Hendley v. First Nat. Bank of Huntsville

The soundness of the opinion in this cause, rendered at the present term, and published in 234 Ala. 535, 176 So. 348, having been brought into question, the writer caused the same to be entered upon the rehearing docket for further consideration by the full court. *Page 667

Upon a careful reconsideration, the writer is fully convinced the original opinion is sound; is the settled law of this state; sustained by the great weight of authority in other jurisdictions; by text writers; and by reason and justice.

With this conviction, and in view of the importance of the questions involved, this supplementary opinion is written.

It is important at the outset, to have a clear-cut statement of the legal and equitable principles involved. As stated in the original opinion the cause presents the question of priority as between a senior and a junior mortgagee of real estate.

The nature and duration of the constructive notice afforded by the record of the senior mortgage, and the nature and application of the presumption of payment from the lapse of 20 years after the maturity of such mortgage, as between senior and junior mortgagee, are the questions presented.

The first proposition asserted in the former opinion is that, as between mortgagor and mortgagee, and those succeeding to their respective equities, but no other or higher equities, the presumption of payment from the lapse of 20 years is overcome, or, as sometimes stated, has never arisen, if payments of interest or part payments on the principal have been kept up within the 20-year period. The fact of such payments, that a balance remained unpaid, that the original mortgage was still in the possession of the family of the assignee of record, that no satisfaction appeared of record, are without dispute in this case. As to this first and primary proposition there is no reasonable basis for doubt. The cases quoted and cited in the former opinion, as well as a host of others, show this to be the settled law of Alabama. All men are charged with a knowledge of the law in this regard.

The second proposition of the original opinion is that the record of a mortgage is constructive notice to subsequent purchasers and mortgagees; that the law provides for no other or additional notice; that, therefore, the mortgagor can convey no greater title than he has in the property, and purchasers or junior mortgagees, charged with constructive notice of the recorded mortgage, cannot acquire a better title than the mortgagor; that the presumption of payment after 20 years is the same rebuttable presumption whether asserted by a mortgagor or one claiming under him.

The opposing view, if we understand it, is that, after 20 years from the maturity of the mortgage, the record ceases to function as constructive notice to prospective mortgagees or purchasers for value; that, although the senior mortgagee has given all the notice required by law for the protection of purchasers, mortgagees, and judgment creditors (Code, § 6887), and by payments thereon the mortgage is still a subsisting lien as against the mortgagor, the 20-year presumption of payment is conclusive in favor of a junior mortgagee without actual notice that the senior mortgage is still in force: that the mortgagor may pass to him a title he does not own; and thus the junior mortgagee becomes the senior mortgagee, despite the record. In effect the contention is that such junior mortgagee has all the protection of a bona fide purchaser or mortgagee, for value without notice, just as if the senior mortgage had never been recorded.

We deal with this contention:

First. In the light of the decisions of this court declaring the law of Alabama, the governing law, if thereby settled.

Second. In the light of authority elsewhere. Decisions of other courts, and the works of eminent text writers, are highly persuasive if our own decisions are of doubtful import, or appear to be in conflict.

Third. The rule of reason and justice.

Goodwyn v. Baldwin, 59 Ala. 127, opinion by Justice Stone, is relied upon as authority for the proposition that the presumption of payment after 20 years is conclusive in favor of the junior mortgagee. That was a bill to foreclose a mortgage against purchasers from the mortgagor and from his devisees after his death. The decision is directed to the sufficiency of the averments of the bill to overcome the presumption of payment in the particular case.

