
    Pinney v. The Merchants’ National Bank.
    
      Mortgages — Recording and assignment of — Effect of failure of assignee of mortgage to record assignment — Senior mortgagee not required to malee junior assignee party, when— Foreolosure proceedings — Rights of innocent purchaser— Section 4185, Revised Statutes — Act of April 16/1888.
    
    1. Section 4135, Revised Statutes, as amended April 16, 1888 (85 O. L., 284), authorizes the assignment of a mortgage to be recorded on the margin of the record thereof in the office of the county recorder. Such record is notice to all interested in the mortgaged premises, including mortgagees and subsequent purchasers, of the equitable right of the assignee in the mortgage, and that he is a necessary party to a suit brought to foreclose another lien upon the premises. But where such assignee fails to have his assignment so entered of record, and a senior mortgagee of the same premises brings an action to foreclose, he is, in the absence of notice or knowledge that the junior mortgagee has parted with his interest, justified in regarding the record as showing that the junior mortgagee remains the absolute holder of the mortgage, and in bringing him in as a party to the action. He is not required, at his peril, to ascertain whether or not some other person has an interest in the mortgage and make him a party.
    2. Where, in such case the apparent owner of the junior mortgage is made a party, and a sale is made of the premises founded upon proceedings in all respects regular, to an innocent purchaser, such purchaser will take title free and clear from the claim of the assignee of the junior mortgage.
    (No. 8511
    Decided December 6, 1904.)
    Error to the Circuit Court of Paulding county.
    The action out of which the present' error proceeding arises was brought by the defendant in error, The Merchants’ National Bank of Defiance, against .the defendant in error, John B. Lamb, and the plaintiff in error, Charles O. Pinney, and others, to recover against Lamb as maker of a promissory note, and tó obtain foreclosure of a m'ortgage given by said Lamb, upon four hundred acres of land in Paulding county. Demand was also made for an accounting of rents and profits. Lamb made no answer but was in default. The plaintiff in error, Pinney, answered denying the claim of the Bank, and setting up title to a portion of the land by virtue of a sheriff’s sale and deed upon foreclosure of a mortgage prior to that claimed to be held by the Bank. He also set up that if the Bank’s claim should prevail he should be allowed for lasting and valuable-improvements upon the land, made by him and his predecessors in title, and for taxes and assessments paid on the same. Other parties appeared, but their controversies are not brought to this court, and we-have to do only with the contention between the-Bank and Pinney. Their controversy involves the question whether or not the mortgage claimed to-be owned by the Bank was foreclosed, and the Bank’s, rights determined, by the foreclosure and sale above-referred to. Upon trial on appeal in the circuit court at its May term, 1903, the issues were found, generally for the Bank and judgment in its favor-entered. The circuit court made a finding of facts separate from its conclusions of law, and from that finding the following pertinent facts are gleaned:
    On December 21, 1892, John D. Lamb was the owner of a four hundred acre tract of land in Paulding county, being the west half and the southwest quarter of the northeast quarter, and the northwest quarter of the southeast quarter of section thirteen in Harrison township. On that day said Lamb, his wife Florence B. joining, executed and delivered to-one Dickinson a mortgage on the land to secure a note for five thousand dollars at the same time executed and delivered. On December 26th, following,, the mortgage was duly recorded in the mortgage records of Paulding county. Thereafter, for value, the note and mortgage were duly sold and assigned to one Woodhead.
    On July 6, 1893, Lamb and wife executed and delivered to one J. P. Buffington their note for twenty-five hundred dollars and a mortgage upon the same premises to secure it, the note coming due one year from date, which mortgage was duly recorded July 15, 1893. July 20, 1893, Buffington transferred and assigned the note and mortgage to the Merchants’’ National Bank, as collateral security for a preexisting debt then amounting to about four thousand two hundred dollars. The assignment was in writing upon the mortgage, but the same was never recorded in the office of the county recorder of Paulding county. ' The indebtedness of Buffington to the Bank still exceeds the amount of the note secured by the mortgage.
