Walsh v. Rutgers Fire Insurance

By the Court.*— Emott, P. J. —The lien of the plaintiff’s mortgage, with all the rights attaching thereto, was left untouched by the sale, to which he was not a party. As to him,,the insurance company were still mortgagees, and nothing more; and the only consequence of their proceedings to foreclose the mortgage was, that they became mortgagees in possession. This is substantially conceded by the defendants, when they contend that this action should have been simply a bill to redeem. The proposition, if it needs authority, is sustained by the cases of Slee a. The Manhattan Company (1 Paige, 48) and Vanderkemp a. Shelton (11 Ib., 28), in which latter case there had been a foreclosure of a first mortgage in chancery without making the junior incumbrancer a party. The case of Vanderkemp a. Shelton is on all fours with the present, both as to the facts and the mode of relief. But it is supposed to be overruled by the case of Post a. Arnot, (2 Den., 344). The latter case is itself distinctly overi-uled upon the main point decided, as to the effect upon the mortgage of a tender after the law-day, by the present Court of Appeals, in Kortright a. Cady (21 N. Y., 343). It can hardly be said at present to be an authority for any thing. The point discussed in the case, however, so far as it is material to the present controversy, both in the Supreme Court (6 Hill, 65) and in the Court of Errors (q. s.), was a question of strict legal right. The action was ejectment, and the question was, whether the title of the mortgagee was extinguished by a tender after the law-day, so that no redemption was necessary subsequently, and no right of possession remained. The Court of Errors seem to have held, as far as the question was involved in the case, that a tender afrer the law-day, but before foreclosure, did not discharge the lien of the mortgage. The contrary is now expressly [38] settled by the judgment in Kortright a. Cady. Either way, however, the present question would remain, and the reasoning and judgment of Chancellor Walworth in Vanderkemp a. Shelton is not affected. It is conceded that the plaintiff would have a right to redeem the premises from the defendant’s mortgage. If he should do so, and should acquire their possession and title, he would himself become a mortgagee in possession. The equity of the mortgagor to redeem his mortgage has not been extinguished or cut off. The utmost effect of the foreclosure and sale under the first mortgage upon this equity was, to transfer it to the Butgers Insurance Company, as if they had taken a deed from Burr. And if this be so, then after the second mortgagee had acquired possession of the land by redemption from the insurance company paying their mortgage, they could redeem in turn, as grantees or assignees of the equity, by paying the whole debt to the plaintiff, who would be, as to the unextinguished equity, only a mortgagee in possession. In truth, the only question would be, in such a case, where the equity resided. Its existence could not be denied. As to the second mortgage, the rights and relations of the parties were not affected by what had taken place. The present plaintiff continued to be merely a mortgagee, and his title would not be perfected until the equity of redemption had been extinguished. If he had redeemed from the insurance company, it would still have been necessary for him to have foreclosed the equity of redemption, to have perfected his title. This is only stating with some detail and particularity the consequences of the principle, that the plaintiff is still a mortgagee, and nothing more, and unaffected by the foreclosure to which he was not a party. It follows, that it was not only regular but necessary to institute a suit like the present; and it does not lie with the Butgers Insurance Company, at any rate, to object that it is brought against the mortgagee and subsequent incumbrancers, as well as against themselves, to foreclose their equities against the plaintiff’s mortgage. But the learned counsel for-the defendants contends that his clients were improperly made parties to such a suit, because they are prior mortgagees; and he asserted the broad and somewhat startling-proposition, that prior incumbrancers are never proper parties to a foreclosure suit. It might be sufficient to cite [39] against such a statement the universal practice, not so much since as before the abolition of the Court of Chancery and the introduction of the Code; and especially throughout the interior of the State, where business is done and questions considered without the rush and hurry that characterize the commercial metropolis. To this might be added the authority of Judge Story (Equity Plead., § 192), who says that “ all incumbrancers as well as the mortgagees should be made parties, if not as indispensable, at least as proper parties to such a bill, whether they are prior or subsequent incumbrancers.” The books of chancery reports are full of cases defining and regulating the practice in foreclosures where prior incumbrancers are brought in. The defendants’ counsel has overlooked one essential part of the statements which he finds in the cases, and from which he deduces his rule. “ So far as mere legal rights are concerned,” said the chancellor in the Eagle Fire Company a. Lent (6 Paige, 635), “ the only proper parties to the suit are the mortgagor and the mortgagee, and those who have acquired rights or interests under them subsequent to the mortgage.” That is, as he proceeds to say, a mortgagee cannot make a person holding or claiming a legal estate prior to the mortgage a party. If his claim is valid, he has nothing to do with the mortgage, and • the holder of it has no rights against him. If it is not valid, it must be shown elsewhere, so long as it is adverse. The same doctrine, .and nothing more, is contained in Corning a. Smith (2 Seld., 82). But the estate of a mortgagor is not legal but equitable, and parties subsequent to him, whether incumbrancers or holders of a legal title, have the light to redeem from a mortgagee who is admittedly prior to themselves. A second mortgagee has the right to foreclose the equity of redemption of the mortgages, and to redeem a prior mortgage. He was never compelled to institute two separate suits to accomplish these results, but might make prior as well as subsequent incumbrancers parties to one action. In England, where the practice is to foreclose strictly, this is a bill to redeem from the first mortgage, and requiring the junior incumbrancers to redeem from both the prior mortgages or be foreclosed, and the complainant is in that country required, in all cases, to offer to redeem the first mortgage. But here the practice has been to sell to satisfy the mortgage, whether it be the first or a subsequent mortgage; [40] and the prior incumbrancer is protected by the application of sufficient of the proceeds in the first instance to pay his debt and costs, and no offer to redeem or pay the debt is required. In the present case, the Rutgers Insurance Company were still mortgagees as to the present plaintiff. He might have redeemed from them, but as he had also a right, and was in effect compelled, to proceed to foreclose the mortgages, and parties claiming under the latter, and subsequent to his mortgage, he had the ordinary right to make the holders of the prior mortgage parties to his suit, and to take the usual decree against them. All that they can claim upon such a decree is, that their costs and debt should "be first paid out of the proceeds of the sale. There is no reason why the plaintiff should pay them, if the proceeds are insufficient. If these defendants have been compelled to attend two litigations and two sales in order to protect their interests, it has resulted from their own negligence in not making the necessary parties to their own suit. They could not ask the court to name a:, price at which the property should be set up, nor was it necessary to fix a time within which the sale must take place. If the plaintiff improperly delayed to proceed under the judgment, the defendants, the insurance company, could.obtain an order of the court committing its execution to them.. As the Rutgers Insurance Company have been in possession of these premises, it became necessary to take an account of the rents received and the expenditures made by them, in order to ascertain the amount due them, and which must be paid them out of the proceeds of the sale. The county judge found, upon the evidence before him, that the gross or nominal rents of the property were $926.60, but that the defendants only collected $268.90. He does not find that there was any negligence on their part, and therefore there is no cause appearing for charging them with any thing more than what they actually received. They are entitled to be allowed their payments for assessments and taxes, 'amounting to $389.23, and for necessary repairs, amounting $363.51, and also to interest on the amount due them from the date of their decree. The judgment must be modified, by correcting the amount directed to be paid to the Rutgers Fire Insurance Company, according to these principles. Neither party will have costs of this appeal. Footnotes [*] Present, Emott, P. J., Brown and Scrugham, JJ.