1. The bill of exceptions was not subject to dismissal as failing, under the Code, § 6-901, to sufficiently "specify the decision complained of and the alleged error."
2. Where a grantor executes a junior mortgage or security deed which, while referring to a senior mortgage or security deed, purports to convey the property itself, and contains a covenant of warranty against himself and all other persons, and where the senior lienholder buys in the property at a sale under a power in its security deed, and conveys the property back to the original grantor, the title or lien of the junior incumbrance, as against the original grantor and his privies with notice, is not extinguished, but subsists as a priority or first lien.
3. However, where a privy of the original debtor, contemporaneously with the deed made by the senior security-deed holder back to the debtor, furnishes the purchase-money for such reconveyance, and takes a mortgage or security deed covering both this amount and moneys advanced for other purposes, the lien and rights of the last creditor will be superior to those of the original junior lienholder as to the purchase-money, but not as to the other amounts advanced.
4. In a contest between the junior lienholder and the last creditor, under the Code, § 20-1006, providing that if the debtor does not direct how payments on indebtedness shall be applied, and the creditor has made no particular application, "the law will direct the application in such manner as is reasonable and equitable, both as to parties and third persons," the trial court should not apply all the payments to the part of the last creditor's indebtedness which did not represent purchase-money, so as to leave all of the purchase-money unpaid and give its *Page 544 lien complete superiority over that of the junior lienholder; but the court should prorate the debtor's payments in proportion to the respective amounts of purchase-money and money lent for other purposes, which together constituted the indebtedness covered by the mortgage of the last creditor.
5. Under the undisputed facts, the court erred in holding that the original junior incumbrance was entirely superior to the rights of the last creditor, and in failing to decree as to the relative priorities of the parties in accordance with the preceding rulings.
No. 13640. MAY 17, 1941. ADHERED TO ON REHEARING, JUNE 20, JULY 17, 1941. Under the agreed statement of facts and undisputed averments, Metropolitan Life Insurance Company held a first security deed, made in 1921 by Medford, securing a debt originally for some $10,000. Bank of Lenox held a recorded second security deed, made in 1931, for $2000, on the same land. The junior security deed purported to "grant, bargain, sell, . . and convey" the land itself; recited that "it is agreed and understood that the Metropolitan Life Insurance Company holds first-mortgage deed on the above-described tract in the amount of $6000;" and, after the habendum clause, contained a covenant of warranty, that the grantor "the said bargained premises unto the said [grantee], its heirs, successors, and assigns, against the said [grantor], his heirs, successors, and assigns, and against all and every other person or persons, shall and will warrant and forever defend by virtue of these presents."
In 1932 the Insurance Company, under a power of sale in its senior security deed, sold the land and at the sale acquired full title, free of the inferior lien of the Bank of Lenox. Subsequently, in 1934, the Insurance Company sold the land back to Medford for $7783.75; the two present plaintiffs, Federal Land Bank of Columbia and Federal Farm Mortgage Corporation, contemporaneously furnishing the purchase-money to Medford and taking security deeds from Medford therefor, plus $1216.25 representing the amount of an additional loan, the new security deeds covering a total loan of $9000.
Medford paid to these plaintiffs on the principal of the debt sums amounting to $1400 and also paid interest, without giving any direction as to whether such payments should be applied on the portion *Page 545 of the loan representing purchase-money or on the additional advances of $1216.25. The record fails to show any application by the plaintiffs on any particular portion of the indebtedness.
In 1940 the Bank of Lenox advertised the land for sale under a power in its security deed. The Federal corporations filed this petition to enjoin the Bank from selling the land, and prayed for other equitable relief and for general relief.
The judge, hearing the case on the agreed statement of facts and other undisputed facts, without a jury, found in favor of Bank of Lenox, and that its security deed was entirely superior to the security deeds of the plaintiffs. The plaintiffs excepted to this final decree.
