Burgoon v. Lavezzo

• Decision Date: 23 August 1937
• Docket Number: No. 6748.,6748.
• Citation: 92 F.2d 726,68 App. DC 20
• Parties: BURGOON v. LAVEZZO et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

68 App. DC 20, 92 F.2d 726 (1937)

BURGOON v. LAVEZZO et al.

No. 6748.

United States Court of Appeals for the District of Columbia.

Decided August 23, 1937.

George C. Gertman, of Washington, D. C., for appellant.

Joseph T. Sherier, of Washington, D. C., for appellees.

Before MARTIN, Chief Justice, and VAN ORSDEL, GRONER, and STEPHENS, Associate Justices.

STEPHENS, Associate Justice.

This appeal arises out of a suit instituted by the appellant Minnie M. Burgoon to restrain the appellees Sherier and McDonald, trustees, and Rosa Lavezzo for whom they were trustees, from foreclosing by advertisement and public auction a trust deed upon land in the District of Columbia. The appellant claimed a prior right in the same land. The bill of complaint filed by the appellant set forth as a basis for the relief prayed, the following facts:

James A. Green and his wife were the record owners of a lot of land located at 1615 Eighth Street, N. W., in the District of Columbia. They encumbered it with a first deed of trust to secure a loan from the Perpetual Building Association, a second deed of trust to secure a loan of $1500 from Frances G. Dorsey, and a third deed of trust as security for a debt of $10,300 owed Rosa Lavezzo.² These conveyances were duly recorded, as were all other deeds and releases later mentioned. On July 30, 1931, the Greens, apparently unable to pay their debt to Dorsey, conveyed their equity of redemption in the property to Dorsey in fee simple and surrendered possession to Dorsey. Dorsey accepted this conveyance upon the belief and upon the representation of the Greens that the first and second trusts were the only encumbrances of record against the property and the only encumbrances to which the conveyance of the equity of redemption was subject. In view of the third trust in favor of Lavezzo, this representation was incorrect and the belief a mistake. On October 13, 1931, when there was owing on the first trust approximately $4145.21 and upon the second trust approximately $1437.18, Burgoon entered into a contract to purchase the land from Dorsey upon terms of cash or equivalent securities equal in value to the difference between $5600 — the stated purchase price — and the amount of $4145.21 owing on the first trust, and to take title to the property subject only to this first trust, it being represented to Burgoon in behalf of Dorsey that the first trust would be the only indebtedness against the property when conveyed. Sometime after October 13, 1931, and prior to November 2, 1931, Burgoon paid the difference (alleged as $1554.79),³ and on November 2, 1931, the property was conveyed by Dorsey to Burgoon in fee. As a part of this transaction between them, Dorsey applied the $1554.79 paid by Burgoon to the payment, discharge and release of the second trust. This Dorsey did in order to perfect her title and to fulfill the contract to convey to Burgoon a good and unencumbered title subject only to the first trust. This application of the $1554.79 and this release of the second trust were made by Dorsey in ignorance of the existence of record of the third trust in favor of Lavezzo. The debt of the Greens for $10,300 in favor of Lavezzo remaining unpaid, Lavezzo demanded foreclosure of the trust deed securing the same, and the trustees advertised the property for sale at public auction to be held on September 12, 1935. Prior to the date set for the auction Burgoon instituted this suit to restrain the Lavezzo foreclosure and sale.

After certain intermediate proceedings in the trial court not here pertinent, Lavezzo, Sherier and McDonald, defendants below, stipulated, the stipulation to stand as their answer, that the allegations of fact set forth in the bill of complaint were true. The auction sale of the land in question was postponed and the case was submitted to the trial court upon the law applicable to the facts set forth in the bill of complaint. The trial court found as facts all of the facts alleged in the bill of complaint.

The contention of Burgoon under the bill of complaint was that she was entitled as against Lavezzo to be subrogated to the rights of Dorsey under the second trust, to the extent of $1554.79. Lavezzo on the contrary contended that the second trust having been released of record, the third trust rose to second place to the exclusion of any claim by either Dorsey or Burgoon. Under these contentions and upon the stipulated facts, the trial court concluded that Burgoon was not entitled to the subrogation claimed and a decree to this effect was entered.⁴

