Kilpatrick v. Haley, 490.

• Decision Date: 04 February 1895
• Docket Number: 490.
• Citation: 66 F. 133
• Parties: KILPATRICK v. HALEY.
• Court: U.S. Court of Appeals — Eighth Circuit

66 F. 133

KILPATRICK v. HALEY.

No. 490.

United States Court of Appeals, Eighth Circuit.

February 4, 1895

This was an action which was brought by Ora Haley, the defendant in error, against James G. Kilpatrick, the plaintiff in error, for forcibly entering the St. Cloud Hotel, in the city of Denver, which belonged at the time to Haley, and for unlawfully removing therefrom, and converting to his own use, a large quantity of hotel furniture which was at the time in Haley's possession. The facts out of which the controversy arises are as follows: The hotel in question and the furniture therein originally belonged to George W Beckley. On the 18th of February, 1892, Beckley executed a chattel mortgage, in favor of J. R. Reed, on the furniture in the hotel, to secure the payment of two promissory notes, one in the sum of $1,500, due four months after date, and one for $500, due six months after date, both of them being dated February 18, 1892. On the same day Beckley executed a junior or second chattel mortgage on the same furniture, in favor of James G. Kilpatrick, to secure the payment of a note in the sum of $878, which was due on the 2d day of November, 1892. On the 24th day of February, 1892, Beckley sold and conveyed the St. Cloud Hotel, and all of the furniture therein, to Emily A. Dickson. The bill of sale of the furniture which was executed by Beckley contained the following provision 'This bill of sale is made subject to, and the warranty below excepts, two certain chattel mortgages on said goods given to secure two promissory notes, one for $2,000, and one for $878; and, as part of the consideration above specified, the second party, by the acceptance of these presents, hereby assumes and agrees to pay said notes, together with the interest thereon. ' This clause of the bill of sale referred to the two chattel mortgages heretofore mentioned in favor of Reed and Kilpatrick. On the 25th of May, 1892, Ora Haley, the defendant in error, entered into an agreement with Mrs. Dickson for the purchase of said hotel and the furniture therein. The agreement between Haley and Mrs. Dickson provided that Haley, the purchaser, should take the hotel, 'and all the furniture, fixtures, and household goods contained therein, subject to four obligations, to wit, one deed of trust in the sum of twelve thousand dollars, one of five thousand dollars, one of twenty-five hundred dollars (on the realty), and a chattel mortgage on the furniture in the sum of twenty-six hundred and twenty-five dollars, and subject to the paid-up lease to present tenant and occupant until and up to the first day of August, 1892; said party of the second part (Haley) agreeing to assume all interest as now shown by holders of the certain mortgage and three deeds of trust, and insurance policy thereon. ' The chattel mortgage on the furniture in the sum of $2,625, which was referred to in the foregoing clause of the agreement, was understood to be the two chattel mortgages in favor of Reed and Kilpatrick heretofore mentioned, on which the amount then due was $2,625. On the 27th day of July, 1892, the mortgage in favor of Reed was purchased by John H. Farrar, with money that had been furnished for that purpose by Haley. Farrar then went through the form of making a private sale of the mortgaged property to Haley, pursuant to a power of sale contained in the mortgage. Having thus acquired the first chattel mortgage, and a title thereunder, by virtue of the sale made by Farrar, Haley immediately took possession of the St. Cloud Hotel and the furniture, and was in the peaceable possession of the same on the 4th day of August, 1892. The evidence tends to show that on the last-mentioned day Kilpatrick, the plaintiff in error, forcibly entered the St. Cloud Hotel, and, by means of his servants and agents, seized and removed nearly all of the furniture in the hotel, and converted the same to his own use. On the trial in the circuit court Haley recovered a judgment against Kilpatrick, for the wrong and injury complained of, in the sum of $3,945. To reverse that judgment, the defendant below sued out the present writ of error.

Thomas H. Hood, for plaintiff in error.

W. T. Hughes filed brief for defendant in error.

Before CALDWELL, SANBORN, and THAYER, Circuit Judges.

THAYER Circuit Judge, after stating the case as above, .

