Prichard v. Farrar

Ames, J. The agreement which the defendant signed evidently looks forward to a default on the part of the corporation as an event not unlikely to happen. He was a creditor presenting his claim and receiving his pay, before the bonds which were secured by a mortgage of corporate property had been paid, and while it was uncertain whether the property so mortgaged would prove sufficient to pay them in full. The terms of the agreement imply that this payment to the defendant would diminish the funds applicable to those bonds, and -that for that reason the defendant was to refund out of the money so paid to him a certain agreed proportion of the ultimate deficiency, if there should be a deficiency. The defendant must have understood that a process of foreclosure, and a sale of the mortgaged property, furnished the only mode, or at least an appropriate and suitable mode, in which the question whether the mortgaged property would prove sufficient to pay the mortgage debt could be effectually determined. He made the agreement therefore with the knowledge that it would be the duty of the plaintiff, whenever it became necessary, to enforce the mortgage for the benefit of the bondholders, by such legal process for foreclosure as was allowable and proper under the laws of Vermont, and that under such process the Validity of the mortgage and the amount due upon it would be [220] judicially inquired into and determined. This mode of proceeding must have been contemplated when the agreement was made, as the mode in which it was to be ascertained whether the apprehended deficiency really existed, and the judgment of the court in Vermont must have the same effect between these parties as if the contract had in terms referred to a suit for foreclosure in that court. Rapelye v. Prince, 4 Hill, 119. Brown v. Sprague, 5 Denio, 545. Burke v. Miller, 4 Gray, 114. 1 Greenl. Ev. § 523. We must assume, from the defendant’s position in the corporation, not only as a large holder of stock, but also as president and director, that he could not have been ignorant of the existence of the suit for foreclosure, or of its nature and importance. It is stated in the report that he was one of several stockholders who associated to defend against that suit in the name of the corporation, and who raised funds and employed counsel for that purpose. It was a suit in which his personal interests were directly involved, and if, as must be inferred, the corporation was wholly insolvent, the question as to the amount due upon the mortgage must have been much more important to him, under his liability to contribute towards making up the deficiency, than it was to the corporation itself. He was in court by his counsel, using the name of the corporation, litigating a question directly affecting his own interest, in a position to take part at every stage of the trial, with ample opportunity to call and examine witnesses, to cross-examine the plaintiff’s witnesses, and to appeal from the decision. His contract "with the plaintiff as the representative of the bondholders was in substance a contract of indemnity against any loss that might result from the previous application of a portion of the trust funds. He had made himself responsible that the mortgage should produce an amount sufficient to pay the mortgage debt. According to the decision in Lowell v. Parker, 10 Met. 309, the consequence of becoming responsible for the performance of the duty of another would be that “ a judgment against that other for a failure in the performance of such duty, if not collusive, is primâ facie evidence, in a suit against the party so responsible for that other. If it can be made to appear that such judgment was obtained by fraud or collusion, it will be wholly set aside. But otherwise it is primâ facie evidence, to stand until impeached or controlled, in whole or in part, by coun [221] tervailing proofs.” The position of the defendant in this respect is somewhat like that of a surety upon a bond ; as to which description of liability it has been held, in relation to a surety on an administrator’s bond, that he, as well as the administrator, is estopped from controverting the validity of a judgment ascertaining the amount of a debt to be paid by the administrator, unless the judgment were suffered collusively by him. Heard v. Lodge, 20 Pick. 53. Tracy v. Maloney, 105 Mass. 90. Cutter v. Evans, 115 Mass. 27. In Tracy v. Goodwin, 5 Allen, 409, it was held that the obligation of a surety upon a constable’s bond was a guarantee to a plaintiff for such amount as he has legally established to be due to himself from the constable ; and, in the absence of fraud or collusion, the judgment against him settles conclusively against his sureties, as well as himself, not only the right of the plaintiff to recover against him, but the amount of the damages. In Littleton v. Richardson, 34 N. H. 179, the law is thus laid down by Bell, J.: “ When a person is responsible over to another, either by operation of law or by express contract, and he is duly notified of the pendency of the suit and requested to take upon him the defence of it, he is no longer regarded as a stranger.” In every such case, if due notice is given to such person, the judgment, if obtained without fraud or collusion, will be conclusive against him, whether he has appeared or not. This view of the law is fully sanctioned in Boston v. Worthington, 10 Gray, 496, and in Chamberlain v. Preble, 11 Allen, 370; Elliott v. Hayden, 104 Mass. 180. In the case of a party having actual notice, and in fact participating in the defence, the service of formal notice upon him is unnecessary. Lovejoy v. Murray, 3 Wall. 1, 18. The particulars of the plaintiff’s account as mortgagee in trust for the bondholders are not before us, and we have no means of knowing in what way the balance alleged to be due to him for services, and money expended in carrying on the trust, was arrived at, or for what reason the defendant’s share of the ultimate deficiency should have been fixed at one seventh. If, as intimated in the argument, the plaintiff has charged the trust fund with the $5000 payment to the defendant, or has reckoned that payment as a part of the mortgage debt, and has thereby increased the deficit contemplated by the contract, it is a false charge which the plaintiff cannot avail himself of, except in fraud of the defendant’s [222] rights. The payment to the defendant was provisional, an 1 in computing the deficit, should not be reckoned as a part of the mortgage debt. The problem to be solved required that the amount of the debt should be first ascertained, exactly as if no such-payment had been made to the defendant. Then a deduction of the proceeds of the property from that amount would show the deficit to be ascertained. If, in addition to the proceeds of the sale, it should be found that there were other funds in the plaintiff’s hands unaccounted for, properly applicable to the mortgage debt, then good faith on the part of the plaintiff requires that he should be charged with such additional funds also. Our conclusion therefore is that the case must be sent to an assessor according to the terms of the reservation, with instructions that' the decree of the Vermont court, if not shown to be collusive or fraudulent, is competent and also conclusive evidence of the validity of the mortgage, and the amount due upon it; that if he finds that the $5000 payment to the defendant has been charged by the plaintiff as if it were a part of the mortgage debt, in such a manner as to increase the amount of the deficit contemplated by the agreement, it is to be considered as a fraudulent charge and the account is to be corrected accordingly; and that if he finds other funds applicable to the mortgage debt, which the plaintiff should have so applied, and which he has concealed or withheld, the same should be applied accordingly by the assessor in the account. The assessor is also to inquire and report whether, as alleged in the answer, the plaintiff, for the purpose of purchasing the mortgaged property for less than its value, “ did permit it to become run down, out of repair, and not in proper condition to bring its value,” and did thereby bid off the property himself for less than its value ; and if so, to correct the account by charging him with the full value at the time of the sale. So far as the defendant professes to have been aggrieved by the premature termination of the hearing, his remedy was a motion to recommit the report of the master, with such order as to further hearing as the case might require. We are bound to presume that such a motion would have received all proper consid ©ration. Case to he sent to an assessor.