Commercial & Farmers Bank v. Scotland Neck Bank

158 N.C. 238

• Court: Supreme Court of North Carolina
• Decided: December 20, 1911
• Status: Published

Opinion

Walker, J.,

after stating tbe case: Tbe plaintiff’s claim appeals very strongly to tbe conscience of tbe Court, and we think it is sustained by well-settled principles. Tbe doctrine of subrogation rests upon principles of natural justice and equity, and there are numerous authorities which support tbe rule that one who, at the request of another, advances money to pay off a security or encumbrance, in which tbe latter is interested or to tbe discharge of which be is bound, under tbe agreement that be shall have tbe benefit of tbe creditor’s security, is entitled to be subrogated to tbe rights of tbe creditor in tbe security, and some cases bold that, in tbe absence of an express agreement, one will be implied that tbe security shall’ subsist for tbe use and benefit of tbe lender of tbe money, and it will be so enforced. Gans v. Thieme, 93 N. Y., 225; Levy v. Martin, 48 Wis., 198; Wilkins v. Gibson, 113 Ga., 31. One who pays a debt at tbe instance of tbe debtor, under such circumstances that it appears to have been contemplated by tbe parties that be should become entitled to tbe benefit of-the security for tbe debt held by tbe creditor from tbe debtor, may, as against tbe debtor and tbe debtor’s estate, be subrogated to tbe benefit of such security and of'the debt which be has discharged. And a party who has paid a debt at tbe request of tbe debtor, under circumstances wbicb would operate a fraud upon Mm if tbe debtor were afterwards allowed to insist that the security for the debt was discharged by this payment, may also be subro-gated to the security, as against the debtor. But this subrogation will not be allowed against one interested in the property held as security, who was a stranger to the transaction by which the payment was made and who was under no obligation for the payment of the debt, unless it appears that the payment was made, not as an extinguishment of the debt, but in reliance upon and as a purchase of the security. This is a species of conventional subrogation, being a subrogation by an implied convention or agreement. Accordingly, it will not be allowed if it appears not to have been intended by the parties, though this intention, if not expressed, may (ordinarily be determined from the circumstances attending the transaction. Sheldon on Subrogation, sec. 274.

The authorities are entirely agreed, though, that where a person advances money to pay off a mortgage debt under an agreement with the owner of the equity of redemption or his representative that he shall hold the mortgage as security for Ms advance, but the mortgage, instead of being assigned to him, is discharged in whole or in part, he is yet entitled as against subsequent parties in interest to be subrogated to the rights of the mortgagee and to enforce the mortgage. Sheldon on Subrogation, sec. 19; 37 Cyc., 467, 471; Crippen v. Chappel, 35 Kansas, 495; Fivel v. Zuber, 67 Texas, 275. In the case last mentioned it is said that no different rule has been found except in LoMsiana, where the law of the subject is governed by statute.

Numerous authorities are cited in support of the rule, and the following passage from Domat, in which the principle is clearly and strongly stated, is quoted with approval: “One may acquire the privilege of a creditor without substitution in the same manner as a mortgagee, by agreement with the debtor that he who shall pay for him shall have the privilege; and it makes no difference whether the payment be made to the creditor by him who lends the money or by the debtor with whom the money has been intrusted.” (2 Strahan’s Domat’s Oivil Law, Cushing’s Ed., p. 698, sec. 1783.)

Tbe subject is fully discussed iu 1 Jones on Mortgages (6 Ed.), see. 874 et seq., and all tbe authorities collected. It is there said that tbe principle is well settled that when tbe money is advanced, at tbe request of tbe debtor or creditor, with tbe agreement that an assignment should be made or that subrogation should take place, or, what is tbe same thing in law, that tbe lender should have tbe benefit of tbe security, in either of tbe cases it will be kept on foot for tbe repayment of tbe amount advanced by tbe lender; and there seems to be no ruling to tbe contrary.