The defendant in error moves to dismiss the writ of error on the ground that the assignments of error in the bill of exceptions are not legally sufficient. The exceptions are as follows: "To the judgment and decree, . . as aforesaid, plaintiffs then and there excepted, and now except, and assign error thereon, as being contrary to law and contrary to the evidence. Plaintiffs say that the court erred in holding that the security deed of defendant, Bank of Lenox, is superior to the security deeds of plaintiffs, and that the court erred in denying the permanent injunction . . to enjoin the defendant bank . . from selling the land referred to in the pleadings in evidence, under the power of sale in the defendant's security deed. Plaintiffs further say that the court erred in denying the permanent injunction . . to enjoin the defendant . . from selling the land under the power of sale, in such manner as to affect the security deeds owned by plaintiffs, or the liens, rights, title, or interest of plaintiffs thereunder. Plaintiffs say that the court should have held that plaintiffs' security deeds are superior to the security deed of the defendant, Bank of Lenox, and that the court erred in holding otherwise. . . The court should have held, that although plaintiffs' loans to [the debtor] were greater than the amount of the purchase-money loaned for the repurchase of the land by [the debtor] from [the holder of the senior security deed], and parts of plaintiffs' loans were used for purposes other than the repurchase of the land, yet plaintiffs are not legally required to apply the amount paid by [the debtor] on the loans to the reduction of the amount loaned for the repurchase of the land; and that the court erred in not so holding. Plaintiffs say that the court *Page 546 should have held that plaintiffs' security deeds are superior to the security deed of the Bank of Lenox, to the extent of the full amount of the unpaid balance of plaintiffs' loans to [the debtor] with unpaid interest thereon, that balance being less than the amount loaned for the repurchase of the land, with interest thereon; and that the court erred in not so holding." 1. As to the motion to dismiss the writ of error, the Code, § 6-901, requires that a bill of exceptions "shall specify plainly the decision complained of and the alleged error." The instant case does not fall within the rule inGreenfield v. Harvey, 191 Ga. 92 (11 S.E.2d 776), where it was held that a mere "statement in a bill of exceptions, that `plaintiff excepts to said verdict and judgment as being contrary to law' is not a valid assignment of error, and will not be considered by this court;" and that "by analogy this rule applies in a case where there is no verdict, but only a judgment rendered upon a submission to the judge without a jury to pass on all questions of law and fact." See also, to the same effect,Groover v. Inman, 60 Ga. 406 (5); Fidelity Deposit Co. v. Anderson, 102 Ga. 551 (28 S.E. 382); Rodgers v.Black, 99 Ga. 142 (25 S.E. 20); Newberry v. Tenant,121 Ga. 561 (49 S.E. 621); Carmichael v. Mobley, 50 Ga. App. 574 (178 S.E. 418), and cit. The instant exceptions are not limited, as in the Greenfield case, to a statement that the judgment is "contrary to law," but sufficiently set forth the decision, and the error complained of, and the grounds of complaint. While, under the mandate of the Code, the unsuccessful party must plainly specify the decision complained of and the alleged error, it is not the purpose of the law to require that he shall seek to demonstrate in his bill of exceptions the incorrectness of the ruling.
2. It is the general rule that a sale under a regularly exercised power in a security deed or mortgage is equivalent to a foreclosure proceeding, and not only extinguishes the right of redemption, but divests all junior mortgages and other junior incumbrances on the property. Mutual Loan Banking Co. v.Haas, 100 Ga. 111, 115, 116 (27 S.E. 980, 62 Am. St. Rep. 317); Seymour v. National Building Loan Asso., 116 Ga. 285,286 (42 S.E. 518, *Page 547 94 Am. St. Rep. 131); Carrington v. Citizens Bank of Waynesboro, 144 Ga. 52 (3) (85 S.E. 1027); Scott v. Paisley, 271 U.S. 635 (46 Sup. Ct. 591, 70 L. ed. 1123), and cit. If a surplus remains after paying the senior claim, it is the general rule that the rights of junior claimants are limited thereto. But these rules are subject to recognized exceptions. The Code, § 29-111, provides that "The maker of a deed can not subsequently claim adversely to his deed under a title acquired since the making thereof. He is estopped from denying his right to sell and convey." This principle applies to mortgages as well as deeds. Hill v.O'Bryan, 104 Ga. 137 (2), 143 (30 S.E. 996), and cit.;Thomas v. Hudson, 190 Ga. 622 (3), 627 (10 S.E.2d 396), and cit. Accordingly, there can be no question as to the proposition, that, where a mortgagor creates a lien on property when no title exists in him, or where his title is subject to a superior lien, and there is an express or implied representation by the mortgagor whereby he asserts the priority of the junior mortgage, he would be estopped from buying in the property at a sale under the first lien, so as to divest such junior mortgagee. The same rule of estoppel would apply with equal force where, under such circumstances, a third person buys in the property at a sale under the first lien and conveys it to the mortgagor. In such a case the maker of the junior mortgage, by virtue of his untrue express or implied representations, would plainly be estopped from thus stripping the property of the junior mortgage, which he had thus induced another to accept. These principles form part of the doctrine of equitable estoppel or estoppel in pais, and are founded upon actual or constructive fraud and the general principles of morality and fair dealing. 19 Am. Jur. 640-643, 646, 647, 657, §§ 42, 48, 53, et seq., and cit.
The doctrine of estoppel, however, is not thus circumscribed or limited to cases where there have been false and fraudulent representations by the mortgagor as to the validity of his title or as to the professed priority of what in point of fact may have constituted only a second lien. This may arise under an extension of the rules of equitable estoppel or estoppel by deed. Code, §§ 29-111, 38-114; Thomas v. Hudson, supra, and cit.; Stewartv. Anderson, 10 Ala. 504, 508; Stiger v. Malone, 24 N.J. Eq. 426,429; Tompkins v. Halstead, 21 Wis. 119; Hilton v. Bissell, 1 Sandf. Ch. (N. Y.) 409; 19 Am. Jur. 603, 606, 617, 657.
