Lessee of Frazer v. Hallowell

Yeates J. I find myself confined to the facts stated as on a special verdict; and I do not feel myself at liberty to indulge any conjecture on the occasion. Our decision must be grounded on the statement itself; and from this I am only authorized to state that Mr. Hallowell was the agent of Greeves in accepting the mortgage, to secure the original debt, and the release of the equity of redemption. The latter instrument recites the nominal consideration of 7s. 6d., and that the mortgaged premises had been struck off at public auction for 910 dollars. It cannot be denied that a mortgage in Pennsylvania as well as in England is considered as a personal contract, and that the mortgagee has no interest in the lands beyond the security of his debt. Prec. Cha. 99. Stra. 135. 413. Burr. 978. It is true there is a difference in the mode of recovery in the two countries. Instead of foreclosing the equity of redemption by a bill in Chancery, our act of Assembly directs the remedy by scire facias, and an immediate sale of the mortgaged premises under a levari facias. When the mortgage money is paid, the mortgagee is obliged to enter satisfaction in the recorder’s office of the proper county, under a defined penalty. Hence it is that a third mortgagee in this state buying in a first mortgage shall not have a preference against the second mortgagee until the sums secured by both instruments are paid. But in England it is otherwise under the operation of the principle in Chancery, that where there is a legal title and equity on one side, the Chancellor will nojt permit — 132 — the prior equity of another person to prevail against such title. But we have the authority of Lord Harch viche to declare that if this had happened in any other country it could never have made a question: for if the law and equity are administered by the same jurisdiction, the rule qui prior est tempore potior est jure must hold. 2 Vez. 574. Much reasoning has been grounded on this, that the premises in controversy are to be deemed as under a mortgage from Shields to the defendant; and inasmuch as it was the object of the mortgage to secure a debt’of 1207 dollars 50 cents, the transaction has been compared'to those cases where lands have been devised to be converted into money; there equity hath regarded them as money, and vice versa. 2 Atk. 307. 3 Atk. 254. And so land agreed to be sold shall go as money, and money agreed to he laid out in land shall go as land. Salé. 154. If indeed from any circumstances disclosed in the case, we are enabled to pronounce that Greeves or his assignees might recur to Mr. HaUotvell for the original debt due from Shields, and that it could still be considered as an existing personal demand, all difficulties would cease; because it is settled in Smith et al. assignees v. Hodson, 4 T. R. 216. that where the defendant lent his acceptance to the bankrupt on a bill which did not become due till after the act of bankruptcy, and was then outstanding in the hands of third persons, yet the defendant having paid the amount after the commission issued and before the action brought by the assignees, is legally entitled to a set-off. But here, by the conduct of both parties, and by Greeves’s acquiescence in the acceptance of the mortgage and release, and his subsequent receipt of the rents and profits of the premises in question, tip to the time of his bankruptcy, his demand of a personal nature is converted into an equitable interest in the land, and neither he nor his assignees could afterwards look to the defendant for the original debt. It is obvious also that the equity of redemption being extinguished by the release of the assignees of Shields to the defendant and accepted by him for the use of Greeves, the defeasible nature of the estate ceased and was wholly absorbed; the strictly legal interest in the premises became vested in Mr. Hallo-well, and the usufructuary interest in Greeves. In Pennsylvania where we have no court of Chancery, it must be admitted that in such trust deeds, the legal estate is almost nominal from. — 133 — the necessity of the case. With respect to the power of the trustee to prejudice his cestui que trust by alienation, the single case in which his alienation can bind the cestui que trust is where being in possession of the estate he conveys it for a valuable consideration and without notice, in which case the purchaser will be entitled to hold the estate against the cestui que trust. 1 P. Wms. 128. 2 Fonbl. 170. Here a cestui que trust may support an ejectment in his own name, though it cannot be done in England unless in some special cases. 1 Dall. 72. The point in question maybe viewed in two lights: considering Greeves in full credit when the accommodation notes were taken up, or as a bankrupt. Mr. Hallo-well can only be considered as a mere trustee whose name has been used. He falls within the general principle, that an estate purchased in the name of one with the money of another is a resulting trust, although there be no written declaration, and is excepted out ©f the statute of frauds. 1 Atk. 60. 