The opinion sets out the averments of the bill seeking to avoid the effect of great lapse of time; on two grounds: first, admissions by the mortgagor of the existence of the mortgage as a valid security to the time of his death; second, all the while the mortgagor was in straightened financial conditions, and a foreclosure would have resulted in his absolute ruin. The decision then proceeds: "We do not think either or both of the above excuses are sufficient to overcome *Page 668 the presumption of settlement or payment of the debt, from the lapse of time. Much more than twenty years — in fact, over thirty — had elapsed since the last payment on the debt, before this bill was filed. The bond, recited in and secured by the mortgage, is not exhibited to the bill, nor averred to be in existence. 'That said Raoul admitted up to his death the existence of said mortgage as a valid incumbrance on the lands therein conveyed,' is a very vague averment. When, where, to whom, and how often admitted, the bill fails to show. Such averment is too indefinite to overcome the presumption of payment, even if Raoul alone was adversely interested. By a much stronger reason is it insufficient to charge his vendees, who are impliedly admitted to be purchasers for value actually paid, and who are nowhere charged to have had knowledge that Raoul 'admitted the existence of said mortgage as a valid incumbrance on said lands.' If, by the registration of the mortgage they were constructively notified of the lien and incumbrance it created, it also notified them by its date and age that the law presumed the payment of the debt it was given to secure. — See Coyle v. Wilkins, supra."

This statement of the law must be viewed in the light of the case in hand, in the light of the decision cited by the learned justice as authority, and in the light of other decisions. The entire excerpt is dealing with the sufficiency of the averment of that bill. The learned justice specially notes that over 30 years had elapsed since the last payment on the debt, before the bill was filed. He does not say what would be the decision if partial payments up to shortly before filing the bill had been clearly averred, but citing the case of Coyle v. Wilkins,57 Ala. 108, as authority is significant.

This case, opinion by Chief Justice Brickell, Justice Stone sitting, was a bill to foreclose a mortgage against personal representatives of a purchaser of the lands from a former purchaser, who, in turn, had purchased at an administrator's sale, under order of court, as the property of the mortgagor.

The statement of facts shows a part payment on the mortgage debt 17 years before the bill was filed. Said the court:

"A mortgagee would not be barred of a bill to foreclose, unless twenty years had elapsed without the payment of interest, or an admission of the existence of the mortgage debt. * * *

"The mortgage to the appellant was properly recorded, and it is not necessary, therefore, to examine the evidence which has been offered to show actual notice to those entering subsequently into possession of the premises under the mortgagor. The registration is equivalent to actual notice, and the purpose of the statutes which authorize it, is to make it operate as direct notice to all persons deriving title from the mortgagor. Having notice, they are bound by the mortgage; and the evidence fails to show any disclaimer by them of the title of the mortgage. * * *

"The only principle available to the mortgagor, is the presumption of payment of the mortgage debt, after the lapse of twenty years. — Relfe v. Relfe, supra [34 Ala. 500, 73 Am.Dec. 467]. That period had not elapsed when this bill was filed, and (independent of the evidence of a partial payment within seventeen years), the presumption could not arise."

Elsberry v. Boykin, 65 Ala. 336, opinion by Chief Justice Brickell, was a bill to foreclose a senior mortgage, the junior mortgagee set up the statute of limitations, and staleness of demand, based on the same policy of repose as the 20-year rule.

The purport of the decision is sufficiently shown in second headnote, reading: "When a mortgage has been delivered and duly recorded, the subsequent possession of the mortgagor is in subordination to the title of the mortgagee, unless asserted as adverse and hostile so openly and notoriously as to raise the implication of notice; and a junior mortgagee, with full covenants of warranty, who is let into possession, can not set up the statute of limitations, or the staleness of the demand, in defense of a bill for foreclosure by the first, except under the same circumstances which would be available to the mortgagor himself."

Christopher v. Shockley et al., 199 Ala. 681, 75 So. 158, was a bill to foreclose a mortgage against a purchaser from the mortgagor for full value under warranty deed followed by actual possession under claim of title for more than 10 years. The opinion by Justice Somerville opens with this: "So far as notice to subsequent purchasers is concerned, the only duty resting upon a mortgagee is the due registration of the mortgage in the office of the probate judge, which is conclusive *Page 669 notice to all the world of everything that appears from the face of the mortgage."

