Watt's Administrator v. Smith

• Decision Date: 13 October 1933
• Citation: 250 Ky. 617
• Parties: Watt's Administrator et al. v. Smith et al.
• Court: United States State Supreme Court — District of Kentucky

Page 617

250 Ky. 617

Watt's Administrator et al. v. Smith et al.

Court of Appeals of Kentucky.

Decided October 13, 1933.

1. Novation. — "Novation" is contract whereby creditor, for valuable consideration, agrees to cancel old obligation and substitute new one.

2. Novation. — Assent to terms of novation need not be shown by express words, but may be implied from circumstances attending transaction and parties' conduct thereafter.

3. Novation. — Evidence held to show that new notes and mortgage, taken by deceased mortgagee's administrator, were intended to be substituted for, and hence worked novation of, debts created by deed to mortgagor and latter's chattel mortgage, though such mortgage was never released of record.

4. Mortgages. — Mortgage creates only lien on realty as security for debt, legal title being left in mortgagor.

5. Mortgages. — Rents of mortgaged property can be claimed by mortgagee only under contract with mortgagor and are not incident to mortgage not referring thereto as between parties.

6. Mortgages. — Court may appoint receiver when mortgaged property is apparently in danger of being lost, removed, or materially injured or condition of mortgage has not been performed and property is probably insufficient to discharge mortgage debt, and subject subsequently accruing rents or profits to satisfaction of debt in absence of intervening equities of other parties (Civil Code of Practice, sec. 299).

7. Mortgages. — Mortgagee's claim to rents and profits, in which another acquired legal or equitable interest before appointment of receiver, will be postponed to that of intervening claimant (Civil Code of Practice, sec. 299).

8. Mortgages. — Where mortgage pledges rents, issues, and profits, without provision for receiver on mortgagor's default, mortgagee is entitled to subject all such rents, etc., accruing thereafter, to satisfaction of his claim before others acquiring rights with actual or constructive notice of mortgagee's rights.

9. Mortgages. — Mortgagee is entitled to rents, issues, and profits, accrued or on hand with mortgagor when mortgagee seeks to subject them to mortgage, at least if liens thereon in favor of third parties have not already come into existence.

10. Mortgages. — Appointment of administrator for deceased mortgagor's estate precluded appointment of receiver to subject mortgagor's crops to mortgage debt.

11. Executors and Administrators. — Administrator has right to take charge of decedent's personal estate for purpose of administering and distributing it according to law.

12. Mortgages. — As respects appointment of receiver, proper procedure if administrator is acting improperly or wasting decedent's personal estate, is to have him removed or require him to execute additional bond.

13. Executors and Administrators. — Administrator of deceased's mortgagor's estate held mortgagor's crop for mortgagees, as well as mortgagor's unsecured creditors.

14. Executors and Administrators. — Mortgagees making due application to administrator of deceased mortgagor's estate to have mortgagor's crops applied to mortgage debt were entitled to proceeds thereof as against mortgagor's unsecured creditors.

15. Executors and Administrators. — Commission due administrator of deceased mortgagor's estate must be paid from proceeds of personalty free from liens, rather than proceeds of crop subject to mortgage lien.

Appeal from Mercer Circuit Court.

C.E. RANKIN and C.S. MATHERLY for appellants.

E.H. GAITHER for appellees.

ALVAN H. CLARK, WHITE & CLARK, D.O. MYATT, H.W. LINTON and SELDEN Y. TRIMBLE amici curiae.

OPINION OF THE COURT BY JUDGE DIETZMAN.

Affirming in part, and reversing in part.

On January 1, 1919, John Brewer and Charles H. Smith, executors of H.C. Smith, deceased, conveyed a tract of land in Mercer county to Gilbert Watts for $8,000 in cash and the following notes, one for $691.55 due March 1, 1919, one for $257.05 due January 1, 1920, one for $5,794.36 due January 1, 1921, one for $5,000 due January 1, 1922, one for $794.36 due January 1, 1922, all of these notes being payable to Charles H. Smith, and one for $5,537.31 due January 1, 1920, payable to the executors. No lien to secure any of these notes was expressly retained in the deed. The note for $5,537.31, payable to the executors, was later transferred to Price T. Smith. Watts in due time paid the two notes for $691.55 and $257.05. On July 16, 1921, Watts executed a chattel mortgage on some stock, farming implements, and growing crops to Charles H. Smith to secure: First, the note of $5,537.31 mentioned in the 1919 deed; and, secondly, a note of $787.50 dated January 11, 1921, said to represent unpaid interest on the notes set out in the 1919 deed. On March 1, 1923, Watts executed a mortgage covering the land that had been conveyed to him by Charles H. Smith and Price T. Smith to secure: First, the payment of a note for $3,000, payable to the order of Price T. Smith and a note for $14,000 payable to the order of Charles H Smith, the two notes being executed contemporaneously with the mortgage; and, secondly, a second lien note in favor of the Mercer National Bank of Harrodsburg. The mortgage recited that it conveyed a first and superior lien on the property covered by it "together with the rents, issues and profits thereof to Price T. Smith and Charles H. Smith, to secure to them the full payment of their two notes." The habendum clause of the mortgage read:

