Lynch v. Utica Insurance

After advisement, the following opinion was delivered : By Chief Justice Nelson. [248] That the covenant of the 10th January, 1827, operated as an equitable mortgage in the contemplation of a court of equity, has not been controverted; but it was insisted on the argument, that the respondents, by exacting other security on delivering up the note of H. Lynch and the stock, when the covenant' itself was intended as the only substituted security, have forfeited their right to a specific execution, as against the other creditors ; or, if that should be deemed too extravagant a pretension, that at least they should be charged with the nominal amount of the substituted security, though a less sum has been realized. The answer to all this was given below, that the new securities were taken with the knowledge and approbation of Lynch, the appellant, the only person interested at the time, and without any intention to cancel his covenant, and for aught that appears, the collection of the securities has been enforced by the ordinary process, with the exception of the Hoagland mortgage. One lot covered by that mortgage, was released for $300, on a private arrangement; if at a sacrifice, which I do not understand to be urged, an allowance should be made before the master. It would be idle to stop for a reference to authorities to show, that the interest which Lynch took under the will of his father, was but an equitable estate, the legal estate being vested in the executors in express terms, and for the obvious intent of better enabling them, as trustees, to execute the several trusts thereby charged.' [249] [250] A question was made upon the argument, though not much discussed, viz.: whether this interest or estate was liable to be seized and sold upon execution under the 4th § of our statute of uses, (1 R. L. of 1818, jo. 74,) which was taken from and is a copy of 22 Car. 2, ch. 3, § 10. If it was thus liable, then the remedjr in equity will become somewhat more perplexed and doubtful than it otherwise need be, because the omission to seize and sell at law, affords ground for contending that the judgments have thereby lost priority over a subsequent bona fide purchaser, or an encumbrancer, especially without notice, as in the present case. The 4th § provides that the sheriff, upon any suit on any judgment, may make and deliver execution unto the party suing, of all such lands, &e., as any other person is seized or possessed, to the use of, or in trust for him against whom execution is sued, the same as the sheriff' might, if the defendant in the execution had been seized of the land of such estate, as the trustee is seized of, in the use or trust, at the time of the execution sued ; and the lands, by force and virtue of the execution, shall accordingly be held and enjoyed, freed and discharged of all encumbrances of such persons as are so seized and possessed, to the use, or in trust for the defendant in the execution. This statute, as far as it goes, changed the common law, and made a trust, before cognizable in a court of equity only, the subject of a legal proceeding. But in making the lands liable to judgments against the cesiuique trust, as the statute only authorizes the sheriff to take such as the trustees are seized of “ at the time of the execution sued out,” it has beén held, that if they have conveyed away the lands before execution comes to the sheriff, though they were seized at the rendition of the judgment, the lands cannot be taken; so that at law while the judgment binds, the legal estate of a party from the time — 134 — it is docketed, it only affects his trust property at the time of execution sued out. This was so decided in Hunt v. Coles, (1 Comyn, 226,) and which has since been followed, (Hains v. Pugh, 4 Bing. 335.) If this trust, then, falls ‘within the statute, the sheriff should' have seized and sold the interest of Lynch on the executions that have heretofore been issued. This would at once have cut short all the difficulties in which the case would seem now to be involved ; the remedy ivas as simple and direct as if he had been the owner of the lepal estate, and the judgments a lien thereon; but I do not entertain a doubt that the estate of Lynch under the will, is an interest that could not have been sold on execution within the statute. It is settled according to several authorities, and one of them in this court, that the "statute only extends to clear and simple trusts for the benefit of the debtor. (17 Johns. R. 351. 1 Johns. Ch. R 52. 4 Barn. & Ald. 648. 4 Bing, 96.) In Bogart v. Perry, Spencer, Ch. J., said that it was intended to subject to execution the real estatd or hereditaments of a person having the entire interest therein, but which was nominally and formally vested in another person. The case in Bingham is not unlike the present one. There the lands were vested in trustees in trust for the judgment debtor, subject to £10.000 to be raised for another, and which had not yet been raised. The court held, that the interests of the cestuique trust was not liable within the statute, as it was not simply the debtor’s, but held jointly with another, (the person entitled to the portion of £10,000.) Here the interest is held jointly with' three others : the mother, Edward and Louisa. $60,000 was to be raised and invested, to raise the annuity for the first, and $10,000 as a portion for the other two. These were