Fraser v. Martin , 195 Ga. 683 ( 1943 )

1. To the general rule that a lesser estate becomes merged in a greater one there is an exception when it appears that it was the intention of the holder of the instruments creating both estates that a merger should not take place. The intent controls; and such intention may, as in the instant case, appear on the face of the writing.

2. The deed conveying the power of sale containing an express provision for the naming of a substitute trustee with a power of sale granted to the original trustee, and the record showing full compliance with the terms of the instrument in this respect, there is no merit in the contention that the sale should have been enjoined because of lack of authority in the new trustee to bring the property to sale.

No. 14470. APRIL 13, 1943. On March 7, 1929, the Merchants Mechanics Banking Loan Company, hereinafter called the loan company, made two loans to Annie Mae Scott, one of $1000, and the other of $778, secured by separate deeds to the same property, the first having priority over the second. Each deed contained a power of sale, and both were recorded on the same day. The $1000 loan was evidenced by a bond for that sum, executed by the borrower, due five years from date, and bearing interest at the rate of seven per cent. per annum, payable semiannually at the office of the loan company in Atlanta. The other loan was evidenced by notes of the borrower, aggregating $778, payable monthly over a period of five years. The deed securing the bond was made to the loan company "as trustee," and the company was designated throughout the deed as "trustee."

For a recited consideration of one dollar, the loan company, on June 15, 1934, executed a deed to Miss Lizzie Martin, whereby the company "remised, released, and forever quitclaimed" to her "all right, title, interest, claim, or demand which [the loan company] had or may have had in and under" the deed from Annie Mae Scott securing the $1000 bond, and wherein it was recited that "this deed conveys all interest and exercises every right in [said deed from Annie Mae Scott] wherein the grantee herein is the holder of the beneficial interest in said loan deed referred to, and also holds first-mortgage real estate bond for the respective amounts set forth in said deeds and for which said deeds were given to secure." and that this conveyance is "limited only to such interest as was conveyed to the grantor herein under said deed" from Annie Mae Scott to the loan company.

The record does not disclose whether or not the foregoing deed was recorded, nor whether or not the bond and deed securing the same were otherwise transferred and assigned to Miss Martin; but counsel for both parties in their briefs state that both the deed and the bond were "duly transferred and assigned" to Miss Martin, and her right and title to the same are not questioned.

On October 8, 1934, Annie Mae Scott, in consideration of "one dollar and other consideration," conveyed the property by warranty deed to G. W. Smith, subject to her indebtedness to the loan company, "as recorded in Deed Book 1069, page 245, and Book 1161, page 643, Fulton County Records," and G. W. Smith, in consideration of "five dollars and other considerations," on January 16, 1936, in turn conveyed the property by a similar deed to Miss Martin, subject to the same indebtedness. Both deeds were duly recorded. On October 1, 1938, the loan company transferred and assigned to S. A. Fraser the notes of Annie Mae Scott and the deed securing the same. This transfer was recorded on October 19, 1942. On November 2, 1942, Miss Martin executed an instrument, in the presence of two witnesses, one a notary public, which was recorded in deed book 1069, page 345, date not shown, reading as follows: "Whereas the undersigned is the holder of a first-mortgage real-estate bond signed by Annie Mae Scott, dated March 7, 1929, and due March 7, 1934, together with a security deed signed by said Annie Mae Scott, dated March 7, 1929, which was given to the Merchants Mechanics Banking Loan Company as trustee, conveying certain property at 188 Bailey Street as security for said bond, said deed being recorded in Deed Book 1069, page 245, Fulton County Records, and whereas the Merchants Mechanics Banking Loan Company, having dissolved its charter, is no longer in life, and is incapable of acting as trustee aforesaid, and whereas under the terms of said security deed, and in compliance with paragraph seven of same, the undersigned, who is the sole owner of the bond secured by said deed, does hereby name and appoint J. Caleb Clarke as successor trustee to act under and in accordance with the rights, powers, and duties as belonged to the original trustee, under said deed."

On November 21, 1942, the property was advertised by J. Caleb Clarke as trustee, to be sold on the first Tuesday in December, 1942, "by virtue of the powers contained in a security deed from Annie Mae Scott to the Merchants Mechanics Banking Loan Company, as trustee, dated March 7, 1929." Although it is recited in the bill of exceptions that the advertisement was put in evidence, a copy does not appear in the record.

The foregoing is a brief summary of all the evidence appearing in the record, except a letter from John B. Wilson, Secretary of State, stating that the Merchants Mechanics Banking Loan Company had not surrendered its charter, and the testimony of the plaintiff in error that he was cashier of the Merchants Mechanics Banking Loan Company, and that they had not dissolved their charter and were still active, and had not been requested to resign as trustee of the property.

Fraser brought to the superior court a petition in which he named as defendants, J. Caleb Clarke, as trustee, and Lizzie Martin, and alleged that Clarke had advertised the property for sale and was proceeding with said sale illegally, for the following reasons: that said loan deed and the rights under said deed and the note secured by same were quitclaimed to Miss Lizzie Martin on or about June 15, 1934; that Annie Mae Scott conveyed by warranty deed to G. W. Smith on or about October 8, 1934, said deed being subject to said loan; that G. W. Smith conveyed by warranty deed to Miss Lizzie Martin on or about January 16, 1936, and by executing such an instrument, by the application of the doctrine of merger, said loan was automatically canceled and therefore void, as said lien was merged into said party's fee-simple title; that by virtue of said merger the second loan that was placed on said property concurrently with the first loan is the only outstanding lien against said property; that said second loan has been transferred to the plaintiff herein; that said plaintiff is the only one legally authorized to foreclose on said property; that the Merchants Mechanics Banking Loan Company is legally qualified as trustee for Annie Mae Scott, as provided in the original trust agreement; that said trustee was never changed; and that if it were changed, the failure to record said powers and the change of the trustee would cloud the title and cool the bidding if sale were hold at this time. He prayed, that the defendants be restrained, temporarily and permanently, from selling said property, so that it will pass to a bona fide purchaser; that his claim be declared the first lien against said property; and that he be permitted to advertise and sell said property.

