, upon which Mrs. Powell held her liens, should first be sold to satisfy the H. P. Drought & Co. deed of trust, and that the other tracts hereinbefore referred to should be sold off in the inverse order of their alienation. And judgment was rendered in favor of W. H. Stephens for $4,653.30, with foreclosure of the H. P. Drought & Co. lien on the entire 1,476 acres, and ordering the Vanhoose tract, upon which Mrs. Powell claimed her lien, to be first sold before any of the remainder of said tract was sold.

“The findings Of fact in favor of Mrs. M. E. Powell are based upon her pleadings filed in the case, she having pleaded that she loaned said money to McClain on the faith of the aforesaid representations, and that she acquired all outstanding rights and equities in said Vanhoose vendor’s lien notes, and asked that the same be foreclosed, and that said 250 aeres be last sold under the foreclosure of the H. P. Drought & Oo. deed of trust.

“The defendant Mrs. M. E. Powell in due time filed her motion for new trial, setting up as grounds for a new trial all the matters cohered by the hereinafter mentioned assignments of error. This motion was overruled on the 4th day of May, 1912, to which Mrs. M. E. Powell duly excepted, and gave notice of appeal to this court as provided by law. Appeal bond was filed and appeal perfected May 20, 1912.”

No statement of facts has been brought up, and the appeal is submitted on the findings of fact by the court and jury.

Opinion.

Appellant assigns as error the action of the trial court in decreeing that an undivided half' interest in the Vanhoose 250 acres of land should be first sold for the purpose of paying off the judgment rendered in favor of the plaintiff upon the prior mortgage debt against the entire tract, and in not holding and decreeing that appellant’s lien was superior to the rights of the subsequent purchasers from McClain, and requiring the lands so purchased by them to be first sold in satisfaction of the plaintiff’s mortgage. Controverting the foregoing contention, it is insisted on behalf of appellees that, inasmuch as the Vanhoose land had been reeonveyed to McClain in consideration of the latter’s cancellation of the Vanhoose notes prior to the time appellant made her contract with and loaned her money to McClain, and as the money so loaned was not used by McClain to pay his indebtedness to Walker, Smith & Co., and thereby redeem the Vanhoose notes from pledge, the court ruled correctly when it held that the appellees who purchased from McClain subsequent to the purchase made by Vanhoose were entitled to have an undivided half interest in the Vanhoose trapt first sold for the purpose of paying off the original mortgage upon the entire tract.

After extended and careful consideration of the case, we have reached the conclusion that the contention urged on behalf'of appellant is correct. It is well settled in this state, and perhaps in all other jurisdictions where equity is administered, that, where a mortgagor makes successive sales of different portions of the mortgaged premises, and subsequent purchasers have either actual or constructive notice of prior sales, when the mort-gagiee goes into court to enforce his lien equity requires that the respective tracts be sold in the inverse order of their alienation. That doctrine was announced as early as Ayres v. Cayce, 10 Tex. 101, and has been repeatedly applied in subsequent cases. It is also well settled in this and other states that, when such a mortgagor reacquires a portion of the land which he has sold, those who have purchased from him after he sold the land so reacquired have the right, as against him, to have the reacquired tract first sold in satisfaction of the mortgage. But in this case, at the time the Vanhoose tract was reconveyed, to McClain, the Van-hoose notes were pledged to Walker, Smith & Co., and they were secured by a prior lien upon the land, which was not affected by the transaction between McClain and Van-hoose which resulted in Vanhoose’s recon-veying to McClain the land in consideration of McClain’s cancellation of the notes so pledged. Therefore at the time of the transaction between Mrs. Powell and McClain, in so far as the rights of Walker, Smith & Co. were concerned, and for the purpose of securing McClain’s indebtedness to them, the Vanhoose notes were not canceled, and constituted a valid prior lien against the land. The question then arises, did McClain have the power, as against the rights of those who purchased from him subsequent to his sale to Vanhoose, to enter into a contract with Mrs. Powell, the effect of which would be, as soon as the Vanhoose notes were redeemed from Walker, Smith & Co., to vest in her similar rights to those held by Walker, Smith & Co. in four of the Vanhoose notes? If he had the power to accomplish that result through the medium of a contract with Mrs. Powell we think the. facts show that he did so, and that Mrs. Powell is not required to invoke the doctrine of subrogation in order to sustain her contention. It then becomes pertinent to determine what were the rights of such subsequent purchasers. When they purchased, they had notice of the fact that McClain had previously made a sale to Vanhoose, and the law charged them with notice of the fact that, when the original mortgage against the entire property was enforced, it would be the right of Vanhoose, or those holding under him, to have the land which the subsequent vendees were purchasing first sold in satisfaction of the mortgage, unless it should thereafter be reacquired by McClain free from the intervening rights and equities of all other persons. And it must also be kept steadily in mind that, after such subsequent purchases were made, those purchasers had no further dealings with McClain, and acquired no rights or equities upon the assumption that he had reacquired and become the absolute owner of the Van-hoose land.