Downer v. Miller, 15 Wis., 612, seems to be exactly like this case in all respects. It decides every point raised in favor of tbe plaintiff, viz., that there clearly exists tbe right of conventional subrogation, that tbe express assent of tbe creditor, who received tbe money from tbe party claiming tbe right, is not necessary, and that tbe assignee takes subject to plaintiff’s equity. Lyness was tbe creditor, Steever tbe debtor, and Miller tbe one who advanced tbe money and claimed tbe right of sub-rogation. Tbe Court said: “Miller’s rights, therefore, must depend entirely on tbe effect of tbe agreement between him and Steever, and that we deem sufficient to justify tbe judgment of tbe Circuit Court. That agreement was that Miller was to indorse for Steever so as to enable tbe latter to raise the money at tbe bank, but that tbe money was to be used, not to pay and extinguish tbe Lyness judgment, but. to procure an assignment of it to Miller, to indemnify him as tbe indorser. To use tbe money thus obtained to pay tbe judgment and have it discharged would operate as a fraud upon Miller, and it is upon this ground that be was entitled to tbe relief given by tbe court below. It may be conceded that such relief could not have been given against any party who, relying upon tbe discharge of tbe Lyness judgment, has acquired an interest in tbe property for a valuable consideration, without notice of Miller’s equitable rights. But tbe appellant here does not stand in such a position. His rights were subsequent and subject, to tbe Lyness mortgage. . . . Nor is tbe fact that Lyness-was not party to tbe agreement that bis decree should be assigned, for Miller’s security, any reason why that agreement should not be enforced. It was a matter of indifference to bim whether the decree was assigned or discharged, and where justice between others requires it to be assigned, he should not be allowed to prevent it upon the supposed technical right to control his own decree. The enforcement of this agreement .between Miller and Steever without reference to the question whether Lyness assented to it is entirely analogous to the principle of subrogation, where the assent or agreement of the creditor who gets the money is not essential to the right. If a surety pays a debt, he has a right to be subrogated to the securities of the creditor, and the latter would not be allowed to object, for it is a matter of indifference to him. It is equally true here, though Miller’s right is not (strictly) that of subrogation) but grows out of the agreement between him and Steever. That agreement is one which should have been enforced even though Lyness had adhered to his refusal to assign the decree. But here he voluntarily consented in the end to make the assignment.” Shreve v. Hankinson, 34 N. J. Eq., 76; 1 Pingrey on Mortgages, sec. 1175. “Where the amount due on mortgages is paid by. a third person at the request of the mortgagor, and there is no understanding that they shall be considered satisfied, a court of equity will, for purposes of justice, keep the mortgages alive, and much more so if the party takes an assignment of the mortgages.” Tolamn v. Smith, 85 Cal., 280; Gans v. Thieme, 93 N. Y., 232; Yabie v. Stephens, 36 Kan., 680; Bacon v. Goodnow, 59 N. H., 415.

The case of Gans v. Thieme is a very strong authority for the position that, under the facts of this case, the plaintiff, who, at the request of the Morrisett Bros., advanced the money to pay the debt owing to the defendant bank, is entitled to be sub-rogated to the rights of the latter in the debt and mortgage, as will appear from the following extract: “It is no doubt true, however, as the learned counsel for the respondents argues, that a volunteer cannot acquire either an equitable lien or the right to subrogation (Sandford v. McLean, 3 Paige, 122; Wilkes v. Harper, 1 N. Y., 586; 2 Barb. Ch., 338); but one who, at the request of another, advances his money to redeem or even pay off a security in which that other has an interest, or to the discharge of which he' is bound, is not of that character, and in the absence of an express agreement one would be implied, if necessary, that it shall subsist for his use, and it will be so enforced. But ’ the doctrine of substitution may be applied although there is no contract, express or implied. It is said to rest 'on the basis of mere equity and benevolence’ (Cheeseborough v. Millard, 1 Jons. Ch., 409; 1 Story’s Equity Jurisprudence, sec. 943), and is resorted to for the purpose of doing justice between the parties.”

