Kern v. Hotaling , 27 Or. 205 ( 1895 )

Opinion by

Mr. Justice Wolverton.

1. There is no essential dispute as to the facts in the case and the only question is as to whether, under this statement, the plaintiff is entitled to the relief demanded. “When a new mortgage is substituted in ignorance of an intervening lien, the mortgage released through mistake may be restored in equity, and given its original priority as alien”: Jones on Mortgages, §971. This is the doctrine of many cases. In Young v. Shaner, 73 Iowa, 555, (35 N. W. 629,) the defendants John H. Shaner and Sarah B. Shaner were the owers in common of a parcel of land which they mortgaged to Young to secure the payment of four hundred dollars money borrowed. Thereafter Witmer Brothers recovered judgment against John H. Shaner, who subsequently conveyed his interest to Sarah B. The latter then applied to Young for an additional loan of two hundred dollars, and to secure time on the old loan of four hundred dollars executed her note for six hundred dollars, and to secure the same executed a new mortgage upon the premises, which Young accepted, and canceled the old mortgage, in ignorance of the Witmer Brothers’ judgment. The court held that the new mortgage, to the amount of the old, was to be regarded as a mere renewal, and that Young was entitled to have such amount declared as a lien superior to the Witmer Brothers’ judgment, citing Bruse v. Nelson, 35 Iowa, 157, as in •point, and as decisive of the case. The holding of the latter case is in effect that if A, holding a mortgage on the premises of C, in ignorance of a mortgage subsequently executed by C thereon, release his mortgage, and take a new one, equity will, as against C, or his assignee with notice, restore the lien of the first mortgage. In this case an additional loan of one hundred and thirty-one dollars was obtained, but the court declared the lien to be superior, to the extent of the original indebtedness, to the mortgage subsequently executed. Geib v. Reynolds, 35 Minn. 331, (28 N. W. 929,) was a case wherein plaintiff brought suit as administrator of Dietrich Thole, deceased, to foreclose a certain mortgage, and to have it declared a lien superior to the lien of defendants. It appears that on May fifth, eighteen hundred and seventy-seven, Dieling and wife executed to Thole a mortgage on certain premises to secure the payment of two thousand dollars, in accordance with the conditions of a promissory note payable three years after date, bearing ten per cent, interest. The mortgage was recorded July ninth, eighteen hundred and seventy-seven. On May fifth, eighteen hundred and eighty-one, the debt not having been paid, Dieling executed a new note to Thole in renewal of the old loan, for the same amount, payable three years after date, with eight per cent, interest for two years and seven per cent, for the third, and executed a new mortgage to secure the same. The old note and mortgage were surrendered to Dieling, but the new mortgage was not recorded by Thole until December twenty-first, eighteen hundred and eighty-one, nor was the old mortgage satisfied until that date. On September eighth, eighteen hundred and eighty-one, Dieling borrowed of Reynolds two thousand dollars, and also of Benjamin V. Quackenbush one thousand one hundred dollars, through one Livingston Quackenbush, who was their agent, and executed a mortgage to each of said parties to secure their respective loans, which were recorded September twentieth, eighteen hundred and eighty-one. At the time of obtaining these loans Dieling exhibited to the agent the first note and mortgage to Thole, and told him that the mortgage, note, and debt had been paid, and the agent, relying upon the statement, made the loans. Presumptively, Thole had no notice of the execution and record of these mortgages when he canceled the old mortgage of record. The court say: “They (Reynolds and Quackenbush) acquired their rights before the discharge of the record of the Thole mortgage, and not upon the faith of that discharge. They are not, therefore, in position to insist that they are injured by annulling that discharge. When a prior mortgage has been, by fraud or mistake, discharged of record, a subsequent mortgagee, who became such anterior to such discharge, cannot claim to be injured by setting aside the release, and restoring the mortagee to his rights. * * * It is a familiar rule that if a holder of a mortgage take a new mortgage as a substitute for a former one, and cancel and release the latter in ignorance of the existence of an intervening lien upon the mortgaged premises, equity will, in the absence of some special disqualifying fact, restore the lien of the first mortgage, and give it its original priority. * * * The fact that the mortgage was released in ignorance of the existence of the intervening lien is deemed such a mistake of fact as to entitle the party to relief, and this although such intervening lien was of record at the time. ” It was accordingly held that Thole’s mortgage was a superior lien to those of Reynolds and Quackenbush, In support of this doctrine see also Robinson v. Sampson, 23 Me. 388; Cobb v. Dyer, 69 Me. 494; Barnes v. Mott, 64 N. Y. 397 (21 Am. Rep. 625); Hutchinson v. Swartsweller, 31 N. J. Eq. 205; West’s Appeal, 88 Pa. St. 341; French v. De Bow, 38 Mich. 709; Stimpson v. Pease, 53 Iowa, 572 (5 N. W. 760); Jones on Mortgages, §§ 966, 971.