    On January 1, 1894, Woodhead, as the owner of the first-named note and mortgage, commenced an action in foreclosure in the court of common pleas-of Paulding county, making Lamb and others defendants. The petition alleged that J. P. Buffington claimed an interest in the premises but that the same-was subsequent and inferior to that of Woodhead. Buffington’s name did not appear in the caption of any of the pleadings. Buffington did not file any pleading, nor does the record of the common pleas show the issuing of any summons against Buffing-ton on the petition, but the record, under date of’ April 28, 1894, upon a hearing upon divers answers and cross-petitions, and the evidence, does show that the court found that Buffington had been served with summons and was in default. The record also-■shows, under date of July 28, 1894, upon a further hearing upon divers answers and cross-petitions, .and the evidence, that the court found that Buffing-ton had been duly served with summons and was in default. The record of the -common pleas further shows that upon final hearing, September 24, 1894, upon the amended and supplemental petitions and the evidence, that John D. Lamb and Florence B. Lamb had been served with summons and were in default, and that Buffington had waived the issue and service of summons and voluntarily entered his appearance herein, and was in default. A judgment in favor of Woodhead (plaintiff) for $5,459.49 was then rendered, and •decree for sale was thereupon taken. The Bank was not made a party to the action, nor brought in as such in any manner.
    • Sales were duly made under the order, the west half (the land now in controversy) being sold to one Francisco for $6,401.00, and upon confirmation and payment of the purchase money by the purchasers, deeds were made to them respectively and they thereupon entered into possession, and with their ■successors in title, including Pinney, have been and still are in possession under and by virtue of said proceedings. This final decree adjudged that the title of Francisco to the tract so by him purchased was free and clear from all claims of Buffington, and .all persons claiming under him, and that said title ought to be and was quieted as against said Buffing-ton and all persons claiming under him, 'and they were enjoined from interfering with the title or possession of Francisco to the premises. Thereafter, on January 12, 1895, pursuant to an order of the ■court, and in accordance with section 4139, Revised Statutes, the clerk of the court caused satisfaction of the mortgage set forth in the petition, and of the Buffington mortgage, to be entered upon the record thereof in the office of the county recorder.
    Pinney, the plaintiff in error, became the owner of the west half of section thirteen by mean conveyances from Francisco, the purchaser.
    At the time of sale the lands were neither cleared nor drained and were wholly unimproved. Pinney, and his predecessors in title from Francisco, placed lasting and valuable improvements on the land to the value of $9,005.00, and paid taxes and assessments thereon to the amount of $2,210.29. The purchase price paid by Francisco ($6,401:00), was applied to the payment of taxes then due, costs, the amount due on the judgment in favor of Woodhead on the Dickinson mortgage, and other liens, all •of which were prior and superior to the lien of the Buffington mortgage, a portion of which prior liens still remain unpaid.
    Neither Woodhead, Francisco, nor Pinney, nor any ■of the holders of title to any of the premises, had any knowledge that the Bank claimed to have any interest in the note or mortgage to Buffington, or that he had transferred any interest to anyone, until the •commencement of the Bank’s suit.
    A few weeks after the sale of the lands, and the taking possession by the purchasers, Buffington talked to the cashier of the Bank, or the Bank officers, in regard to the sale of the lands at sheriff’s sale.
    On these facts the circuit court found that the mortgage set forth in the petition of the Bank is a good, valid and subsisting lien, for the amount due, viz.: $4,433.33, including interest to date, and for interest thereon at eight per cent, until paid; that the conditions of the mortgage have been broken, and that the Bank is entitled to a foreclosure thereof. The court found as to the other issues between the Bank and Pinney that the latter was entitled to be subrogated to the lien of the state for taxes and assessments, and the rights of the lienholders whose claims were paid in the action of Woodhead to the extent of the purchase money paid by Francisco; also that he had a lien to the extent that the improvements exceed in value the rents, all of which is superior to the lien of the Bank. Judgment was rendered accordingly. It was adjudged that of the amount due the Bank there should be apportioned against the land owned by Pinney the sum of $3,-740.78. It was further adjudged that unless the sum found due the Bank and so apportioned, with interest at eight per cent, be paid by June .1, 1903, that an order of sale issue to the sheriff to sell the premises.
    As to John D. Lamb the court found that he has no' equities to be let in to redeem, his equity of redemption being foreclosed and his right to redeem barred by the decree in Woodhead v. Lamb et al.
    
