Opinion
Decided April 16, 1928.
Mortgages — Second mortgagee estopped from repudiating waiver of priority, when — Second mortgagee agreed to cancellation of first mortgage and execution of new one.
Where the holder of a second mortgage agrees to the cancellation of the first mortgage and the making of a new one in its place for a greater amount of money, and expressly waives his rights of priority in favor of the new first mortgage, he is estopped from later on repudiating his act.
APPEAL: Court of Appeals for Cuyahoga county.
Mr. F.E. Bruml, for plaintiff.
Mr. Nicholas Papp, for defendants.
This cause is here on appeal from the court of common pleas of Cuyahoga county, and the record consists of an agreed statement of facts, the substance of which is as follows:
The defendants, Alexander Papp and wife, owned certain real estate in 1923, and mortgaged the property by executing a mortgage deed in the sum of $3,000 to the West Side Savings Loan Association as a first mortgage, and by executing a second mortgage to Stephen Papp, Jr., in the sum of $1,500. Subsequently this second mortgage was disposed of to the plaintiff, Arthur J. Tuscany, and this mortgage is the instrument which forms the basis of this action. Later, the owners, codefendants herein, sold the property to one Charles R. Puchhas, who assumed the two mortgages aforesaid noted. Payments were made on the first mortgage to the West Side Savings Loan Association to an extent which reduced the amount of the first mortgage from $3,000 to $2,759. The purchaser of the property, who assumed the two mortgages standing in the names of the West Side Savings Loan Association and Arthur Tuscany, respectively, negotiated for a new loan from the association, for the purpose of increasing it from $2,759, the sum to which the original loan of $3,000 had been reduced, to the sum of $3,800. As part of this transaction, Tuscany, the holder of the $1,500 second mortgage, waived priority in writing on the original mortgage in favor of the mortgage for $3,800, loaned in good faith by the West Side Savings Loan Association, for the purpose of securing the total loan made to Puchhas by the increase of the indebtedness from $2,759 to $3,800, and later the property mortgaged was purchased by one Sherepito and wife who assumed the indebtedness.
In the petition of the plaintiff there is a prayer for a personal judgment against Alexander Papp and wife, the original makers of the note, the payee and indorser of the note, Stephen Papp, the original purchaser, Charles R. Puchhas, and the Sherepitos, who purchased the property and assumed the obligation from Puchhas. It is urged that Alexander Papp and wife were legally prejudiced in their rights because Tuscany, who purchased the $1,500 mortgage from Stephen Papp, Jr., had waived priority in favor of the new mortgage to the association, which increased the loan and the amount of the lien to the sum of $3,800, as above noted, and it is claimed that by this waiving of priority they were released from liability.
The decree below held that, while they were not released from personal liability, the waiver by Tuscany in favor of the association was of no legal effect, because it infringed the legal status of Papp. The association in the decree below was given a first lien for the amount of the original mortgage, which had been canceled, and the decree gave a second lien in the full amount to Tuscany, and, to the association, a third lien for the difference between the indebtedness existing at the time of the waiver and the amount of the new loan.
It is a well-established doctrine that, where a grantee assumes the obligation for the payment of a mortgage, he becomes personally liable to the mortgagee, and the latter is then in a position where he may elect to treat the grantee as principal on the evidences of indebtedness and the makers as surety, or reverse the order by his own election. We think this rule of law finds authority in Denison University v. Manning, 65 Ohio St. 138, 61 N.E. 706; Society of Friends v. Haines, 47 Ohio St. 423, 25 N.E. 119; and Stearns on Suretyship, p. 25, Sections 23 and 90.
In the case at bar we have the loan association in good faith increasing the loan and furnishing the money to the new owner, Puchhas; this was done with the consent of Tuscany, the owner of the second mortgage, and at the request of Puchhas, the owner; the inducement for the additional loan unquestionably must have been the consent to the transaction on the part of Tuscany, and, when he waived priority in a transaction where the association, the owner and the second mortgagee were parties, which was done upon the express understanding of consent and waiver, it then follows as a matter of law that Tuscany cannot repudiate the express terms of the contract, because he is estopped from so doing by virtue of his waiver of priority. This legal and equitable aspect of the case, by reason of the relationship between Tuscany and Papp, at least to the extent that the lien of the West Side Savings Loan Association could be affected, renders that lien prior to any of the other liens, because of the contract, of which the waiver forms a basis, made by the association, the second mortgagee and the owner of the property.
In this case the question of innocent parties is not involved. The record shows a bona fide contract, the basis of which was the consent and waiver upon which the increased loan was made and the first mortgage canceled, and the change in the mortgage was made by one having unquestioned authority. Thus an alteration was made in the note and mortgage, which is the subject of the action, about which there can be no issue. The question at bar is one purely of contract, and the parties concerned executed it; the bank acted in good faith, the loan was made, and the claim of the plaintiff that he was prejudiced in his rights thereby is of no legal avail under the record in the case and the authorities applying thereto.
Tuscany, the plaintiff, was the moving factor in securing the increased loan, and was the cause of the association canceling the first mortgage and parting with its money. He was the inducement, by his act of waiver on an instrument he owned and controlled, that caused the association to release its first security and part with its funds. By his own act he contracted in writing to subordinate his lien to the association for the new loan. These are acts upon which the association obviously depended to make the loan, and but for which it would not have made the loan. Now he comes as plaintiff to undo the act which he performed. It is an act which bars him by estoppel from wrecking the structure which he himself builded in conjunction with the owner and the association.
Under such a status the law prevents him from shifting position to the injury of the association, acting in good faith, to its substantial injury. The law frowns upon such conduct, and its penalty is to hold him to his own agreement, even to his injury, as against the association acting in good faith.
Thus holding, a decree may be entered in favor of the West Side Savings Loan Association in conformity with this opinion.
Decree accordingly.
LEVINE and VICKERY, JJ., concur.