Mississippi Supreme Court, 1931

Great Southern Land Co. v. Valley Securities Co.

Mississippi Supreme Court · Decided November 9, 1931 · Anderson

137 So. 510; 162 Miss. 120; 82 A.L.R. 405; 1931 Miss. LEXIS 108 (Southern Reporter)

Counsel

T.J. Wills, of Hattiesburg, for appellant. There is a clause in the mortgage which reads, among other things, that parties of the first part agreed that the property shall be kept free of all unsettled judgments or anything that might affect the equity of the said party of the second part. In dealing with the property, the Great Southern Land Company was protected by this clause from considering any intervening rights that might have accrued, the clause having been stipulated into deed of trust so that all parties dealing with the property were charged with notice of inquiry as to what the equities of the grantor of the property, the beneficiary in the deed of trust might have therein. The maker of the notes to appellee, was charged usurious interest. The contract was unenforceable in Mississippi. It provided for interest at the rate of eight per cent and five thousand dollars in cash was deducted from the eighty thousand dollars, giving to Thomas only seventy-five thousand dollars, for which he paid eleven thousand four hundred dollars, a usurious rate of interest. When two estates unite it operates to extinguish the lesser of the estates to extinguish the deed of trust and the debt secured thereby. If the property is worth the amount of or in excess of the indebtedness secured by the senior and junior deed of trust, both are extinguished by sale under the senior deed of trust and the purchase thereof by the holder of the junior deed of trust if the value of the property is equal to both indebtedness. It is extinguished pro tanto if the value is less than both indebtedness. Horr v. Herrington (Okla.), 20 L.R.A. (N.S.) 47; Miller v. Little, 37 N.D. 612 , 164 N.W. 19. Stevens Heidelberg, of Hattiesburg, for appellee. Even if the deed of trust or the notes had contained an acceleration provision, any interested party, upon payment of the amount past due, with all accrued interest, costs, attorney's fees and trustee's fees on the amount actually past due by the terms of the notes "not of the amount accelerated" and all such taxes or insurance premiums due and not paid, with proper interest thereon, had the right to reinstate the contract according to its terms. The appellants would not have been entitled to collect any attorney's fees on those notes which, according to their maturity dates, had not matured. Even if the notes were payable in the State of Mississippi and were governed by the law of the State of Mississippi, the contract would not be unenforcible. The only thing which would be forfeited would be the interest itself and appellee would still be entitled to collect the seventy-five thousand dollars actually paid by it. Section 1946, Code of 1930. Whatever may be the circumstances, or between whatever parties, equity will never allow a merger to be prevented and a mortgage or other security to be kept alive, when this result would aid in carrying a fraud or other unconscientious wrong into effect, under the color of legal forms. Equity only interposes to prevent a merger, in order thereby to work substantial justice. 2 Pomeroy's Equity Jurisprudence (2 Ed.), secs. 791, 793, 794. Where it is said that the rule that the purchase of the land by the junior mortgagee merges his title is founded upon the reason that there could generally be no advantage to him in keeping on foot his own mortgage against his own estate. Where a mortgage incumbrancer becomes the owner of the legal title, or of the equity of redemption a merger will not be held to take place if it be apparent that it was not the intention of the owner, or of, in the absence of any intention, the merger would be against his manifest interest. 