charges upon the whole estate, and the equitable interests in the eight shares subsequently devised, are of course subject to them ; these three hold an interest in the estate jointly with the defendant, Lynch, to the amount of the annuity and portions. Then without any authority, the language of the statute would be decisive ; for after providing for the seizure and sale, it declares that the lands “ by force and virtue of such execution shall accordingly be held and enjoyed freed and discharged of all incumbrances” of the trustees. In case of a sale, therefore, the executors would be divested of all interest in and control over the share of Lynch, and that freed and discharged from the annuity, portions, debts, &c. This part of the statute is so explicit that it has uniformly been held not to apply where the lands in which the debtor had an equitable interest were encumbeied with other unexecuted trusts. [251] [252] If I am right in the foregoing conclusion, then the question referred to by the learned chancellor, and upon which he has expressed a hesitating opinion, does hot necessarily arise in the case. The question will be found well stated and discussed by Mr. Sugden, in his valuable treatise on the Law of Vendors, p. 339, ed. 1828 ; by Mr. Powell, on Mortgages, p. 616, 623 ; and more briefly by Mr. Coote, a recent writer on the same subject, p. 71. In 'order to present it distinctly, for I do not intend to discuss it, it is necessary to premise, that in .chancery, a mortgage, if seized of the legal estate, may buy in the equity of redemption at private sale, disencumbered of judgments against the mortgagor, intermediate the giving the mortgage and time of the purchase, in the absence of notice. The reason given is this: that by the contract of purchase of the equity of redemption, he acquires an equal equity with the judgment creditors, and having already the legal estate, both together give him the better title. (Crisp. v. Heath, 7 Vin. Abr. 52, e., pl. 2. 5 Bac. Abr. 45. Sugden on Vend. 340.) But if he had notice of the judgments previous to the purchase, then he is not a bona fide purchaser, and cannot set up. equal equity, and the lien of the judgment creditors will then prevail. About this principle there seems to be no' diversity of opinion. Mr Powell, however, contends, (p. 616, 618,) that this rule is not applicable to the case of an equitable interest, which might be sold, on execution within the statute, as then the purchaser would hold even if he had nonce ; and hence — 135 — arises the question between him and Mr. Sugden, the latter contending that he would not. It is conceded the interest of the mortgagee, though a trust estate, does not fall within this statute, and cannot be taken on execution in England. (3 Atk. 738. 2 id. 290. 1 Ves. jun. 431. 8 East, 466. 1 Caines Cas. in Error, 47.) The grounds upon which Mr. Powell rests the argument are these : that as the lands thus held in trust are made liable at law only, where the trustee is seized or possessed of them at the time of the execution sued out, and as the judgment itself is not a specific lien upon an equitable interest, if the trust is determined before execution by a conveyance from a trustee, the lands are not liable at law, and as equity follows the law, they are not liable in equity. Therefore, he says, when a purchaser takes an estate from a cestuique trust and his trustee, before execution awarded against the former, he thereby acquires that which then is not the subject of an execution on a judgment against him from whom he purchased, at law, and consequently not in equity, and then notice of the judgment is immaterial, since it ceased to attach upon the property, if it be not in the seizure or possession of the trustee at the time when execution was sued out; that is, whatever may have been the rule in equity before the statute, inasmuch as that subjected the lands to judgment and execution at law, if they are not thus made liable before the purchase from the trustee, they will not be made liable in equity, as that follows the law in this respect: in other words, the legal remedy provided by the statute has altered the rule in equity. On the other hand, Mr. Sugden insists that the statute has not concluded this equitable relief; that inasmuch as a judgment creditor would be relieved as against a subsequent purchaser from the cestuique trust and trustee with notice, belore the statute, he is of the opinion that the same equity would still be administered; that the partial remedy given at law should not interfere with the equitable rights of the parties : in other words, that the partial remedy is cumulative. He admits his confidence is somewhat shaken, from the absence of authority upon the point. Without now undertaking to express a definite opinion upon this vexed question, I am free to say, if it were necessary to do so, I should incline to the view of Mr. Sugden, as. most conformable to the analogies of the law; but upon recurring to the case under consideration it will ,be seen, as before said, that the question does not necessarily arise, because, 1. this trust is not within the 22 Car. 2, ch. 3, § 10; 1 R. L. 74, § 4; and 2. it is not pretended that Roberts has got the legal estate from the trustees. It is true, they have in form made a conveyance to him, under the decree of the vice chancellor, but that is still sub.judice, and constitutes no part of the ground upon which