It is clearly deducible from these authorities that the fact that the new note executed for the aggregate amount of the two former notes bears interest at an increased rate, and the further fact that the note and mortgage was made payable to McDaniel instead of Kern, could have no significance, where it is manifest that it was the intention of the parties that the new note and mortgage should operate as a continuance of the old indebtedness, and not as a payment or discharge thereof. In Pearce v. Buell, 22 Or. 33, (29 Pac. 78,) a case in point, Bean, J., says: “In such a case a court of equity will look through the form to the substance, and keep alive the original security, if it can be done without injury to third parties. No rule is better settled thau that if the holder of a mortgage take a new mortgage as a substitute for a former one, and cancel and release the latter, in ignorance of the existence of an intervening lien upon the mortgaged premises, although such lien be of record, equity will, in the absence of the intervening rights of third parties, restore the lien of the first mortgage, and give it its original priority.” It is also settled that the acceptance of a note is not payment of an account, nor is the acceptance of one note in renewal of another payment thereof, unless it is so expressly agreed between the parties: Black v. Sippy, 15 Or. 576 (16 Pac. 418); see also Geib v. Reynolds, 35 Minn 331. And nothing short of actual payment of the debt or an express release will operate to discharge the mortgage: Pearce v. Buell, 22 Or. 33 (29 Pac. 78); Jones on Mortgages, § 924, That plaintiff canceled his old mortgage by mistake, and in ignorance of the A. P. Hotaling Company’s deed, there is no doubt. Nor was he guilty of negligence in any degree in not discovering it of record, as he required an abstract of the record before he would consent to the .renewal and a postponement of the time of payment. The abstract showing the record clear, Lent and McGrew, the agents, of plaintiff, renewed the note and mortgage, granting an extension of time of payment, through the instrumentality of McDaniel, one of their firm. There was no agreement or understanding that the new note and mortgage should be accepted in payment of or in discharge of the old notes, nor was it so intended or understood by the parties, and consequently there was no payment or discharge of the old indebtedness.

2. The deed under which the rights of the defendant, the A. P. Hotaling Company, accrued was executed October twenty-eighth, eighteen hundred and ninety, two days prior to the recording of plaintiff’s old mortgage. Indeed, Kern’s deed to Sperling had not been delivered or. recorded at the time, and hence he had no interest which he could then convey or mortgage, and the company’s deed could only take effect upon an after acquired title. Plaintiff had no knowledge of the Hotaling Company’s equity when he delivered the deed to Sperling, and he accepted the mortgage in return in good faith for value. This is not disputed. Sperling’s title being thus encumbered with plaintiff’s mortgage, the A. P. Hotaling Company therefore acquired its equity subject to such encumbrance. This being the condition of the company’s lien prior to the execution of the new mortgage and the cancellation of the old, it has acquired no new rights by reason of the fact that the old mortgage was, through mistake and in ignorance of its equity, canceled of record, nor in reliance upon such cancellation. The maxim that where the equities are equal the law will prevail can have no application because the equities are unequal by reason of the fact that the plaintiff possesses a prior and superior equity. A lien discharged by mistake is in contemplation of equity still in existence, French v. De Bow, 38 Mich. 709, and the A. P. Hotaling Company has acquired no additional equity in reliance upon the mistake of plaintiff. Hence plaintiff's superior equity will prevail.

It was also contended by appellant that the equities of plaintiff and the A. P. Hotaling Company were acquired concurrently, and that, such being the case, .the land should be adjudged as a common fund for the indemnity of both parties, under the authority of Fleischner v. Sumpter, 12 Or. 166 (6 Pac. 506). While, in a sense, the equities of these parties beoame effective at the same time, simply because of the peculiar circumstances under which the respective deeds and the mortgage were delivered, yet we have seen that the plaintiff took a superior equity, which has not been surrendered or impaired through his mistake or inadvertence, and no disadvantage accruing to the company through such mistake, there was no error in granting the relief demanded by plaintiff, and the decree of the court below will therefore be affirmed.

Affirmed.