    From this judgment and decree error is prosecuted to this court by Pinney.
    
      Messrs. Snook £ Wilcox; Messrs. Waters £ Bayliss and Messrs. Spriggs £ Spriggs, for plaintiff in error.
    
      Messrs. Sutphen £ Sutphen, for the Bank.
    
      Mr. John D. Lamb, for himself.
   Speak, C. J.

At the outset we meet the question whether or not the Bank has any standing in court to maintain this suit, the contention of the plaintiff in error being that the Buffington mortgage was necessarily foreclosed by the suit brought by Wood-head upon the Dickinson mortgage, a prior incumbrance. If this is so then clearly the Bank has no standing and can be afforded no relief as regards the plaintiff in error.

It will be observed that the circuit court does not attempt to determine whether or not Buffington was a party to the Woodhead suit. Its findings are of evidentiary facts appearing of record in the proceedings of the court of common pleas in that suit, but it nowhere determines the ultimate fact. The common pleas record finds with distinctness, and by repetition which is almost suspicious, that Buffing-ton had become a party to the case. As against this plain finding we are not at liberty to indulge in surmises, but must accept the finding of the common pleas as conclusive of the fact that Buffington, mortgagee, was a party to that foreclosure suit, and it follows that he could, have no standing now to dispute the conclusive effect of that adjudication. The question then is, does the Bank stand in any better position, being the owner of the Buffington note and mortgage at the time that suit was commenced and determined, its assignment however not being upon record, and neither the parties to the suit, nor the purchaser, having any knowledge or notice of the transfer by Buffington to the Bank. The Bank’s claim rests upon the proposition that it is necessary in all cases, in order to adjudicate finally the rights of all parties to title to real estate, that the real parties in interest, and all of them, be brought before the court, and that, inasmuch as a-t the time of the commencement of the Woodhead suit, and afterward, the Bank was the lawful assignee of the Buffington note and mortgage, it was a necessary party, and not being made a party its rights are not affected by. the judgment. The proposition rests for authority upon Holliger v. Bates, 43 Ohio St., 437, decided by this court at the January term, 1885. It is there held that where a senior mortgagee forecloses his mortgage and sells the property without making a junior mortgagee a party, or giving him notice, the purchaser acquires his title subject to the right of redemption by the junior mortgagee, and the same rule applies where the junior mortgagee has assigned all his interest in the mortgage and the note secured by it to a third person who is not a party and is without notice of such proceedings and sale; that the latter may foreclose and sell, and the fact that he did not take a written assignment of the mortgage and have it recorded does not defeat the mortgage, nor estop, him from foreclosing.' It is probable that the judgment of the circuit court was based upon that decision. Upon full consideration, however, we are satisfied that this case does not rule the case at bar. A number of points of distinction as to the facts may. be noted. The notes secured by the mortgage in that case were not due at the time of the sale, which fact is specially emphasized by the learned judge who reported the case; in the case at bar the note was due. Another distinction is that in the former case the owner of the notes secured by the second mortgage was a bona fide purchaser before maturity and for value; in this case the note and mortgage were transferred to the Bank as collateral security for a preexisting debt, thus leaving the Bank to have recourse upon Buffington, its assignee. A further distinction is that the purchaser in the former case at judicial sale remained the owner until the action to foreclose the second mortgage was commenced, while in the case at bar the title had passed to successive purchasers, all of whom purchased after the entry was made on the mortgage record by the clerk showing that the Buffington mortgage had been satisfied by foreclosure and sale. In the former case the purchaser could be made whole by being subrogated to the rights of the lienholders to the extent of the purchase price paid by him, while in this case at bar Pinney would be limited in his right of subrogation to such right as was vested in Francisco, without reference to the amount he himself paid as purchaser. It is not to be forgotten, also, that in this case the Bank had knowledge within a few weeks after Francisco purchased, of the proceeding and sale, and yet it kept still and made no demand for over five years, knowing, or having the means of knowing, that Francisco, the purchaser, was in possession, and that extensive and valuable improvements were being made and that innocent purchasers were buying property on the faith that the proceedings and sale insured a good title. While it is probable that it was too late , then to overturn the judgment and sale, it was not too late to advise the purchasers of its claim and thus arrest the expenditure of raoney in improvements and in the payment of purchase money, and good faith required that it should speak out.

But a more vital distinction arises from the change in the statute law. At the time of the Holliger v. Bates decision there was no provision of statute which authorized the entering of an assignment of a mortgage in the mortgage record in the recorder’s office, and what legal effect would have been given to such entry had such been made we need not here discuss. But the amendment to. section 4135, Be-vised Statutes, of April 16, 1888 (85 O. L., 284), permits such assignment to be entered on the record direct, or recorded where such assignment is on the mortgage itself, and making it the duty of the recorder, where a release is intended by the assignee, to record on the margin the assignment before entering the release. What is the scope and purpose of this legislation? We think it is in furtherance of the purpose expressed by this court in Coe v. Erb, 59 Ohio St., 259, where it is said that the recording acts “rest upon a recognition of the policy that there shall somewhere be found a record which will disclose the state of the title of all lands within the county. For conveyances, mortgages, leases, etc., resort is had to the office of the county recorder, ’ ’ etc. # * * “ The business public, therefore, has a high interest in the maintenance of such a system as will enable every person, by the ordinary inquiry, that is an examination of the records, to ascertain the condition of titles.”