resistance is made to the judgments. If he had thus obtained the legal estate in addition to the equitable interest before acquired under the assignment, then inasmuch as it was received without actual notice of the judgments, it is perfectly clear, a court ot equity would not relieve against it, if Roberts could be regarded in the light of a bona fide purchaser; if he was not to be so regarded, as held by the chancellor, from the circumstance of having paid no money, taking the assignment merely to secure precedent debts, a different rule would apply. But until he gets the legat estate, the question of notice does not arise, is not material, according to the views of either of the two authors above referred to, and also upon abundant authority, as we shall show hereafter. This same question is accurately stated by the recent writer (Mr. Coote) before mentioned. He observes, (p. 71.,) that if a mortgagee in fee purchase the equity of redemption, he will of course be pro tected from all judgments subsequently to his mortgage of which he had not notice. But he says a difference- of opinion lias prevailed, whether in equity, judgments bind a subsequent purchaser, a mortgagee, who had notice of them but who previously to execution sued out (under the statute of 22 Car. 2,) obtained a conveyance from trustees in whom the lauds had been vested, before obtaining execuiion against the cestuique trust. — 136 — [253] [254] [255] [256] [257] Having thus cleared the case of the difficulties in which it seemed to be involved upon the argument, the real question to be decided will be found to be of very easy solution. On the one side the respondents set up an equitable lien upon the estate of their debtor, Lynch, by virtue of four judgments, from the date of their docketing, 27th February, 1829. On the other, Roberts claims the same estate by virtue of an assignment to him of the date the 25th February, two days earlier, but which confessedly was not then delivered, and did not become operative until after the docketing of the, judgments. This instrument is in the nature of a mortgage, though that is not material, for a mortgagee is deemed a purchaser pro tanto, and therefore, for the purpose of the view I am about to-present, I shall concede that Roberts is' a subsequent bona fide purchaser, for a valuable consideration without notice ; "and the case then presents a question simply between a judgment creditor, and a subsequent bona fide purchaser, respecting the equitable estate of the debtor, putting it upon the most favorable footing for the appellants. The legal estate is in others, and can be reached only through the respective liens upon or claims to this equitable interest; the party mu» t maintain priority upon that in order to acquire it in respect to the legal title, and that too in a court of equity, which alone has cognizance of these conflicting equitable interests. What then is the rule ? It is given in Berry v. The Mutual Ins. Co., (2 Johns. Ch. R. 603,) as accurately as it can be found anywhere, after referring to the authorities ; namely, if there be several equitable interests affecting the same estate, they will, if the equities are otherwise equal, attach upon it according to the periods at which they commenced ; for it is a maxim of equity as well as of law that qui prior est tempore potior estjure. It is not to be controverted, in this case, that the equities are equal, because the judgment and assignment were given for the like considerations, and are held for the same objects, namely, to secure existing bona fide demands against Lynch. But even if Roberts had been a purchaser for a consideration advanced at the time, the equities of the parties would not have been altered ; the precedent debt for which the judgments were given, constituting a valuable consideration within all the cases involving the question of priority of lien, or as to whicn person has shown the better title. We have already said that where each party claims a lien only upon an equitable interest in lands, notice is out of the question. This is the rule at law in respect to the legal estate, in the absence ot registering and recording acts. Notice is immaterial. A subsequent bona fide mortgagee, or purchaser, without notice, of a prior incumbrance or sale, there takes subject to them. The object and effect of these acts were to change the rule of law, and give priority to the junior mortgage or deed, if first put on record. Under them, notice has often become important in respect to the rights of the prior incumbrancer, but for no other purpose than to avoid the effect of the registry upon him, and thereby restore the common law rule.of priority according to date. It is this rule at law respecting liens upon, the legal estate of a party, that is alike applicable to his equitable interests. Courts of equity, in applying it, have made many exceptions, some of which it may be useful to notice, as they will tend to bring out more distinctly the general rule. The exceptions are grounded upon the principle, that when one incumbrancer is armed with an equity only, and another with an equal equity and also the law, the court will leave the parties to combat at law, and will not take from the junior incumbrancer any advantage which the law may give him. (1 T. R. 767, 8. Salk. 520. 2 P. Wms 491. 2 Ves. 486. Sugden on Vend. 508, 714, ed. 1828. Powell on Mortgages, 477. Ram on Assets and Incumb. 