Forman v. First Nat. Bank

• Decision Date: 25 June 1918
• Citation: 76 Fla. 48,79 So. 742
• Court: Florida Supreme Court
• Parties: FORMAN et al. v. FIRST NAT. BANK OF QUINCY et al.

79 So. 742

76 Fla. 48

FORMAN et al. v. FIRST NAT. BANK OF QUINCY et al.

Florida Supreme Court

June 25, 1918

Appeal from Circuit Court, Jackson County; C. L. Wilson, Judge.

Suit by the First National Bank of Quincy and others, as copartners under the firm name and style of George M. Forman & Co. Decree for complainants, and defendants appeal. Reversed with directions.

Ellis J., dissenting.

Syllabus by the Court

SYLLABUS

Where one loans money upon real estate security for the express purpose of paying off prior existing liens upon such real estate, and it is expressly agreed that intervening liens thereon will be released or subordinated to such security and the money loaned is so used, and a bona fide though futile effort is made to subordinate such intervening liens to such security and thus give to it the same legal status as that occupied by the liens that are so paid off, he will be treated in equity as an equitable assignee of such liens and will be subrogated to the rights of such lienors to the extent that the money advanced by him was applied to the payment of such liens.

The agreement out of which conventional subrogation arises and upon which it rests may be either express or implied.

One who, upon the application of the owner, lends money upon land understanding that his security shall be a first lien thereon, and the money so loaned is used to discharge then existing first liens upon such land, is not a mere 'volunteer.'

COUNSEL Blount & Blount & Carter, of Pensacola, and Wm B. Farley, of Marianna, for appellants.

Paul Carter, of Marianna, for appellees.

OPINION

WEST J.

This is the second time this case has reached this court. On the former appeal (First National Bank of Quincy v. Buyton, 72 Fla. 43, 72 So. 460) the question now presented was not involved.

The complainant banks in the original suit filed their bill to foreclose a mortgage upon certain real estate in Jackson county, made by Moses Guyton and his wife to J. H. Carter. This mortgage was made on January 12, 1909, and was given to secure the payment of three promissory notes which were subsequently and before maturity transferred by indorsement to said banks, one of said notes to each of said banks. There was no formal transfer of the mortgage to the banks, but on the former appeal it was held that the indorsement of the notes had this effect.

It appears from the record that on the 11th day of July, 1910, Carter executed an instrument to Guyton called a 'release,' which had for its purpose the subordination of the lien of the mortgage made to him, as to certain of the real estate embraced in it, to a mortgage made by Guyton and his wife to George M. Forman, dated May 18, 1910, given to secure the payment of a loan of $2,500, which loan was consummated and the money paid on September 9, 1910.

By answer and cross-bill Forman averred and alleged that he amde the lan to Guyton for the purpose of paying off a mortgage made by Guyton upon the same real estate to D. R. Burgess & Co. dated February 13, 1906, and two certain judgments against Guyton, one recovered by J. M Dillon on June 1, 1908, and the other by Central State Bank on June 18, 1908, all of which were liens superior to the Carter mortgage, and that Guyton agreed to secure a release of the Carter mortgage so that the mortgage to Forman would be a first mortgage and a lien of superior dignity to the Carter mortgage. The prayer was for a foreclosure of his mortgage and for subrogation to the rights of Burgess & Co. and said judgment creditors. The chancellor decreed foreclosure of the Carter mortgage and denied the prayer of the cross-bill with respect to the subrogation of Forman. The appeal is from that decree, and the decisive question is whether upon the showing made the prayer of the cross-bill for subrogation should have been granted.

With respect to this feature of the case the following facts seem to be established: That Guyton made an application in writing to Forman for a loan of $2,500 'to liquidate some of my indebtedness' and represented therein that the real estate which he proposed to mortgage as security for the payment of the amount borrowed was covered by a mortgage to Burgess & Co., and the mortgage to Carter which would be released; that he (Guyton) would furnish a complete abstract of the title to the property mortgaged showing the loan mortgage to be a first lien and agreeing that the money loaned him could be used in discharging all liens on the real estate mortgaged before the loan was completed. The abstract was furnished and the mortgage was made by Guyton and wife to Forman on May 27, 1910, in which it was covenanted that the premises were free of all incumbrances. The original release executed by Carter, the record owner, of the mortgage made to him on most of the same property, purporting to subordinate the lien of such mortgage to the Forman mortgage, was delivered to Forman. The check for the amount of the loan was thereupon transmitted to the designated agent of Guyton, who had negotiated the loan, with instructions to apply the amount to the payment of the Burgess & Co. mortgage, which was then in the hands of an attorney for foreclosure, and the judgments of Dillon and Central State Bank and secure cancellations thereof which was done on September 9, 1910, and the Burgess mortgage sent to Forman.

