Shaffer v. McCloskey

California Supreme Court Mar 13, 1894 No. No. 18219Published

Before: McFarland

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Holding. The court held that a party who pays off a prior mortgage to protect their own interest in land is entitled to equitable subrogation, and that such a mortgage is not merged into the fee title when equity dictates it should be preserved to prevent injustice.

Issues

Whether a mortgage is merged into a fee title when the mortgagee acquires the property, thereby extinguishing the lien.
Whether a party who pays off a prior mortgage under mistake of fact is entitled to equitable subrogation against a junior lienholder.

Disposition. affirmed

Quotations verified verbatim against the opinion

“As to the question of merger, it must be remembered that, with respect to that subject, equity is not controlled by the rules of law.”

“We are satisfied that the rule of equitable subrogation was properly applied by the court below in this case.”

“The question is one of intention, actual or presumed, of the person in whom the interests are united.”

Synopsis

Mortgage—Satisfaction by Cotenant—Deed of Trust—Subrogation.— Where two tenants in common have executed a mortgage to secure the purchase money of the land owned by them as cotenants, and one of them, being unable to pay his share of the mortgage, has conveyed his interest in the land to his cotenant, in consideration that the latter shall pay the full amount remaining due on the mortgage, and the mortgage is afterwards satisfied of record upon such payment, without knowledge on the part of the person making the payment that his grantor had previously made a deed of trust of his half of the land, the person paying the mortgage may maintain an action to revive it, and to be subrogated to the rights of the assignee of the mortgage as against the holder of the deed of trust.

Id.—Rights of Subsequent Lien-holder.—A subsequent lien-holder who has not acquired his lien after a prior mortgage has been marked satisfied, and has not been led by a clear record to invest money on the land, but who took the encumbrance while the mortgage was in full legal existence, recorded and unsatisfied, and with perfect understanding that it was a valid lien, will not be permitted in equity to take advantage of an inadvertence or mistake in the satisfaction of the mortgage.

Id.—Merger.—In respect to the merger of a lesser estate in a greater, equity is not controlled by the rules of law; but is governed by the actual or presumed intention of the person in whom the interests are united.

Id.—Equitable Subrogation.—One who is forced to pay the debt of another in order to protect his own interest, and who is not a mere volunteer or intermeddler, is entitled in equity to be subrogated to the debt.

Id.—Record of Subsequent Lien—Right of Subrogation Unaffected.— The fact that a subsequent lien or deed of trust was recorded is immaterial to the right of a payer to revive a prior satisfied lien, and to be subrogated to such prior lien.

Id.—Change of Legal Rights by Mistake—Equity—Restoration of Former Conditions.—When the legal rights of parties have been changed by mistake, equity restores them to their former condition when it can be done without interfering with any new rights acquired on the faith and strength of the altei ed condition of the legal rights, and without doing injustice to other persons.

Id.—Reconveyance of Land.—It is not necessary that the one-half of the land be reconveyed to the cotenant who granted it where the decree for equitable relief is based upon the theory that the mortgage is revived, and the one-half interest in the land considered as belonging to the co-tenant by whom it has been conveyed to the plaintiff, and his undivided half decreed to be sold to satisfy one-half of the mortgage debt.

McFarland, J.— Plaintiff brought this action for a decree reviving a certain mortgage, and subrogating him to the rights of the assignee of said mortgage. Judgment went for plaintiff, and defendants appeal from the judgment upon the judgment-roll, which includes findings, their general contention being that upon the findings the judgment should have been for defendants.

The facts are, briefly, these: The plaintiff, Shaffer, and the defendant, McOloskey, were, on February 11, 1888, the owners, as tenants in common, by purchase from one Fahey, of certain land described in the complaint; and on that day, as the main part of the purchase money, they made to Fahey their promissory notes for certain sums of money to be due at different times, and also executed to him a mortgage upon the said land to secure said notes. Fahey assigned the [578]notes and mortgage to the First National Bank of Merced. A part of the money secured by the mortgage was paid by plaintiff and McOloskey, but when the whole amount became due—five thousand nine hundred and fifty-two dollars and fifty cents being unpaid—McOloskey was unable to pay his share; and as the holder of the mortgage was pressing for the money, the plaintiff was compelled to pay the whole amount in order to protect his own interest in the land. Under these circumstances McOloskey promised verbally that he would assign his one-half interest in the land to plaintiff if the latter would pay the full amount due on the notes and mortgage. Plaintiff agreeing to this, McOloskey conveyed his half of the land to plaintiff, and plaintiff paid the full amount remaining due on the mortgage, and Fahey satisfied the same on the record. This occurred on February 1,1890. McOloskey did not inform plaintiff that he, McOloskey, had created any other encumbrance on his half of the land, and plaintiff had no actual knowledge of any such encumbrance. He supposed when he paid the amount due on the mortgage and had it satisfied that the land was then free of any lien, and he would not have paid off the mortgage as aforesaid if he had known of any other lien.

It turned out, however, that without plaintiff’s knowledge, McOloskey, after the execution of said mortgage, and before its satisfaction as aforesaid, had executed a deed of trust of all his interest in the land to one John Buddie for the benefit of the Merced bank, a corporation made a defendant,in the action, to secure a certain sum of money; and that said deed of trust had been recorded in the county recorder's office on November 10, 1888. (Certain proceedings were had under said deed of trust by which McCloskey’s interest was, after this action was commenced, sold to the defendant Howell; but they do not affect the questions here involved.) Appellants contend that under these facts all rights of respondent under the mortgage were merged in the deed from McOloskey, and that he was bound by

Shaffer v. McCloskey

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