Summary
In Seeley v. Bacon (N.J. Ch.), 34 A., 139, Francis Seeley conveyed to Tomlin a store building, upon which there was an outstanding mortgage to Robert Seeley of $1,000.
Summary of this case from Enterprise Bank v. Federal Land Bank et alOpinion
03-23-1896
SEELEY et al. v. BACON et al.
J. Boyd Nixon, for complainants. Walter H. Bacon and D. J. Pancoast, for defendants.
Action in equity by Francis Seeley and Phoebe Mulford. against Walter H. Bacon and Smith Tomlin for subrogation. Decree for plaintiffs.
On the 14th of November, 1891, Francis Seeley conveyed a store property in Bridgeton to Smith Tomlin. There was then upon the property a recorded mortgage of $1,000, held by Robert Seeley. At the time of his purchase from Francis Seeley, Smith Tomlin, the vendee, gave a purchase-money mortgage to Seeley, the vendor, for $3,000, which mortgage was recorded December 21, 1891. On October 15, 1894, Tomlin and wife executed another mortgage to Walter H. Bacon, which was duly recorded. This mortgage was given to secure Bacon against his liability as in dorser of certain notes made by Smith Tomlin. After these events Tomlin made two new mortgages, one to Phoebe Mulford, for $3,500, and one to Francis Seeley, for $500. Mrs. Mulford advanced $3,500 in cash, for which her mortgage was given, and this money was applied to the satisfaction and payment pro tanto of the $3,000 mortgage theretofore held by Francis Seeley and the $1,000 mortgage theretofore held by Robert Seeley. The new mortgage of $500 given to Francis Seeley represented the difference between the $3,500 loaned by Phoebe Mulford and the $4,000,—the amount of the two old mortgages of $3,000 and $1,000, respectively. The two Seeley mortgages were canceled of record on the day when the two new mortgages were executed. This bill is filed for the purpose of obtaining a decree directing the cancellation of these new mortgages, and the reinstatement of the two old Seeley mortgages, so that the liens which existed prior to the execution of Bacon's mortgage may be restored for the benefit of Francis Seeley and of Phoebe Mulford, who advanced the money for the payment of the old mortgages. The equity of the complainants is grounded upon the claim that the new mortgages were taken as security, without knowledge of the existence of the Bacon mortgage, and under such circumstances as entitles the complainants to be subrogated to the rights of the old mortgages, and to have the cancellation of the old mortgages expunged. The facts surrounding the cancellation of the two mortgages are these: Francis Seeley, who held the $3,000 mortgage upon the Tomlin property, desired to raise some money. He spoke to Robert Du Bois, of Bridgeton, concerning his wish. Phoebe Mulford, a lady 77 years of age, had money to loan. Her business affairs were managed by her sons, Charles and David Mulford. Mr. Du Bois visited David Mulford, and told him that he wished to borrow $3,500 on a brick building in Bridgeton; that there were two mortgages on it, one for $1,000 and another for $3,000; that he would pay these off, and Francis Seeley would take a second mortgage for $500. Mr. Mulford told Mr. Du Bois that he would make the loan, but that the mortgage must be a first mortgage, and first class at that; that the loan was for his mother. Charles Mulford also impressed upon Mr. Du Bois that they wanted everything straight. Francis Seeley had proposed, and Charles Mulford consented, that instead of assigning the mortgages it would be best to cancel them, and to make new mortgages,— clean mortgages. This course was suggested probably because Seeley wanted to raise $3,500, a sum which differed from the sum secured by either or both of the old mortgages. It appears that Smith Tomlin, the mortgagor, was consulted about this arrangement, and consented to execute the new mortgages to carry out the arrangement. Thereupon Mr. Mulford and Mr. Du Bois went to the county clerk's office, and had a conversation with Mr.Edward Lanning, who was employed in the office, and who subsequently drew the new mortgages. As to what occurred at the interview between these gentlemen, the evidence is somewhat conflicting. Mr. Seeley says that Mr. Lanning was asked if there were any judgments or mortgages upon the property, and Lanning replied that there had been a judgment, but that it had been canceled. Mr. Seeley says that he and Mr. Du Bois went back, and told Charles Mulford what they had learned. Mulford asked if they had made a careful search, and they said, "Yes." Tomlin was consulted about this arrangement, and consented to execute the new mortgages to carry out the arrangement. He said, "It was all right for us to change it." He also said that he had not the money to pay the interest, and Mr. Seeley said he would do so, and they would settle it; and then they returned to the clerk's office on the same day, and had the writings executed. Mr. Du Bois corroborates substantially this account of what occurred at the clerk's office. He says that he told Lanning that he wanted a search for judgments and mortgages, and Lanning informed them that there was a judgment against another Smith Tomlin. The testimony of both Mr. Du Bois and Mr. Seeley is contradicted by Lanning, who says that he was asked if there were any judgments, but that no mortgage search was mentioned. Mr. Trenchard, the county clerk, also says that Mr. Du Bois, after the Bacon mortgage was discovered, told him that he (Du Bois) had asked Lanning for a search against judgments, and not against mortgages, but that he expected him to make a search also against mortgages.
