Ayres v. Husted

Stores, J. This is a bill of interpleader, brought for the purpose of settling the conflicting claims of the defendants to a fund in the hands of the plaintiff. The fund consists of the avails of certain personal property, which was attached by the several defendants, successively, in suits brought by them against one Crissey, and which was, in pursuance of an agreement between them, placed in the hands of the plaintiff, to be by him sold, and the proceeds applied to the judgments to be obtained in said suits, in the same manner as they by law would be, on the executions thereon. Judgments having been obtained, the question is, how the avails of said property shall be appropriated among the defendants. The validity of the judgments obtained by Raymond Co, and Bowton, the second and third attaching creditors, is not disputed. They, however, claim, that the judgment of Husted, the first attaching creditor, is, as to them, invalid, in whole or in part; and that, therefore, he is entitled to no part of the avails of the property held by the plaintiff, or, if to any, to less than the amount of his judgment. The suit, on which Husted’s judgment was rendered, was brought on a note executed by Crissey to him, for the sum of 1125 dollars, payable on demand. Crissey being indebted to Husted, and Husted having indorsed a note for the accommodation of Crissey, which was negotiated and not due, said note for 1125 dollars was given For the purpose of enabling Husted to secure himself for such indebtedness and indorse-,, ment, by a suit to be immediately instituted, by attachment, on said note ; on which all the property of Crissey, including that of which the plaintiff holds the avails, was to be attached, which was accordingly done; and the last-mentioned property was subsequently attached, by the other defendants, on suits by them successively brought against Crissey, on confessedly valid claims. This arrangement between Husted and Cris-sey was made without any fraudulent intent, on the part of either ; but there was no express agreement by Husted, to pay the note he had so indorsed for Crissey, or to indemnify Crissey against it; nor any implied promise to that effect, excepting so far as the law would imply such a promise from said facts. Raymond <f- Co. and Bowton claim, in the first place, that the circumstances under which the note for 1125 dollars was — 512 — given, invalidate the judgment on it in toto; and that, there-Husted is not entitled to any part of the fund held by the plaintiff; and, in the next place, that, if said judgment is not wholly invalid, Husted has a right to claim only that portion of it, which embraces the indebtedness of Crissey to him, and not that portion which embraces the amount for which Husted was liable as his indorser. We think, that the judgment is clearly valid, so far as it respecfs the amount of such indebtedness. The consideration of the judgment is divisible ; and that part of it, which consists of the debt to Husted, is easily capable of ascertainment. The parties to the note are exonerated from any fraudulent intent in the arrangement which led to its execution. That part of the consideration which consists of such debt, is sound; and we see no reason why for that the note should not be sustained. There is no principle on which a note, the consideration of which consists of claims, some of which are valid and others invalid, can be held, in the absence of fraud, to be wholly void. In the case of Sanford v. Wheeler, 13 Conn. R. 165. this court held, that a mortgage executed by the maker to secure an unconditional note, payable on demand, made up of a debt due from the mortgagor, and also of a liability of the mortgagee for the mortgagor as surety, was valid as against the creditors of the latter, for the amount of the debt, although it was set aside for the remainder. That case is perhaps, in some respects, not so strong as the present, and settles this point. But for that part of the note which consists of the liability of Husted as indorser for Crissey, we think, that, as against Raymond Co. and Bowt-on, the subsequent attaching creditors, the judgment cannot be supported. In support of this conclusion, the cases of Sanford v. Wheeler and North v. Belden, 13 Conn. R. 165. 376. are relied on ; in which it was held, that a mortgage predicated on a note like the present, was invalid, against the creditors of the mortgagor, as to the amount of such liability, although valid as to the hona fide indebtedness embraced in the note. It may be said, and perhaps with propriety, that these decisions proceeded on the ground that the mortgages there in question were, so far as they were set aside, deemed to be opposed to the provisions and policy of our recording laws as to conveyances of real — 513 — estate, which are not applicable to the case at bar. It is not necessary to rely on those cases as being decisive of present. We think, that on principle, the note in question, as against the other creditors of Crissey, must be held to be invalid, so far as it embraces the liability of Husled, as his surety, which had not been discharged by Husled, when the note was given. It is unnecessary to consider whether, as between the parties to the note, it would be deemed without consideration, to the extent of such liability; or whether, if the maker had paid the amount of the note to Husled, to be held for his indemnity on his indorsement, it could be disturbed in his hands, by the creditors of the maker. The amount of the note has not yet reached the hands of the payee. The agreement between Crissey and Husled may, therefore, be considered as remaining executory ; and the question is, whether, as to the other creditors of Crissey, it shall be enforced. It is obvious, that the tendency of an absolute, unconditional note, given merely for the security of one who has assumed only a conditional liability for the maker, is directly to delude the creditors of the maker, and to mislead them as to his resources for the payment of his debts. It is also