'Why should this not be the true doctrine, when the money is paid at the request of the debtor, with the agreement that the security should continue for the benefit of him who advanced the money? The creditor is not prejudiced in any way or to any extent. The debtor has made the promise and has derived a clear benefit by the payment to his creditor, and in a court of equity he will not be heard to say that the arrangement has failed by reason of the fact that he violated his instructions or agreement, if he did, and took an assignment to himself instead of the plaintiff. The mortgage has not been canceled, and even if it had been, a court of equity would not regard the cancellation as in the way of enforcing the undoubted right of the plaintiff to relief, provided there has intervened no new right acquired for value and without notice, which wd.ll be prejudiced if the lien is enforced. The law will not allow the debtor to avail himself of the breach of trust and thereby defeat the right created by his agreement, upon the faith of which the money was advanced, but will regard the assignment as made for the benefit of him to whom it justly belonged, as we have already shown. Dudley v. Bergen, 23 N. J. Eq., 397; Russell v. Mixer, 42 Cal., 475; Cobb v. Dyer, 69 Me., 494; Seiberling v. Tipton, 113 Mo., 373; Bruce v. Bonney, 78 Mass., 12 Gray, 107. In Russell v. Mixer, supra, it is said: “The only question presented is, whether or not, upon the facts stated in the amended complaint, the plaintiff is entitled to the relief he obtained. We think that there can be no doubt that he is. The agreement between Miller and himself was for an assignment and transfer of' the mortgage; the mistake occurred wholly in the' selection of the means by which this agreement was to' be effectuated. There is no appreciable distinction between this case and that where a scrivener, through ignorance or inattention, fails to select or prepare such an instrument as effectuates the previous agreement of parties, and relief is always decreed in that case. (1 Story Eq. Jur., sec. 115.) Had the recorder here, upon being informed by the parties that the agreement between them was that the mortgage in question should be more effectually transferred to Russell, prepared a release, instead of an assignment, whether he did so through mere inattention to what he was doing, or through a misapprehension of its legal effect in the premises, there would be no doubt that equity would relieve against the mistake. The rule must be the same in a case where the parties have made the mistake for themselves, and without the aid of either scrivener or recorder.”

But in Moring v. Privott, 146 N. C., 558, we find an authority which clearly sustains the plaintiff’s right of subrogation. It is there said that subrogation is of equitable origin, not dependent upon contract, and is always invoked to prevent injustice. It is defined to be the substitution of another person in the place of a creditor, so that the person in whose favor it is exercised succeeds to the rights of the creditor in relation to the debt, . . -. or that change by which another person is put into the place of a creditor, so that the rights and securities of the creditor pass to the person who, by being subrogated to him, enters into his right. It is a legal fiction, by force of which an obligation extinguished by a payment by a third person is treated as still subsisting for the benefit of this third person, who is thus substituted to the rights, remedies, and securities of another. The party who is subrogated is regarded as entitled to the same rights, and, indeed, as constituting one and the same person with the creditor whom he succeeds. Sheldon Sub., 2; 27 Am. and Eng. Enc., 206; Davidson v. Gregory, 132 N. C., 389; Carter v. Jones, 40 N. C., 196; Springs v. Harven, 56 N. C., 96.

But the Court, quoting from and approving Robinson v. Leavitt, 7 N. H., 99, further said: “There are cases in which a party who has paid money due upon a mortgage is entitled, for the purpose of effecting the substantial justice of the case, to be substituted in the place of the encumbrancer and treated as assignee of the mortgage, and is enabled to bold the land as assignee, notwithstanding the mortgage itself has been canceled and the debt discharged. The true principle is that when money due upon a mortgage is paid it shall operate as a discharge of the mortgage or in the nature of an assignment -of it, as may best serve the purpose of - justice and the just intent of the parties. Many cases state the rule in equity to be that the encumbrance shall be kept on foot or considered extinguished or merged, according to the intent or interest of the party paying the money. . . . And it makes no difference whether the party, on payment of the money, took an assignment of the mortgage or a release, or whether a discharge was made and the evidence of the debt canceled. The debt itself may still be held to subsist in him who paid the money, as assignee, so far as it ought to subsist, in the nature of a lien upon the land, and the mortgage be considered in force for his benefit, so far as he ought in justice to hold the land under it, as if it had been actually assigned to him.” There are numerous authorities of like tenor.