After finding a want of notice to the mortgagee of any repudiation of her lien by the purchaser, a notice essential to an adverse possession, the opinion concludes: "The record presents no issue of either laches or estoppel. The evidence shows that the mortgage debt was kept alive by the mortgagor's recognition thereof, although more than 20 years had elapsed since its creation. Shockley v. Christopher, 180 Ala. 140,60 So. 317. And whatever may have been the mortgagee's intentions as to the enforcement or abandonment of her claim, it does not appear that she has ever discharged the debt or released the land from the mortgage, or done anything to deceive Wise with respect to its existence. As already pointed out, she was not required to do anything in this regard except to register the mortgage for recordation. A purchaser who ignores such notice cannot visit his ignorance and loss upon the prior mortgagee."

This case is in effect a direct holding that the only duty of a mortgagee is to record his mortgage; that, this being done, a purchaser or junior mortgagee can acquire no greater interest than that of the mortgagor; that the presumption of payment after 20 years is available to neither, if kept alive by the payment of interest or other partial payments within the 20-year period.

Winner, Klein Co. et al. v. First Nat. Bank of Laurel, Miss., 222 Ala. 57, 130 So. 900, opinion by Justice Sayre, is directly in point. Resort is had to the original record for a full understanding.

The bill was for foreclosure of a mortgage by the administrator of estate of a holder of the mortgage as devisee under the will of the original mortgagee. The mortgage was on record. Respondents were purchasers of the lands from a vendee of the mortgagor.

The bill disclosed the mortgage debt matured more than 22 years before the bill was filed.

The fifth, sixth and eighth grounds of demurrer were:

"5th. Said bill shows on its face that said mortgage indebtedness was due more than 20 years before filing of said bill.

"6th. Said bill shows on its face that the said Leo Winner, S. A. Klein, and Mrs. Sarah Meyer had constructive notice that the debt said mortgage was given to secure was presumed to have been paid.

"8th. For aught that appears from said bill there was nothing on the record of said mortgage in the Probate office showing the recognition of said debt since its creation."

The appeal was to review a decree overruling the demurrer.

The report of the case shows appellants relied in their brief upon Goodwyn v. Baldwin, supra, as authority for the proposition that respondents were protected by the presumption of payment.

The decision reads: "A presumption of the payment of a mortgage debt arises after the lapse of twenty years, nothing to the contrary appearing. Goodwyn v. Baldwin, 59 Ala. 127. But this presumption can avail appellant nothing, for the reason that the bill avers the fact to be that 'the interest on said debt having been regularly paid up to and including January 1st, 1926. That there is now due on said mortgage debt the principal sum of one thousand dollars, and interest thereon from, to-wit: the 1st day of January, 1926, to the present time [August 15th, 1929].' This averment clearly avoided the presumption of payment which, in its absence, would arise from the mere lapse of time."

Here is a clear-cut statement of the applicable law, the point being clearly raised.

Moreover, it is a direct interpretation by this court of the holding in Goodwyn v. Baldwin, hereinabove quoted.

Justice Sayre, with that case before him, and also with a citation of Coyle v. Wilkins, supra, as well as other cases, concluded the presumption of payment referred to in the closing words of Justice Stone was the same presumption defined in Coyle v. Wilkins. Justice Sayre does not differentiate the one case from the other, although the demurrer definitely raised the point. If Justice Stone had regarded the presumption of payment an absolute bar in the Goodwyn Case, would he not have so declared in unequivocal language? Instead, he points out the vague and indefinite averments of the bill intended to avoid the prima facie presumption of payment after the lapse of 20 years, and specifically notes that no payments *Page 670 were made on the mortgage for 30 years. In citing Coyle v. Wilkins, we think he intended to direct attention to the presumption therein defined, a rebuttable presumption, applicable to the case then in hand.

By statutes in force from our early history no acknowledgment will suspend the running of the statute of limitations save partial payments on the debt or an unconditional promise in writing. Code 1923, § 8964.

While this statute has not been applied to the equitable rule of repose, it does recognize part payments, the very thing the mortgage is intended to secure, as stronger evidence than mere declarations in recognition of the mortgage as a continuing security.