Accordingly, it has been held by this court, in Bowlin v.Hemphill, *Page 548 180 Ga. 435 (179 S.E. 341), that "where the grantor in a first security deed reacquired the property by purchasing the same at a sale under a power contained in such deed, a junior security deed made to another by the same grantor immediately attached as a first claim upon the property, and constituted an encumbrance thereon as against a subsequent grantee of such purchaser,notwithstanding the second deed may have showed upon its facethat it was a junior deed." (Italics ours.) To the same effect, see Perkins v. Rhodes, 192 Ga. 331 (15 S.E.2d 426), in which this principle of estoppel is plainly recognized as applicable to a transfer of a bond for title as security, where the debtor reacquired the property from the purchaser at a sale by the creditor holding the legal title. See also Caffey v.Parris, 186 Ga. 303, 309 (197 S.E. 898); Horton v.Johnson, 187 Ga. 9, 12 (199 S.E. 226), which cite with approval the Bowlin case. While there were two dissents in theBowlin case, and the basis of the dissent is not stated, it is manifest from an examination of the Williams case, cited by the minority, that the dissent was based, not upon a disagreement with the general rule of law as stated by the majority in theBowlin decision, but because, as shown both in the Bowlin case and the Williams case cited, there was a provision in the junior conveyance that it was made "subject to" the senior conveyance. It seems thus clearly indicated that, had the deed in the Bowlin case sought by its language, as in the instant case, to convey the entire fee, with a mere recital of the prior incumbrance, instead of having conveyed the property "subject to" the rights of the senior grantee, those Justices who dissented in the Bowlin case would not have been impelled so to do. It might well be argued that where a conveyance by its terms is made "subject to" a previous incumbrance, this must be taken as purporting to be, not a full conveyance, but a restricted conveyance, and as equivalent to no conveyance at all in so far as the interest covered by such previous incumbrance is concerned. It is a different thing, however, where, instead of making a conveyance "subject to" a previous outstanding lien or conveyance — especially so where, as in this case, an unlimited warranty is made, — the only reference to the previous incumbrance is a mere recital of its existence. Not only is it here true that the language of the instrument actually purports to convey and warrant the full title, but the Code, § 85-503, declares that "every conveyance, *Page 549 properly executed, shall be construed to convey the fee, unless a less estate is mentioned and limited in such conveyance." See, in this connection, Ralston v. Field, 32 Ga. 453 (5);Richards v. East Tenn., Va. Ga. Ry. Co., 106 Ga. 614 (4), 628 (33 S.E. 193, 45 L.R.A. 712). The deed to Bank of Lenox merely made proper mention of the existence of a prior mortgage deed. In no wise did it indicate that an estate less than the fee, which the language purported to convey, was what was really intended to be conveyed; nor, as was true in the case cited in the dissent in the Bowlin case, did it contain any words having the legal effect of limiting the conveyance to less than the fee, which had been clearly expressed.
Where a deed otherwise purports to convey the fee, and contains no words such as would impose a limitation as to the quantum of the estate conveyed, a clause which does nothing more than inform the grantee that there is a prior mortgage or security deed on the property, and states that it is understood and agreed that such is the case, can not properly be construed as cutting down the quantum of the estate sought to be conveyed. The fact that the deed disclosed that the grantor was purporting to convey a greater estate than was in fact presently owned would not and could not nullify the language of the full and absolute conveyance as actually made. In other words, where the language of the deed purports to convey and warrant the full and absolute title, the fact that only the then owned equity of redemption may have been all the title which at that time could and did pass, would not change the legal effect of the language of the conveyance itself. Under such language, the grantee not only immediately took all title that the grantor then owned, but under such an instrument and in accordance with the Code he could await the time and tide of future events so as to thereafter appropriate all additional title that the grantor might subsequently acquire.
It can not reasonably be said that this interpretation would render the clause as to the prior security deed meaningless. It needs but be considered that we have in this State a law against cheating and swindling, and a person of reasonable prudence, in giving a second security deed, might wish it stated for his protection that a prior security deed or mortgage was in existence, and that the other party so understood. Persons have been convicted in this *Page 550 State for fraudulently misrepresenting the condition of their title. See Code, §§ 26-7401, 26-7410, 61-9901; Holton v.State, 109 Ga. 127 (34 S.E. 358); Crawford v. State,117 Ga. 247 (43 S.E. 762); McElmurray v. State, 56 Ga. App. 392 (192 S.E. 641), and cit.; Morse v. State, 9 Ga. App. 424 (71 S.E. 699).
