Western Union Telegraph Co. v. Brown & Randolph Co. , 154 Ga. 229 ( 1922 )

Hill, J.

From the foregoing statement of facts it appears that Brown & Randolph Co. gave the Metropolitan Life Insurance Co. a deed to secure debt, which was a first lien on the property. Brown & Randolph Co. owned the property at Marietta and Forsyth streets. They employed A. Y. Gude & Co. to construct the building known as the Transportation building on the property. In constructing the building Gude & Co. obtained a lien for work done and material furnished in its construction. Both of these claims are admittedly superior to the lease claimed by the Western Union Telegraph Co. Thereafter Brown & Randolph Co. leased a portion of the building to the Western Union Telegraph Co., for a minimum period of twenty years, with the right of two renewals of five years each. This gave the Western Union Telegraph Co. “the right to possess and enjoy the use of” the premises for the time fixed in the lease.. Civil Code (1910), § 3691.' The insurance company reduced its claim to judgment, and executed a deed to the Brown & Randolph Co., had it filed and recorded for the purpose of levy and sale, and the property was accordingly levied upon and advertised for sale. E. T. Brown, who owns practically all of the stock of the Brown & Randolph Co., entered into an agreement with A. Y. Gude Jr., surviving partner of A. Y. Gude & Co., by which the latter agreed to receive from E. T. Brown payment of their claim against the Brown & Randolph Co. in installments, and to transfer their lien to Brown when Brown paid it np. E. T. Brown individually obtained a large judgment against Brown & Randolph Co. The E. T. Brown judgment was subsequent to the lease of the Brown & Randolph Co. to the Western Union Telegraph Co. The purpose of the petition was to compel the Metropolitan Life Ins. Co. and Gude to make their money out of the sale of this property, subject to the leasehold interest of the Western Union Telegraph Co., the latter company agreeing to make the property, when sold, bring enough to pay off the liens on the property superior to its leasehold interest; and to enjoin E. T. Brown from undertaking to sell the property under his fi. fa. for the purpose of claiming the proceeds thereof after payment of the superior liens, etc.

In Field v. Howell, 6 Ga. 423, this court held: "When one buys land at a sheriff’s sale, upon which there is a lease from the defendant in execution, older than the judgment, and at the time of the sale the lessee has not entered into possession, he buys it subject to the right of entry and user under the lease.” And see 4 Kent’s Com. 96, 97; Bac. Ab. Title Leases, M.; Coke Litt, 46, 270; Shep. Touch., by Preston, 267; 2 Bl. Com. 143, 144.

In Semmes v. Moses, 21 Ga. 439, the headnote is as follows: "A deed of trust being taken on a variety of property to secure the payment of a bond debt, and a portion thereof having been sold to satisfy a judgment at law, under notice at the time that it was sold subject to the trust lien, and the trustee having proceeded afterwards to resell the property so purchased, without exhausting first that which remained undisposed of in the hands of the debtor: Held, 1. That the whole of the property included' in the trust deed is to be regarded as subject to the amount of money due upon the bond debt. 2. That if the property sold brought what it was fairly worth, then it should not be distributed until the balance of the property embraced in the trust deed be sold. 3. Then should there still be a deficiency, the property first sold must make up the difference. 4. If the property sold would, at its fair worth to be ascertained at the time of sale, in addition to what has already been paid for it, extinguish the bond debt, then it -shall bear the whole burthen of discharging that indebtedness. 5. If, however, at its fair worth, it would fall short of satisfying the outstanding encumbrances, then the property unsold should contribute its pro rata proportion of said lien.”

The Civil Code (1910), § 5506 provides that “For every right there shall be a remedy, and every court having jurisdiction of the one may, if necessary, frame the other.” We are of the opinion that the plaintiff here has a right; and having that right, the court may frame a remedy which will do equity between all of the parties. The Civil Code (1910), § 4519, also provides: “Equity jurisdiction is established and allowed for the protection and relief of parties, where, from any peculiar circumstances, the operation of the general rules of law would be deficient in protecting from anticipated wrongs, or relieving for injuries done.” We are of the opinion that this equitable principle is applicable to a situation like the present, where a plaintiff, which has superior right to some of the judgment creditors, would have those rights destroyed under the rules of the common law, unless a court of equity intervened.

