Giesy v. Aurora State Bank

Rehearing denied May 31, 1927.

On Petition eor Rehearing.

( 256 Pac. 763 .)

Rehearing Denied.

BROWN, J.

Defendant Weiner asks for a rehearing upon the ground that this court has erred in its holding that the plaintiff is not estopped from a successful prosecution of this suit by the decree rendered in a foreclosure suit brought by Weiner as plaintiff and based upon a junior mortgage.

This plaintiff’s mortgage was regularly executed and duly recorded a month prior to the creation of defendant Weiner’s mortgage lien. In Weiner’s foreclosure suit, he made this plaintiff, Aurora State Bank and others, defendants. He bases his plea of estoppel upon a decree bottomed upon his complaint in that case, which averred:

“B. F. Gfiesy, as trustee of the Willamette Valley Mortgage Loan Company, a corporation, Aurora State Bank, an Oregon corporation, J. F. Duffy, Willamette Valley Mortgage Loan Company, a corporation, and Alfred P. Dobson, as the plaintiff is informed and believes, claim to have some right, title or interest in and to the real property described in said mortgage alleged in paragraph 3 hereinabove, and that any right, title, interest or claim of said defendants, of any or either of them, in and to said property, is subordinate in time and inferior in right to the rights, powers and privileges of plaintiff herein, and plaintiff alleges the mortgage hereinabove

*11

described in paragraph 3 is superior in time and right to any and all right, title and interest claimed by the Aurora State Bank, a corporation, J. F. Duffy, Willamette Valley Mortgage Loan Company, a corporation, and Alfred P. Dobson.”

The quoted allegation was admitted by the defendants in that case, among whom was Giesy, the plaintiff herein.

This is the usual allegation applying to all subsequent encumbrancers who are holders of general or specific liens on land, and such allegation will require each defendant to appear and disclose whatever interest he may have in the subject of the suit, or be barred from asserting any interest therein:

Wright

v.

Conservative Investment Co.,

49 Or. 177 ( 89 Pac. 387 ); 4 Bancroft’s Code Pleadings, § 1960; 2 Jones on Mortgages (7 ed.), §1439.

But it is asserted, in effect, that such allegation includes prior, as well as subsequent, lienors, and

Wright

v.

Conservative Investment Co., supra,

is cited as authority for that proposition. That case was a suit to foreclose a mortgage given to secure a promissory note for $215, and, among other things, the complaint averred:

“That the defendants, each or all of them, have or claim some interest, equity, right, estate or claim in or to the land described in said mortgage, but plaintiff’s said mortgage lien thereon is prior and superior to any lien, claim, estate, right or equity of the defendants in or to the said lands, or of either of defendants therein.”

The quoted averment was true and admitted. The record affirms that allegation. The original record is brief, and from it we take the following uncontradicted excerpt:

*12

“It is undisputed by all that plaintiff was at all times a trustee for an original $100 part of the note in behalf of C. Mong, and that his said interest was a first trust lien on the mortgaged property.”

The facts should be considered in determining the court’s holding in that case. That the court had in view subsequent rights and liens when it made its ruling is further demonstrated by the foregoing excerpts and by the authorities quoted in the opinion. The court goes on to say, at page 180:

“In order that the foreclosure might be complete and a perfect title transferred by the sale, it is necessary that the holder of every such right or interest should be brought before the court: 2 Jones on Mortgages (4 ed.), §1394.”

Now, what did the court mean by “such right or interest”? 2 Jones on Mortgages, an authority upon which this court relies, says at Section 1394 (7 ed.):

“In one sense every person who has acquired any interest in the property subsequent to the mortgage is a necessary party to the suit for foreclosure, whether that interest be by way of a mortgage or judgment lien, an inchoate right of tenancy in dower or curtesy, or an unconditional estate in fee; because,

in order to, make the foreclosure complete, and to transfer a perfect title by the sale, it is necessary that the holder of every such right or interest should be brotoght before the court.”

The term “every such right or interest,” as used by the court and the text-writer, refers to and includes “every person who has acquired any interest in the property subsequent to the mortgage.”

Turning to Section 1439, the author declares:

“Persons having interests in the property paramount to the mortgage sought to be foreclosed are

*13

generally neither necessary nor proper parties to the suit, because the only proper object of the proceedings is to bar all rights subsequent to the mortgage. The decree can have no effect upon the rights of parties having priority, whether they are made parties to the action or not. A foreclosure is designed to extinguish the mortgage and cut off all liens subsequent to it, and not to affect the title to the premises or liens thereon prior to the execution of the mortgage. * * When a prior encumbrancer is made a party to a foreclosure suit, there should be an allegation of the purpose for which he is made a party; as, for instance, that the rank and amount of his mortgage may be ascertained and determined by the judgment of the court, so that the mortgage can be paid out of the proceeds of the sale, or so that the sale may be made subject to the known amount of the lien. If such purpose is not indicated in the complaint nor provided for in the judgment, the prior encumbrancer will not be affected by the judgment.”