As was stated in Perkins v. Rhodes, supra, it has long been recognized that the rules of estoppel are much broader where the relation is one of mortgagor and mortgagee, where duties of the mortgagor as debtor or as continuing in possession of the property remain, than where the relation is one merely of vendor and vendee, where no duty by the vendor remains unless undertaken by covenant in his deed. The relation of mortgagor and mortgagee has been thus likened to that of landlord and tenant, where the relationship itself precludes the tenant from disputing the title of his landlord. 58 A.L.R. 357, 358, 391, note and cit.; 45 Am. D., note and cit.; Stewart v. Anderson, supra, quoting Powell on Law of Mortgages, 190. The security deed conveying full title to the Bank of Lenox, even had there been no unlimited warranty of title, clearly implied that the grantor would pay his own prior indebtedness and thereby clear the incumbrance, and not that he was turning the property loose on such second grantee with the burden on the latter to pay the debt in order to obtain a good title to what had been conveyed. The instrument contained nothing to show that the grantor expected to be relieved of this obligation, or that the second grantee intended to assume it, or even to have the burden of discharging it in order to protect his title, as between the immediate parties. Construing the instrument in its entirety so as to give effect to the intention of the parties, as of course we must do, it would seem that the very purpose and effect of the broad and unrestricted language of the conveyance, with an unlimited and unrestricted warranty of the title, was to provide for the exact situation which actually arose in the instant case; that is, where the grantor afterwards reacquired title to the property stripped and free of the prior incumbrance. In such a case, how could it be said that when one induces another to part with his money on the faith of a junior security deed, especially with a full and unlimited warranty of title, and afterwards reacquires the property freed of the previous recited lien, he should then be permitted to hold it against his own grantee merely because he may have *Page 551 very properly recited the existence of the prior lien as being a fact at a time when in point of fact it was a fact.
The rule which we have just discussed would manifestly have no application to a quitclaim deed merely renouncing or releasing title. Morrison v. Whiteside, 116 Ga. 459, 462 (42 S.E. 729). Nor would the rule have application where a conveyance is limited to such right, title, and interest as the grantee has in a designated estate or premises. White v. Stewart, 131 Ga. 460 (2), 464 (62 S.E. 590). Nor would it have application where the conveyance on its face was of a bare contingency or possibility. Dailey v. Springfield, 144 Ga. 395 (1, a) (87 S.E. 479, Ann. Cas. 1917D, 943). Nor, as has already been discussed, would it be necessary to adjudicate that the rule would have application where the conveyance does not purport to cover the full title, but is made "subject to" a designated prior estate or claim. Williams v. Foy Mfg. Co., 111 Ga. 856 (3) (36 S.E. 927); Citizens Bank of Moultrie v. Taylor,155 Ga. 416 (117 S.E. 247); Smith v. Farmers Bank, 165 Ga. 470 (141 S.E. 203); Bowlin v. Hemphill, supra. While, as stated, in none of the instances just mentioned would the rule we have announced be given application, this does not mean that the decisions even by implication could be taken as authority against the rule. On the contrary, it might be observed that the decisions which take the cases out from under the operation of the rule, because of their particular facts, would seem to carry the implication or negative pregnant that but for such particular facts, and under ordinary circumstances, the rule would have been applied.
The decision in Beckcom v. Small, 152 Ga. 149 (108 S.E. 542), did not deal with the question here involved. In that case, whatever quantum of estate the language of the second deed might have been taken to convey, no adjudication was made upon such question, since in that case the grantee herself sought only to claim and subject to her lien the equity of redemption. This is all that she saw proper to claim, and this is all that she advertised for sale. In the Beckcom case, since the superior lien continued to remain unsatisfied, the equity of redemption was all the title which had actually passed and accrued unto the grantee, and consequently was all that she sought to sell.
The question here under discussion might be brought into confusion and doubt if we should lean too heavily on outside authorities, *Page 552 some of which are admittedly in conflict with others, and also in conflict with previous decisions of this court — even contrary to our own Code, § 29-111; and while some decisions of other jurisdictions are cited in this opinion as persuasive authority, yet if all decisions by other courts should be laid aside, we could not reach any other conclusion than we do in this case.
There are cases of foreign jurisdictions, where, as here, the conveyance was absolute and conveyed the property itself, which have applied the doctrine of estoppel, even though the maker of the junior mortgage acquired title, not at the sale under the senior mortgage, but from the purchaser at such sale. In other cases, the principles, of estoppel and warranty have been blended. In still other cases, while refusing to apply the doctrine of estoppel in favor of the junior mortgagee, his rights have been held superior by reason of a covenant of warranty in his mortgage. In none of the cases, however, has the junior mortgage been held extinguished or subordinate to the rights of the mortgagor and his privies, where the instrument contained a covenant of unlimited warranty.
The status of a junior mortgagee, where the mortgagor reacquires title from the purchaser at a sale under a senior mortgage, has long troubled the courts, and there is a strange dearth of decisive authority on the subject. In 3 Jones on Mortgages (7th ed.), 602, § 1887, it is said: "Whether the mortgagor would stand in any better position as regards the subsequent incumbrance, if, instead of purchasing directly under the power, the estate had been sold under the power to a stranger and subsequently purchased from such stranger by the mortgagor, is a question raised but not decided in the case last cited." (Otter v. Vaux, 6 De Gex, MacNaughton Gordon, 638, 643, 43 English Rep. Reprint, 1381.) In that case, after following an earlier English decision, Toulmin v. Steere (3 Merivale, 210, 36 English Rep. Reprint, 81), and holding that where a mortgagor gave two mortgages and bought in the property himself at a sale under the senior mortgage, his purchase would not defeat the junior mortgage, the court raised the question: "Whether this would be the case if the estate has been sold to a Stranger and subsequently purchased from such stranger by the mortgagor — quaere?" No decision was made thereon.