In Cumming v. Cumming, 3 Ga. 460, 469, it was held: “A mortgagee can not enforce his mortgage against the property of a subsequent purchaser, as long as there is other property of the mortgagor remaining, sufficient to satisfy the mortgage debt. He can resort to the property sold only for what remains unpaid of his claim after the other mortgage estate is exhausted.” In delivering the opinion of the court Lumpkin, J., said: “ It is conceded that where there is a lien upon different parcels of land for the payment of the same debt, and some of those lands still belong to the person who in equity and justice owes and ought to pay the debt, and other parcels of the land have been transferred by him to third persons, his part of the land, as between himself and them, shall be primarily chargeable with the debt. Gill vs. Lyons, 1 Johns. Ch. R. 447; Stoney vs. Shultz, 1 Hill Ch. R. 500; Commercial Bank of Erie vs. Western Reserve Bank, 11 Ohio (Stanton) R. 444; Hartley v. O’Flaherty, Lloyd & Gould R. 216; Temp. Pl. 19.” And see other eases cited by the learned judge in this well-considered case. And see also the case of Craigmiles v. Gamble, 85 Ga. 439 (11 S. E. 838), where the Gumming case is cited and approved. The Oraigmiles case was not one where the subsequent owner of the property was endeavoring to prevent its sale, but one where the property was allowed to go to sale; and the question arose on the distribution of the proceeds of the sale. This ease is authority, in effect, for the proposition that the plaintiff should first exhaust the property of Brown & Randolph Co. after carving out the leasehold estate of the plaintiffs.

In the ease of Merchants National Bank of Rome v. McWilliams, 107 Ga. 532, 535 (33 S. E. 860), this court held: “When property is sold and conveyed by a common grantor at different times and to different purchasers, and taxes having a lien on all- the property sold are due, the last property sold is primarily bound for the paymént of all such taxes.” In the opinion of the court it was said: “ This may be a hard and oppressive law, but the principle upon which it is based is, that, where one has purchased from another and paid value for property, so long as other property is owned by the.grantor, such property should on equitable principles be first applied to the payment of the debts of the grantor, and where liens exist on all of it, that the lienors must make the money for which they have a lien out of the property owned by their grantor, before proceeding against that in the hands of the grantees, for which the latter have paid value, thus making the debtor pay claims against him out of his own property in preference to that belonging to others. . . When one purchases property. from another in good faith for value, a debt against the grantor can not ordinarily be enforced against the property purchased; but when there is an existing lien on the property purchased, as well as other property of the debtor, the enforcement of the lien should, under plain principles of justice, first be directed to the property which the grantor retains.” See also Askew v. Scottish Am. Mort. Co., 114 Ga. 300, 302 (40 S. E. 256), where the same principle is recognized. The general principle is stated in 18 R. C. L. 456, in the followihg language: “ The general principle on which courts of equity interfere in these cases with the strict legal rights of the prior lienholder, etc., is that, without such interference, he whose interests are prior would possess an unreasonable power of defeating the rights subordinate to his, by satisfying his claim to the exclusion of the junior claimants, so that in fact it would be entirely in his election whether they should receive any satisfaction or not. Now courts of equity treat such an exercise of power as wholly unjust and unconscientious, and therefore will interfere, not indeed to modify or absolutely destroy the prior lienholder’s power, but to prevent it from being made an instrument of caprice, injustice, or imposition.” And the same author, discussing the doctrine of marshaling assets and securities, the principle of subjecting lands to debt in the inverse order of alienation, on page 470, uses this language: “Although the equity now under consideration and the equity to marshal assets have a certain similarity, the two are quite distinct. The equity of the purchaser of a part of a tract of land subject to a lien, to have the lien satisfied out of the land remaining in the grantor and then out of the parcels subsequently conveyed in the inverse order of their alienation, is, when it exists at all, a fixed, indefeasible right. It is therefore superior to the equity to marshal assets, which, until it is asserted, is a mere inchoate equity subject to displacement by a subsequent conveyance or by a contractual lien afterwards attaching. The indefeasibility of the equity of the purchaser against his grantors rests on the relation existing between them, which relation had its origin in contract, and on the fact that the subsequent purchaser has notice of the lien covering the tract and of all prior conveyances of the parcels out of the tract. As has already been seen, it is the lack of notice to subsequent grantees of encumbrances which makes the equity to marshal assets a defeasible one.” In support of the above proposition the case of Newby v. Norton, 47 L. R. A. (N. S.) 302 (90 Kan. 317, 133 Pac. 890), was cited. See also 4 Pom. Eq. Jur. (3d ed.) § 1414; 10 Am. & Eng. Eng. L. 1256; 26 Cyc. 927.