obvious, that it may be resorted to, as a most easy and convenient mode by which his property may be withdrawn from his possession, and become ostensibly that of the surety. The transaction on its face speaks an entirely different language from the real one ; and such transactions are always viewed by the law with the highest degree of distrust and disapprobation. It has always been considered a most important principle of public policy, especially as it regards the rights of creditors, that the form in which contracts and conveyances are made and expressed, by which only persons other than the parties to them are or can be usually governed, should correspond with and be adapted to the real intention and object of the parties. Hence it is, that the continued possession of the vendor of personal property, in pursuance of an agreement to that effect, itself invalidates the sale as to his creditors, except in the few cases where the law, for reasons the most cogent, dispenses with a change of possession. And this has been justly said to be a rule, not of evidence merely, but of policy. Mills v. Camp, 14 Conn. R. 219. So, also, — 514 — it has been uniformly held, that an absolute conveyance of - real estate, intended merely as a mortgage, is void as to the creditors of the grantor. This salutary principle we are not disposed to relax. There can be no good reason why the parties to contracts should not disclose in them their real intentions. Respecting the transaction now in question, no reason can be suggested why, instead of an unconditional note payable on demand, importing an absolute debt then due, the parties did not express its real design upon its face, or in some other appropriate form. It is indeed difficult to perceive how, even as between the parties to this note, much more as to the creditors of Crissey, the mere contingent liability of Husted, as indorser for Crissey, could form a good consideration for an absolute and unconditi >nal promise, by the latter, to pay to the former the amount of such indorsement, on demand, so that while it remained executory, it could be enforced, although, if executed by the payment of the note, it might be retained by Husted, for his indemnity. A promise by Husted to pay or assume the debt of Crissey, on which he had become surety, or to indemnify him from such debt, would constitute an appropriate and valid consideration for an unconditional promise by Crissey to pay him the amount of such debt. Without such an obligation on the part of Husted, there seems to be no loss to Husted, or benefit to Crissey. If an obligation by Crissey to pay Husted according to the tenor of the note, is held to be created, while there is no corresponding obligation by the latter to pay or appropriate the money to the discharge of the debt guarantied by him, or to indemnify Crissey against it, the effect of the transaction would be to deprive the creditors of Crissey of the benefit of his property to that amount, and appropriate it to the creditors of Husted, which would, of course, operate as a fraud on the creditors of Crissey. In the present case, no such promise by Husted is shown. A similar view of this subject is taken by the supreme court of Massachusetts, in Little v. Little, 13 Pick. 426. where it was held, that a note payable on demand, given to a surety, is without consideration, unless he promises to pay the obligation on which he had become surety, or to indemnify the maker of the note against it; and that even in that case, such surety can recover in an action on the note, — 515 — only such sum as he shall prove, on the trial, that he has paid on such obligation. We think, therefore, that the note, and consequently the judgment recovered on it by Husted, cannot, as against Raymond Co, and Bowton, be upheld as to the amount for which he was liable as the indorser of Crissey. It is next claimed by Raymond éf Co. and Bowton, that the said note and all the proceedings on it, are void, under the act against fraudulent conveyances, and also under the act in addition thereto, passed in 1828, prohibiting conveyances by insolvent debtors of their property in trust, unless for the benefit of all their creditors. It is found, that, when said note was given, it was agreed between Crissey and Husted, that if the latter could find property to attach sufficient to secure him for Crissey’s indebtedness to him, and his liability as in-dorser, and also to pay a certain outstanding note due by Crissey to one Slosson, Husted should assume the payment of that note, and its amount should be allowed on the note given by Crissey to Husted. It appears, however, that the amount of Slosson’s note was not embraced in the judgment obtained by Husted. To the claim that this is affected by the general act against fraudulent conveyances, it is sufficient to say, that Husted is entirely exonerated from any fraudulent intent in the arrangement made between him and Crissey; and we are not aware of any principle of law, which pronounces it fraudulent. Nor, in our judgment, is this transaction Within the act of 1828. A bona fide agreement between Husted and Crissey, by which the farmer was, in a certain event, to pay the debt due to Slosson by Crissey, and reimburse himself out of the property of the latter, is not, in any sense, a conveyance or agreement in trust, either for the benefit of Slosson or Husted; and it is neither against the letter nor spirit of that act. Bates & al. v. Coe, 10 Conn. R. 283. Raymond dr Co. and Bowton further claim, that Husted should be ordered to sell the estate conveyed to him by Cris-sey and his wife, and apply the avails to his judgment, before appropriating to the payment of said judgment any portion of the fund in the plaintiff’s hands. This claim is founded on the doctrine which is supposed to prevail in courts of equity, on the subject of marshalling securities. It appears to be well established, that where one creditor has security on two — 516 — funds of hie debtor, and another creditor has security for his debt on only one of those