The case of Martin v. Raleigh State Bank, 146 Miss. 1 (111 So. 448, 51 A.L.R. 442), seems almost identical in all respects as to *Page 553 the question under discussion. The principles of estoppel were there specifically applied; and it was held that where a property owner gives a deed of trust, reciting on its face that it is a second deed of trust, and where the property is purchased by a third person at a foreclosure sale under the first deed of trust, and through mesne conveyances is reacquired by the grantor, the title so reacquired inures to the beneficiary of the second deed of trust. While the opinion in that case referred to a statute of Mississippi, whereby "a conveyance without warranty operates as a quitclaim and release," passes all interest that the grantor has in the land conveyed, and "estops the grantor and his heirs from asserting a subsequently acquired adverse title to the land conveyed," that case did not involve a quitclaim deed, but, as here, two loan deeds. Our Code, § 29-111, providing that "the maker of a deed can not subsequently claim adversely to the deed under a title acquired since the making thereof," is identical in effect, save that in Mississippi this rule of estoppel is extended so as to also cover quitclaim deeds. This is not true under our statute or the Georgia decisions interpreting it. In this respect alone do the Georgia and Mississippi rules appear to be different. Raleigh State Bank v. Williams, 150 Miss. 766 (117 So. 365, 367), did not involve a contest between the debtor or his privy and the junior lienholder, but was a contest between the superior title of the purchaser at a sale under the senior deed and the junior lien. The case is therefore not in point; but the ruling in the previous Martin case was there referred to with approval.
In California, a statute existed similar to our own Code, § 29-111, as to after-acquired property. Applying apparently the principles of estoppel, the Court of Appeals of that State held that, although under the general rule the foreclosure of a senior deed of trust extinguishes a junior mortgage lien, the mortgagor's acquisition of title through a deed from the purchaser will revive the junior lien; and that the reason for the rule of extinguishment "would seem not to apply as to the mortgagor acquiring the title from foreclosure of the first mortgage, whether he acquired title directly . . or indirectly as the grantee of a third party foreclosure-purchaser." See also Jensen v. Duke, 71 Cal. App. 210 (234 P. 876). Holding to like effect are Stone v. Morris (Ark.), 7 S.W.2d 796; Barberi v. Rothchild, 7 Cal. 2d 537 (61 P.2d 760). *Page 554 And see 111 A.L.R. 1285, 1288; 58 A.L.R. 345, 409; notes and cit.
Also applying the doctrine of estoppel, in addition to the rules of warranty, where the senior mortgagee bought in the property at a sale under its mortgage, and then sold it to the wife of the mortgagor, who had joined with him in executing the instrument with its covenant of warranty, the New Hampshire Supreme Court, in Parsons v. Little, 66 N.H. 339 (20 A. 958), held that, in a contest with the junior mortgagee, his mortgage "revived" by the "purchase and possession" of the wife, executing the warranty; that her title "inures to the benefit of the [mortgagee] by way of estoppel;" and that, "having subsequently acquired title, she is estopped by her covenants from setting it up against the [mortgagee], to whose benefit her after-acquired title must inure." See also Home Owners Loan Corporation v. Guaranty Title Trust Co., 168 Tenn. 118 (76 S.W.2d 109). There are other decisions, closely analogous to the present case, where the mortgage contained a covenant of warranty against all persons, although the mortgage recited the existence of a superior mortgage, and the mortgagor reacquired the property from the purchaser at a sale under the first mortgage. In these it was held, that, under the warranty and the principles of estoppel, the junior lienholder would prevail over the mortgagor and his privies. Merchants National Bank of Fargo v. Miller,59 N.D. 273 (229 N.W. 357, 359); Baird v. Chamberlain, 60 N.D. 784 (236 N.W. 724).
There is another line of decisions which hold that the doctrine of estoppel alone would not preclude a mortgagor from acquiring a paramount title held by the purchaser at a senior mortgage sale, but fully recognize that a different rule obtains where the junior mortgage contains a warranty of title. Thus, in Jackson v. Littell, 57 N.Y. 108, 113, estoppel alone was held insufficient; but the court said: "Different considerations would apply when the mortgage contained covenants of warranty. In that case the consideration paid would represent the land as warranted, and the mortgagor would be estopped from setting up an after-acquired title, against which he covenanted in the mortgage." In Massachusetts also, estoppel has been held without application where the mortgagor bought from a stranger, who had purchased at a sale under a power in a senior mortgage, and where the covenant of warranty against *Page 555 claims and demands contained the express exception, "except those claiming under the prior mortgage." Huzzey v. Heffernan,143 Mass. 232 (9 N.E. 570). But in Ayer v. Philadelphia Face Brick Co., 157 Mass. 57 (31 N.E. 717), where there was in effect an unlimited covenant of warranty which included the senior mortgage, even though that mortgage was mentioned in the junior instrument, it was held that the title obtained by the mortgagor from the purchaser at the sale under the senior lien inured to the benefit of the junior mortgagee.