"To have and to hold said real estate with the improvements thereon and the appurtenances thereunto belonging and the rents, issues and profits thereof unto the mortgagees and unto their heirs, successors and assigns forever."

The mortgage also recited:

"The indebtedness hereby created is for the purpose of taking the place of the land notes now against the same land and held by the same parties."

It is conceded that these two notes payable to Price T. Smith and Charles H. Smith represented all the notes set out in the 1919 deed and in the 1921 chattel mortgage. On March 12, 1923, the grantors in the 1919 deed entered on the margin of the deed book in the county clerk's office, at the page where the 1919 deed was recorded, the following:

"All the notes set out and mentioned in the within deed of H.C. Smith's Exrs. to Gilbert Watts having now been fully paid, all liens are hereby released and fully discharged."

This release was then signed by the said grantors. The chattel mortgage of 1921, however, was not released of record nor has it ever been. Watts died in 1930. At the time of his death, there was in the tobacco barn a crop of tobacco which he had grown that year on the land which had been conveyed to him in 1919. This crop the administrator, by agreement of the parties, later sold; it bringing $794.62. Watts also at the time of his death had in his possession so much of the personalty covered by the chattel mortgage of 1921 as was later sold under agreement of the parties, bringing $347.50. These two items total $1,142.12. The mortgage debt of 1923 not having been paid, the real estate conveyed in 1919 and covered by the 1923 mortgage was ordered sold. It brought the sum of $16,140.95. The mortgage notes of the 1923 mortgage at the time amounted to $17,319.19, principal and interest. Deducting therefrom the proceeds of the judicial sale, there was left due the holders of the 1923 mortgage notes the sum of $1,178.24. To this sum must be added interest to the date of judgment herein appealed from, the total amount due being $1,228.12. To discharge this last-named sum, the holders of the first lien 1923 mortgage notes laid claim to the $1,142.12 arising out of the sale of the tobacco crop and personalty above mentioned. They based their claim to the proceeds of the tobacco on the provision in their mortgage pledging "the rents, issues and profits" of the land mortgaged and to the proceeds of the personalty on the lien created by the 1921 chattel mortgage. Watts' estate being considerably indebted beyond the mortgage indebtedness hereinbefore referred to, and there being no assets other than this sum of $1,142.12 wherewith to pay the same, the administrator resisted the claim of these holders of the 1923 mortgage notes to this sum. He also made claim to a commission of 5 per cent. on the money involved as an administrator's commission for winding up the estate of the deceased. The lower court awarded the whole sum of $1,142.12 to the holders of the first lien 1923 mortgage notes, and the administrator has appealed.

First, with reference to the claim of the holders of the 1923 first lien mortgage notes to the proceeds of the personalty covered by the 1921 chattel mortgage: It is contended by the administrator that the taking by the Smiths of the new notes and mortgage in 1923 was a novation of the debts created by the 1919 deed and 1921 chattel mortgage and served to release the 1921 chattel mortgage though that mortgage was never released of record. The parties are agreed that a "novation" is a contract between the parties whereby, for a valuable consideration, a creditor agrees to cancel an old obligation and to substitute in its place a new one. 20 R.C.L. 371; 46 C.J. 623. To this we may add that it is not essential that the assent to the terms of the novation be shown by express words to that effect, but the same may be implied from the circumstances attending the transaction and the conduct of the parties thereafter. Kushner v. Knopf, 227 Ky. 369, 13 S.W. (2d) 271. Applying these principles to the instant case, we find that the 1921 chattel mortgage was given to secure one of the notes set out in the 1919 deed and another note conceded to represent unpaid interest on those notes of the 1919 deed. The 1921 chattel mortgage itself provided that when "said note" and interest including all renewals "are fully paid," then the chattel mortgage was to be void. Although the singular "note" is used, it was evidently intended that both notes...