1 Jones on Mortgages, sec. 869; Hartford Fire Insurance Company v. Buckwalter, 77 So. 798; Jones on Mortgages, sec. 848. The purchase by a second mortgagee of the mortgage property under foreclosure of the first mortgage does not merge the liability on the note secured by such second mortgage so as to preclude him from enforcing the liability of the parties thereon. Blackwood v. Sakwinski, 29 A.L.R. 1314. The doctrine of merger is never regarded with favor in a court of equity, nor allowed therein, except for special reasons and to carry out the intention of the parties. Estates in equity are always kept distinct when the interest of either party or a creditor requires it. Note 99 Am. St. Rep. 158; Knowles v. Lawton, 63 Am. Dec. 290; 36 L.R.A. (N.S.) 1427. The surplus insofar as the junior mortgagee is concerned becomes real estate and the lien of the junior mortgage is immediately transferred from the land itself to the surplus in the hands of the trustee or senior mortgagee. Frank v. Davis, 17 L.R.A. 306; McPherson v. Davis, 48 So. 625; Markey v. Langley, 23 L.Ed. 701. A purchase by a junior encumbrancer of land at a sale under a senior incumbrance did not effect a merger, but that the junior incumbrancer's lien would be transferred to the surplus, and he would be entitled to enforce it as against this surplus. Kilmer v. Hannifan, 85 N.W. 16. Where default was made in the payment of the amount named in a trust deed and the trustee at the request of the beneficiary advertised the land for sale, but before the date fixed for the sale, a third party bought the land covered by the trust deed and tendered to the trustee the amount mentioned in the deed of trust interest thereon, and the accrued expenses for advertising and the trustee's fees, which the trustee at the instance of the holder of the indebtedness secured, refused to accept but demanded attorney's fees in addition. In such case, the attorney fees not being mentioned in the trust deed, though named in the note evidencing the debt, and the purchaser of the land having no notice of such fees being included in the debt secured, the trustee was wrong in refusing such tender and the purchaser of the land having enjoined the sale by the trustee, the beneficiary could not recover attorney's fees for defending such suit since their wrong caused the litigation and the attorney's fee, all of which was unnecessary. Hardin v. Ross, 78 So. 2, 117 Miss. 186 . A purchaser or mortgagee is chargeable with notice of the conditions and recitals contained in all the recorded instruments forming his chain of title and the extent of the title conveyed or otherwise affected, but not that a grantee or mortgagee has any greater interest than that appearing in the recorded instrument. 23 R.C.L., page 216, section 79; Equitable Building Loan Association v. Corley, 110 Am. St. Rep. 615; Simmons v. Hutchinson, 81 Miss. 351 , 33 So. 21; Sack v. Gilmer Dry Goods Company, 115 So. 339 , 149 Miss. 296 . Record of a deed is only notice of what appears upon the face of the deed, or to that to which it naturally points. Dikeman v. Parrish, 47 Am. Dec. 445; Gilchrist v. Gough, 64 Ind. 589 ; 39 Cyc. 1721. In order to impute constructive notice to a purchaser by reason of recitals in instruments affecting his title, the recitals relied upon must be so clear and distinct as to put an ordinarily prudent person upon inquiry, and must be so far correct and intelligible that upon proper inquiry they would lead the purchaser to knowledge of the particular fact or incumbrance with notice of which it is sought to charge. Spellman v. McKeen, 96 Miss. 693 . A mortgage given to secure a note is, between the original parties, a lien upon the premises according to the legal rate of interest secured by said note; but subsequent encumbrances on the same premises are bound by nothing more than is disclosed by the record, unless express notice can be proved. Whittacre v. Fuller, 5 Minn. 508 . If there is a junior encumbrancer, any surplus which remains after the sale of the mortgaged property by a trustee, without judicial proceedings, will go to him, and the trustee will hold it in trust for such encumbrancer. O'Reilly v. Hendricks, 2 S. M. 388. And the rule is the same when the sale is by a trustee under a deed of trust. Gage v. Iler, 5 S. M. 410, 43 Am. Dec. 321. Prior mortgagee, with notice of a subsequent mortgage, holds the balance of the fund derived from a sale of the mortgaged premises, over and above his mortgage, in trust for the subsequent mortgagee. White v. Dougherty, 17 Am. Dec. 802; 41 C.J., page 1015, section 1475. As respects the rights of junior encumbrances entitled to the surplus it is generally held that the senior mortgagee, realizing more than the amount of his debt on a foreclosure sale is to be regarded as a trustee for their benefit. 41 C.J., page 1017, sec. 1478.