In further support of its holding in

Wright

v.

Conservative Investment Co., supra,

this court cited Pomeroy’s Code Remedies (4 ed.), § 239, *342. In that identical section the author says, among other things:

“It is not, in general, considered that prior encumbrancers are even proper defendants, for, as their liens are paramount to the mortgage, they cannot be in any manner affected by the action or the decree therein.”

Concerning necessary and proper parties to foreclosure suits, that text-writer says:

“As titles, interests, and liens prior and paramount to the mortgage are in no way affected by it or by the decree of foreclosure and the sale thereunder, the owners and holders thereof are neither necessary nor proper parties.” Section 231, * 334.

*14

In

Wright

v.

Conservative Investment Co., supra,

this court cited in support of the sufficiency of the complaint,

Dexter Horton & Co.

v.

Long, 2

Wash. 435 ( 27 Pac. 271 , 26 Am. St. Rep. 867 ). The latter case, as well as the former, held, in substance, that the complaint stated a good cause of suit. That pleading in each case contained the familiar allegation involving subsequent liens and inferior interests and rights, and undoubtedly stated a cause of suit, hence was proof against the objections made thereto. Besides, the complaint in each of these cases, as in the Weiner foreclosure proceeding, contained averments sufficient to constitute an ample basis for a decree cutting away from the defendants all rights of redemption arising from “such rights or interests” as were acquired subsequent to the rights under the mortgage being foreclosed. Neither

Wright

v.

Conservative Investment Co., supra,

nor the authorities cited in support thereof, when read in the light of the facts and circumstances of the respective cases, announce any doctrine that is repugnant to the general rule in this country. In substance, this rule is as follows:

When a plaintiff in a suit to foreclose his mortgage lien undertakes to make a party defendant of the holder of a prior mortgage or interest in the property sought to be foreclosed for the purpose of liquidating the prior lien or having the prior lien declared subordinate to plaintiff’s lien, the facts showing this purpose should be clearly stated in the complaint: 1 Wiltsie on Mortgage Foreclosure (3 ed.), §211;

Tax Lien Co.

v.

Schultze,

213 N. Y. 9 ( 106 N. E. 751 , Ann. Cas. 1916C, 636, L. R. A. 1915D,

*15

1115), and cases there cited. See, also, the anthori-. ties cited in our original opinion.

In the case of

Emigrant Industrial Savings Bank

v.

Goldman,

75 N. Y. 127, 131 , Mr. Chief Justice Church, in rendering the opinion for the court, wrote :

“It is settled that the only proper parties to a bill of foreclosure, so far as mere legal rights are concerned, are the mortgagor and mortgagee, and those who have acquired rights under them subsequent to the mortgage

(Eagle F. Co.

v.

Lent,

6 Paige, 635 ;

Frost

v.

Koon,

30 N. Y. 428 ;

Lewis

v.

Smith,

5 Seld. (9 N. Y.) 502 [ 61 Am. Dec. 706 ];

Corning

v.

Smith ,

2 Seld. (N. Y.) 82;

Bank of Orleans

v.

Flagg,

3 Barb. Ch. 318 ).”

As to the effect of allegations that persons other than the mortgagor who are joined as defendants have, or claim to have, some interest in or claim upon the mortgaged property, which interest or claim is subsequent and subject or subordinate to plaintiff’s mortgage, 4 Bancroft’s Code Pleading, §1960, reads:

“Such an averment is not material to the plaintiff’s cause of action and is not an issuable fact. Nor is it an admission that the defendant has an interest in the property. And it does not present for determination the question of the validity of the claim of the defendant against whom it is directed as a second lien, or the question whether his interest is superior to that derived under the mortgage. The averment that his claim is subordinate to the mortgage is but a legal conclusion, and the allegation of fact that it is subsequent to the mortgage upon which such conclusion is based negatives any claim that it is prior thereto.”

*16

. In 2 Abbott’s Forms of Pleading (2 ed.), at page 1787, appears Form 1502 for tbe foreclosure of mortgages upon real property against the mortgagor and subsequent encumbrancers. At paragraph 7 thereof is an allegation similar to that in

Wright

v.

Conservative Investment Co., supra,

and we take the following from the notes covering that paragraph:

“This allegation is sufficient against defendants who claim subsequent to the plaintiff’s mortgage, and is essential as furnishing the basis for the relief demanded against them:

Schneider

v.

Mahl,

84 App. Div. 1 ( 82 N. Y. Supp. 27 );

Vought

v.