A temporary restraining order was granted, but was dissolved at the interlocutory hearing, and an interlocutory injunction refused, which ruling was excepted to. Only two questions are argued in the briefs of counsel: (1) merger, and (2) the validity of Clarke's appointment as trustee and his right to advertise and sell as the agent of Miss Martin.

1. Fraser contends that when Miss Martin took a conveyance of the property from G. W. Smith, the estate she then held under the loan deed became merged into that she acquired from Smith, and that the resulting merger of estates "automatically canceled" the loan. He does not contend that the loan has been paid, or that Miss Martin in taking the deed from Smith intended that a merger should take place, and offers no evidence, other than the conveyances themselves, to establish his contention. While it is a general rule of law that when two estates in the same property unite in the same person in his individual capacity, the lesser estate is merged in the greater (Code, § 85-710), in equity there are exceptions to this rule. One of the exceptions is that the lesser is not merged in the greater when it appears that the person in whom the two estates meet intends that it shall not take place. Knowles v. Lawton, 18 Ga. 476 (63 Am. D. 290);Ferris v. Van Ingen, 110 Ga. 102 (35 S.E. 347); Coleman Burden Co. v. Rice, 115 Ga. 510 (4) (42 S.E. 5). "In equity the rules of law are not followed, and the doctrine of merger is not favored. Equity will prevent or permit a merger as will best subserve the purposes of justice and the actual and just intent of the parties, whether express or implied. The doctrine of merger has its foundation in the convenience of the parties interested; and therefore whenever the rights of strangers, not parties to the act, that would otherwise work an extinguishment of the particular estate, require it, the two estates will still be considered as having a separate continuance. Wherever a merger will operate inequitably, it will be prevented. The controlling consideration is the intention, express or implied, of the person in whom the estates unite, provided the intention is just and fair, and a merger will not be permitted contrary to such intent. Where there is no expression of intention, it will be sought for in all the circumstances of the transaction, and may be gathered not only from the acts and declarations of the owner of the several independent rights, but from a view of the situation as affecting his interests, at least prior to the presence of some right in a third person. And equity will presume such an intent as is consistent with the best interests of the party." 21 C. J. 1034, § 234. "The doctrine of merger of estates is designed primarily for the benefit of one who acquires an interest in the property greater than he possessed in the first instance, and will not be held to apply against his will to his disadvantage."Seaboard Air-Line Ry. Co. v. Holliday, 165 Ga. 200 (140 S.E. 507). "Since a court of equity is not bound by the legal rules of merger, it will prevent or permit a merger of estates according to the intent of the parties, either actually proved or implied from the fact that the merger would be against the interest of the party in whom the several estates or interests have united." 10 R. C. L. 666, § 27. In Pope v. Hammond, 168 Ga. 818 (149 S.E. 204), this court held: "Where the holder of a security deed subsequently (after a judgment lien has attached to the equity of the grantor) receives a quitclaim deed to the land conveyed in the former deed, but does not surrender or cancel the note or the deed securing the same, and obtains a transfer of tax fi. fas. to be kept alive and entered upon the general execution docket, a merger of the two estates being against the interest of such holder, and inequitable, and there being no evidence of an intent upon his part to effect a merger, an intent not to merge will be presumed, and a court of equity will decree that no merger was effected." The decision in that case seems to be controlling in principle in this case. A merger would have been against the interest of Miss Martin, and inequitable. The deed from Smith by its terms conveyed the property to her subject to and not in satisfaction of the security deed. Her act in undertaking to bring the property to sale under that deed for the purpose of collecting the loan she held upon the property manifests an intention on her part that there was to be no merger of the two estates, and a court of equity will presume that she did not intend that which would so obviously be to her injury

The statement in Muscogee Manufacturing Co. v. Eagle Phenix Mills, 126 Ga. 210 (7) (54 S.E. 1028, 7 L.R.A. (N.S.) 1139), that if two estates in the same property united in the same person in the same capacity, and it is contended that no merger took place, the person making such contention, if entitled so to do, must allege and prove facts negativing the existence of such merger, does not mean that if on the face of the instruments themselves it affirmatively appears that no merger took place, aliunde proof of that negative fact should be given. Nor was anything contrary to what we now hold ruled in Landrum v.Carey, 185 Ga. 76 (194 S.E. 362). In Pitts Banking Co. v.Fenn, 160 Ga. 854 (129 S.E. 105), the rule was distinctly recognized that the intention that a merger should not take place might appear expressly from the writings themselves. We hold this to be that kind of a case.

2. There is no merit in the contention that Clarke, as the substituted trustee, had no right to expose the property for sale. The trustee originally named who had the power of sale was the Merchants Mechanics Banking Loan Company. There is an express provision in the deed, in the clause thereof numbered seven, providing for the creation of a new trustee by the holder or holders of the obligation secured thereby. This record affirmatively shows that Clarke was, by formal action of the holder of the debt secured by the deed, substituted trustee, with all the powers of the one originally named.

Judgment affirmed. All the Justices concur.