There are a few other decisions holding that the doctrine ofestoppel will not be extended in favor of a junior mortgagee where the mortgagor bought from a purchaser at the sale under a senior mortgage; but none of those decisions refer to a covenant of warranty, and apparently none there existed. See Rauch v. Dech, 116 Pa. 157 (9 A. 180, 2 Am. St. Rep. 598, 599); Rushtonv. Lippincott, 119 Pa. 12 (12 A. 761); Kennedy v. Borie,166 Pa. 360 (31 A. 98); Plum v. Studebaker Mfg. Co.,89 Mo. 162 (1 S.W. 217), where also the purchase was not made by the mortgagor but by his wife. In Murray v. Newsom, 111 Fla. 193 (149 So. 387), the language of the warranty was not stated, but apparently from the decision the instrument covered only "the grantor's right, title, interest, estate, and demands" as they then existed. In Zandri v. Tendler, 123 Conn. 117 (193 A. 598, 111 A.L.R. 1280, 1284), the granting part of the junior "mortgage deed" conveyed the land expressly "subject" to a described senior mortgage. For that reason it was held that since the express conveyance covered only an equity of redemption, the mortgagor was not "estopped" by the covenant of warranty from asserting against the junior mortgagee a title acquired through the senior mortgagee. That decision, however, seems to clearly recognize that a different rule would obtain had the mortgagor "purported to convey the land [itself, and] not the equity of redemption."
While our decision might properly be grounded solely on the doctrine of estoppel, as in the Bowlin and Perkins cases, it is not necessary to do so, for the reason, as stated, that the junior security deed in this case not only conveyed the title to the land itself absolutely, and not "subject" to the senior lien, but contained an express covenant of unlimited warranty. See also, as to unlimited warranties, Code, § 29-304; Miller v.Desverges, 75 Ga. 407; Osburn *Page 556 v. Pritchard, 104 Ga. 145 (30 S.E. 656); 14 Am. Jur. 524, §§ 54-56; 21 C. J. S. 919-921, §§ 48, 49. And see generally Merchants National Bank of Fargo v. Miller, supra; Baird v. Chamberlain, supra; Rooney v. Koenig, 80 Minn. 483 (83 N.W. 399).
Accordingly, there would be no error in the holding of the trial court that the lien of the junior lienholder was wholly superior to the liens of the Federal corporations, acquired from the debtor after the senior lienholder bought the property at a sale under its security deed and resold it to the debtor, if the case did not also involve other principles next dealt with.
3. The foregoing rules, however, are themselves controlled by still another principle, long settled in this State and recognized with little dissent in other jurisdictions, that a mortgage or deed to land, securing its purchase-money, and executed as a part of the same transaction in which the purchaser acquires title, will exclude or take precedence over any prior lien against the property arising through or against the purchaser. Where the contracts are simultaneously made, so as to constitute one transaction, "it makes no difference that the purchase-money mortgage may be made to a third person who advances the purchase-money at the time the purchaser receives his conveyance." Protestant Episcopal Church v. Lowe Co.,131 Ga. 666, 668 (63 S.E. 136, 127 Am. St. Rep. 243); Scott v.Warren, 21 Ga. 408; Achey v. Coleman, 92 Ga. 745, 746 (19 S.E. 710); Courson v. Walker, 94 Ga. 175, 177 (21 S.E. 287), and cit.; Missouri State Life Insurance Co. v. BarnesConstruction Co., 147 Ga. 677 (3) (95 S.E. 244); CherokeeFertilizer Co. v. Federal Land Bank, 179 Ga. 712, 715 (177 S.E. 570); Pinckney v. Weil, 183 Ga. 567, 569 (189 S.E. 8). While those cases involved judgment liens, the same principle applies in favor of the purchase-money creditor against mortgages and security deeds. See U.S. v. New Orleans Railroad, 12 Wall. 362, 365 (20 L. ed. 434); Jones on Mortgages (6th ed.), § 468; 19 Rawle C. L. 416, § 196, and cit.; 41 C. J. 528, § 470, and cit.
