Opinion
10-29-1896
GORE v. BRIAN.
W. D. Holt, for complainant. James J. Cahill and Robert S. Woodruff, for defendant.
Bill by Kate Gore against Hannah Brian to foreclose a mortgage. Defendant filed a cross bill, for subrogation to the rights of a prior mortgagee. Decree for defendant.
The facts proved are these: One McCann was the owner of four lots in the city of Trenton, upon two of which lots he had made a mortgage for $2,500 to one Schangle, and upon the other two lots another mortgage for $2,500 to one Buckman. On August 24, 1889, McCann conveyed the four lots to one Steward, subject to the two mentioned mortgages. Steward took title to the lots at the request of John Caminade, to hold the same and dispose of them at the dictation of Caminade. At that time Caminade had in his hands for investment the sum of $1,100, which he received from his mother-in-law, Mrs. Gore, the complainant, which sum she says he was to invest for her on first mortgage security. Instead of doing so he caused Steward to make a mortgage to Mrs. Gore for $1,100, covering these four lots, which were already subject to the two mortgages already mentioned. On the same day, August 26, 1889, Steward conveyed all four lots to Caminade. About this time Caminade said to one Turford that he understood that he (Turford) had money to lend at 5 per cent. Turford replied that he had a party who had money to loan at that rate. Caminade then said that he had two mortgages on eight houses, upon which he was paying 6 per cent interest, and that he would like to pay off these mortgages and get the money at the rate of 5 per cent. The party who had money to loan was Mrs. Brian, who files her cross bill for subrogation. Turford said to Caminade that he would see Mrs. Brian, and, if the loan was satisfactory, they would make it at 5 per cent. Mrs. Brian was then staying at Ocean Grove. Caminade, after his talk with Turford, seems to have visited Mrs. Brian at that place. After her conversation with him, she came to Trenton and visited the property for the purpose of inspecting the proposed security. About this time Caminade proposed to Turford that, instead of giving one mortgage, for $5,000, covering this whole property, he would like to give eight mortgages, each one covering one of the eight plots into which the four lots had been subdivided. His reason for this was that the incumbrances should be so placed as to render it easier to sell separate lots. Turford communicated Caminade's request to Mrs. Brian, and she assented. Indeed, she seems to have relied almost entirely upon Turford's judgment and vigilance in making the loan. There is no doubt that it was agreed by Caminade and Turford that the loan was to be put upon first mortgage, and that the proceeds were to be applied in liquidating the first two $2,500 mortgages, which Turford supposed to be the only incumbrances then on the property. Turford says that he told Caminade to get searches, and he thinks that the searches were shown to Mm at the time the mortgages were executed. In regard to the latter statement he is clearly mistaken, for the searches which Caminade produced are under date of September 3d. On August 24th the eight mortgages were executed, each for $625, amounting in all to $5,000. On August 25th Mrs. Brian signed a check written out by Caminade. The amount for which this check was drawn was $9,500, and not $5,000, the amount of the eight mortgages. This is explained by the fact that Caminade, through Turford, had induced Mrs. Brian to make two other loans, one for $3,500 to one Keihn, and another for $1,000 to one Sample. The check under date of August 25th included all these sums. Caminade deposited this check for $9,500 the same day. He had already in bank at that time $2,843.83. On the same day the eight mortgages were deposited for record. On August 27th Caminade drew his check on this fund in favor of Buckman for the sum of $2,562.50, the amount of one of the $2,500 mortgages, together with Interest. On September 2d he drew two checks on the fund in favor of Mrs. Schangle, one for $2,500, and the other for $62.50, the amount of her mortgage and interest. These mortgages were canceled of record on September 2d. Although Turford, as I think, had asked for a search in his first conversation with Caminade, no search in fact was forthcoming until September 3d. The money was paid over before any search was produced because Mrs. Brian relied upon Turford, and Turford, who had consulted Caminade as a lawyer 1n making previous loans, relied upon him implicitly to properly secure these loans to Mrs. Brian. When the search was produced it disclosed thefact that the two $2,500 mortgages had been canceled, but it also showed the existence of the $1,100 mortgage winch had been given to Mrs. Gore. When Turford called Caminade's attention to the existence of this mortgage, Caminade, according to Turford's account, said that the mortgage was satisfied. Turford says that Caminade showed him what purported to be the original $1,100 mortgage, and tore it up, and threw it in the waste basket, saying that it was no good. Caminade then wrote upon the margin of the search, opposite the record of this mortgage, "Canceled September 3, 1892." The search shows these words, written in the handwriting of Caminade. This statement presents a skeleton sketch of the facts surrounding the principal transaction. There were subsequent transactions between Caminade and Mrs. Brian, by which Mrs. Brian became the owner of the equity of redemption in these lots. She loaned other moneys upon the security of the dwelling house of Caminade, and, when the house was advertised for sale by the sheriff, Caminade, to further secure Mrs. Brian, gave her a deed for not only the dwelling house, but for all this property. The interest so conveyed, however, does not appear to have been of any value.