J. Boyd Nixon, for complainants.
Walter H. Bacon and D. J. Pancoast, for defendants.
REED, V. C. (after stating the facts). This case presents two questions; one involving the right of subrogation, and the other the right to have a mistake rectified. It is obvious that neither of the complainants is entitled to the lastmentioned relief unless he stands as a mortgagee of one of the canceled mortgages, or stands in the stead of, and substituted to the right of, such mortgagee. In respect to the first question, I am of the opinion that Francis Seeley, one of the complainants, occupies a position differing from that occupied by Phoebe Mulford, the other complainant. He held one of the mortgages which were paid. He took in part payment of this mortgage a new mortgage for $500. The payment of this $500 represented by the new mortgage made to him may be regarded as a payment upon the old mortgage of $3,000, held by him. As to the $500, therefore, he can be regarded pro tanto as a mortgagee who has canceled his mortgage. Occupying this position, then, the only question that would remain is whether the cancellation of this mortgage occurred through such a mistake as entitled him to have his original lien restored. Phoebe Mulford, the other complainant, was, previous to her loan, an entire stranger to the contract created by the original mortgages. Neither she nor her property was in any way affected by their existence. The only way by which she could obtain a footing for the purpose of invoking the aid of a court of equity to restore in her favor the lien of the original mortgages is by exhibiting such facts as invested her with an interest in these mortgages. She claims that she should be subrogated to the rights of these mortgagees to the amount which she has advanced for their payment. But the mere fact that she advanced $3,500 with the intention that it should be used in the payment of these mortgages, coupled with the fact that this sum was so used, will not entitle her to subrogation. The right to subrogation which springs out of the mere fact of the payment of a debt, and which is termed "legal subrogation," exists only in favor of a surety for the payment of the debt, or one who is compelled to pay the debt to protect his own rights. Phoebe Mulford stood in no such attitude when she paid this money. She must, therefore, rely upon an agreement, existing at the time of the payment, with the mortgagor or mortgagee, that she should be subrogated to their liens. This is styled "conventional subrogation." It is entirely settled that one who advances money to pay a claim for the security of which there exists a lien, in default of an agreement, cannot be subrogated to the rights of the lienor. North River Const Co.'s Case, 38 N. J. Eq. 43.3. Conventional subrogation can only result from an express agreement either with the debtor or the creditor. Railway Co. v. Wortendyke, 27 N. J. Eq. 658; Coe v. Railway Co., 31 N. J. Eq. 105.
The question is thus presented whether such an agreement as will entitle her to substitution to the lien of these mortgages appears in the testimony. The facts seem to me to prove this condition of affairs: Francis Seeley wished the money due upon the Tomlin mortgage. Tomlin could not pay it; could not even pay the interest upon it. Seeley evidently knew that fact. Seeley then, through Mr. Du Bois, approached the Mulfords, who had charge of their mother's money. It is clear that the Mulfords consented to make the loan only upon the security of a first mortgage. It is also clear that Du Bois and Seeley assented to this understanding. It is equally clear that Tomlin understood that the new mortgage was to take the place and stand for the security of the old mortgages. It is obvious that the consummation of this understanding of all these parties was thwarted by a mistake in fact, viz. in supposing that there were no incumbrances upon the property subsequent to the canceled mortgages. The old lady relied upon her sons, and they upon Mr. Du Bois, a veryreputable gentleman. Now, whether Mr. Du Bois asked for a search against mortgages as well as against judgments is doubtful; but I think it is entirely clear that all parties were under the impression that he had made adequate inquiry as to the existence of subsequent incumbrances, and that it was in consequence of his mistake in respect to their existence that the mortgages were canceled, instead of assigned. They supposed the new mortgages would preserve the lien of the old, and that the new mortgagees would stand in the shoes of the old. In my judgment, under the circumstances of this case, Phoebe Mulford, and, if necessary, Francis Seeley also, should be subrogated to the rights of the original mortgagees in the two mortgages to secure the amount of $3,500 advanced by Phoebe Mulford and the $500 advanced by Francis Seeley. Neither Phoebe Mulford nor Francis Seeley stands in the attitude of a mere volunteer stepping in and paying the mortgage debt without any request by, or any understanding with, the original mortgagors and mortgagees. On the contrary, the advance of the money by Phoebe Mulford is to be regarded as an advance made both by the request of Tomlin, the mortgagor, and Seeley, the mortgagee. Further than this, it is to be regarded as an advance made with an understanding existing between all the parties that the new mortgages should stand upon the same footing as the old in respect to their rank as securities.
