
    DETERMINATION AS TO THE STANDING OF LIENS SUBSEQUENT TO THE CANCELLATION OF A MORTGAGE BY MISTAKE. .
    Common Pleas Court of Montgomery County.
    The State Savings & Loan Association v. Nathan Factor et al.
    Decided November, 1920.
    
      Mortgage Cancelled by Mistake—Land Transferred and Judgments Attach—Priority of Such a Mortgage—Listinguished from that of an Unrecorded Mortgage—Cancellation Set Aside and Subsequent Liens Attach Only to the Equity of Redemption
    
    Where a mortgage has been cancelled by mistake, a court of equity may grant relief to the mortgagee and set the cancellation aside, notwithstanding that since the cancellation of the mortgage judgment liens have been attached to the land.
   Patterson, J.

This is an action to set aside the cancellation of a mortgage on the grounds of mistake. Plaintiff says in its petition that on the first day of September, 1910, it loaned the sum of-$3,500 to Bertha and Louis Bilenkin, and received in return their duly executed note and mortgage. The property described in the mortgage is known as lots No. 8666 and 8667, of the revised plat of the city of Dayton, Ohio. On the 14th, day of May, 1912, the sum of $1,800 was paid upon the principal of said note, and' said mortgage was released as to lot No. 8666.

On the 14th, day of May, 1912, Nathan Factor and Esther Factor, in consideration of the sum of $1,800, to them paid by the plaintiff, executed and delivered to it, their promissory note for said amount, and, in order to secure the payment of same, executed and delivered to plaintiff, their mortgage conveying lot No. 8666, of the revised plat of the city of Dayton, Ohio, as security for the payment of the same.

On the 5th, day of February, 1914, Bertha and Loui§ Bilenkin conveyed by warranty deed to Esther Factor, lot No. 8667, and by the terms of this deed the title is warranted clear, free and unincumbered, although at the time there was an unpaid indebtedness on the mortgage of plaintiff in the sum of $1,700. On the same date, Nathan Factor and Esther Factor, conveyed by quit claim deed, lot No. 8666, to Bertha Bilenkin, and in this deed no mention is made of plaintiff’s mortgage on said real, estate securing note of $1,800 and unpaid.

Plaintiff says that at the time of these conveyances, it was not notified thereof, nor did it learn of the same until within a few months prior to the commencement of this action. Bertha Belinkin continued to pay interest on the loan of $1,700 on lot No. 8667, when in fact she was the owner of lot No. 8666, and upon which plaintiff held a mortgage for $1,800, and Nathan Factor continued to pay interest on the loan of $1,800 on lot No. 8666, when in fact, Esther Factor, his wife, was the owner of lot No. 8667, upon which plaintiff held a mortgage securing a note upon which there was due at the time, $1,700 as above set out.

On'the 11th day of August, 1915, plaintiff was notified that Bertha Belinkin’s property had been conveyed to one Lena Straitman, and that said Lena Straitman had assumed and agreed to pay plaintiff’s loan, and accordingly the loan then carried on plaintiff’s books in the name of Bertha Belinkin, which was a loan of $1,700 on lot No, 8667, was transferred into the name of Lena Straitman, when in fact, the property conveyed to said Lena Straitman was lot No. 8666, upon which plaintiff held a mortgage securing a note for $1,800.

On or about the 5th day of November, 1915, Lena S'traitman, desiring to pay the note held by plaintiff association, by her agreed-to be paid, requested the amount due. Plaintiff gave the amount as $1,700 and interest which she paid. Plaintiff then cancelled and delivered the note to said Lena Straitman, and on the 5th day of November, 1915, released of record said mortgage on lot No. 8667, when in fact said Lena Straitman was the owner of lot No. 8666, upon which plaintiff then held a mortgage securing a note for $1,800.

Plaintiff prays that the release of mortgage of Bertha Bilenkin and Louis Bilenkin, which mortgage is recorded in Yol. 323, page 87 of the mortgage records of Montgomery county, Ohio,— said release dated November 5th, 1915,—be cancelled, reeinded and declared of no effect; that the original note and mortgage be surrendered to plaintiff, that the said mortgage be declared a first and valid lien on the real estate described in said mortgage, and that defendants be required to set up their interest in said property, and for such other and further relief as plaintiff may in equity be entitled to.

Plaintiff names as defendants in its petition, E. J. Miller, the Dayton Savings & Trust Co., and W. R. Craven as executors of the will of Michael R. Chambers, and I-Iyman Thai, and alleged that they claim some interest or lien on the real estate described in the petition or on part thereof.

In addition to the above named defendants, plaintiff also names as defendants, Esther Factor, Bertha Bilenkin, Louis Bilenkin and Lena Straitman.