That Guyton believed that he was giving, and Forman understood that he was securing, a lien that was superior to the lien of the Carter mortgage and which would bear the same relation to it as that borne by the Burgess & Co. mortgage, is not disputed; but the contention is made that this case is controlled by the decision in the case of Boley v. Daniel, 72 Fla. 121, 72 So. 644, L. R. A. 1917A, 734, and that, conceding all the facts to be proven which the evidence tends to prove, a case for the application of the doctrine of subrogation is not made out.

This case is clearly distinguishable from the Boley Case. There Daniel, the party occupying in this case by Forman, was alleged to have 'no actual notice or knowledge' of an intervening mortgage on the property covered by his mortgage at the time when he paid and caused to be satisfied on the record a prior mortgage on such property; and it is also alleged that he took the mortgage which he held 'in the belief that there were no other mortgages on the property.' It was held in that case, in effect, that, inasmuch as he denied any knowledge of such intervening mortgage, it could not be successfully contended that it was agreed that the mortgage which he took should be superior to it.

Here however the case is different. Forman knew of the Carter mortgage, and such steps were taken as seemed to be essential to give to the Forman mortgage the same status as that occupied by the Burgess & Co. mortgage and to preserve the status quo of the Carter mortgage. Carter was the apparent owner of the mortgage made to him by Guyton. He appeared from the public records of the county to be the owner, and the formal execution by him of the purported release thereof for the purpose of giving to the Forman mortgage the same legal status as that occupied by the Burgess & Co. mortgage was tantamount to an assertion by Carter that he was still the owner of such mortgage. It is true, as held by this court, that such release was without effect to accomplish the purpose for which it was designed; but that was because the notes which the mortgage was given to secure had previously thereto been indorsed and transferred to other parties, all of which was unknown to Forman, and Carter, not realizing the legal effect of such indorsement with respect to the transfer of the mortgage, did not disclose it.

Where one in taking a mortgage on real estate in good faith relies upon the record title of such real estate and representations of prior incumbrancers, he is not chargeable with negligence. There is no question of the bona fides of Forman in the transaction, and he should not be denied the right to invoke the equitable doctrine of subrogation because he did not find the actual owners of the Carter notes and mortgage, and especially so since Carter himself continued to act as such owner. Kent v. Bailey (Iowa) 164 N.W. 852; Home Sav. Bank v. Bierstadt, 168 Ill. 618, 48 N.E. 161, 61 Am. St. Rep. 146.

The modern authorities agree that the doctrine of subrogation has been steadily expanding and growing in importance and extent in its application to various subjects and classes of persons and that the agreement out of which conventional subrogation arises and upon which it rests may be express or implied. Kent v. Bailey, supra; Home Sav. Bank v. Bierstadt, supra; Walker v. Walker, 138 Tenn. 679, 200 S.W. 825; Thompson v. Connecticut Mut. Life Ins. Co., 139 Ind. 325, 38 N.E. 796; Gore v. Brian (N. J.) 35 A. 897; Bankers' Loan & Investment Co. v. Hornish, 94 Va. 608, 27 S.E. 459; Emmert v. Thompson, 49 Minn. 386, 52 N.W. 31, 32 Am. St. Rep. 566; Southern Cotton Oil Co. v. Napoleon Hill Cotton Co., 108 Ark. 555, 158 S.W. 1082, 46 L. R. A. (N. S.) 1049. Thus in Kent v. Bailey, supra, the court said:

'Conventional subrogation arises by virtue of an agreement, express or implied, that a third person or one having no previous interest in the matter involved shall, upon discharging an obligation or paying a debt, be substituted in the place of the creditor in respect to such rights, remedies, or securities as he may have against the debtor.'

The general rule for the application of this doctrine is stated by Pomeroy as follows:

'Equity does not admit the doctrine of equitable assignment in favor of every person who pays off a mortgage. Such relations must exist towards the mortgaged premises or with the other parties,...