Having reached the conclusion that the complainants are entitled to be substituted in the place of the original mortgagees, the second question is presented, which is whether these mortgagees, having canceled the mortgages upon the record, can now ask for their reinstatement. That courts will reinstate a mortgage, the cancellation of which occurred through a mistake of facts, is entirely settled. In Banta v. Vreeland, 15 N. J. Eq. 103, a mortgage canceled by the assignee of the mortgagee under the mistaken motion that it had been paid was restored. The exertion of the power depends upon equitable considerations. If these complainants had canceled these mortgages with full knowledge of all the facts, they would admittedly have no standing as suitors asking for such a decree. If, however, they did it through a misunderstanding of a fact, then the question is presented, was it such a mistake as, under the circumstances, a court of equity should rectify? Now, that the cancellation occurred by reason of a mistake of facts is undisputed. It is entirely clear that the supposition that no subsequent incumbrances existed upon the mortgaged property was the inducing cause to such action. Now, as a rule, equity will refuse to rectify a mistake which occurred through the unexcusable negligence of the party who asks to be relieved from the effect of the mistake. Haggerty v. McCanna, 25 N. J. Eq. 48; Dillett v. Kemble, Id. 66; Voorhls v. Murphy, 26 N. J. Eq. 434. But what degree of vigilance is to be exercised must depend upon the facts of each case. Where the act done by mistake is one calculated to induce others to take a line of conduct which will put them to loss if the mistake is corrected, it ought to be clear that the party asking for relief has been led into the mistake in spite of the employment of the highest degree of vigilance. Where, however, no one is injured by the mistake but the party himself, and no one has changed his position by reason of the act executed through the influence of the alleged mistake, I see no reason why the mistake should not be corrected, although the highest degree of vigilance has not been exercised. For instance, if the mortgage held by Mr. Bacon had been taken for money advanced by him at the time, and had been taken after the cancellation of the old mortgages, and before the record showed the existence of the new mortgage, a case would have been presented requiring the strongest evidence of unpreventable mistake to justify the reinstatement of these mortgages. But, as has already been observed, the facts in respect to the mortgage held by Mr. Bacon are entirely different He advanced nothing at the time his mortgage was accepted, and the old mortgages were still a subsisting lien at that time.
So it is perceived that the security of his mortgage, after the restoration of the two old mortgages, is exactly the same as it was before the cancellation. No valuable consideration was advanced by Bacon at the time of the execution of the mortgage to him on the faith of the supposed nonexistence of the two old mortgages, arising from their cancellation of record. By the decree asked for, the parties will be placed in statue quo. In this respect the case differs from that of Frazee v. Inslee, 2 N. J. Eq. 239, where the inference is that Frazee took his mortgage for valuable consideration. It differs also in respect to the fact that in that case there was evidence that Campbell, the defendant, owner of the canceled mortgage, was informed of the existence of Frazee's mortgage before its cancellation. The case of McKenzie v. McKenzie, 52 Vt. 271, was in this respect exactly like this, and in other features quite similar. A mortgage was made to secure certain promissory notes held by two persons. The notes belonging to one of these parties having been paid, it was desired to put the mortgage in the name of the other. They employed the town clerk to do what was necessary to that end. The clerk drew new notes to take the place of those still unpaid, and a new mortgage to the holder of these notes. He procured the old mortgage to be discharged from the record, with the consent of the old and new mortgagees. The clerk told the latter that he had acquired by the new mortgage a first lien, and both parties so believed. Before the discharge of the old mortgage, there had been a second mortgage put upon the property. On bill to re-establish the first mortgage, Redfield, J., observed: "The defendants [the secondmortgagees] had a mortgage security upon the equity of redemption in these premises, and nothing more. They had full knowledge of the complainants' prior equity and their condition is in no respect changed. If the complainants' security is to continue, the subsequent incumbrancer suffers no wrong, but remains in the full enjoyment of his rights." A decree restoring the lien of the mortgage was made. In the same line is the case of Bruse v. Nelson, 35 Iowa, 157. In Association v. Thompson, 32 N. J. Eq. 133, the complainants took a mortgage with the understanding that it was to be a first incumbrance. There were then two mortgages on the property. It was understood that the two mortgages should be canceled; that one of them should be paid out of the money lent, and that the other one should be canceled, and a new mortgage taken, to be subsequent to the lenders' mortgage. Chancellor Runyon held that the lenders were entitled to be subrogated to the rights of the holders of the canceled mortgage. I will advise a decree in conformity with the prayer of the bill.