funds, the latter has a right in equity to compel the former to resort to the other fund, if it is necessary for the satisfaction of both creditors, provided it will not prejudice the rights or interests of the party entitled to the double fund, nor do injustice to the common debtor, nor operate inequitably on the interests of other persons. This doctrine, however, prevails only where the parties seeking aid are creditors of the same common debtor, and have demands against funds, the property of the same person. Hence, in case of a joint debt due to one creditor by two persons, and a several debt due by one of them to another creditor, if the joint creditor obtains a judgment against the joint debtors, and the several creditor subsequently obtains judgment against his several debtor, a court of equity will not compel the joint Creditor to go against the funds of one of his joint debtors so as to leave the second judgment in full force against the funds of the Other several debtor ; at least, it would not do so, unless it should appear, that the debt ought to be paid, by one of the debtors only, or there should be some other supervening equity, which should furnish a ground for the interposition of the court. 1 Story’s Eq. Juris. 588. 2 Swift’s Dig. 155. 1 Johns. Ch. R. 499. 4 Johns. Ch. R. 17. “ We have gone this length,” said Lord Eldon, in Ex parte Kendal, 17 Ves. 520. “ if A has a right to go upon two funds, and B upon one, having both the same debtor, A shall take payment from that fund to which he can resort exclusively, that by those means of distribution both may be paid. That takes place when both are creditors of the same person, and have demands against funds, the property of the same person. But it has never been said, that if Í have a demand against A and B, a creditor of B shall compel me to go against A, without mure ; as if B himself could insist, that A ought to pay, in the first instance, as in the ordinary case of drawer and acceptor, or principal and surety, to the intent that all obligations arising out of these complicated relations may be satisfied. But if I have a demand against both, the creditors of B have no right to compel me to seek payment from A, if not founded on some equity giving B the right, for his own sake, to compel me to seek payment from A.” He accordingly refused relief where the creditors of four — 517 — surviving partners sought to have the debts of the partnership paid out of the assets of the deceased partner, so that the dividend of the estate of the survivors, who were bankrupts, might be increased in favour of their exclusive creditors, without showing that the assets of the deceased partner ought, as between the partners, to pay their debts, or that there was any other equity to justify the claim ; and he says: “ Indeed, there might exist an opposite equity, of compelling the creditors to go first against the property of the survivors, before resorting to the estate of the deceased partner.” Chancellor Kent followed the same principles, in Dorr v. Shaw, 4 Johns. R. 17. As said by Judge Story, “the creditors of one of the debtors cannot, in any just sense, work out any right, except through the equity of the debtor or partner under whom their title is derived.” — § 645. Applying these just and equitable principles to the present case, the objections to the claim we are considering, are insuperable. In the first place, the property constituting the two funds did not wholly belong to Crissey. One portion of it was his, and the other that of his wife. It is now sought to appropriate the latter, in preference to the former, to the payment of his debt to Hasted. As between Crissey and his wife, she appears to stand in the relation of surety in the transaction before us. Her property is conveyed only collaterally for the payment of certain of his debts, and was never primarily liable for them. To appropriate her property, in the first instance, rather than his, to the payment of his debts, would, therefore, be most unjust and inequitable in itself, as well as manifestly contrary to her intentions, especially respecting the debt due to Johnson and Ayres, as is apparent on the face of the agreement executed by Hasted. It would seem, that, as between her and those setting up this claim, her equity is decidedly the strongest. At all events, if in any case, a court of equity would compel one creditor, for the relief of another, to resort to a fund not the property of the common debtor, in preference to his, it would first require the creditor asking it to show a state of facts which would raise a decided equity in his favour, which is not done in the present case; nor would the court them so interfere, without affording the owner of the property an opportunity to be heard. But, in the next place, as to the property conveyed by Mrs. Crissey, — 518 — Raymond Sf Go. and Bowton have no superior equity to Johnson and Ayres, which it is dearly necessary for them to show, before they can claim that the latter shall be postponed. It was conveyed by her, specifically, for the benefit of Johnson and Ayres; and it is difficult to perceive w'hy they have not at least as good, if not a better right, to require that the debt to Husted shall, for their benefit, first be satisfied from the property attached, than Raymond Co. and Bowton have to require that it shall first be paid from that in which Johnson and Ayres have a specific interest, and to which Raymond <f* Co. and Bowton have not even the rights of general creditors. Without pursuing the subject farther, we are of opinion, that this claim is untenable ; and that to sanction it would be a palpable perversion of the principle on which it is sought to be sustained. The plaintiff is entitled to retain out of the fund in his hands the sum found to be due to him for his trouble and expenses in relation to the property attached, and also to his reasonable expenses in this suit. The superior court is advised to pass a decree in conformity with the foregoing views. In this opinion the other Judges concurred.