Goedecke v. Gralnick

I concur in the dissenting opinion of Clark, C.J. It is further my view that the controversy injected herein as to whether the notes (secured by the three original trust deeds) were paid orpurchased is a sham battle over an issue wholly immaterial to the decision of this case. I think that the decisive issue is not whether these notes were paid by plaintiff or purchased by the bank, but is instead whether there was an agreement between the parties for keeping alive the lien of the underlying trust deeds as collateral security for the loan.

An owner of land, who is not personally obligated to pay the debt, can pay off an encumbrance thereon and still keep the lien alive for his own security only as against intervening encumbrances; and there is no merger, when even an owner primarily liable for the mortgage debt pays it with funds furnished by a third party, if they have an agreement to keep the lien alive. [See 3 Pomeroy's Equity Jurisprudence, 168-173, secs. 796-798.] I think the [227] physical facts here (as well as the oral testimony) demonstrates that this was the intention of these parties. The notes were not cancelled, the deeds of trust were not released, the bank furnished the money with which these encumbrances were taken up, they were held with the collateral agreement and with every renewal thereof, and plaintiff never claimed them or asked for their cancellation and release. Moreover, the whole purpose of the transaction was to permit plaintiff to acquire and improve real estate, which was to be the ultimate source (by being the security for the Phoenix loan) of the funds for repayment of the $45,000.00 loan advanced by the bank until the money could be obtained on the security of this real estate.

It is inconceivable to me (from the way the transaction was handled) that there could have been any other intent than to keep these trust deeds alive as security for the loan, as has been twice held by trial courts which heard the evidence. It also seems to me that not only was there no decision in the first case against such a collateral agreement but on the contrary the former opinion recognized that these trust deeds were so held as collateral in the language quoted in the dissenting opinion of Clark, C.J. I do not consider as of any importance the worries of counsel (as expressed in the motion for modification) over the use of the word "paid", because I feel that there could be no such issue in the case.

[7] Furthermore, it seems to me that the principal conclusion upon which the majority opinion rests (and in my view the only conclusion upon which it could be upheld) is erroneous. This conclusion is that the judgment in the prior case necessarily passed upon the issue of the pledging of the three original deeds of trust, as collateral security, because it ordered the cancellation of the Special Master's deed which was based upon the foreclosure of all liens. I think the complete answer to this conclusion is that the decree had to correctly fix the total amount of the debt which was secured by the liens to be foreclosed. It had to do this because the owner had the right to stop the foreclosure by payment of the secured debt, and, therefore, had the right to have this amount correctly ascertained before there could be a valid foreclosure sale. She did not have to pay her total debt to the Bank (both secured and unsecured) to stop this foreclosure, but could do so by paying only the amount secured by the liens which could be foreclosed. Therefore, when our opinion in the former case, reduced the amount of her debt, secured by liens which could be foreclosed, from $55,944.50 (by holding that the Phoenix Mortgage was not a lien) to approximately $23,000.00 (the amount of the three prior mortgages) it necessarily was required to set aside the Special Master's deed. [See Jones on Mortgages, 8th Ed. sec. 2042; 42 C.J. 143, secs. 1738-1739; 37 Am. Jur. 76, sec. 592; Rumsey v. People's R. Co., 144 Mo. 175, l.c. 189, 46 S.W. 144; Sager v. American Investment Co. (Ark.), 280 S.W. 654, l.c. 656.] Thus the premise of the majority opinion, that this matter (of valid foreclosure under the three prior mortgages) could have been adjusted by a mere change in the order for distribution of the proceeds of the Special Master's sale, necessarily fails. Likewise its conclusion, that this Court by setting aside the Special Master's deed decided the question of three prior deeds being valid liens, also fails.

I think the order granting the new trial should be reversed and the judgment reinstated.