Opinion of the Court

*133 Anderson, J.,

after stating the case as above, delivered the opinion of the court.

In the distribución of the proceeds of the foreclosure sale, was the Land Company entitled to be credited with any attorney’s fee whatsoever? The mortgage, as stated, made no provision for the payment of attorney’s fees. There is no reference whatever in the mortgage to the fact that the notes evidencing the debt secured by the mortgage had £-ny provision for the payment of attorney ’s fees; and the evidence showed without conflict that the Securities Company had no actual notice that the notes provided for the payment of attorney’s fees. The fact that they do so provide wras not referred to in any of the conveyances from the Land Company down to and including that to Mrs. Nix, the last vendee before the foreclosure sale. We think the case of Hardin v. Ross, 117 Miss. 186, 78 So. 2, is decisive of this question against the contention of the Land Company, and in favor of the contention of the Securities Company.

The question in that case was whether or not the holder' of a deed of trust was entitled to demand attorney’s fees in addition to the debt and interest thereon from a purchaser of the property embraced in the deed of trust, who bought with knowledge that it was being sold subject to the deed of trust of record. The indebtedness secured by the deed of trust was a promissory note, which provided for the payment of attorney’s fees, but there was no reference in the deed of trust to the stipulation as to attorney’s fees — no statement that it included attorney’s fees. Caldwell and wife executed a deed of trust on land in Calhoun county to secure an indebtedness to one Barton. Default was mfide in the payment of the indebtedness, and the trustee, at the request of the bene *134 ficiary, advertised the land for foreclosure sale. Before the day of sale, Hardin bought the land, and received a conveyance thereto from Caldwell and wife. Hardin thereupon tendered to the trustee the amount mentioned in the deed of trust, with interest- thereon, and accrued expenses for the advertising, including the trustee’s fee. The trustee, at the instance of the holders of the indebtedness, declined to accept the tender, whereupon the trustee resigned, and a substitute trustee was appointed by the holders of the indebtedness, and the land was again advertised for sale. Hardin then filed his bill of complaint, setting out those facts, and stating further that the land would be sold if the sale was not enjoined by the court, and that the trustee had refused to accept the amount tendered, described in the deed of trust, but had demanded in addition thereto one hundred sixty dollars by way of attorney’s fees.

The court held that the attorney’s fees not having been mentioned in the deed of trust, though named in the notes evidencing the debt, and the purchaser of the land having no notice of such fees being included in the debt secured, the trustee was not justified in refusing the tender by the purchaser of the land, and, the latter having enjoined the sale by the trustee, the beneficiary could not recover attorney’s fees for defending such _suit, “since their wrong caused the litigation and the attorney’s fee, all of which was unnecessary.”

The decision in that case is amply supported by authority. Our court held in Simmons v. Hutchinson, 81 Miss. 351, 33 So. 21, that constructive notice arising from the record of a muniment of title imputes only sucia knowledge as the instrument there recorded discloses, and not what diligent inquiry into its meaning might disclose; that it is only constructive notice of the contents of the paper there recorded, or intended to be recorded, and its particular contents only, and will have no opera *135 tion or effect as to any, existing facts not described or pointed ont in tlie recorded instrument.

To the same effect is Sack v. Gilmer Dry Goods Co., 149 Miss. 296, 115 So. 339. See, further, 23 R. C. L., p. 216, section 79, and case notes.

The Land Company contends that the following provision in its mortgage was sufficient to give the Securities Company notice of the fact that the notes secured by the mortgage provided for attorney’s fees: “The parties of the first part have agreed that the hereinafter described property shall be kept free of all unsettled liens of any kind or character for any work or improvements on the property, or all unsettled judgments, or anything that might affect the equity of the said party of the second part.”

As we understand the argument of the Land Company, it is that the stipulation in its notes, providing for attorney’s fees, was an equity; and, seeing this provision in the mortgage, the Securities Company ought to have made inquiry of the Land Company as to what it meant; and that, if it had done so, it would have ascertained that the notes secured by tlie mortgage provided for the payment of attorney’s fees. We are unable to follow this argument. In the first place, the stipulation in the notes for attorney’s fees is not an equity; the right thereby conferred 03i the Land Company was purely legal, not equitable. And in the second place, under the authorities referred to, there is nothing in this language of the mortgage that points even in a remote degree to the fact that the Land Company’s notes provided for the payment of attorney’s fees.