(a) This priority in favor of a purchase-money security deed or mortgage does not, however, extend beyond money advanced or paid in buying the property, so as to cover sums used for other purposes. See Sherrod v. Hollywood Holding Corporation,233 Ala. 557 (173 So. 33), and cit.; Gorham v. Farson, 119 Ill. 425 (10 N.E. 1). *Page 557
(b) Under the preceding holdings and the agreed facts, where the Federal corporations, holding security deeds for $9000 principal, paid to an insurance company the entire $7783.75 purchase-money of the land, and, in the same transaction in which the security deeds were executed, the insurance company conveyed the land to the debtor after the insurance company had acquired good title, without dispute, to the land by a sale under a power in its senior security deed, the security deeds of the Federal corporations, as to this purchase-money, were superior to the junior security deed of the defendant, Bank of Lenox, even though, under the preceding holdings, such junior deed was not extinguished by the sale under the senior deed, but reattached to the land by virtue of the covenant of unlimited warranty contained in the junior deed. As to such purchase-money and interest thereon, the plaintiff corporations were entitled to priority. However, as to the $1216.25 balance covered by the plaintiffs' security deeds, and representing sums used for purposes other than purchase-money, the defendant bank was entitled to priority.
4. The Federal corporations contend, that, even though it should be held that their security deeds are inferior to that of the Bank of Lenox as to the $1216.25 of their $9000 loan not representing purchase-money, nevertheless they are entitled to priority both as to that part and the $7783.75 purchase-money under legal and equitable rules controlling the application of the $1400 of payments made by the debtor on the new $9000 indebtedness. The record shows no direction by the debtor as to how the payments should be applied, and no application by the creditor to either the purchase-money portion or the non-purchase-money portion of the $9000 notes on which the payments were made. The Federal corporations contend that under the Code, § 20-1006, and under legal and equitable rules and the facts, the court must apply the payments to any unsecured or inferior indebtedness rather than the better or fully secured indebtedness; and that the defendant bank has no equity, and they have superior equities. The equities which they urge are: that if they had not made the loan, the bank would have no lien by virtue of the debtor's reacquirement of the property; that they lent all of the money in one transaction; and that, although the bank's debt was due in 1931 and the land was sold in 1932 under the senior lien and reacquired by the debtor in 1931, *Page 558 the bank did not buy in the property or bid at the senior-lien sale, and did not take any other action until it advertised the property in 1940 under a power of sale in its security deed.
In the absence of any direction by the debtor or application by the creditor receiving payments, it is too late after the litigation for either party to claim the right; and an application must be made, under the Code, § 20-1006, "in such manner as is reasonable and equitable, both as to parties and third persons," bearing in mind the additional provision that, "as a general rule, the oldest lien and the oldest item in an account will be first paid," where that provision is applicable.
There is no merit in the argument that the Federal corporations have the only or the exclusively superior equities, or that the bank is barred by laches and has no equity as to its lien, which would not be barred before 1951. The contention that the bank would have had no lien, after the sale under the senior security deed, if these corporations had not made the loan which enabled the debtor to buy back the property, applies only to the purchase-money paid to obtain the title, and manifestly has no relevancy when applied to the part of the loan used by the debtor for other purposes. The preceding rulings have already recognized the priority of the Federal corporations as to the $7783.75 purchase-money. Expressed otherwise, the bank has the superior lien as to the $1216.25, and the plaintiffs have the superior lien as to the $7783.75; or, as against the bank, the plaintiffs have a first lien indebtedness of $7783.75 and a second lien indebtedness of $1216.25.
Neither of the debts being unsecured, the rule, under decisions in this and other States, that where the parties have made no application, the law will direct the payments to be applied first to an unsecured rather than a secured debt, can not be given application; nor could such a rule be given effect for the additional reason that it is made applicable only as between the debtor and creditor themselves (High Co. v. Arrington,45 Ga. App. 392, 165 S.E. 151; 97 A.L.R. 347, 351, 355, note; 48 C. J. 659, § 112), or between the creditor and an accommodation indorser of the debtor (Horne v. Planters Bank,32 Ga. 1, 12; Hargrove v. Cooke, 15 Ga. 321 (7, 8);Hill v. Opelika Wholesale Grocery Co., 56 Ga. App. 142,192 S.E. 212), or where the third party showed no equity to change the general rule that exists between debtor and creditor. Fieldv. Holland, 6 Cranch, 8, 27 (3 L. ed. 136). *Page 559
In Andrews v. Exchange Bank, 108 Ga. 802 (34 S.E. 183), there was a contest between an employee, as a creditor of his employer, and a mortgage creditor of the employer. The employee held a claim for salary or wages during the year preceding the case, and a claim for such work prior to that time. More than enough money or goods were received by the employee during the year to extinguish the claim for that period. Neither the employer nor the employee made any particular application of the payments. In applying the payments to the indebtedness arising during the year, rather than to the previous claim, this court held that "the general rule that `the oldest lien and the oldest item in an account will be first paid,' while usually appropriate in a settlement between a creditor and his debtor, should not be given such application as will defeat the lien of a third person." Although the employee had claimed in the trial court a lien as a Laborer during the last year of his employment, the record shows the contention that he was merely a clerk without a lien. The decision referred only to the lien of the other creditor, and treated the employee's claim as unsecured, and the contest as one between an unsecured creditor and a claimant with a lien. That decision is therefore no authority as to what division should be made in the present controversy between two lien claimants, where one lien creditor, receiving the payments, seeks to have the court apply them solely to his inferior lien, so as to retain priority for the entire amount of his superior lien, and thus defeat the other lien creditor.