Lena Straitman filed her answer and cross-petition in which .she. sets up the source of her title to lot No. 8666, and asks that the unreleased mortgage thereon be released.

The defendants, W. R. Craven and the Dayton Savings & Trust Co., as the executors of the will of Michael Chambers, deceased, filed their answer and cross-petition in which they allege they have no knowledge as to matters and things set forth in the petition and therefore deny the same and demand proof thereof, but admits the record and release of record of the mortgage as averred in the petition. They allege by consideration of the Court of Common Pleas of Montgomery county, Ohio, on the 23d day of November, 1917, in action No. 42691, of said court, they recovered a judgment against defendants, Esther Factor and Nathan Factor and other parties in the sum of $729.34, with interest thereon at six per cent, per annum from November 23d, 1917, and also $13.75, their costs, together with accruing costs amounting to $8.75, which is wholly unpaid and unsatisfied.

They further allege that on the 6th day of August, 1918, an execution was duly issued on said judgment, and, for want of goods and chattels thereon to levy, was on said day duly levied on the real estate described in the petition, which levy still subsists, and 'that by reason of said judgment and levy these defendants have a lien on said real estate prior and preferable to any and all other liens or claims thereon, including the lien, if any, of plaintiff herein; that by reason of the premises, plaintiff is not entitled to be restored to any rights claimed in the petition," excepting as subject to the aforesaid'lien of these defendants.

Wherefore they pray that the court find that the aforesaid lien of these defendants is the first and best lien on said premises, and that the court adjust the priorities of all liens thereon, and that said real estate be ordered sold and the proceeds distributed among the respective claimants according to their respective priorities, as shall be found and decreed by the court, and for such other and further relief as may be proper.

The defendant, E. J. Miller, filed his answer and cross-petition and alleges that he has no knowledge of the matters and things set forth in plaintiff’s petition, and therefore denies same, and demands proof thereof, but admits the record and release of record of the mortgage as averred in the petition.

This defendant further says that on the 13th day of May, 1918, by the consideration of the Court of Common Pleas of Montgomery county, Ohio, in case No. 43199, of said court, this answering defendant recovered a judgment against his codefendants, Esther Factor and Nathan Factor, in the sum of $617.28, with interest thereon from said date and also $--— as his costs.

He further says that on the 9th day of August, 1918, an execution was duly issued on said judgment, and for want of goods and chattels whereon to levy, was on said day drily levied on said real estate described in the petition, which levy still subsists; that by reason of said judgment and levy this answering defendant has a lien on said real estate prior and preferable to the lien therein, if any, of plaintiff herein; that by reason of the premises plaintiff is not entitled to be restored to any rights claimed by it in the petition herein, except as subject to the aforesaid lien of this answering defendant.

Wherefore this defendant prays the court to adjust the priorities of all liens on said real estate; that said real estate be ordered sold and the proceeds distributed among the respective claim-according to their priorities as the same shall be found and decreed by the court, and for such other and further relief as may be proper.

No answer is filed by either Nathan or Esther Factor subsequent to the hearing of this case upon its merits.

An order was issued cancelling the mortgage owned by Lena Straitman on lot No. 8666; the plaintiff filed a reply which is a general denial.

The court is asked to determine the right of the plaintiff to the relief prayed for as against the priorities claimed by defendants Miller and the executors of the will of Michael W. Chambers, deceased.

Upon the hearing of this cause upon its merits, it was conceded that the cancellation of the mortgage which is sought to be set aside by this action was made through a mistake and without ■knowledge of the facts, and that the subsequent transfers of the lots mentioned i'n the petition were made without knowledge of the plaintiff;, and that it had no knowledge of the same or of its mistake of the cancellation of the wrong mortgage until a few months before the commencement of this action; and it was fur ther undisputed in the evidence that the original mortgagors continued paying interest upon their respective mortgages even after title had changed and up until the time of the discovery of the mistake. There is no charge of negligence in the pleadings against the plaintiff.

The main question to be determined by the court, is, when-will eequity grant relief in the case of a cancellation of a mortgage through mistake, when judgments liens have attached to the real estate covered by the mortgage subsequent to the cancellation of record. As the court understands the theory of counsel for the cross-petitioners, it is to the effect that the mortgage can-celled of record, stands in the same position as far as the mortgagor is concerned as does an unrecorded mortgage as far as the rights of intervening lienholders are concerned. Counsel refers the court to Section 8542 of the General Code of Ohio, which is " as follows:

“All mortgages executed agreeably to the provisions of this chapter, shall be recorded in the office of the recorder of the county in which the mortgaged premises are situate and take effect from the time they are delivered to the recorder in the proper county for recording. ’ ’ etc.

It is the contention for counsel for plaintiff, that the mortgage in question having been cancelled by mistake and without knowledge of the intervening facts, that equity will set aside the cancellation and restore the mortgage to its former priority.

