Webb v. Hunt

Townsend, J. The appellant here (defendant below) has filed 14 specifications of error. The first eleven are to the overruling of the 11 exceptions of the appellant to the master’s report, and the other three are as follows: “(12) In ordering a sale of the hay press, and that the proceeds of said sale be paid to the plaintiff on his claim of $325. (13) In taxing the master’s fee and the fees of officers and witnesses against appellant. (14) In rendering judgment against the defendant for any balance that might be unsatisfied on his claim, in no case to exceed $133.85.” These specifications of error will more readily be considered by discussion of the facts and the law applicable thereto than to consider them seriatim. The situation of the parties prior to appellant’s purchase of the mules from Meyers was as follows: The Whitman Company held a first mortgage on the press and mules. Appellee held a first mortgage on an — 620 — engine, a second mortgage on the press, and nothing whatever on the mules. This being a bill filed for the marshaling of assets, it becomes necessary to inquire in this case at what time the equity attaches, and against whom it can be enforced. It is unnecessary to cite authorities to establish the doctrine that the inchoate right to have a marshaling of securities is a mere equity, and not a lien. This is settled in Gilliam vs McCormack (Tenn. Sup.) 4 S. W. 521. In the notes, which discuss the cases very fully, it.is said ‘ ‘that the equity to marshal assets is not one which fastens itself upon the situation at the time the successive securities are- taken, but, on the contrary, is one to be determined at the time the marshaling is invoked. The equity can only become a fixed right by taking proper steps to have it enforced, and until this is done it is subject to displacement and defeat by subsequently acquired liens upon the funds. The qualification upon the doctrine of marshaling, that marshaling will not be permitted to the prejudice of third persons, whether wholly or partially dependent upon this principle, is one well settled.” The court say further: ‘‘The case of Conrad vs Harrison, 3 Leigh, 546, seems to be an authority in conflict. Nevertheless we have not a doubt as to the correctness of our conclusions. ’ ’ And in the notes, after referring to the following English authorities: “The English editors of White & Tudor’s Leading Cases in Equity (4th Am. Ed., vol. 2, pt. 1, p. 252) say: ‘Marshaling is not enforced to the prejudice of third persons. Thus, in Averall vs Wade, Loyd & G. t. Sugd. 252, where a person, being seised of several estates, and indebted by judgments, settled one of the estates for a valuable consideration, with covenant against encumbrances, and subsequently acknowledged other judgments, it was contended by the subsequent judgment creditors that, as they only affected the unsettled estates, on the principle in Aldrich vs Cooper, 8 Ves. 382, as they had only one fund, they had a right to compel the prior judg — 621 — ment creditors, wbo had two funds, — the settled and unsettled estates, — to resort to the settled estates, or, at any rate, that the settled estates ought to contribute to the payment of the prior judgments. Lord Chancellor Sugden, however, held that the subsequent judgment creditors had no equity to compel the prior judgment creditors to resort to the settled estates, — on the contrary, that the prior judgment should be thrown altogether on the unsettled estates, and that the subsequent judgment creditors had no right to make the settled estate contribute; observing, after a close examination of Aldrich vs Cooper, that, upon the whole of the case, you will find Lord Eldon, in the application of the principle, ‘carefully avoids dealing with the rights of third persons.’ So, in Barnes vs Racster, 1 Younge & C. Ch. 401 (a case almost identical with the one under consideration), Racster being seised of Foxhall coppice, and a piece of land marked in a plan of the estate as No. 32, mortgaged, in 1792, Foxhall to Barnes; in 1795, Foxhall to Hartwright; in 1800, Foxhall and No. 32 to Barnes; and in 1804, Foxhall and No. 32 to Williams. The subsequent incumbrancers took with notice. It was held by Sir Enight Bruce, V. C., that the court ought not, as against Williams, to marshal the securities. His honor said that, circumstanced as the case was, Hartright and Williams stood, with regard to the matter in dispute, on an equal footing; that Barnes ought to be paid out of the respective proceeds of No. 32 and Foxhall, pari pássu and ratably, according to their amounts; that the residue of the proceeds of Foxhall ought to be applied towards paying Hartwright; and that the residue of the proceeds of No. 82 ought to be applied towards paying Williams, — a conclusion, as he considered, entirely in accordance with the principles on which Lanoy vs Duchess of Athol, 2 Atk. 446, Aldrich vs Cooper, and Averill vs Wade were decided,”— further state: ‘"These cases, and. the sound equity upon which they were manifestly founded, sustain the proposition — 622 — that marshaling is a pure equity, and does not at all rest upon contract, and will not be enforced to the prejudice of either the dominant creditor or third persons, or even so as to do an injustice to the debtor. We are not disposed to extend the doctrine so as to affect the equities or legal rights of third persons.” The same rule obtains in Arkansas.. In Marr vs Lewis, 31 Ark. 203, the court say: ‘When one creditor has a security upon two funds, another having security on one of them may, if necessary to the protection of his security, compel the other to