Levin,

142 App. Div. 623 ( 127 N. Y. Supp. 479 ). * * But a decree against defendants, made parties under such general allegations, and entered on default, does not bar rights which are paramount to the title of the mortgagee. See Form 1505, and notes;

Nelson

v.

Brown,

144 N. Y. 384 ( 39 N. E. 355 );

Stilwell

v.

Hart,

40 App. Div. 112 ( 57 N. Y. Supp. 639 );

Jacobie

v.

Mickle,

144 N. Y. 237 ( 39 N. E. 66 ).”

Turning to Form 1505, we find a form that complies with the requirements of such standard authorities as Jones on Mortgages and Wiltsie on Mortgage Foreclosure as to the allegations essential to raise the issue of priority of a defendant’s lien and obtain an adjudication thereon; and these authorities of course require an allegation of the facts which show it to be subordinate to plaintiff’s mortgage.

It is asserted on behalf of Weiner that his allegation that Griesy and Aurora State Bank claimed some interest in, or right to, the mortgaged property, but that such interest was subsequent and subject to Weiner’s mortgage, has been admitted. Now, what has been admitted? Nobody has admitted at any time that the mortgage now being foreclosed is subsequent

*17

and inferior to Weiner’s mortgage. Neither does Weiner’s foreclosure complaint contain any allegation that could he fairly construed as referring to the prior mortgage. The hank’s mortgage appears to have been regularly executed and duly recorded a month previous to the execution and recordation of the Weiner mortgage. Hence it is

prima facie

prior in time and superior in right to the Weiner mortgage. Weiner’s averments relate to subsequent rights, and Giesy’s admission involves subsequent claims and rights. Nor did Giesy submit any question to the court for adjudication. Now, what was the effect of the admission that was, in truth, made?

“The effect of such an admission, where the party does not present any prior claim by cross-complaint or otherwise, is that the foreclosure, judgment and sale will bar all liens, rights and interests acquired from the mortgagor after the execution of the mortgage, but not rights or claims prior or superior to the mortgage.” 4 Bancroft’s Code Pleading, § 1976.

See, also,

Wardlow

v.

Middleton,

156 Cal. 585 (105 Pac.

738); Brophy

v.

Downey,

26 Mont. 252 ( 67 Pac. 312 );

McComb

v.

Spangler,

71 Cal. 424 ( 12 Pac. 347 );

Ord

v.

Bartlett,

83 Cal. 431 ( 23 Pac. 705 );

Sichler

v.

Look,

93 Cal. 608 ( 29 Pac. 220 ).

Counsel for petitioner asserts that we ignore the doctrine heretofore announced by this court in

Williams

v.

Wilson,

42 Or. 299 ( 70 Pac. 1031 , 95 Am. St. Rep. 745 ). In this counsel is in error. We examined the Williams case but made no reference to it because the facts in that case were not similar to the facts in the case under consideration, and it, therefore, would not govern and is not controlling here. In writing the opinion for the court in that

*18

case, Mr. Justice Wolverton, after stating the facts, said, at page 303;

“The question for decision, then, is whether a judgment lien creditor, who is a party to a suit to foreclose a prior mortgage, and who comes in by answer or cross-complaint and sets up the judgment, and obtains a decree that the proceeds of the sale, after satisfying prior liens, shall be applied in payment of his judgment, can have the mortgaged premises resold under execution issued in the law action for any deficiency due him on his judgment, when the land has been redeemed by a grantee of the mortgagor, who takes subsequent to the rendition of the foreclosure decree.”

In that case, one Johnson, a defendant, the owner of a judgment lien on the premises, appeared, and answering procured from the court an adjudication that the proceeds of the sale, after satisfying prior liens, should be applied to the payment of his judgment, the court holding, in effect, that the judgment creditor’s right under his original judgment had become merged in the foreclosure decree.

If the plaintiff in the instant case, who is named as a defendant in the Weiner suit, had, by answer or cross-complaint, asked for and secured a foreclosure of the mortgage, and had participated in the proceeds of the sale, the case of

Williams

v.

Wilson, supra,

would have been in point. But such a set of facts does not obtain here. Neither Giesy nor the Aurora State Bank filed an answer or cross-complaint asking for the foreclosure of their mortgage, or for any affirmative relief.

It does not appear from the record that there were embodied in the Weiner complaint any averments that would have informed Giesy or the bank that

*19

Weiner disputed, or sought to bar, their prior and superior rights.

“A default judgment does not adjudicate matters not covered by the complaint, since it is an admission only of the material allegations.” 2 Freeman on Judgments (5 ed.), § 664.

The petition for rehearing will be denied.

Behearing Denied.

Bean and Belt, JJ., concur.

Burnett, C. J., concurs in the result.