Southern Trust Company v. Garner
| Decision Date | 05 July 1920 |
| Docket Number | 105 |
| Citation | 223 S.W. 369,145 Ark. 58 |
| Parties | SOUTHERN TRUST COMPANY v. GARNER |
| Court | Arkansas Supreme Court |
Appeal from Lonoke Chancery Court; John E. Martineau, Chancellor reversed in part.
Decree affirmed on appeal of Southern Trust Co., and reversed on appeal of Morris & High.
Sam T Poe, Malcolm W. Gannaway and Tom Poe, for appellant Southern Trust Company.
1. The chancery court erred in ordering the receiver to pay the Gates Mercantile Company its claim in full before subrogating the Southern Trust Company to the lien of the Gates Mercantile Company as to the $ 2,000 which had gone to the satisfaction of the Gates Company claim. 25 R. C. L. 1318; 76 Ark. 249.
2. The Southern Trust Company should be subrogated to the lien of Gates Mercantile Company as to the $ 2,000, regardless of payment of Gates Company claim in full. 108 Ark. 555-8-9.
Trimble & Trimble, for Gates Mercantile Company and Morris & High.
The doctrine of equitable subrogation does not arise in this case. The Southern Trust Company did not pay the Gates mortgage. Subrogation is a creature of equity and is not permitted where it will work injustice. 25 R. C. L., par. 9. It will not be enforced when the equities are equal or the rights not clear. 4 A. L. R. 515. The Southern Trust Company does not fall within the rule. 108 Ark. 556 is not applicable. Subrogation is not granted as a reward for negligence, and is not granted to one who has taken a mortgage to secure a loan with which prior encumbrances are paid off without the exercise of proper diligence in examining the records to discover the existence of other intervening judgments or encumbrances. 2 Jones on Mortg. (7 ed), 674; 95 Ill. 39; 96 Ark. 600; 76 Ark. 245. The whole debt must be paid and the creditor wholly satisfied. Sheldon on Subrogation, art. 127; 4 Pom., Eq. Jur., art. 1419; 27 A. & E. Enc. L. 210; 34 Ark. 113; 2 Jones on Mortg. (7 ed.), 885 a. Subrogation does not arise upon part payment of a debt. Ib. There must be full payment of the debt. Ib.; 35 Am. Rep 511. See, also, 84 N.Y. 434-5.
No such privity as will sustain an action for money had and received exists between one who receives from a third person money fraudulently obtained by the latter and the owner unless the recipient of the money was aware of the fraud. 22 So. Rep 580; 67 Am. St. 95; 7 Humph. (Tenn.), 270; 78 Ill.App. 451; 5 Hun. (N. Y.), 123.
An action for money had and received can not be maintained against one who has received money under a claim of right and in ignorance of its ownership. 27 Cyc. 863. The Gates Company and Morris & High were innocent and bona fide creditors, ignorant of any transaction between the trust company and Rhea in the negotiation of the loan or of any fraud in its procurement. The court was correct in directing the receiver to pay the balance due Gates Company on its mortgage, and erred in holding that after the payment of the Gates debt the balance of the proceeds of the sale should be paid to the Southern Trust Company in preference to Morris & High, the latter's lien being second to the Gates mortgage and prior to that of the Southern Trust Company.
Price Shofner, for appellee Florence D. Pierson.
1. The landlord's lien, under Kirby's Digest, §§ 5632-3, was not waived. A mortgage by tenants for rent is cumulative to the lien. 56 Ark. 499; 20 S.W. 406.
2. The finding by the chancellor on conflicting evidence will not be disturbed on appeal. 55 Ark. 7; 101 Id. 573. Nor reversed, unless clearly against the preponderance of the evidence. 81 Ark. 68; 112 Id. 134; Ib. 337. See, also, 90 Ark. 426; 92 Id. 546. The presumption is in favor of the finding. 101 Ark. 252.
OPINION
In the trial of this cause in the court below a number of issues were involved which have passed out of the case, and there is presented now only the question of the right of subrogation raised by the Southern Trust Company and the right of Mrs. F. D. Pierson to priority in the payment of a demand asserted by her. These issues arise out of the following facts.
One W. S. Rhea had a lease on a plantation owned by Mrs. Pierson, for the years 1918, 1919 and 1920, and had grown a crop thereon for the year 1918. Rhea had a large number of mules and horses, wagons and farming implements of various kinds, together with seed and feed, and other personal property. Rhea was indebted to the Gates Mercantile Company in the sum of $ 3,463.18, and that indebtedness was secured by a mortgage on the bulk of Rhea's personal property dated May 7, 1918, and recorded May 24, 1918. Rhea was also indebted to Morris & High in the sum of $ 2,052.10, which was secured by a mortgage on all of the personal property included in the mortgage of the Gates Mercantile Company and upon the balance of the personal property owned by Rhea. This mortgage was dated February 5, 1919, and recorded February, 7, 1919. This mortgage to Morris & High included a number of mules and other personal property which Rhea had bought but had not fully paid for, the title to which had been reserved by the respective vendors. These vendors became parties to this litigation, and have been paid the balances due them out of the proceeds of the sale of the property which they had sold to Rhea.
The Gates Mercantile Company demanded the payment of the sum due it, and threatened to foreclose its mortgage. Thereafter Rhea applied to, and secured from, the Southern Trust Company, a loan of $ 4,000, and by way of security therefor executed a mortgage on the property included in the mortgages to the Gates Mercantile Company and to Morris & High. This mortgage was dated February 12, 1919. In making the application for this loan Rhea represented to the president of the Trust Company that the property was unencumbered, and the loan was made in reliance upon that representation. The president of the trust company made no effort to verify Rhea's statement that the property was unencumbered. The $ 4,000 borrowed from the trust company was placed in the trust company to the credit of Rhea, who immediately drew a check for $ 2,000 against that account in favor of the Gates Mercantile Company. When this check was delivered to the Gates Mercantile Company, no explanation was made as to the source from whence it came, and the Gates Mercantile Company had no knowledge on that subject. It did agree, however, when that payment was made, to carry the balance due on the account without foreclosing the mortgage until the following fall. The property embraced in the mortgage to the Southern Trust Company, which included Rhea's lease on the plantation and his interest in his contracts with his tenants, was represented to be worth, and was supposed to be worth, about $ 11,000; but Rhea died a few weeks after executing the mortgage to the trust company, and this litigation was begun by his various creditors to collect their respective debts. A receiver was appointed, who took charge of all the property and sold it under the direction of the court.
The receiver reported that from the sale of the property...
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