Nor does the instant case involve payments made by the mortgagor from the proceeds of property on which either of the claimants held a lien. In such a case the general rule is that the creditor receiving payment from property on which the other creditor holds a lien can not apply the payment to his own unsecured or less secured claim against the objection of the other lien creditor. See, in that connection, Cofer v.Benson, 92 Ga. 793, 794 (19 S.E. 56); Newton v.Nunnally, 4 Ga. 356, 358; Columbus Factory v. Herndon,54 Ga. 209, 210; Rushin v. Shields, 11 Ga. 636 (9), 642 (56 Am. D. 436); Simmons v. Cates, 56 Ga. 609; Bufford v.Wilkinson, 7 Ga. App. 443, 444 (67 S.E. 114).
As to the precise question here involved, there has been no decision by any appellate court of this State. However, there are Georgia decisions which have applied the rule of pro rata distribution *Page 560 or application to other situations involving controversies between lienholders or claimants of equal dignity or equity. SeeSemmes v. Boykin, 27 Ga. 47 (2); Kyle v. ChattahoocheeNational Bank, 96 Ga. 693, 698 (24 S.E. 149); Citizens Southern Bank v. Armstrong, 22 Ga. App. 138 (2) (95 S.E. 729).
Outside authority, in cases similar to that before the court, supports the rule of pro rata application, where there are two lienholders, and the one receiving payment seeks to have it applied solely to his own unsecured or inferior lien indebtedness. In Coles v. Withers, 33 Grattan, 203, 204, the Virginia court held that in such a case both claimants had equities; that neither was entitled to entirely exclude the other; and that "the only proper solution of the difficulty is in applying the credits pro rata to all the debts." That decision, as an additional basis, referred to the fact that the debts were included in one instrument, and that "there are numerous cases which sustain the pro rata application, especially where there are several claims secured by one instrument or judgment;" citing Blackstone Bank v. Hill, 10 Pick. (Mass.) 128; Whitev. Trumbull, 3 Green (N. J.), 314 (40 Am. D. 207); Shaw v. Picton, 10 Eng. C. L. R. 443. See also other cases, supporting the rule of pro rata application as between secured and unsecured, or secured and less secured, indebtedness, where a note or notes have been taken for an indebtedness, part of which is secured and part unsecured, or the debts have been cast into one account, and payments are made generally toward the whole debt, and credited generally on the obligation: Sheldon v. Bennett, 44 Mich. 634 (7 N.W. 222, 224); Sproulle v. McFarland (Tex.), 56 S.W. 393 (4), 695; Perris v. Roberts, 1 Vernon, 35 (23 Eng. Rep. Reprint, 289); 48 C. J. 660, § 112. In the present case, both the indebtedness secured by the prior lien and the indebtedness secured by the inferior lien were included in the same instruments of the creditor receiving the payments, and, so far as the record shows, were merely credited generally thereon or on one general account, without application to either particular indebtedness.
In a similar situation, the same rule of pro rata application was given effect by the Michigan court in a case which did not involve two lien creditors, but the holder of a conditional-sale contract having also a claim for unsecured indebtedness, and general creditors of the debtor represented by a receiver. It was there held, *Page 561 where the indebtedness had been carried and the payments made on one general account, that such payments would be applied prorata on unsecured and secured indebtedness of the holder of the conditional-sale contract. McMullen Machinery Co. v. Grand Rapids Trust Co., 239 Mich. 295 (214 N.W. 110, 55 A.L.R. 1157).
Nothing was held in Cherokee Fertilizer Co. v. Federal LandBank (179 Ga. 712, supra), contrary to these rulings. It appears in the statement of facts that a small part of the loan represented its expenses, but all of the net amount represented purchase-money, and the Land Bank was given priority for all of its loan. That case involved no question of payments or their application. The sole question raised and decided was the same as that which we have already determined in favor of the Federal corporations, that a security deed or mortgage for purchase-money, given by the debtor in the same transaction in which he reacquires title, will take precedence over a previous lien, which, except for the purchase-money character of the loan, would have priority. In that case the court dealt only with this question; no effort was made by any party to split the priority as to the small amount of expenses of the loan, and no decision was made on such a question.
Accordingly, on the question of a proper application of the $1400 paid in this case, the court in applying equitable principles should have made a pro rata application between the $7783.75 representing purchase-money and the $1216.25 not representing purchase-money. Therefore it should have been decreed that only $189.19 of the total payment should be applied to the $1216.25 of inferior lien indebtedness, leaving $1027.06 principal due thereon, as to which the defendant bank has priority over the liens of the Federal corporations; and that the remaining $1210.81 of the $1400 payment should be applied to the $7783.75 superior-lien indebtedness, as to the balance of which with interest the Federal corporations have priority.
Judgment affirmed in part and reversed in part. All theJustices concur, except Duckworth, J., who dissents from theaffirmance, and concurs in the reversal.