Nagel v. Fremont Metal Body Co. (44 Ohio App. 391, 1932)

Williams, J.

This cause comes into this court on appeal from the court of common pleas and presents the question of the priority of two mortgages. The action was originally begun in the court below by Mary Nagel, executrix of the estate of Frank Nagel, against The Fremont Metal Body Company, C. L. Fox, receiver of The Fremont Metal Body Company, and the First National Bank of Fremont, Ohio.

December 5, 1922, The Fremont Metal Body Company executed and delivered its note for $6,500 to the First National Bank of Fremont, secured by mortgage on the premises involved in this controversy. This note, however, was paid December 19, 1925, and the mortgage discharged.

October 22,1925, The Fremont Metal Body Company executed and delivered its promissory note in the sum of $12,000 to its directors, F. J. Swint, Frank Nagel, Jacob A. Gabel, O. L. Fox, H. H. Haubert, M. H. Bixler and L. 0. Freeh, secured by mortgages on certain premises located in the township of Sandusky, county of Sandusky, and state of Ohio. This mortgage was duly filed for record October 30, 1925.

Thereupon the Liberty Bank loaned The Fremont Metal Body Company $12,000, F. J. Swint executed and delivered his promissory note to the Liberty Bank for that amount, the note and mortgage for $12,000 executed and delivered by The Fremont Metal Body Company were indorsed and assigned to the Liberty Bank as collateral security for the payment of the Swint note, and at the same time Frank Nagel and other payees of the $12,000 note, secured by mortgage, indorsed it and guaranteed its payment to the Liberty Bank. October 17,1930, the bank sold to Frank Nagel the Swint note and the note and mortgage of the company for $12,000.

On February 10, 1926, The Fremont Metal Body Company borrowed $6,500 from the First National Bank of Fremont upon its promissory note in that sum, secured by mortgage of the same date covering part of the premises described in the mortgage securing the note of $12,000, and the former mortgage was filed for record February 11, 1926. The execution and delivery of this mortgage to the Fremont bank were authorized at a meeting of the directors of The Fremont Metal Body Company at which Frank Nagel was not present, but he, as president of that company, signed and acknowledged the mortgage on its behalf, and the mortgage contained the following covenant: “And the said grantor, for itself and its successors, hereby covenants with the said grantee, its successors and assigns, that said grantor is the true and lawful owner of said premises, and is well seized of the same in fee simple, and has the right and full power to bargain, sell and convey the same in the manner aforesaid, and that the same are free and clear from all encumbrances, and, further, that said grantor will warrant and defend the same against all claims of all persons whatsoever.”

At the time of his death on September 6,1931, Frank Nagel was still the owner and holder of the Swint note and the note and mortgage of the company for $12,000, which he had purchased from the Liberty Bank. Mary Nagel, wife of the decedent Frank Nagel, became the duly appointed, qualified and acting executrix of his last will and testament, and in this suit she claims that the mortgage of $12,000 has priority over the outstanding mortgage for $6,500 held by the First National Bank.

The First National Bank contends that by executing and acknowledging the mortgage of $6,500, which had a covenant therein which recited that the premises were free and clear of all incumbrances, Frank Nagel was estopped from asserting a mortgage lien prior to that of the First National Bank, and that his executrix stands in his shoes with reference thereto.

As John M. Sherman, who conducted the transaction on behalf of the bank at the time the last note and mortgage for $6,500 were executed and delivered, died prior to the trial of the case in the court below, there is no evidence as to what transpired when this note and mortgage were given, except that presented by the mortgage itself. As the mortgage of $12,000 was a matter of record at the time of the execution and delivery of the last mortgage of $6,500, such record would be constructive notice to the First National Bank of the existence thereof, and mere silence on the part of Frank Nagel would not, of itself, work an estoppel which would bar his right to assert a lien under his mortgage.

On the other hand, by the great weight of authority, any misrepresentation of fact by Nagel which misled the bank would work an estoppel, even though there was constructive knowledge of the bank by reason of the recording of the prior mortgage. The rule is thus stated in 21 Corpus Juris, pages 1130 and 1131, Section 131, as follows:

“A public record is an available means of information as to questions of title, and one who does not take advantage of it can not claim an estoppel against one who merely fails to furnish such information. And it has been held that he will not be estopped by his silence, although he may know or be informed that others are negotiating for rights and interests in property bound by his title of record, as he is under no obligation to warn or apprise them of that which the record discloses, but there is authority to the contrary.

“There are, however, cases in which the representation, by actively misleading the person setting up the estoppel and preventing him from having recourse to available means of information, has been held to excuse his failure to inform himself of the facts, even in the case of constructive notice by matter of record.”

It is true that this authority does not go further than stating that it is held in some cases that active misrepresentation of fact will have this effect, but an examination of the cases leads us to the conclusion that the rule as stated by us above is correct.

An excellent monograph covering this subject may be found in 50 A. L. R., 668. We especially call attention to the language used by the compiler and the cases cited at pages 744 to 759, inclusive. At page 748 of this monograph, the author, in stating the limitations upon the rule that ordinarily the failure of a person to disclose an interest which he has in real estate to one purchasing or taking a mortgage thereon will not be estopped where such interest is disclosed by an instrument duly recorded, quotes with approval from Porter v. Wheeler, 105 Ala., 451, 17 So., 221, to show as a corollary to that rule that estoppel does apply, notwithstanding constructive notice by record, where the person claimed to be estopped does some affirmative act which misleads the person claiming the estoppel. The language quoted is as follows: “The law is well settled that one having a title of record, so long as he may do no affirmative act to mislead or deceive, is under no further duty to those who may acquire subsequent rights, and will not be barred from the assertion of his title. He may know or be informed that others are proposing or negotiating for rights and interests in property bound by his title of record; he is under no obligation to inquire for or hunt them up, and warn or apprise them of that which the record discloses, and it is their duty to ascertain.”

Applying these principles to the case at bar we have no hesitation in stating that in the absence of any explanation or further proof, the signing and acknowledgment of the mortgage containing a representation that the property mortgaged was unencumbered amounted to an affirmative act which was well calculated to mislead, and did mislead, the mortgagee. We think the situation is not materially different from one where the mortgagor represents in a letter to the mortgagee the same facts.

It is true that at the time Nagel executed and acknowledged the mortgage he was not the sole owner of the $12,000 mortgage. He was, in fact, one of the mortgagees, and owned an interest therein, and it was pledged as collateral to the Liberty Bank. We think the rule to be applied in this case is no different than that applicable had he been the only mortgagee named in the mortgage, and the sole owner and holder thereof at the time the same was hypothecated as collateral.

Nagel purchased the Swint note and the other note secured by mortgage of $12,000 from the Liberty Bank after both were due and payable. It is true that if in collecting the Swint note the bank found it necessary to foreclose the mortgage deposited as collateral, that mortgage would be prior in time to the mortgage of the First National Bank. However, in view of the fact that Nagel was a party to all the transactions relating to the $12,000 note and mortgage, and the Swint note of like amount, and participated actively therein, his executrix cannot now claim that he acquired the same right of priority in the mortgage as the Liberty Bank would have had upon foreclosure by it. Nagel merely paid off the indebtedness to the Liberty Bank to protect his liability to that bank growing out of his guaranty of the note.

This court concludes that the executrix of the estate of Nagel is estopped from asserting the priority of the $12,000 mortgage over the mortgage of the First National Bank, and we find that that bank has the first and best lien on the premises covered by its mortgage.

Decree accordingly.

Richards and Klinger, JJ., concur.

Klinger, J., of the Third Appellate District, sitting by designation in place of Lloyd, J.