The Land Company contends that, where a junior mortgagee purchases at the foreclosure sale of a senior mortgage, all interest of the junior mortgagee is thereby merged into the title to the land, and his mortgage indebtedness is thereby discharged; and therefore he is not entitled to have applied to his mortgage indebtedness *136 any surplus remaining after satisfying the senior mortgage; that this is especially true where the value of the land is sufficient to satisfy both mortgages, as the Land Company contends it was in this case.

The general rule is that, where a surplus remains after satisfying a senior mortgage, it should be applied on the junior mortgage. O’Reilly v. Hendricks, 2 Smedes & M. 388; Cage v. Iler, 5 Smedes & M. 410, 43 Am. Dec. 521; 41 C. J., pp. 1015 and 1017, sections 1475 and 1478. And this rule obtains where the junior mortgagee is the purchase at the foreclosure of the senior mortgage. A merger will not take place if it be apparent that the junior mortgagee, in purchasing, did not so intend, or that a merger is against his manifest interest. 2 Pom. Jurisprudence (2 Ed.), sections 791 and 793; Jones on Mortgages, section 848; Hartford Fire Ins. Co. v. J. R. Buckwalter Lumber Co., 116 Miss. 822, 77 So. 798. In this case our court cites with approval section 848 of Jones on Mortgages.

It is manifest, from the evidence in this case, that the Securities Company, by its purchase, had no intention to bring about a merger of its mortgage into its title to the land. On the contrary, the Securities Company used every available means at hand to prevent such a merger. In order to stop a foreclosure under the senior mortgage, the Securities Company tendered to the Land Company largely more than enough to discharge its indebtedness, with interest and expenses incident to' the foreclosure advertisement. And immediately after the foreclosure sale, and the payment of the proceeds of the sale into the hands of the trustee in the senior mortgage, the Securities Company demanded of the trustee that he pay over to it, on its mortgage, the surplus remaining after the senior mortgage was discharged, which was done.

It is doubtful whether the Oklahoma and South Dakota cases relied on by the Land Company are authorities to the contrary; but, if they were, we would without hesita *137 tion hold that, where a merg’er of the two' estate was not intended, and especially where the merger is against the interest of the junior mortgage purchaser, no merger takes place. As we view it, that is the sounder and better rule.

The Land Company contends that the Securities Company had no valid mortgage indebtedness against the land, because its indebtedness was usurious. The facts relied on by the Land Company to show that the Securities Company’s debt was usurious are as follows: The Securities Company lent Thomas only seventy-five thousand dollars; they took his notes for eighty thousand dollars, with interest thereon from their date, at eight per cent per annum. Therefore, under section 1946, Code of 1930, the contract (if a Mississippi contract) was usurious. The statute provides that, when a greater rate of interest than eight per cent per annum is stipulated for, or received, all interest shall be forfeited; and, if a greater rate than twenty per cent per annum is stipulated for, or received, both principal and interest shall be forfeited.

The Securities Company’s notes were executed in the state of Louisiana, and made payable in the city of New Orleans, in that state. The Land Company contends that for that reason the transaction is governed by the laws of Louisiana, where the contract is not usurious, and not by the laws of Mississippi. We do not decide that question, because it is not necessary.

For the purposes of this decision, we treat the contract of the Securities Company as usurious under the laws of this state; and still it remains a fact that at the time of the foreclosure sale there was due the Securities C'ompany, on its mortgage, the sum of seventy-five thousand dollars, which represents the actual amount it lent to Thomas, without interest. The interest stipulated for in the contract amounted to less than twenty per cent of the seventy-five thousand dollars actually lent; and *138 therefore, under the statute, the interest, and not the principal, is forfeited. The principal remained a valid charge against the property.

If there had been an acceleration clause in the Land Company’s mortgage, under section 2170, Code of 1930, the Securities Company had the right to stop the foreclosure sale by tendering to the Land Company the amount of the overdue note alone, without attorney’s fees, with trustee’s fees and costs incurred.

The result is that the decree should be affirmed on direct appeal, and reversed on cross-appeal, and judgment rendered here in favor of the Securities Company in the additional sum of four thousand six hundred thirty-two dollars, with six per cent interest per annum thereon from the 18th day of February, 1929.

Affirmed on direct appeal, reversed on cross-appeal, and judgment here.

Case-law data current through December 31, 2025. Source: CourtListener bulk data.