Our recent decision in Tripp v. Harris is directly in point. We there held that where the note secured by a mortgage is paid by a surety thereon, the note is satisfied, but an implied promise of the principal to reimburse the surety at once arises, and that he is subrogated to the rights of the creditor in all securities held by him, and he may, with or without any formal assignment, avail himself thereof for the purpose of indemnifying himself, and if the security be a mortgage, he may foreclose the same for his own benefit as a creditor of the principal.

Our ease presents a much stronger equity in favor of the plaintiff, as there the mortgage was not canceled on the record or otherwise; there was an express agreement for subrogation; Morrisett received the note as agent for the plaintiff and had HP authority in law or in fact to take an assignment to himself, and the next day he actually delivered note and mortgage, which he had received from the creditor, in execution of the agreement, to the plaintiff. The conduct of Morrisett shows conclusively that he did not take the assignment to himself for his own benefit and with the purpose of satisfying the debt and canceling tbe note, but for tbe use and benefit of tbe plaintiff bank, in accordance with tbe agreement between them, because be almost immediately transferred and delivered tbe note and mortgage to it. In tbe case of Liles v. Rogers, 113 N. C., 197, tbis Court, recognized tbe doctrine of conventional subrogation, and it is there said that where the money is paid to tbe creditor by another, at 'the request of tbe debtor, to discharge bis obligation, tbe person who advanced tbe money is, in equity, subrogated to tbe rights of tbe creditor in tbe securities held by him.

We do not understand that tbe Morrisetts or tbe defendant bank are contesting tbe right of tbe plaintiff, tbe appeal having been taken by tbe assignee of tbe Morrisetts, and be stands in no better position than bis assignors would have held if tbe general assignment bad not been made by them. “It may be said generally that an assignee succeeds only to tbe lights of bis assignor and is affected by all equities against him, and takes tbe property subject to all such equities.” 'Justice Shepherd thus states tbe rule in Wallace v. Cohen, 111 N. C., 104: “It is true, as laid down in Southerland v. Fremont, 107 N. C., 565, that such a trustee or mortgagee is a purchaser for value within tbe Statutes of 13 and 27 Elizabeth, but it is, in that case, conclusively determined, after some confusion in our decisions, that such a purchaser takes tbe property subject to any equity or other right that attached to tbe same in tbe bands of tbe debtor. Tbis view is abundantly sustained, not only by our own previous decisions, but by tbe great weight of judicial authority. Bassett v. Norsworthy, White & Tudor’s L. C. Eq., and notes. As applicable to tbe present case, tbe doctrine has been recognized and applied in a large number of decisions. 'In order to entitle one to protection as a bona fide purchaser in such a case, be must have advanced some new consideration, or incurred some new liability, on tbe faith of tbe fraudulent vendee’s apparent ownership.’ Johnson v. Peck, 1 Woodb. & M., 334; McLeod v. Bank, 42 Miss., 99; Hyde v. Ellery, 18 Md., 496; Sargent v. Sturm, 23 Cal., 359; Ratcliffe v. Sangston, 18 Md., 383; Pope v. Pope, 40 Miss., 516. Hence, .'an assignee of tbe fraudulent vendee for tbe benefit of creditors, incurring no new liability on tbe faith of bis title, is not protected.’ Farley v. Lincoln, 51 N. H., 577; Harris v. Horner, 30 Am. Dec., 182; Stevens v. Brennan, 79 N. Y., 254; Montgomery v. Bucyrus, 92 U. S., 257; Donaldson v. Farmer, 93 U. S., 361. These authorities, with very many others we could cite, are directly in point, and sustain the right of the plaintiffs to recover without fixing the assignee with notice.” This has always been the settled law in this State, and certainly since Potts v. Blackwell, 56 N. C., 449, was decided. This doctrine is so well established that it requires no further discussion. Besides, the record of an uncanceled mortgage upon real estate charges subsequent purchasers with notice of the encumbrance. Smith v. Stark, 3 Col., 453.

The court was right, in giving judgment for the plaintiff, upon the ease agreed.

No error.