Nor do we question the wisdom of a holding that there is stronger reason for specific unequivocal averments of recognition where the bill is directed against a purchaser who has no knowledge of what has occurred between the mortgagor and mortgagee, but the facts are within the knowledge of complainant. For like reasons stronger and clearer proof of part payments may well be required where the mortgage is very old as in this case.

That the averments of the bill in the Goodwyn Case could not be strengthened by the fact that the mortgage remained unsatisfied on the record, which also disclosed a presumption of payment, is a correct holding, giving "presumption of payment" the meaning employed throughout our judicial history, viz.; absolute only in the event no recognition, such as part payments, was made within the 20-year period preceding the filing of the bill.

The cases in which the Goodwyn v. Baldwin Case has been cited disclose, so far as we have found, no citation as authority for the point now raised. On the contrary, with singular unanimity they emphasize that the presumption of payment, settlement of trusts, etc., does not obtain or is overcome, if there be part payments, or clear recognition of the trust etc., within the 20-year period.

Turning to other authority, research discloses that Hughes v. Edwards, 9 Wheat. 489, 497, 6 L. Ed. 142, is the leading case often quoted, cited, and followed by courts and text writers.

That case, arising in Kentucky, was a bill to foreclose a mortgage some 23 years over due. Respondents were purchasers from the mortgagor without actual notice and had made valuable improvements on the property.

After dealing with the 20-year rule in that state as affecting redemption from a mortgagee in possession, the opinion proceeds:

"In respect to the mortgagee, who is seeking to foreclose the equity of redemption, the general rule is, that where the mortgagor has been permitted to retain possession, the mortgage will, after [same] length of time, be presumed to have been discharged, by payment of the money, or a release, unless circumstances can be shown sufficiently strong to repel the presumption, as, payment of interest, a promise to pay, an acknowledgment by the mortgagor that the mortgage is still existing, and the like. Now, this case seems to be strictly within the terms of this rule. The two letters from the mortgagor to the female plaintiff, in 1803 and 1808, admit that the mortgage was then subsisting, that the debt was unpaid, and they contain promises to pay it, when it should be in the power of the writer. In addition to these circumstances, credits were indorsed on the bond, for payments acknowledged to have been made, which, though blank, the court below ascertained to have been made on the 15th of January 1798, the 15th of May 1803, and the 2d of August 1808. The mortgagor, then, cannot rely upon length of time, to warrant a presumption that this debt has been paid or released, the circumstances above detailed having occurred from eight to thirteen years only prior to the institution of this suit.

"But it is insisted, that, although these acknowledgments may be sufficient to deprive the mortgagor of a right to set up the presumption of payment or release, they cannot affect the other defendants, who purchased from him parts of the mortgaged premises, for a valuable consideration. The conclusive answer to this argument is, that they were purchasers, with notice of this incumbrance. It must be admitted, that it was but constructive notice; but for every purpose essential to the protection of the mortgagee against the effect of those alienations, it is equivalent to a direct notice, and such is unquestionably the design of the registration laws of Kentucky. A purchaser, with notice, can be in no better situation than the person from whom he derives his title, *Page 671 and is bound by the same equity which would affect his rights. The mortgagor, after forfeiture, has no title at law, and none in equity, but to redeem upon the terms of paying the debt and interest. His conveyance to a purchaser with notice, passes nothing but an equity of redemption, and the latter can, no more than the mortgagor, assert that equity against the mortgagee, without paying the debt, or showing that it has been paid or released, or that there are circumstances in the case sufficient to warrant the presumption of those facts, or one of them."

See, to like effect, Cook v. Union Trust Co., 106 Ky. 803,51 S.W. 600, 45 L.R.A. 212; Kaiser v. Idleman, 57 Or. 224,108 P. 193, 28 L.R.A., N.S., 169, and extended note; First National Bank v. Woodman, 93 Iowa 668, 62 N.W. 28, 57 Am.St. Rep. 287; Murphy v. Coates, 33 N.J. Eq. 424; Barrett v. Prentiss, 57 Vt. 297; Mack v. Anderson, 165 N.Y. 529, 59 N.E. 289; Lynch v. Hancock, 14 S.C. 66. See, also, 19 R.C.L. p. 464, § 251.

