Lewis v. De Forest

Waite, J. The first question is, whether the mortgages of the real estate are valid as against the subsequent attaching creditors. Immediately after the execution of these mortgages, the property was attached and subsequently set off, upon executions, as the property of De Forest and Hine, to Johnson, Bushnell & Rand. Unless the property can be holden, by virtue of the mortgages, the title has become vested in the levying creditors. The object, it is said, was, not to secure the payment of — 442 — any existing debt, but to indemnify the mortgagee against a contingent liability. But that liability had been previously assumed ; and Lewis had as strong claims for indemnity, as any creditor had, for the payment of his debt. The principal objection, however, relates to the vagueness of the condition. It does not, it is said, specify the liabilities, in such manner, that the creditors can learn from the record, either the precise extent of the incumbrance, or the means, by which, upon inquiry, that extent can be ascertained. It could be of no use to inquire of the parties ; because the deeds state, that they were unable to give the requisite information. The case, however, seems to fall directly within the principle recognized by the case of Merrills v. Swift, 18 Conn. R. 257. There, the mortgage was to secure the payment of 1,500 dollars, which the mortgagor owed on book, and by several notes, without specifying the amount or date of any particular note. Yet as the amount of the indebtedness was given, the mortgage was holden valid. Here, the extent of the mortgagee’s liability is given ; and the committee has found, that a liability to that extent existed, at the time of the execution of the mortgages. The omission to describe the particular notes in the former case, was holden not to be fatal to the deed ; a like omission in the present deeds, can not have any greater effect. And although that case went to the very verge of the law upon this subject, yet we can not discover sufficient ground for distinguishing the present case from the former. The only material difference is, that one was given to secure a debt of a specified amount, the others to secure the mortgagee against liabilities to a specified extent. The claim for indemnity, in the latter case, as we have already said, is as strong as in the former. Again, it is said, the mortgage to Wm. B. & G. Lewis is not good, as against the attaching creditors; because their debt is described in the deed as being 5,000 dollars, when in truth it was but 2,505 dollars, 85 cents. But the deed does not profess to give the precise amount of the debt. It is described, as being about the sum of 5,000 dollars. Debts of that character are often unliquidated, and consequently, the precise balance can not always be given. Besides, there is — 443 — no pretence of any fraudulent misrepresentation of the amount of the debt. The case, in this particular, is no stronger in favour of the attaching creditor, than the one cited, where the amount of the book debt, aside from the notes, was not given. 2. The next inquiry is, who is entitled to the property in question? Lewis, or these creditors, for whose debts he is still liable, by reason of his endorsements ? As against De Forest and Hine, he undoubtedly would be entitled to a decree of foreclosure. He has already paid more than 40,000 dollars of their debts ; and he has a right to call upon them to reimburse him, or be foreclosed of their right to redeem the property mortgaged for his security. But the controversy is not with them. The claim upon the property is made, by those creditors, whose debts still remain unpaid, and for the payment of which Lewis continues liable. It is as much his duty to pay them, as it was to pay the other creditors. And it is no answer to their claim, that he has already paid more on account of the property, than the whole is worth. The mortgages were given for his protection, and created a trust for the benefit of these creditors, to whom he was liable. His duty was, to appropriate the property in discharge of his liabilities. So long as he remained solvent, and his creditors did not interfere with his management of the funds, he might apply them as he pleased in discharge of his liabilities. Such disposition he has already made of the personal property mortgaged to him. He has sold it, and paid over the proceeds to such creditors as he preferred ; and although they may have received more than their proportional shares of the property mortgaged by De Forest and Hine, it is now too late to disturb that disposition. But the property in question remains, as it was, when mortgaged to Lewis. He calls upon the court to give him a perfect title. But his creditors come in, and shewing his insolvency and consequent inability to pay, otherwise than by means of the property in question, ask that it may be applied in fulfillment of the trust created by the mortgages. The case, under these circumstances, comes directly within the principles recognized in the case of the New-London Banks v. Lee & al. 11 Conn. R. 112. There, it was holden, — 444 — that the creditors of an indorser, who had become insolvent, and had refused to apply the funds mortgaged to him in payment of his liabilities, were entitled to the aid of a court of chancery, in enforcing the application of those funds. So, in the present case, Lewis, having become insolvent, has no claim upon a court of chancery, for its aid in depriving his creditors of the funds conveyed to him for their benefit. 