Opinion
8 Div. 806.
April 1, 1926.
Appeal from Circuit Court, Morgan County; J. E. Horton, Judge.
S. A. Lynne, of Decatur, for appellants.
The respondent loan company was prohibited by law from transferring or assigning the mortgage. Code 1923, § 7101; Rosenthal on B. L. S. Associations, 72. Complainant could not be subrogated to the rights of the loan company. Jones on Mortgages, §§ 711, 864; Holland v. Citizens' Bank, 16 R.I. 734, 19 A. 654, 8 L.R.A. 553; Barnett v. McMillan, 58 So. 400, 176 Ala. 430; Pomeroy's Eq. Jur. § 797; Belk v. Fossler, 96 N.E. 15, 49 Ind. App. 248.
A. J. Harris, of Decatur, for appellee.
After the sale of lot 2 to Norton, Sewell became Norton's surety to pay the $400 loan. Bright v. Mack, 72 So. 436, 197 Ala. 214. When Sewell paid the loan, he was subrogated to all of the rights of the loan company in the mortgage. Hamilton v. Robinson, 67 So. 434, 190 Ala. 549; Knighton v. Curry, 62 Ala. 408; Code 1907, §§ 5385, 5394; Code 1923, §§ 9544, 9553. It is immaterial that the loan company marked the mortgage satisfied; the law subrogates complainant to its rights. Thrasher v. Neeley, 72 So. 116, 196 Ala. 576; Clearman v. Cobbs, 73 So. 83, 197 Ala. 546; Hughes v. Howell, 44 So. 410, 152 Ala. 295. Complainant is entitled to reformation of the deed to Norton. Orr v. Echols, 24 So. 357, 119 Ala. 345; 23 R. C. L. 332. If there is a reason for keeping a mortgage alive, such as the existence of another incumbrance, equity will not destroy it. Barnett v. McMillan, 58 So. 400, 176 Ala. 430; 2 Pom. Eq. Jur. (3d Ed.) 791.
When a mortgagor conveys the mortgaged property, and his grantee assumes the payment of the mortgage as between the mortgagor and his grantee, the grantee becomes the principal debtor primarily liable for the debt, and the mortgagor becomes a surety with all the consequences flowing from the relationship. As between these two and the mortgagee, although he may treat them both as debtors, and may enforce the liability against either, still, after notice of the assumption, he is bound to recognize the condition of suretyship and to respect the rights of the surety in all of his subsequent dealings with them. When the mortgagor, having become a surety, pays off the mortgage, he is entitled to hold it by equitable assignment or subrogation for the purpose of reimbursement from the grantee. 3 Pomeroy, § 1206, and note on page 1409. This rule as enunciated by Mr. Pomeroy is not only supported by many authorities cited in his notes, but finds support in our own case of Hamilton v. Robinson, 67 So. 434, 190 Ala. 549, as well as previous decisions of this court. Therefore, when Sewell, the appellee, mortgaged the lot to the loan company, and subsequently sold it to Norton, who assumed the payment of the mortgage as part of the purchase money, but failed to pay same, and Sewell paid it, he became the equitable assignee, and was by the operation of equitable principles subrogated to the rights of the loan company.
The fact that section 3602 of the Code of 1907 forbade the loan company from assigning its securities could at most apply to a contractual or conventional subrogation, and not to one that arose by the operation of law. Moreover, section 3602 must be considered in pari materia with section 5394 of the Code of 1907, and which provides:
"A surety who has paid the debt of his principal is subrogated, both at law and in equity, to all the rights of the creditor, and in a controversy with other creditors, ranks in dignity the same as the creditor whose claim is paid."
The decree of the circuit court is affirmed.
Affirmed.
SOMERVILLE, THOMAS, and BOULDIN, JJ., concur.