396, 7.) But the creditor or purchaser, in order to avail himself of this rule, must become seized or possessed of the legal estate, by which is meant a title that will give him the immediate possession or control of the estate at law, or at least he must have the best right to call for such title. The case we have before stated, of a mortgagee in fee buying in the equity of redemption, and thereby taking it free — 137 — from intermediate incumbrances, is a practical illustration of the principle. There, being mortgagee in fee, he had the legal estate, and the contract of purchase gave him an equal equity to the interest of the mortgagor with the intermediate incumbrancer. So where there are several mortgagees, and the last one buys in the first mortgage that carries with it the fee, he may protect himself against- all of the intermediate mortgagees ; they will not be permitted to redeem the first, without also the last. So the first mortgagee -in fee may buy in a subsequent mortgage or judgment, and thereby acquire priority in respect to them, over judgments or mortgages intervening. So also a junior incumbrancer may buy in an outstanding term for years, and thus obtain the legal estate and consequent right to the possession and profits of the land; will be permitted to hold and appropriate the rents and profits, not only to disburse the purchase money, but to pay off his incumbrance over older ones. So reluctant are courts of equity to interfere between conflicting incumbrancers of equal equity, where a junior one has acquired an advantage by procuring the legal estate, that it will not interpose to prevent the use of an outstanding judgment or mortgage binding the fee though paid, or term- for years though satisfied; and there are several cases in the old books where title deeds of such terms were actually stolen, and still permitted to be thus used by the parties. (1 Vern. 52.; 2 id. 157, 158. Powell on Mortgages, 516.) As in Sir John Fagg’s case, where he came into a man’s study, and there privately put into his pocket an old dormant statute, which would have been a lien upon his purchase. Another person was allowed to take advantage of a deed which he stole through a window by means of a ladder, and a third who obtained the deed without any consideration, and by trick. (Sugden on Vend. 509, ed. 1828. 2 Vern. 159.) The mere possession of these deeds was deemed enough to give the advantage over the adverse equity. Now, though all these cases of exception show, that if a junior incumbrancer or purchaser gets hold of the legal estate, he thereby gains an advantage at law over an older incumbrancer, by means, of the possession and consequent profits of the land, which courts of equity will not relieve against, they likewise clearly recognize and confirm the general rule, that without this legal advantage, the order of payment or priority of holding, is according to the date of the incumbrances, or purchase. One more illustration may be given, which is very direct to the point. Where there is a satisfied term of years in a person to whom it has been assigned generally, in trust to attend the inheritance, as a mere muniment of title, and not for any particular mortgage or judgment, the first benefit, of) or priority conferrable by it, belongs to that incumbrancer who, in order of time, is the first on the estate, whether mortgagee or judgment creditor. (2 P. Wms. 491, 495. 1 T. R. 773. 3 P. Wms. 328. Ram on Assets and Incumb. 417.) In such cases the court applies the maxim, qui prior est tempore potior est jure, unless some other party has a better right to call for the legal estate, that is, to call for an assignment of this term to or in trust for himself, (2 Ves. 486; 10 id. 270 ; 11 id. 618,) by which he could get the possession and profits of the land. There are several ways of acquiring this better right; one is, where the trustees of the term joined in the conveyance to the purchaser, but not so as to convey it: this was considered a declaration that they would hold for him; another is where the party has used diligence to possess himself of the deed, which creates the term at the time he took his incumbrance, or where he has endeavored to acquire the legal estate, but failed by reason of'a defect in the conveyance. Nothing of this kind can be set up in this case by Roberts, as he is simply a subsequent purchaser of this equitable interest, without any special right to claim from the trustees the legal title, and without having had any dealings with them. He cannot pretend that he took the assignment in confidence that they would vest him with the fee; he can claim it only as the judgment creditors claim, by virtue of the right shown to the trust estate. He stands simply in the place of the assignor, took only the interest of which he was possessed at the time, and can set up no other claim to — 138 — the execution of the trust, or the legal title as it respects the judgment creditor, than Lynch, the assignor, could have urged. That would have been subject to the equitable lien of these judgments; and hence there is nothing in the case shown to take it out of the general rule. I am, therefore, in favor of affirming the decree of the court below. On the question being put, Shall this decree he reversed ? all the members of the court, with but one dissenting voice, (23 being present,) voted in the negative Whereupon the decree of the chancellor was affirmed.