The necessity and wisdom of such legislation is still more apparent when we consider the method pursued in obtaining loans by mortgage on land. In the great majority of cases it is now done through agents or brokers. The notes and mortgage are taken in the name of the agent. The notes he transfers by indorsement without recourse. On the mortgage he signs both the printed blank assignment and the printed blank release, and in this condition the papers are delivered to his customer. After this the securities may, and often do, pass from hand to hand, frequently being sent out of the state. In such cases when the mortgage is satisfied the blank release is filled up and it is then entered of record as the act of the mortgagee, the agent, the real owner not appearing of record anywhere in the transaction. It results that it is exceedingly difficult, sometimes practically impossible, to ascertain the real owner of the claim. To put this burden on those who have other claims upon the land and especially upon those who have prior liens, is unreasonable, and to require them, in case of foreclosure, to ascertain at their peril the then owner of the junior claim is unjust as well as unreasonable. Much fairer is it to require that the assignee of the' mortgage, if he is not satisfied to rest upon the good faith of the assignor, to put his assignment upon the record so that the world can see, and this we believe is the purpose and the proper construction of. the amendment of April 16, 1888. Such construction is in furtherance of the purpose indicated in the citation from Coe v. Erb, supra, and entáils no. serious hardship upon anyone. It is but the application'of an equitable principle that where one of two innocent parties must suffer the loss should fall upon him who has, by his negligence, permitted one to repose confidence in a public record which fails to speak the whole truth.

Our conclusion finds support, we think, in the case of Swartz v. Leist, 13 Ohio St., 419. It is there held that “where the mortgagee, retaining the legal interest in the mortgage, subsequently enters satisfaction and a discharge upon the record of the mortgage, such discharge operates to cancel the record of the mortgage, as against subsequent purchasers and mortgagees in good faith, and without notice; and as against them, the assignee of the note can not assert his equitable lien. ” It is true that the statute authorizing the entry of a release upon the mortgage record more fully expresses the purpose of the legislature with, respect to the effect of such entry than is expressed by the clause which applies to an assignment of the mortgage, but the purpose is the same; it is to secure.a record which will apprise all interested of the real condition of the title with respect to incumbrances. In the case above cited the holder of the note (Swartz) negligently permitted the mortgagee (Little) to, retain the legal title and omitted to indicate upon the record the fact of his equitable title, thus leaving the latter the power of control over it. Leist, the purchaser, having no reason to suspect fraud, was held to be justified in relying upon the record as speaking the truth, and therefore in regarding the release as legally made; so in the case at bar, the Bank had the right under the statute, to have its assignment entered of record,' which would have been notice of its equitable rights under the assignment to other mortgagees and subsequent purchasers. The means were thus at its hand to protect its own interest and to prevent others from being misled. Ordinary diligence required this. But it negligently permitted the record to indicate that Buffington remained the owner of the claim, and parties interested innocently relied upon that record. We think that the statute justifies,. and that fair dealing requires, the rule that where the recording act authorizes the assignment of mortgages to be recorded, and the assignment is duly entered of record, such record shall be held to be notice to mortgagees and subsequent purchasers, but wh^re such assignment is not so entered, mortgagees and subsequent purchasers in the absence of noticeA>therwise are justified in relying upon the record as they find it and in acting accordingly. As in the Swartz case that party was left to bear the loss, so in this case the Bank should be held to bear the loss. Childs v. Childs, 10 Ohio St., 339, and Stewart v. Johnson, 30 Ohio St., 24, are cited. Neither case touches the question we have here.

The circuit court committed no error in its judgment as to John D. Lamb.

Respecting the controversy affecting the plaintiff in error, the conclusion hereinbefore indicated renders it unnecessary for us to discuss the claims as to expenditures for improvements and taxes, and the matter of rents and profits. Plaintiff in error is entitled not only to a judgment of reversal but to a final judgment quieting his title against the Bank, and dismissing the petition of the Bank, and for costs, and judgment will be so entered accordingly.

Judgment reversed and judgment for plaintiff in error.

Davis, Shauck, Price, Crew and Summers, JJ., concur.  