If the cancellation of the mortgage can be set aside; then the liens of the cross-petitioners would only attach to the mortgagees ’ equity of redemption.

A judgment lienholder does not stand in the same relation to the owner of the real estate as does the mortgagor. A mortgage is a conveyance of real estate for the payment of a debt, and upon the payment of the debt the conveyance becomes null and void.

The contention of counsel for the cross-petitioners has given us considerable concern. We were at first inclined to their view, that a cancelled mortgage, although made through mistake, stands in the same position as an unrecorded mortgage. The briefs of counsel have been quite helpful to the court, but we have not confined our investigation to the authorities cited by them. We have gone further, and shall hereafter set out more in detail the result of our investigation.

As a result of our investigation, we feel that counsel for the cross-petitioners has over-emphasized the effect- of Section 8542, of the General Code of Ohio. It is conceded in this case that the mortgage in question was properly filed and recorded, and we feel that that was all that was required of the mortgagor at that time. In other words, the plaintiff was under no obligation at the time of the several transfers above mentioned to examine the title because it knew that it had the first mortgage upon the lots concerned; nor was plaintiff called upon to examine the title before it did for the reason that no information had come to it that ■would cause it so to do.

The first authority that changed our view upon this matter is found in Section 971, Aol. I, of Jones on Mortgages, Sixth Edition, which reads as follows:

“When a new mortgage is substituted in ignorance of an intervening lien, the mortgage released through mistake may be restored in equity and given its original priority as a lien. This was done in a case where the holder of a first mortgage, in ignorance of the existence of a subsequent one on the premises, released his mortgage and took a new one. There was no evidence of mistake except such as might be inferred from the mortgagee ’s ignorance of the existence of the intermediate mortgage, and there was no evidence that he would not have made this arrangement had he known this fact; but it was considered that although the court was not at liberty to infer facts not proved, yet that it was at liberty to draw all the inferences which logically and naturally follow from the facts proved; that it is not an act of reasonable prudence and caution such as men commonly use in the conduct of business affairs for one having a first mortgage tipon property, without consideration or other apparent motive, to release it, and take a new mortgage subject to a prior lien of a considerable amount; and therefore it may be inferred that the mortgagee would not have made the release had he known of the intervening mortgage.
“A court of equity will not grant relief on the ground of mistake, not only when the mistake is expressly proved, but. also when it is implied from the nature of the transaction. ’ ’

Section 852 of Pomeroy’s Equity Jurisprudence, Yol 2, 4th Edition, reads as follows:

“Mistakes op Facts:—The general doctrine is firmly settled as one of the elementary principles of the equitable jurisdiction, that a court of equity will grant its affirmative or defensive relief, as may be required by the circumstances, from the consequences of any mistake of fact which is a material element of the transaction, and which is not the result of the mistaken party’s own violation of some legal duty, provided that no adequate remedy can be had at law. It has been said, ‘no person can be presumed to be acquainted with all matters of fact connected with a transaction in which he engages. ’ This general doctrine is applied in a great variety of forms and under a great variety of circumstances. It presents but few theoretical difficulties; its practical difficulties arise from its application to particular instances of relief, and this application must be largely controlled by the circumstances of each case.”

While all the facts are not parallel to the facts in the instant case, a very instructive decision will be found in 2nd Ohio N. P., Reports, page 248. In the ease of the Turner Bau-Verein No. 3 v. Bertha Dahlheimer et al; decision of Judge Sayler of the Common Pleas Court of Hamilton county, Ohio. The first syllabus reads as follows:

“ If a mortgagee, in taking a new mortgage to secure the same loan, expresses an intent to retain the .lien of the prior mortgage, such intent controls, and the lien will be sustained as against intervening liens; if, in taking the new mortgage, such intent will control, and the lien of the prior mortgage is extinguished; if, in taking the new mortgage, he acts under a mistake of fact, as if he act in ignorance of an interevening lien, and no itent is expressed, it will be presumed that he did not intend to release his prior lien, and equity will sustain such prior lien.” -

In French v. DeBow et al, 38th Mich., page 708. The syllabi beginning with the second syllabus reads as follows:

“The mere levy of execution in attachment does not give the creditor any rights analogous to those of a bona fide purchaser.
“An execution creditor, on making sale and becoming the purchaser, may acquire new equities; but until then he stands in the rights of his debtor and his levy may be defeated by equities which the debtor can not resist.
“Equity contemplates a lien discharged by mistake as still in existence.
“A mortgagee discharged mortgages on certain lands in consideration of a deed of a portion of them which he understood to be otherwise unincumbered, but on which, in fact, an attachment of which he had no notice had been levied since the mortgages were given, though the land had not been sold on execution. Held, that it was within the jurisdiction of equity to set aside the discharge; and that the attachment creditor was not deprived of rights thereby, but the equities were adjusted between the parties. ’ ’