The stipulation filed by the defendants, admitting the facts set forth in the bill of complaint but contesting the right of Burgoon to subrogation, is in legal effect a motion to dismiss upon the ground that, conceding the truth of the facts stated, they do not constitute a cause of action for relief in equity. Under familiar rules entitling a complainant under a motion to dismiss to the benefit not only of the facts stated in the bill of complaint but to legitimate inferences to be drawn therefrom, the admission of facts in the instant case necessarily includes an admission that at the time of the conveyance to Dorsey by the Greens of the equity of redemption and at all times thereafter until the date of the record release by Dorsey, it was the intention of Dorsey not to discharge and release the second trust, but on the contrary to retain and preserve for Dorsey's own protection the lien thereof. We say this because, as will have been noted above, the bill of complaint stated that the $1554.79 paid by Burgoon to Dorsey was applied by Dorsey to the payment, discharge and release of the second trust in order to perfect Dorsey's title and fulfill the contractual obligation to convey to Burgoon a good and unencumbered title subject only to the first trust. We think that a necessary inference from this fact is the one above set forth. The conveyance by a mortgagor to the mortgagee of the equity of redemption will not effect a merger if the parties intend otherwise. Factors' & T. Ins. Co. v. Murphy (1884) 111 U.S. 738, 743-744, 4 S.Ct. 679, 28 L.Ed. 582; The Bergen (C.C.A.9th, 1933) 64 F.(2d) 877; Guaranty Trust Co. v. Minneapolis & St. L. R. Co. (C.C.A.8th, 1929) 36 F.(2d) 747, 764-765, certiorari denied (1930) 281 U.S. 756, 50 S.Ct. 407, 74 L.Ed. 1166; 2 Pomeroy, Equity Jurisprudence (4th Ed.1918) § 793.

The sole question on this appeal is whether or not upon the admitted facts there was in Burgoon a right to be subrogated in the sum of $1554.79 to the lien of Dorsey under the second trust, or, putting it otherwise, did Burgoon under the facts stated become an equitable assignee of the lien of the second trust. It is of course obvious that if the instant situation be regarded from the standpoint of strict law as distinguished from equity, the Lavezzo mortgage superseded the lien of the Dorsey trust. The case is one of first impression in this jurisdiction.

The doctrine of subrogation, as originally recognized in equity jurisprudence in England, was somewhat narrowly applied, chiefly in cases where a surety paid the debt of his principal. Some courts in this country have limited the doctrine rather strictly. In Citizens Mercantile Co. v. Easom (1924), 158 Ga. 604, 611, 123 S.E. 883, 886, 37 A.L.R. 378, the court, on this subject, said:

"This court has denied that subrogation is a benevolent doctrine, and that equity will apply it in any case in which justice required; and this court has refused to follow the cases which were based on this theory of the doctrine of subrogation. On the contrary it has held `that subrogation will arise only in those cases where the party claiming it advanced the money to pay a debt which, in the event of a default by the debtor, he would be bound to pay, or where he had some interest to protect, or where he advanced the money under an agreement, . . made either with the debtor or creditor, that he would be subrogated to the rights and remedies of the creditor.'"

But there developed in some jurisdictions a more liberal application of the doctrine, said by some authorities to be applicable to almost all cases in which one person, not a volunteer, pays an obligation which in justice and good conscience ought to have been paid by another. This point of view is taken in Hudson v. Dismukes (1883) 77 Va. 242, 246-247:

"The doctrine of subrogation is not dependent upon contract, nor upon privity between the parties as between whom it is applied. It is the creature of equity, and is founded upon principles of natural justice. At first it was applied only in favor of those who were bound by the original security with the principal debtor; but it has been extended, and is now applied in favor of all persons who are required to pay the debt of another for the protection of their own interests."

The doctrine of subrogation is uniformly applied for the benefit of one who, taking title to property subject to a mortgage, thereafter pays off the encumbrance. He is said to be entitled to an equitable assignment of the rights of the mortgagee. See Aetna Life Ins. Co. v. Middleport (1888) 124 U.S. 534, 549, 8 S.Ct. 625, 31 L.Ed. 537; 2 Jones, Mortgages (8th Ed.1928) § 1119. On the other hand, it is ruled with equal regularity that one who purchases property and assumes and agrees to pay a mortgage thereon, and does so, is not entitled to be treated as an equitable assignee. He is said to be paying his own debt. See 2 Jones, Mortgages (8th Ed.1928) § 1098; 2 Pomeroy, Equity Jurisprudence (4th Ed.1918) § 797.

The instant case has some of the characteristics of each of the two cases just stated, but is not identical with either of them. Burgoon pursuant to a contract advanced money as a part of purchase price to pay off an existing encumbrance. Such a purchaser is like one who, buying property subject to a mortgage, pays the same, in that he acquires an interest in the property and is paying the debt of...