We reach the conclusion that the plaintiff is entitled to the relief prayed for, and to have the property in controversy sold in such manner as to protect the superior liens of creditors, and also the leasehold interest of the plaintiff in error, as well as the junior creditors, if the property brings enough for that purpose. We do not mean to hold, if the plaintiff should pay off or tender the amounts due to owners of the superior liens, and they should refuse to accept it, that injunction should not be granted.

We are'of the opinion that under the principle ruled in the above authorities, the Western .Union Telegraph Company has an equity in the. property in controversy, which can be enforced; and that the holders of the superior liens should be required to sell the property subject to the leasehold interest of the Western Union Telegraph Company. We are also of the opinion that the sale under the E. T. Brown judgment, and execution based thereon, should be enjoined, with provision for its payment out of the excess, if any, of the proceeds of the sale of the property after the payment of the superior liens above referred to. Undoubtedly the lien of the E. T. Brown judgment, or his assignee thereof, is inferior to the leasehold interest of the Western Union Telegraph Company. Field v. Howell, supra. And the purchaser of the property at a sale under this fi. fa. would take it subject to this lease. A purchaser at the sale under the superior lien would assume the place of landlord of the lessee company (Western Union Tel. Co.), and would be entitled to the rents. Morrow v. Sawyer, 82 Ga. 226 (8 S. E. 51).

The Civil Code (1910), § 6029, provides: “Where property is subject to a lien and part of it is sold by the debtor, the part remaining in him should be first applied to the payment of the lien. If the property subject to such lien is sold in several parcels at different times, the parcels should be-charged in the inverse order of their alienation.” And see Craigmiles v. Gamble, supra. In the instant case Brown & Bandolph Co. leased to the Western Union Telegraph Co. certain portions of the building which was subject to the above prior liens. By analogy to the above code section the property should, first, be sold subject to the lease, and the proceeds applied to the superior lien. The lien of the E. T. Brown judgment and execution, being inferior to the leasehold interest of the Western Union Telegraph Co., should only be allowed to participate in any excess of the proceeds of the property after the prior .liens are paid off and discharged. We are therefore of the opinion that where the owner of property has incumbered it with a security deed, and thereafter leases it or portions of it to a third person, the grantee in the deed will be required, in a proper ease, to sell such property in the first instance subject to the lease, when such sale will fully pay off and discharge his demand, and when to permit a sale otherwise would destroy and wipe out the lease.

From what has been said above we conclude that the interlocutory injunction should have been granted as prayed for, the plaintiff having offered to enter into bond with good security to be approved by the judge or clerk of the court below, payable to the Metropolitan Life Insurance Co., or its assignees, and to A. V. Gude Jr., surviving partner of A. V. Gude & Co., or his assignees, conditioned to make the property, when sold, bring a sufficient sum to pay off the liens in favor of the insurance company and Gude & Co., with all expenses of the proceedings, or to pay the full amount of their claims.

By what we have said above, we do not mean in any way to destroy or impair the effect of security deeds and the full rights and legal priority of the grantees therein, under the Civil Code (1910), § 3306 et seq. We fully recognize and intend to preserve the rights of the insurance company under its security deed.

We have not overlooked and do hot mean to question the principles of law set forth in the Civil Code (1910), §§ 1177, 4914(6), 6056, 6073, 6075. These principles apply to sales by sheriffs under common-law process, and are not in any way affected by the decision we make in this case.