In the case of Southern Kansas Farm, Loan and Trust Co. v. Garrity et al, 57 Kansas, page 805, the syllabi is as follows:

“A release of a mortgage made and entered of record by mistake, where the debt was not in fact paid and when there was no purpose to release the mortgaged premises from the lien of the mortgage debt, may be set aside in equity, and the mortgage will be enforced as a security for the payment of the mortgage debt.
“A release of mortgage so made is only prima facie evidence of its discharge, and the party seeking relief may show that it was made by fraud, accident or mistake. ’ ’

In the case of Bond, Administrator of Henry Bussard, v. Dorsey et al, 65th, Maryland, page 310 the syllabi is as follows:

“Where the holder of two mortgages was paid the amount due on one of them, which he promised to release upon the record, but in fact released the other, which had not been paid, upon a bill filed 'by his administrator after his death for a foreclosure of the released mortgage, and claiming that the release was made by mistake, it was Held-.
“1st. That upon satisfactory proof that a mistake of this nature has occurred, equity will intervene and grant relief.
“2nd. That the evidence being such as to leave no reasonable doubt on the mind of any one who carefully examined it, that the deceased did not intend to release the mortgage which had never been paid, and that the release was the result of a mistake, the plaintiff was entitled to the relief asked for.”

We feel that this ease is analogous in its facts to the instant case.

In the case of Young v. Shaner et al, 73 Iowa, page 555, the syllabus is as follows:

“J and S owned land in common, and they mortgaged it to plaintiff to secure a loan of $400. Afterwards W obtained a judgment against J, which was a lien on his interest in the land. After this J conveyed his interest to S, who applied to plaintiff for a loan of $200 more. The loan was granted, and the first mortgage was cancelled, and a new note and mortgage were made for $600. Both parties to this transaction were ignorant of the judgment against J, and both believed that the $600 mortgage was a first lien on the land; and plaintiff would not have can-celled the first mortgage had he known of the judgment. Held, that the new mortgage, to the extent of the old one, was properly regarded by the trial court as being but a renewal of the old , and that a decree reviving the lien of the old mortgage, and declaring it superior to the lien of the judgment, was properly entered. ’ ’

To the same effect as the foregoing are the following cases: Hammond et al v. Berger et al, Executors, 61 N. II., page 753: John Geid, Admr., v. Reynolds et al, 35 Minn., page 331; Ferguson v. Glassford et al, 68 Mich., page 36; Young v. Morgan, 89 Ill., 199; Kern v. Hoteling, 27 Oregon, page 205; Hutchinson v. Swartsweller, 31 N. J., Equity Reports, page 205; Wooster v. Cavender, 54 Ark., page 153; Ayers v. Adams, 82 Ind., page 109.

While all the facts are not parallel to the facts in the instant case, an interesting discussion will be found in the case of Straman, Admr., v. Richtine et al, 58 Ohio State Reports, page 443.

Most of the authorities cited by counsel for the cross petitioners are, where the facts disclose that the mortgage recorded was either defective or the mortgage was not entered for record before the lien attached or judgment was obtained.

There are a number of authorities which this court may cite outside of the state of Ohio, that go so far as to hold that an unrecorded mortgage is good as against the claim of a judgment creditor, and there are other authorities to the effect that where a first mortgage is cancelled by the giving of a new mortgage, 'and the mortgage of a third party intervenes, that the last mortgage will be held to have the same priority as the first 'mortgage. But these rules do not seem to have been adopted in Ohio, and so we have not cited any of these authorities, and we only refer to them as indicating the extent to which some courts have gone in granting relief against mistake.

There is no allegation in the cross petitions in this case that the judgment creditors surrendered anything or gave any consideration 'by reason of the state of the re'eord at the time their liens attached to the real estate in question. In other words, these judgment creditors are in the same position that they would have been in had the mortgage not been cancelled by mistake. They have lost no rights, and if the court held otherwise than it does it would mean a great loss to the plaintiff, and a loss occasioned by such a mistake as was altogether reasonable under the circumstances.

In view of the foregoing authorities and based upon the facts in the case, we are of the opinion that the prayer of the petition should be granted.

The court observed that the cross petitioners have ásked for the sale of the premises. The court will grant leave to the plaintiff to amend its petition if it so desires, and ask to have foreclosure of its mortgage upon the lot in question. If it does so, its lien, according to our holding herein will be the first and best lien upon the premises, and the lien of the executors of Chambers will be the second best lien, and the lien of Miller, the third.

We make this suggestion to the plaintiff for the reason that it would be able any way should the court grant the prayer for the sale of the premises as asked for by the cross petitioners, and we feel it would be more regular to amend its petitions and ask for a foreclosure as herein suggested.  