Importers & Traders Bank v. McGhees & Co.

Bleckley, Chief Justice. The mortgage given by the principal debtors, McGhees & Co., to their indorser, James McGhee, was not given expressly as a security for the debt or to raise a fund for its payment, but solely to indemnify the indorser against loss by reason of his indorsement. This mortgage the creditor, the Importers and Traders National Bank of New York,' now seeks to enforce against the mortgaged property without making the indorser, who resides in Alabama, a party to the proceeding. The principal debtors, who were among the parties defendant to the plaintiffs’ petition, demurred, and their demurrer has been sustained. The code in section 2164 declares: “If the principal executes any mortgage or gives other security to the surety or indorser to indemnify him against loss by reason of his suretyship, the surety or indorser may proceed to foreclose such mortgage, or enforce such other lien or security as soon as judgment shall be rendered 708 against him on his contract.” We'think this prescribes a rule which was intended to be general, and that it comprehends all cases of the class mentioned. By clear implication it negatives any right of foreclosure until the surety or indorser has paid something on the debt, or judgment has been rendered against him on his contract. In the present case neither of these events has occurred. The indorser is consequently without any right to inaugurate any proceeding to foreclose the mortgage. As to him the mortgage is immature, there has been no breach, of its condition, it is not yet due and payable and may never become so. It logically follows that the creditor cannot proceed on his own behalf to enforce the mortgage, although the petition alleges that the indorser, as well as the principal debtors, is insolvent. Notwithstanding decisions of some other courts to the contrary, there is manifestly no- element of trust in a mortgage of this character. It does not by its own vigor devote or appropriate the property embraced in it to the payment of the debt, but only to the indemnity of the indorser in the event he should sustain loss by reason of his indorsement, and it is recited that he indorsed-the notes for accommodation. ' The mortgage created a mere lien, and therefore could not raise any trust by reason of passing title into the mortgagee. It passed no title. It was executed in this State by residents thereof, and all the property mortgaged is personalty. To say that the mere lien which it creates in favor of the mortgagee for his own personal indemnity is now held by him in trust for the creditor and not exclusively for his own benefit, would be altogether arbitrary. It would not harmonize with the intention of the parties in creating the lien, nor with any sound ¡suhlic policy in regulating the rights and powers of contracting parties over the care of their own interests. What a man acquires and holds for himself only with no present 709 power to enforce it, should not ho wrested from him, especially when he is not a party before the court, on the ground of an imaginary trust. And this is equally true whether he is solvent or insolvent. His insolvency, were he a party before the court, might be a reason for seizing upon this mortgage as' his property and displacing him from the control of it. But this would be a very different thing from claiming it by the creditor as a 'beneficiary of a trust which either sprang .into existence when the mortgage was taken, or in some mysterious way arose by operation of law afterwards when the mortgagee became insolvent. On principle, it seems to us that, if the creditor can ever enforce the mortgage, the right must be based on the doctrine of subrogation. The principles of equity may entitle the creditor to be hereafter subrogated to the right of the mortgagee. And by the terms of the code above recited, the mortgagee’s right is to proceed as soon as judgment has been rendered against him. By subrogation the creditor could acquire no broader or better right; for one cannot take by subrogation what did not before exist in the party to whose right the party substituted in his place succeeds. We hold that, because the indorser has no right to proceed at present on this mortgage, the creditor has none. Some of the learning on the general subject may be found in Notes to Dering v. Earl of Winchelsea, 1 White & Tud. L. C. Eq. 174 et seq. (Hare & Wallace's ed.); Harris on Subrogation, §591; Sheldon on Subrog. §154 et seq.; 2 Brandt on Suretyship, §324 et seq. The latest case known to us is In re Walker, Sheffield Banking Co. v. Clayton, [1892] 1 Ch. 621, a decision made by Stirling, J., in January, 1892. The case of Pool v. Doster, 59 Miss. 258, holds, we think correctly, that insolvency makes no difference. The briefs of counsel in that case contain very full citations of previous cases, most of them decided by American 710 courts. The weight of authority may seem contrary to the Mississippi doctrine, but we think that doctrine coincides with our law. 2. As the creditor must wait for subrogation until he has obtained judgment against the indorser, when by operation of law the mortgaged prcqierty will become a fund subject to be applied to payment of the debt, he has no standing in court to impound the mortgaged assets or to interfere with them, certainly not without making the mortgagee a party, inasmuch as the mortgagee, until some one becomes entitled to take his place, has the right to preserve the security in his own way, the security until then being personal to himself. And inasmuch as the creditor comes without right, legal or equitable,-to assert the mortgage against the mort-' gagors, they can resist him by demurrer, as his petition shows no title in the party plaintiff. It was suggested on the argument that the demurrer could not be effective because it was presented in the individual names of the members composing the firm of McGhees & Co., and not by the firm in the partnership name. This objection, we think, is without merit. Judgment affirmed.