In 2 Jones on Mortgages, 8th Ed., § 1540, the law is written: "A purchaser with actual notice of the mortgage, or constructive notice by means of a registry, can avail himself of the presumption of payment from lapse of time only when the mortgagor could avail himself of it under the same circumstances. The grantee succeeds to the estate and occupies the position of his grantor. He takes subject to the incumbrance; and his title and possession are no more adverse to the mortgagee than was the title and possession of the mortgagor. The purchaser is bound by the acts and declarations of the mortgagor in respect to the mortgage while he retains the equity of redemption or any part of it; as, for instance, the purchaser of a part of the mortgaged premises can not claim a presumption of payment of the mortgage from lapse of time when this presumption is repelled by payments of interest made by the mortgagor within twenty years, or by his admission within this time that the mortgage was then subsisting. A purchaser from the mortgagor stands in no better position than the mortgagor himself as to gaining title by possession and lapse of time, if the mortgage be recorded. The record is notice of the mortgage to a subsequent purchaser; and the mere fact that he has had actual possession under his purchase for the statute period of limitation is no bar to a foreclosure of the mortgage."

This statement of the law has run through earlier editions, which were followed by the courts. See Kaiser v. Idleman,57 Or. 224, 108 P. 193, 28 L.R.A., N.S., 176.

The same statement of the law in substance appears in 2 Jones Law of Real Property, §§ 1482, 1484.

5 Thompson on Real Property, contains an extended chapter on Recording Acts. Sections 4015, 4117, 4127, state the law in substance as the above-quoted authorities.

The text of 41 Corpus Juris, p. 557, § 514, contains the following: "Although one taking a deed or mortgage of land has no actual notice of a prior mortgage upon it, yet, if such mortgage is duly recorded at the time, he will be charged with notice of the existence and terms of the mortgage, and of the lien which it creates, and will take subject thereto, unless the mortgage has been canceled, released, or discharged on the record, or unless the mortgagee has in some way waived his rights or estopped himself to claim them, * * * the mortgagee may rest upon his rights under the recording acts; and he is under no obligation to give personal notice of his mortgage to one who purchases the premises from the mortgagor, even though such purchaser, having no actual notice of the mortgage, buys in the belief that the property is unencumbered and proceeds to erect improvements on the land."

48 Corpus Juris p. 691, § 199, defines the presumption of payment here involved thus: "The presumption of payment arising from lapse of time is one of fact, and differs essentially from the bar of the statute of limitations. This presumption is usually drawn from the evidence in support of the claim, and amounts to nothing more than a rule of evidence affecting the burden of going forward with the evidence on the issue of payment or non-payment."

And in § 200, p. 692, it is said: "The presumption prima facie obliterates the debt, and is conclusive in the absence of any evidence tending to show payment. It does not, however, create an absolute bar or conclusively extinguish the debt, and, indeed, the presumption does not arise, or is completely destroyed, where the fact of nonpayment is admitted or proved."

This overlong review of authorities has been made to demonstrate how universal is the rule that the constructive notice given *Page 672 by the record of a mortgage is the same as actual notice of status of the mortgage as between the parties thereto, and that in the absence of some act or omission of legal duty on the part of the mortgagee misleading subsequent purchasers or mortgagees, operating on the principle of estoppel, such subsequent vendees or mortgagees take no better title or claim than was held by their vendor or mortgagor.

But it is now insisted that where the record discloses the mortgage is more than 20 years overdue, although not indorsed satisfied on the record, the presumption of payment should be held conclusive in favor of the junior mortgagee. That status has been often dealt with in the authorities above cited, or in close connection therewith.

By the great weight of authority the rule in such case is, that, while the junior mortgagee is charged with notice of the actual state of the title or lien of the senior mortgage, if, in fact, more than 20 years have elapsed without payments of interest, or other recognition, so that foreclosure is barred as against the mortgagor when the junior mortgage is taken, the senior mortgagee and mortgagor may not thereafter revive the mortgage lien by renewal in any form, so as to reinstate it against the junior mortgagee.