Ordinarily junior creditors and claimants of property incumbered by a security deed have an adequate remedy at law to claim the funds arising from the sale of such property under such security deed, by rule against the sheriff to distribute the fund arising under such sale, and are not entitled to equitable relief in asserting their rights to such fund (Civil Code (1910)', § 6037; Rucker v. Tabor, 133 Ga. 720 (66 S. E. 917)); but in this casé the plaintiff is seeking to preserve its right to possess and enjoy the premises leased by it, and is not seeking to assert any claim to the fund arising from the sale of the Transportation Building under the security deed of the insurance company. This right it cannot assert at law, but can only do so in a court of equity.

We have not overlooked the decision in the case of Mattlage v. Mulherin, 106 Ga. 834 (32 S. E. 940). We fully recognize the principle of law laid down in that case. When property has been conveyed by a grantor to secure a debt, and the grantee in the security deed reduces' his debt to judgment and files a quitclaim deed for the purpose of levy and sale, and the property is sold by the sheriff under the levy of the execution issued on such judgment, the lessee from the grantor under a lease junior to the security deed can at law be dispossessed by the sheriff for the purpose of placing in possession the purchaser of the property at such salé; and this may be done notwithstanding the fact that the lease is older than the judgment, when it is junior to the security deed. We hold the grantee can do so in this case, if this is necessary to pay his debt. The lessee concedes the superior rights of the insurance company and of Gude & Co., and we recognize these rights and this power of the senior lienholders. What we hold is, that in equity these senior lienholders should exercise this power so as not to destroy the lease of the plaintiff, unless it becomes necessary to do otherwise in order to pay them in full. After the sale of the property under the judgment of the insurance company, the lease of the plaintiff would be terminated and destroyed, and it would lose the valuable improvements which it put upon the premises leased by it’ from the grantor in the security deed. If the rights of the senior lien-holders can be fully protected, so that they will get every cent coming to them, and at the same time the rights of the plaintiff under its lease can be protected, a court of equity will require the grantee in the security deed and the senior judgment creditor to so exercise their power under the senior liens as to save the rights of the lessee.

We have not overlooked the decision in Garrison v. Parker, 117 Ga. 539 (43 S. E. 849), which holds that the grantor under a security deed, notwithstanding rendition of the judgment against him on the debt thereby secured, can lawfully let the same to a tenant for years or at will, the tenant, however, taking the lease to the premises subject to the right of the grantee in the security deed of terminating its existence by enforcement of the judgment by the sale of the land embraced in the security deed. This is a general principle applicable at law, and is sound law. In the in-stant case the lessee took its lease subject to the security deed, and at law the creditor under such security deed, after obtaining judgment on its deed, can terminate the existence of the lease by sale of the property. In equity, however, though it has this right under our statute, the right of the junior lessee will be protected, if that can be done by giving full effect to all the legal rights of the holder of the security deed.

We do not mean to say that the grantee in the security deed will be required to sell a portion of the building embraced in its security deed, or be required to levy upon a portion of the property therein embraced. We uphold the right of the creditor to sell the property as a whole, but subject to the lease of the plaintiff, when by so doing the secured creditor will be paid in full, and at' tbe same time the rights of the lessee be preserved. We have not overlooked, and do not mean in any way to question, the doctrine laid down in Brewer v. New England Mortgage Security Co., 144 Ga. 548 (87 S. E. 657), and kindred decisions. Nothing in this opinion militates against the rights of grantees under security deeds. We do not mean to destroy one “ jot or'title ” of the law in reference to the creation and effect or the rights of grantees in security deeds.

Under the material allegations of the plaintiff’s petition, which do not seem to be disputed, the property involved in this litigation should be sold under decree of the court providing for its sale subject to the leasehold interest of the plaintiff; and if under such sale the property brings enough to pay off the senior incumbrances and the expenses of the sale, then the property should be conveyed to the purchaser subject to the lease; but the decree should provide that if, when so sold, the property does not bring enough to pay off the senior incumbrances and the expenses of the sale, then -the property should be again offered for sale at once, and sold free from the lease of the plaintiff, and title made to the purchaser to the entire interest in the property.

Judgment reversed.

All the Justices concur, except Beck, B. J., and Atkinson, J., dissenting. Gilbert, J., concurs in the judgment.