1 Vern. 367. If an ejectment had been brought by Greeves, when solvent, against the defendant, I should suppose there could be no difficulty in asserting that the latter could not defend himself in possession by the offer of proof that the former owed him money, which he had lent to him or expended for him in matters wholly foreign to the trust estate, and for which the former had neither given nor engaged to give any security either real or personal. Are we warranted from the facts stated in adopting the language of the master of the rolls in Brace V. the Dutchess of Marlboro, 2 P. Wms. 494. in the case of a first mortgagee lending a further sum to the mortgagor upon a statute or judgment, “ that it is to be presumed” that defendant lent his notes as knowing he had hold of the lands by the mortgage and release in his possession, and in consequence ventured a sum which would be a lien thereon? It is settled that the title of a trustee shall not be set up in ejectment against the cestui que trust, from the nature of the two rights the latter is to have the possession. Burr. 1901. As a matter of abstract equity and morality it may justly be said that while Greeves was seeking for the premises as due to him of right, he ought on his part to pay Mr. Hallo-well a fair and meritorious debt; but it could scarcely be urged that in such a suit a court of law who are bound to distinguish by known rules between real and personal estates, should adopt the principle that “ he who seeks equity — 134 — “ shall do equity,” and direct a set-off of the debt, or a retainer “of the possession until the same should be paid. They would necessarily order a recovery in the ejectment against the trasteé, and leave him to his personal remedy against Greeves for his demand. The case of the lessee of Charles Cecil v. Henry Korbman, (Richard Peters J tried at York Nisi Prius on the 12th and 13th June 1788, has been cited and much relied on by defendant. I was of counsel with the defendant in that case, and will fully state from my notes the pretensions of both parties. It was an ejectment for 150 acres of land in Codorus township. The defendant claimed under a conveyance to William Peters from Ambrose Draper, the eldest great grandson of John Brothers, who obtained deeds of lease and release from William Penn for 250 acres of land to be located any -where in Pennsylvania, dated 2d August 1681. The plaintiff claimed under a subsequent deed from three others, the great grandchildren of the original grantee, and the son of one of them who was dead. Peters released to Joseph Richardson, who in pursuance thereof obtained a warrant in 1762 for the 250 acres, on which were surveyed the 150 acres in question, (inter alia) in 1763. One Henry Conrad had settled on the lands in controversy in or about 1748, built a small house and a mill called the Green Mill, including under one roof a grist mill, oil mill, and slitting mill, a large barn, cleared land, and made ten or twelve acres of meadow; and continued in possession for twenty six years. Mr. Peters contracted, and the warrant wa<s laid on the land disputed, and a patent obtained thereon founded on the old right. Conrad might certainly have maintained his possession under his valuable improvement and actual settlement, because the old right could not legally have been laid thereon, after settlement and appropriation. But he and the vendees under him were concluded and estopped from setting up an adverse title by the material recital of particular facts on which they founded 'their pretensions. Peters therefore and his vendee held the legal title as to four sixth parts in trust for the other great grandchildren or their vendee; but the well known rule “ that he who seeks equity shall do equity,” clearly applied to that case. Those entitled to their proportions of the old right to unlocated lands, could have no just claim to the lands located under it, unless they paid their proportions of the suras advanced in lay — 135 — tng it, and securing the different tracts held under it. Hence it was that after the evidence was fully heard a juror was with-" drawn and a special compromise submitted to. It was finally referred to the Judges of the Supreme Court to state an account ©f all expenditures under the old right by William Peters, and to charge him with all profits and rents and sums of money received, with interest on the several sums, and upon Cecil paying two thirds of the balance in three months it was agreed that he should receive a conveyance of two thirds of the premises and immediate possession. A report was accordingly made on 12th April 1790, that Cecil should pay 1112/. 8?. 