W. D. Holt, for complainant.
James J. Cahill and Robert S. Woodruff, for defendant.
REED, V. C. (after stating the facts). The question propounded is whether the mortgages of Mrs. Brian should be substituted for the two $2,500 mortgages, and so take precedence of the $1,100 mortgage of Mrs. Gore. At the time the agreement for the loan of the $5,000 was made, the incumbrances upon the property were these: $2,500 on two lots, $2,500 on the remaining two lots, and $1,100 on all four lots. Caminade was the equitable owner of the equity of redemption in the lots. He stated the purpose for which he wished the loan, i. e. to take up the two $2,500 mortgages. He knew that Mrs. Brian only loaned on first mortgage, and the understanding was that, by the payment of these two first mortgages, the property would be clear of incumbrances, and therefore in a shape to be subjected to a new first mortgage, or a series of first mortgages. It is perfectly clear that, in violation of that understanding, Caminade concealed the existence of the $1,100 mortgage when the mortgages were executed, and afterwards lulled Turford into security by pretending to destroy the Gore mortgage, on the ground that it had been paid. I had occasion to review the cases in this state dealing with the question of subrogation in deciding the case of Seeley v. Bacon, 34 Atl. 139. The distinction between what is termed "legal" and "conventional" subrogation was there restated. The former is a right to be subrogated to the position of a creditor, when the right arises from the mere fact of payment by one who is compelled to pay the debt to protect his own rights, or by one who stands in the attitude of a surety for the debtor. Under the facts of this case, Mrs. Brian did not occupy this position when she paid the $5,000. She must, therefore, rely upon what is termed "conventional subrogation," and conventional subrogation can only arise by reason of an express or implied agreement between the payor and either the debtor or the creditor. North River Construction Co.'s Case, 38 N. J. Eq. 433; Railway Co. v. Wortendyke, 27 N. J. Eq. 058; Coe v. Railway Co., 31 N. J. Eq. 105. The doctrine of these cases is that the mere payment of a debt, by one not bound to see that it is paid, or by one who is not affected in his property rights by its nonpayment, will not entitle the payor to subrogation; nor will an understanding, existing in the mind of the payor, that he will be entitled to subrogation, so entitle him, unless this mental condition is produced by some conventional arrangement between the payor and either the creditor or debtor that this will be the consequence of the payment. If, therefore, Mrs. Brian had advanced this money to pay off the two $2,500 mortgages, with no express or implied agreement with Caminade concerning the security for her loan, she would stand in the attitude of a stranger or volunteer, with no right to be substituted in the place of the two first mortgagees. But she did not occupy this position. On the contrary, instead of being a volunteer in the transaction, she was requested by Caminade, both directly and through her agent, to advance the money to pay off the first mortgages. More than this, it was proved beyond doubt that it was understood clearly, between Caminade on the one hand and Turford and Mrs. Brian on the other hand, that the new mortgages should take the place of the old mortgages in respect to priority of lien upon the mortgaged premises. I cannot conceive a clearer case for conventional subrogation, unless Mrs. Brian has lost the advantage of her agreement by such neglect, in permitting the cancellation of the old and in receiving the new mortgage, as shuts her off from any equitable relief against the intervening $1,100 mortgage.
