CASE v. FANT et al., 53 F. 41

CALDWELL, Circuit Judge, (after stating the facts.) 1. The conveyance by Fash to Cowles of the mortgaged premises did not operate as a merger or extinguishment of the mortgage for several reasons. The general rule is that a mortgage will not be merged or extinguished by a subsequent conveyance from too mortgagor to the mortgagee of the mortgaged premises unless such appears to have been the intention of the parties, and justice require,; it. 1 Jones, Mortg. § 870; James v. Morey, 2 Cow. 246, 285; White v. Hampton, 13 Iowa, 259; Purdy v. Huntington, 42 N. Y. 334; Miller v. Finn, 1 Neb. 254.

In this case the deed from Fash to Cowlof was made subject to the mortgage for Si8,000, and when Fant took bis mortgage he signed a writing distinctly admitting that he had notice that there was then “existing on said land a mortgage for $18,000.’ The statement in the deed that the premises are subject to the morí gage shows that it was the intention of r the parties to the deed not to extinguish the mortgage. 1 Jones, Mortg. § 870; Insurance Co. v. Corn, 89 Ill. 170; Bank, v. Essex, 84 Ind. 144.

Fant had notice in fact that it was not extinguished at the time he took' his mortgage to secure an indebtedness which accrued years before. It is clear, therefore, that he was not misled or prejudiced in any manner,! and has no equity to claim that the mortgage should bo extinguished for his benefit. The note which ..he mortgage from Fash to Cowles was given to secure was negotiable, and was indorsed and transferred with the mortgage, for a valuable consideration moving at the time, before its maturity, and before the execution of the deed from Fash to Cowles for the equity of redemption.

The mortgage debt had not matured at the date of this deed. Upon these facts it was not competent for Fash and Cowles to extinguish the mortgage if they had desired and intended to-do so. The rule is well settled that, where the mortgagee has transferred his mortgage as collateral security for the payment of a debt before his purchase of the equity of redemption, no merger takes place, for the reason that the different estates in such ease do not vest in the same person. Kellogg v. Ames, 41 N. Y. 259; 1 Jones, Mortg. § 870.

It would operate as a fraud upon the pledgee of the mortgage to hold that a subsequent conveyance of the equity of redemption to the mortgagee extinguished the mortgage. 2. The $18,000 loaned by Case to Cowles on the 12th of December, 1885, was never paid. There was due on that loan at the'date of the decree in the lower court $22,787.50. The time of payment was extended and the note renewed from time to time, but these extensions and renewals did not pay or extinguish the debt, but at most only changed the evidence of it. The Fash note and mortgage was held as collateral security for the payment of the debt.

Giving a new note for the debt did not pay the debt. . Independently of any agreement to that effect, the collateral security would remain as security for the debt precisely as though there had been no renewal of the note. Jones v. Guaranty, etc., Co., 101 U. S. 622, 630; Bank v. Cheeney, 87 Ill. 602, 614; Collins v. Dawley, 4 Colo. 138; Lytle’s Appeal, 36 Pa. St. 131. But, in fact, at each extension or renewal there was a specific pledge in the same terms of the same collateral security, for the payment of the debt.

The recital in the renewal note of the security pledged for its payment was but a repetition and confirmation of the «original pledge. The creditor never parted with the security. It remained all the time, by virtue of its first pledge, in his possession, as security'for the payment of the debt due him. Notwithstanding the renewal note recited the note and mortgage were pledged to secure its payment, the pledge has relation to, and will be given effect as of, the date it was first pledged for the payment of the debt evidenced by the renewal note, if the interest of the pledgee requires it. 3.

By the express terms of the instrument by which Cowles assigned to Case certain property to be sold, and the proceeds applied on Cowles’ indebtedness, Case had the right to credit the proceeds on the note for $18,000, or on the note for $14,183.50, at his election. Case applied part of the proceeds on each note, as he had an undoubted right to do. The right of appropriation of payments belongs exclusively to the debtor and creditor, and no third party has a right to demand a change in the appropriation of payments assented to by them. Mack v. Adler, 22 Fed. Rep. 570; Whart. Cont. § 926; Gordon v.

Hobart, 2 Story, 243, 264; 1 Suth. Dam. 411. No principle of law or equity required Case to apply the payment on his debt secured by the mortgage, instead of his unsecured debts, in order to give Fant the benefit of this mortgage security. Fant had no lien upon, or interest in, the property sold under the assignment or the proceeds derived from its sale, and Cowles had the right that belongs to every debtor to appropriate the property or its proceeds to the payment of any bona fide debt which he owed.

The decree of the circuit court is reversed, and the cause remanded, with directions to render a.decree declaring that the mortgage from Fash to Cowles is the first and prior lien on the mortgaged premises for the amount found due thereon at the date of the decree below, namely, $22,787.50, with interest on that sum from that date.