Keeping these facts in mind, it seems to us that it must necessarily be held that the subsequent purchasers referred to who are now contesting the claims of Mrs. Powell, appear without any equities in their favor, and therefore have no right, either legally or equitably, to object to Mrs. Powell’s being substituted to all the rights which Walker, Smith & Co. held against McClain, whether such substitution be the result of contract or subrogation. And, this being true, we think the case must be decided in favor of Mrs. Powell. In other words, we think the facts found by the court and jury show that a contract was made between McClain and Mrs. Powell, by which it was intended by both parties that the rights which Walker, Smith & Oo. had in the four Vanhoose notes should be vested in Mrs. Powell, and that McClain would take whatever steps were necessary to accomplish that result; and, such being the contract, Mrs. Powell has the right as against McClain, Walker, Smith & Co., and the subsequent purchasers from McClain, to have that agreement enforced, notwithstanding the fact that McClain, in violation of his promise, did not apply the money received from Mrs. Powell to the redemption of the Vanhoose notes, but used it for some other purpose. If, after the Vanhoose land was reconveyed to McClain, the subsequent purchasers referred to had taken a mortgage from McClain thereon, or for a valuable consideration had acquired any other equity therein, then they might have the right to object to any contract between McClain and Mrs. Powell, the result of which would impair the equity so acquired by them; and they might also be in a position to contend that Mrs. Powell was not subrogated to the rights of Walker, Smith ¿fe Co., because of the fact that the money furnished by her was not used in redeeming the Vanhoose notes.

As to the latter point, it is not deemed necessary to make any definite ruling, because, as said before, as the complaining appellees have no equities, Mrs. Powell has the right to enforce the contract which she made with McClain. And this right is independent of the question of subrogation, and arises out of and flows from the terms of the contract between McClain and her. The facts show that McClain finally paid the debt for the security of which the notes had been pledged to Walker, Smith ¿fe Co., thereby redeeming them, and thereafter, in pursuance of his contract with Mrs. Powell, he delivered to her four of the notes, each of which retained a vendor’s lien on the land in question.

Mrs. Powell asserted her rights under the contract referred to, and sought to have the lien secured by the notes established in her favor, and she now contends, and we sustain the contention, that, as against those who purchased after Vanhoose, it is her right to have the lands so purchased first sold for the purpose of satisfying the original mort-. gage, which was foreclosed in favor of the plaintiff.

In appellees’ brief some stress is laid upon the fact that at the time Mrs. Powell acquired her rights the deed reconveying the land to McClain, and reciting a cancellation of the Vanhoose notes, was of record, and therefore, so it is contended, she was charged with constructive notice of that instrument. Conceding the fact of such notice, we fail to see its materiality in determining the rights of the parties. As said before, it was not shown that the objecting appellees had paid out any money, parted with anything of value, or acquired any equities upon the assumption that the deed referred to vested in McClain absolute title to the land; and, such being the case, they had no right to object to the contract between Mrs. Powell and McClain, which contract does not impair any right they had at the time it was made. At that time the Vanhoose notes were outstanding charges against the land for the purpose of securing a particular debt owing by McClain, and it works no injury to the appellees for that security to be shifted from one of McClain’s creditors to another, and that is all that Mrs. Powell is asking to have done. If, when McClain paid his debt to Walker, Smith ¿fe Co., the latter had assigned the notes to Mrs. Powell, or if he had used the money loaned him by her for the purpose of paying Walker, Smith ¿fe Co., as he agreed to do, there could have been no question about her right, as against the objecting appellees, to enforce the lien by which those notes were secured; and we hold that McClain had the power, as against the rights of said appellees, to make a contract which would have the same result, and we also hold that such contract was made.

So we conclude that so much of the judgment and decree of the trial court, as required an undivided half interest in the Vanhoose 250-acre tract of land first sold for the payment of the judgment rendered in favor of the plaintiff Stephens should be set aside, and judgment here rendered requiring all of the other tracts of land referred to in the decree to be sold for the purpose referred to before the sale of any of the Vanhoose tract; and it is so ordered.

Reversed and reformed.