Fed. Land Bk. of Columbia v. Godwin

The opinion filed in this cause August 7, 1931, quotes the bill of complaint as alleging that on July 13, 1926, W. B. Godwin and wife executed a mortgage to the First National Bank of Perry to secure the sum of $1200.00 and that on September 6, 1926, the same mortgagors executed a mortgage to F. G. Alderman to secure the sum of $1100.00, the latter mortgage describing the same lands as the former one except forty acres. The bill also alleges that on December 30, 1927, Godwin and wife executed a second mortgage to the First National Bank of Perry to secure the renewal or extension of the note and mortgage of July 13, 1926, said renewal mortgage covering the same lands as described in the first mortgage and being in the amount of $1631.00. The bill further alleges that on August 28, 1928, Godwin and wife executed to the Federal Land Bank of Columbia their mortgage in the sum of $1600.00 to be paid on the amortization plan in thirty-five annual installments, with provision for acceleration of maturity in the event of failure to meet deferred payments promptly.

This suit was brought by appellant as complainant below to foreclose the mortgage of August 28, 1928. The bill prays that the mortgage to the First National Bank of Perry dated July 13, 1926, be foreclosed and that complainant, if necessary, be subrogated to the rights of said bank. On this petition for rehearing, the main question presented is whether or not under the facts as stated the right of subrogation to the place of the First National Bank of Perry exists in favor of complainant as against Alderman, the holder of the intervening mortgage.

The mortgage to Alderman having been executed September 6, 1926, and the mortgage to the First National Bank of Perry having been first executed July 13, 1926, and renewed December 30, 1927, did the Alderman mortgage, as the result of such renewal, become a first mortgage or did the mortgage of the First National Bank of Perry still retain its position as a first mortgage?

The rule determining whether a renewal or substitution mortgage retains priority over intervening mortgages and judgments is stated in 5 Thompson on Real Property, Sec. 4263, page 353, to be as follows:

"Whether a second mortgage between the same parties and upon the same lands given upon the release or cancellation of the first is taken merely as a renewal or in payment and satisfaction of the first mortgage depends largely upon the intention of the parties. Where the intention of the parties is simply to make a renewal and extension of the old debt, and the satisfaction of the old mortgage and the taking of a new one are practically simultaneous acts or parts of the same transaction, the taking of the second mortgage is not considered an extinguishment of the first, but a renewal thereof, and does not give priority to intervening judgment or mortgage creditors of the mortgagor, especially where the renewal or substitution is made in good faith, without notice of the intervening lien and without any intention to release the original lien. The rule, however, does not apply where there is evidence of an intention to waive the lien of the prior mortgage, or to effect a payment thereof, neither is the rule applicable where the new mortgage is given to a different person from whom the debtor borrowed the money to pay off the old mortgage, nor where the new mortgage secures a distinct debt from the old, or an additional debt, the satisfaction in such cases operating as a complete discharge of the first mortgage."

The record discloses that the mortgage and note of December 30, 1927, was given as a renewal or extension of the mortgage and note of July 13, 1926, and was so intended by the parties thereto. Both mortgages were between the same parties, covered the same lands, were for the same amounts except as to accrued interest and cost which were included in the new mortgage and the giving of the new and the attempted discharge or satisfaction of the old mortgage, were parts of the same transaction. Under such circumstances the renewal mortgage of December 30, 1927, was well within the rule as above announced and retained its position of priority over the Alderman mortgage.

Since the renewal mortgage retains its position of priority over the Alderman mortgage and this suit was brought to foreclose the mortgage of August 28, 1928, should the appellant be subrogated to the rights of the First National Bank of Perry as against Alderman, the holder of the second or intervening mortgage?

The doctrine of subrogation does not arise from statute or custom, but is peculiarly a creation of equity, grounded on the proposition of doing justice to the parties without regard to form. It rests on the maxim that no one shall be enriched by another's loss and may be invoked when and where justice demands its application. It has been greatly expanded in this country, may be employed to relieve from fraud or mistake, but is not allowed if it works any injustice to the rights of others. 25 Rawle C. L. Sec. 2.