resort to the fund not embraced in it, if it can be done without prejudice to the common debtor, or third persons having an interest in the fund.” So, when a wife mortgages her land for her husband’s debts, another creditor of the husband cannot compel the mortgagee to proceed against the wife’s lands, and leave the husband’s assets free for him. Bisp. Eq. § 342. In Adams, Eq. p. 273. it is said: “The equity is apparently not binding on the debtor’s alienee for value, notwithstanding that he may have taken with notice of the facts, unless his interest was acquired after the institution of a suit; for, although the ordinary rule is that an alienee with notice is bound by all the equities which bound his alienor, yet there is a distinction in regard to this particular equity, because the omission of the creditor to take an express collateral charge raises a presumption that he meant to leave the equity defeasible, and to continue the owner’s power of dealing with the second estate for value unfettered by his claim. ’ ’ In 2 Beach, Mod. Eq. Jur. § 782, it is said: “Marshaling is a pure equity, and will not be enforced to the prejudice of .another man’s rights. * * * ' Nor can the rights of third parties be interfered with in order to give a junior creditor the benefit of this doctrine.”- — citing the Tennessee case, supra, and New Jersey, Pennsylvania, and Maryland cases, in support of the proposition. See, also, McArthur vs Martin, 28 Minn, 75; Green vs Ramage, 18 Ohio, 428; in re Hob623 son (Iowa) 46 N. W. 1095. “The mortgagor is the owner of the property, as against all the world, until a foreclosure of the mortgage. * * * The title of chattels does not pass from a mortgagor upon the execution and delivery of the mortgage, or upon a breach of its conditions; nor does the title pass until the foreclosure has been completed. After default, as well as before, the mortgagor of chattels is the legal and equitable owner thereof, and as such has a vendible interest in the chattel.” Cobbey, Chat. Mortg. § 451. Marshaling assets. When right fixed. — 623 — In the case at bar, Meyers, the mortgagor, had a vendible interest in the mules, and, except as against the Whitman Company, could' mortgage or sell them. He sold all his interest to the appellant. ■ The appellant then purchased the interest of the Whitman Company, the mortgagee. He thus became the owner of the interests of both mortgagor and mortgagee, and this all before appellee had taken any steps to marshal assets. It is clear from the circumstances that appellant did ■ not purchase the interest in the mortgage of the Whitman Company for the purpose of applying the value of the mules to the payment of the balance due on the Whitman mortgage, but to become owner of both the legal and equitable interest in the mules; and, when he became such, the legal and equitable title to the mules merged in him, and as owner he had a right superior to the inchoate equity of appellee to marshal assests. Wilhelmi vs Leonard, 13 Iowa, 339. Where the equities are equal, the law must prevail. Ritter vs Cost, 99 Ind. 80. In the notes to Aldrich vs Cooper, among the first limitations stated, within which the doctrine of marshaling is confined, are the following: “There must be, morever, two funds to which the- person against whom the doctrine of marshaling is sought to be established can resort upon an equal footing, but it does not apply in cases to which such person has a superior right of lien upon one fund,’--citing Webb vs Smith, 30 Ch. Div. 192; and further: “But it would be utterly impasible to apply that doctrine to cases where the — 624 — single creditor is in truth himself bound to the party entitled to the other security,’’ — citing Dolphin vs Aylward, L. R. 4 H. L. 486. The doctrine of marshaling assets obtains where the debtor is the same to all the creditors, and the creditors have liens, some on all, and the others on part, of mortgaged property. But the limitation which we believe reasonable, conscientious, and just is that the same shall not be enforced to the prejudice of third persons. The appellee insists such is not the rule, but that the inchoate equity to marshal, if prior in time, is prior in right; and some authorities seem to go to that extent, and appellee insists that the decided weight of authority is that way. But the rule in the Tennessee case, followed, as we think, in the Arkansas case, and fully and expressly stated in the quotation supra from Adams on Equity, is the sounder and better and most conscientious rule to follow. We do not think this proceeding to marshal assets is barred by the former action of replevin between these parties. The issues are entirely, different. assets.alDoct-riñe oí. As to the hay press, there can be no question but that appellee is entitled to the proceeds of the same after appellant has received the balance due on the Whitman mortgage. The sale of the hay press without appraisement was void. Ellenbogen vs Griffey (Ark.) 18 S. W. 126. “Where the beneficiary in a trust deed buys the property at an invalid trustee’s sale, and goes into possession, his rights are merely those of a mortgagee in possession after condition broken. ” Stallings vs Thomas, Id. 184. Whatever money appellant received for the use or on the sale of said press, or otherwise from said press, should be applied on the balance due on the Whitman mortgage, and the press should be appraised and sold according to law; and after paying the balance due on Whitman mortgage, and the costs of this proceeding, the balance should be paid to appellee, Let the judgment be modified as herein stated. Clayton and Thomas, JJ,, concur.