Thus, in 2 Jones on Mortgages § 1540, immediately following excerpt above quoted, is the following: "But when a note and mortgage are once barred, although the mortgagor may, by a subsequent part payment, promise, or acknowledgment, revive the mortgage, so far as it affects his own interest in the premises, he can not revive it as against his grantee, or any other parties who have acquired interest in the premises prior to such revivor."

Some states, like California and Arkansas, have enacted statutes requiring notice of extension or renewal to be entered on the record. These statutes proceed on the hypothesis that in the absence thereof the record of the mortgage is effective to protect the mortgagee so that no one can acquire from the mortgagor a better title than he has.

A full discussion of authorities sustaining the rule stated by Mr. Jones, and the import of these statutes is found in Kaiser v. Idleman, 57 Or. 224, 108 P. 193, 28 L.R.A., N.S., 169, and extended note, and Newhall v. Hatch, 134 Cal. 269,66 P. 266, 55 L.R.A. 673, and note, 677 to 683. Summing up the rule on pages 683, 684, it is said: "First, that if the payment acknowledgment, promise, or other act which effects a renewal of the debt is made or done previous to the running of the statute of limitations against the debt, the subsequent encumbrancer or grantee taking the mortgaged property with notice of the existence of the mortgage takes it subject to the consequences of such renewal, i. e., the extension of the lien of the mortgage on the property; even though such subsequent encumbrancer or grantee was unaware, at the time, of the act of renewal; and, second, that if, either before or after the subsequent encumbrance or grant, the debt becomes barred by the statute, the lien of the mortgage is thereby extinguished; and while the debt may be renewed by the mortgagor as against himself, the lien of the mortgage, having been extinguished, cannot by any act of the mortgagor be renewed as against his subsequent encumbrancer or grantee."

In some states the lien is barred when the debt is barred. See, also, 5 Thompson Real Property § 4135.

We submit there is no logical basis for any stronger presumption in favor of one who invests in the property with constructive notice after the mortgage is 20 years overdue, than obtains in favor of an investor charged merely with constructive notice, who invests within the 20-year period, and remains unmolested, making improvements, etc., until the 20-year period has expired.

Here is a prospective investor in property on which the records show a mortgage more than 20 years overdue. He has notice of the presumption of payment, not a special presumption of payment in his favor, because he has never acquired an interest in the property; but a presumption of payment has arisen in favor of the mortgagor from whom he proposes to acquire title. The law charges him with knowledge of the rebuttable nature of such presumption. To say that in the face of such knowledge he can go ahead and invest and acquire a superior title to him who has already invested, is to write an exception into our recording statute which only the lawmakers are authorized to do; and which, we respectfully insist, is to favor one who wants to invest in property over him who has already done so, and shift to the latter the burden of taking action by foreclosure or otherwise, which the law does not require of him. *Page 673

Our statute, Code 1923, § 9023, empowers a mortgagor, or his successor in title, judgment creditor, or junior mortgagee, to demand satisfaction of the record of a mortgage which has been paid, and imposes a penalty for noncompliance.

Why such penal statute? Because the record constitutes a cloud on the mortgagor's title.

Anyone seeing the record is charged with knowledge of this statute. Seeing the mortgagor has never caused it to be marked satisfied, suggests to a prudent man that inquiry be made. A prospective purchaser or mortgagee has but to require of the mortgagor, or other person in like position, that he cause the record to be satisfied, or furnish other satisfactory evidence that the recorded mortgage is satisfied before investing in the property. Else he takes his chances.

We are firmly convinced the rule of property in Alabama as elsewhere is that the record of a mortgage is constructive notice to everybody; that no one can acquire a better title from the mortgagor than he has; that the presumption of payment after 20 years is the same whether set up by the mortgagor or junior mortgagee; that so long as the mortgage is in fact a live security the holder is protected.

Rehearing denied.

ANDERSON, C. J., and GARDNER, BROWN, FOSTER, and KNIGHT JJ., concur.

THOMAS, J., dissents, upon grounds stated in his dissenting opinion.