The first question presented for consideration is whether the sale of the first chattel mortgage on the hotel furniture by Reed to Haley, after the latter had purchased the hotel furniture subject to the mortgages thereon, operated to extinguish the first incumbrance. The plaintiff in error requested the court to instruct the jury 'that the purchase of the Reed mortgage by Farrar, as Haley's agent, and with Haley's money, under the terms of the contract with Ms. Dickson, extinguished or paid the first or Reed mortgage, and Mr. Kilpatrick's mortgage thereupon became a first lien upon the property. ' The circuit court declined to give the instruction, but charged the jury, in lien thereof, that the purchase of the first mortgage by Haley did not extinguish it; that Haley had the right to acquire it by purchase, and assert it as an existing lien against Kilpatrick, the owner of the second mortgage. This is the first alleged error that deserves notice. It has been held in a number of well-considered cases, and the doctrine is well established, that the lien of a mortgage or other incumbrance will be regarded as extinguished whenever such incumbrance is purchased, and becomes the property of a person who has theretofore bought the mortgaged property, and has agreed with his vendor to assume or discharge the incumbrances existing thereon. It is very generally held that, when the purchaser of an equity of redemption incumbrances upon the property, the effect of such an agreement is to make the mortgaged property a primary fund for the payment of the liens existing thereon. From the fact that the mortgaged property thus becomes a primary fund for the payment of incumbrances, it follows that if the purchaser of an equity of redemption, who has agreed to assume an outstanding mortgage on the property, subsequently acquires the mortgage, and takes an assignment thereof, it will thereafter be treated as paid and extinguished; it also follows that, if the mortgagor is subsequently compelled to pay the mortgage, he becomes subrogated to all of the rights of the mortgagee, and may proceed to enforce the incumbrance against the mortgaged property either in the hands of his vendee or in the hands of a purchaser from his vendee. Russell v. Pistor, 7 N.Y. 171; Kneeland v. Moore, 138 Mass. 198; Goodyear v. Goodyear, 72 Iowa, 329, 33 N.W. 142; Burnham v. Dorr, 72 Me. 198; Winans v. Wilkie, 41 Mich. 264, 1 N.W. 1049; Frey v. Vanderhoof, 15 Wis. 396. It may be conceded that an agreement by the purchaser of an equity of redemption in mortgaged property to take the property subject to an existing incumbrance differs essentially from an agreement to assume or discharge the incumbrance. An agreement of the former kind does not render the purchaser personally liable either to the mortgagor or to the holder of the incumbrance for the payment of the mortgage debt; it gives him an option either to discharge the incumbrance, and thus preserve the estate, or to abandon the mortgaged property to the incumbrancer. But it does not follow as a necessary consequence that one who purchases property subject to a mortgage, without expressly agreeing to assume or pay the same, is for that reason at liberty, under all circumstances, to acquire the mortgage, and thereafter assert it as an existing lien against the mortgagor, or other persons who have an interest in the mortgaged property. On the contrary, it has been held in several well-considered cases that where one buys property subject to an existing incumbrance, which is specified in the conveyance, the incumbrance will be understood as forming a part of the consideration for the conveyance, and, if the purchaser of the equity of redemption subsequently acquires the incumbrance, it will be treated as paid.

In the case of Drury v. Holden, 121 Ill. 130, 13 N.E. 547, the facts were these: Daggett, in exchange for unincumbered property, conveyed to Drury other property of the estimated value of $40,000, which was subject to two incumbrances, one for $19,600, and one for $6,500. Subsequently, Drury procured a third party to buy the incumbrance for $6,500, with money which had been furnished by Drury. In a suit brought by such third party to foreclose the mortgage, a decree of foreclosure was entered, and Drury purchased the property at such foreclosure sale for the sum of $1,000. It was held that the sale thus made was void, and conveyed no title, because the outstanding incumbrance was paid and extinguished when it was purchased by a third party for Drury's benefit. The court said:

'It is well established that when a party purchases premises which are incumbered to secure the payment of an indebtedness, and assumes the payment of the indebtedness as a part of the purchase money, the premises purchased are, in his hands, a primary fund for the payment of the debt, and it is his duty to pay it. Lilly v. Palmer, 51 Ill. 331; Russell v. Pistor, 7 N.Y. 171. And the rule is the same, although there be no assumption of payment of the indebtedness, if the purchase be made expressly subject to the incumbrance, and the amount of the indebtedness thereby secured is included in and forms a part of the consideration of the conveyance. Lilly v. Palmer, supra; Comstock v. Hitt, 37 Ill. 542; Fowler v. Fay, 62 Ill. 375; Russell v. Pistor, supra; Ferris v. Crawford, 2 Denio, 298.'

In the case of Guernsey v. Kendall, 55 Vt. 201, 204, the facts were as...