Bottomed on this premise, it follows that under our system of jurisprudence there is no limit to the circumstances that may arise in which this doctrine may be applied. In Forman et al. vs. First National Bank of Quincy et al., 76 Fla. 48,79 So. 742, we held that the doctrine of subrogation has been steadily expanding and growing in importance and extent in its application to various subjects and classes of persons and that the agreement out of which it arises and upon which it rests may be express or implied.

In the case at bar the appellant as complainant seeks to foreclose the mortgage of August 28, 1928. When Godwin, the mortgagor, applied to appellant for the loan secured by this mortgage, he listed the mortgage of December 30, 1927, at $1500.00 and requested the loan of $2000.00 for the following purposes:

$200.00 to repair houses. $200.00 to buy wire fencing. $1500.00 to pay mortgage to First National Bank of Perry. $100.00 to pay for stock in National Farm Loan Association.

He also asserted in his written application for the loan that there were no other mortgages or liens against the lands described in the mortgage, that all notes and claims for purchase of lands had been paid and that the said mortgage was given for the purpose of securing appellant with all right, title or claim the mortgagor had in and to the said lands. It is shown that sufficient of the loan to pay the mortgage to the First National Bank of Perry was paid directly to it and that complainant secured an abstract of title to said lands but that it showed no record of the mortgage held by Alderman. Appellant in other words contemplated and made every effort in reason to locate and quiet all claims to said lands and the mortgagor covenanted with appellants that the note and mortgage, when recorded, should be a first lien as required by the Federal Farm Loan Association.

Under this state of facts we think the appellant should be subrogated to the rights of the First National Bank of Perry. The record conclusively shows that the loan would not have been made except for assurance that this would be done and such was the intention of the parties.

The rule is epidemic that one who makes a loan to discharge a first mortgage, pursuant to an agreement with the mortgagor that he shall have a first mortgage on the same lands to secure it, the lender will be subrogated to the rights of the first mortgagee notwithstanding there is at the same time a second outstanding mortgage of which he (the lender), is ignorant. Wilkins vs. Gibson, 113 Ga. 31, 38 S.E. 374; Home Savings Bank vs. Bierstadt, 168 Ill. 618, 48 N.E. 161, 25 Rawle C. L. 1339-40.

In representing that there were no other incumbrances on the lands mortgaged, Godwin perpetrated a fraud on appellant. As a result of this fraud and failure to locate any adverse claimant to said lands, appellant advanced money to retire Godwin's first mortgage on the express agreement that it (appellant) was to have a first lien on said lands to secure repayment of the sum loaned. It would be grossly inequitable under such circumstances to hold that the appellant was not entitled, as against the holder of the second mortgage, to be treated as the assignee of the first mortgage and thus by chance or fortune raise the second mortgage to the dignity of the first contrary to the intention of the parties.

The application of this rule works common justice to all, it prevents injury to appellant who furnished the money to pay off the first mortgage in ignorance of the second, it gives appellant the benefit of its payment, carries out the intention of the parties, and leaves Alderman, the holder of the junior mortgage, in his original position. One of the first tests determining the application of this rule is whether or not subrogation to the place of the prior or retired lien puts the holder of the second lien in any worse position than if the prior lien had not been discharged. London N.W. American Co. vs. Tracy, 58 Minn. 201,59 N.W. 1001.

But appellees contend that the instant case is ruled by the decision of this court in Boley vs. Daniel, 72 Fla. 121,72 So. 644, L.R.A. 1917 A, 734. The latter case turned on the fact that Daniel was a volunteer, did not examine the record, was not the victim of false representations, was under no duty to pay the first mortgage and exercised no care or effort to make his mortgage a first lien. The position of the appellant in the case at bar is quite different. It was not a volunteer, it took every precaution possible to loan on a clear title, was only prevented from doing so by the fraud of the mortgagor and had a contract which amounted to the right of subrogation.

In so far as the opinion of August 7, 1931, is in conflict with this, it is overruled. Otherwise it is affirmed.

Rehearing denied.

BUFORD, C.J., AND WHITFIELD, BROWN AND DAVIS, J.J., concur.