6d. which it was not the interest of the lessor of the plaintiff to comply with. The circumstance of the money advanced by Mr. Halloxvell not being for any matter or thing relative to the trust estate, forms a strong and marked distinction in my idea between the two cases. Nor can I find any authority on the best search I have been able to make, wherein trustees have been allowed out of the trust fund for services or matters done or monies paid, wholly unconnected with or foreign to the trust. The case is made stronger when we consider the bankruptcy of Greeves and the other facts stated. Though the precise time of Greeves’ committing an act of bankruptcy is not specified, the commission against him issued on the 19th November 1802. On the 7th August and 2d September preceding, Mr. Halloxvell paid on his account the two accommodation notes amounting to 1150 dollars; but it was not till after Greeves stopped payment, though before issuing the commission, that the former told him that he would keep the estate in question until he was reimbursed the cash he had advanced, no agreement' having been previously made that Mr. Halloxvell should hpld the property until he was repaid. Unless the defendant had a previous lien or some valid or binding agreement, operating either legally or equitably as such, the policy of the law interdicts a bankrupt from giving a preference to any of his creditors on the eve of a bankruptcy. The act of Congress of the 4th April 1801, in section 12th, exempts mortgages and pledges from the general operation of its provisions; it contemplates a system of perfect equality to all the creditors who have not used the precaution to secure themselves; and it therefore follows that even if Greeves after he had stopped payment, had — 136 — assented to the declarations of the defendant stated in the case, such assent could not legally take effect. Upon the whole, let my feelings as an individual be what they may, I find myself constrained to declare that judgment should be entered for the plaintiff in the suit. Smith J. In this case my opinion is in favour of the defendant. I consider the mortgage as if it had never existed, and that this was a conveyance of the estate on the 20th August 1800, the day on which the assignees of John Shields executed the release of the equity of redemption, to John Hallowell, in trust to secure a debt to Thomas Greeves; or rather a conveyance in trust for Thomas Greeves. After the legal estate was vested in Hallowell in trust, he lent the notes in question to Greeves, and ultimately paid them for him. In England if there is a first mortgagee, and then a second, and the first lends more money on a third mortgage, he as third mortgagee shall be preferred to the second, because it shall be presumed that he lent his money on the security of having the first mortgage. Is it not equally reasonable to presume in this case, that the defendant lent his notes to Greeves, which he afterwards paid, on the security of this estate being conveyed to him; especially as it is not stated nor contended, that there was any other consideration inducing the defendant to lend the notes; nor that he took any counter security from Greeves when he gave him the notes. It is worthy of remark, that it is not stated that the defendant had any authority from Greeves to take the mortgage, (if it must be mentioned) or the release of the equity of redemption which, joined to the mortgage, operated as a conveyance. If he had not, the principal was not obliged to accept such conveyance, and by taking it Hallowell made himself liable for the debt. It is not stated that Greeves ever called on the defendant to release the trust estate to him, to exonerate him from such liability. It is true that Greeves afterwards received the rents and profits, it is equally true that the deeds remained in the possession of the defendant. That a factor has a lien on all consignments for the general balance due to him from his principal, is settled law; and I confess I cannot distinguish between a factor, agent, or trustee, as — 137 — to this purpose; each advances his money, each is presumed to advance it on the goods pledge or security in his possession. A. borrows 2001. on the pawn of jewels; afterwards he of pawnee three other sums, for each of which he gives his note without taking notice of the jewels. Pawnor dies; his executors shall not redeem the jewels without paying the money due on the notes; for it is natural to suppose the pawnee would not have lent those sums, but on the pledge he had in his hands before. So if the first sum had been secured by mortgage. Prec. Chan. 419. It is a rule that ce8tui que trust ought to save trustee harmless as to all damage~ relating to the trust; so within the reason of that rule, where th~ trustee has honestly and fairly, without any possibility of being a gainer, laid down money by which cestui que trust is discharged from being liable to the whole money, trustee ought to be repaid. Balsh v. Hyham. (a) I have ever since the trial of Cecil's lessee v. Korbman, (Peters) at York Nisi Prius, June 1788, believed this lien to extend to trustees. There it was contended, that the inquiry of the referees should be confined to the tract of land for which the ejectment was brought; but it was ruled by the court, that the reference should be general, that the should settle how much the trustee (Peters) had expended about that and all other tracts, as to the two thirds of which he was trustee, under the purchase from Ambrose Draper; and that upon the payment of the general balance due on all, the trustee should convey to Cecil two thirds of the tract in question. BEACKENRIDGE J. concurred in opinion with SMITH J. and accordingly, Judgment for Defendant. Footnotes [(a)] 2 P. Wms. 455.