In considering this aspect of the case, it must be kept in mind that, in this instance, as in the case of Seeley v. Bacon, supra, the $1,100 mortgage was not taken after the record showed a satisfaction of the two original mortgages. These mortgages were on the property when the $1,100 mortgage was executed. The security of the last mortgage will be exactly the same, after the restoration of the lien of the two $2,500 mortgages, as it was before their satisfaction. By the decree prayed for, the parties will be placed in statu quo. In regard, therefore, to the respective equities of Mrs. Gore and Mrs. Brian, the case presents an aspect differing radically from what it would have exhibited had the $1,100 mortgage been accepted on the faith of the satisfaction upon the record of the old mortgages. In measuring the conduct of Mrs. Brian and her agent, in respect to the degree of care employedby them in making the loan, this circumstance is of the very first importance. Seeley v. Bacon, supra. It would, of course, have been wise for Turford to have had a search before the money was paid, and to have seen that the $1,100 mortgage was actually satisfied upon the record; but he had every confidence in the word of Caminade, who had been his legal adviser, and who then had a clear character for probity. Under the circumstances, it was not at all remarkable that he relied upon Caminade's word that the two mortgages would be paid off, and that, when they were paid, the property would be clear of all incumbrances. That was clearly the agreement between them, because, as already remarked, Caminade received the money upon the understanding that the mortgages securing it were to be first mortgages. His conduct at the time the search was prosecuted was an assertion that he had executed that agreement, and that the mortgages were first liens upon the property. It is unnecessary to invoke the authority of those cases which hold that, when money has been advanced under the influence of fraudulent representations in respect to the security, that then the lender will be entitled to subrogation; for, if the lender advanced money on the request of a debtor, and upon an agreement that it is to be secured by a first lien, in place of a lien already existing, which has to be extinguished by the use of the money loaned, it does not matter whether the agreement is the result of fraud or of a mere mistake of the debtor. Sidener v. Pavey, 77 Ind. 241; Emmert v. Thompson, 49 Minn. 380, 52 N. W. 31.
Nor does it matter that Mrs. Brian became subsequently the owner of the equity of redemption in this property. No merger ensued by reason of her ownership of the property, for it is obvious that it was not intended that the two mortgages should be extinguished. Merger is not favored in equity, and is never allowed, unless for special reasons, and to promote the intention of the party. 4 Kent, Comm. p. 102. It is entirely clear, under the circumstances of this case, that there was no merger. Clos v. Boppe, 23 N. J. Eq. 270; Parker v. Child, 25 N. J. Eq. 41, and cases cited; Chilver v. Weston, 27 N. J. Eq. 435; Hoppock's Ex'rs v. Ramsey, 28 N. J. Eq. 413; Andrus v. Vreeland, 29 N. J. Eq. 394-396; Mulford v. Peterson, 35 N. J. Law, 127.
Nor do I think that there is any substance in the point that the two $2,500 mortgages were paid by checks drawn upon a fund in bank to the credit of Caminade, which fund amounted to over $12,000, and that therefore it was not proved that the specific $5,000 loaned to pay off these mortgages was actually applied in their liquidation. The $5,000 was paid to Caminade for the purpose named, and was deposited to create a credit in favor of Caminade in trust for Mrs. Brian for that purpose; and, when Caminade drew upon this credit the amount of $5,000 for that purpose, it will be presumed that it was the money confided to him by Mrs. Brian for that purpose. This is the rule adopted in following trust funds. The old notion that money had no earmarks, and therefore could not be followed by cestuis que trustent, was long since exploded. The latter doctrine is thus stated in 2 Perry, Trusts, 837: "Where trust money is mixed in the same parcel with the trustee's own money, it may be said that the trust money has run into the general mass, and has became absolved, and that the cestui que trust has no lien; but such cannot be the case. If a trustee purchased an estate partly with his own money and partly with trust moneys, it cannot be predicated that any particular part of the estate was purchased with money of the cestui que trust, but he will have a lien on the whole estate for the amount of the trust fund that was misemployed."
I am of the opinion that Mrs. Brian is entitled to be subrogated to the rights of the two first mortgagees.