3. Another question arises respecting the extent of Elliott's interest in the property. He claims a preference, as against the other creditors, in consequence of Lewis’s agreement to give him that preference. Had Lewis, before any claim was made upon the property by these creditors, applied it, in payment of those debts for which Elliott was liable, such disposition would not now be disturbed. But as yet he has made no such disposition of the property ; nor has he conveyed it, either to Elliott, or any other person. It remains as it was, when first mortgaged. Lewis has simply entered into an agreement, that he will apply the funds in his hands, to the payment of those debts, for which Elliott is liable, and will hold them in trust for that purpose. Can this unexecuted agreement be enforced ? As against Lewis, it might be. But, in consequence of his insolvency, his interest in the property is made to yield to the superior equity in favour of his creditors. The question then is, whether Elliott presents a stronger claim to be enforced in equity, than those other creditors ? And we are inclined to think, that he does not. He has not, in consequence of that agreement, assumed any new liability. He has simply assisted Lewis in paying debts, for which both were previously liable. But as these creditors, who have been thus paid, would have been entitled to come in, and share in the property in question, had it not been for such payments, we think Elliott is entitled to stand in their places, and be treated as a creditor of De Forest and Hine, to the extent of the debts paid and assumed by him. It is claimed, that this decision conflicts with that in the case of Thrall v. Spencer, 16 Conn. R. 139. In that case, the indorser parted with his interest, without fraud, and before any claim was made by the creditor. The latter had lain by, for a long period of time, without making claim to any equitable lien upon the property. But in the present — 445 — case, and in that of the New-London Banks v. Lee & al. the lien is insisted upon, by the creditors, while the property remains in possession of the indorser. 4. The claim of the Phoenix Bank, under their foreign attachment suit, stands upon similar ground. Had they been able to go on, and enforce the payment of their debt in their action at Saw, a court of chancery might not interfere. But when they are obliged to resort to that court, and invoke its aid against the claims of the other creditors ; to obtain that aid, they must shew a superior equity in their favour. This, we think, they have failed to do. 5. What share do the sons of Milo Lewis take in the “ Bethany property,” mortgaged to them and their father jointly? The mortgage was given to the latter, to secure him as an indorser to the amount of 50,000 dollars ; and to the former, the payment of their book debt, supposed, at the time, to amount to about 5,000 dollars. Upon examination, it is found, that the liabilities of the father amount to the sum specified in the deed ; but the book debt of the sons amounted only to the sum of 2,505 dollars. 85 cents. As the object of the conveyance was merely to secure these two claims, the mortgagees take in proportion to their respective claims-that is, in the proportion of 50,000 dollars to 2,505 dollars, 85 cents. The fact that Milo Lewis had other property mortgaged to him as security against his liabilities, under the circumstances of the present case, can not affect his interest in the “ Bethany property.” For, it appears, that all the property mortgaged will be insufficient to discharge his liabilities. Had the other property been sufficient for that purpose, his sons might insist upon his resorting to that, for the purpose of letting them in to a greater share in the “ Bethany property.” But such is not the present case. 6. It appears from the report of the committee, that Thomas Lewis, under authority from Milo Lewis, has received the rents and profits of the real estate, since the execution of the mortgages; and is accountable for the same. But he has a debt against Milo Lewis, greater in amount than that for the rents and profits. The question is, how far he has a right to set off one demand against the other. As Milo Lewis has paid a large amount of the debts of Do — 446 — Forest & Co. from his own private funds, he has become a creditor of theirs, to the amount so paid by him. So far as they are concerned, he had a right to apply the rents and profits toward the payment of his debt to Thomas Lewis; and the latter might set off his debt against the demand for rents. And this, we think, continued, until the creditors gave notice, that they claimed to have the property, in the hands of Milo Lewis, treated as trust property, for their benefit. Such notice, it appears, was given to Thomas Lewis, by the Phoenix Bank; and from that time, he ceased to have a right to apply the whole rents subsequently received, in liquidation of his debt against Milo Lewis. 7. The remaining inquiry relates to the costs in the suits. The bills were brought to obtain a foreclosure of certain mortgaged premises. So far as the defendants claimed merely an interest in the equity of redemption, they are not chargeable with costs, unless they elect to redeem; and then they must pay both debts and costs. 2 Sw. Dig. 197. Johnson, Bushnell & Rand attached and levied upon the property, as belonging entirely to De Forest & Co.; and if they did not acquire a valid title as against the mortgagees, they at least acquired an interest in the equity of redemption ; and having such interest, they have a right to redeem the plaintiffs. Under the circumstances, we think they ought to stand upon the same ground as the other defendants, having merely an interest in the equity of redemption, and not be subjected to costs, unless they redeem the property mortgaged. With respect to the suit of Milo Lewis, he is entitled to a decree of foreclosure, not merely for his own benefit, but for the benefit of his creditors; the Phoenix Bank, the New-Haven County Bank, the Meriden Bank, and William H. Elliott. As between these parties, no costs should be taxed against either. But as the suit was necessary for the purpose of making the property available to these parties, the costs of the suit ought to be paid out of the proceeds of the property, provided it is not redeemed. A similar decree should be passed in the other suit, brought by Milo Lewis and his sons. No costs should be taxed, either against the plaintiffs, the three Banks or Elliott; but the — 447 — costs of the suit should be paid out of the proceeds of the property, when sold. We therefore advise the superior court, to pass decrees of forclosure against all the defendants, who have no interest in the property beyond the equity of redemption ; and in case of their failure to redeem within the time limited, that the property be sold, and the proceeds of the “ Naugatuck property,” after deducting therefrom the costs of the suit and the expenses attending the sale, be divided among the creditors of Milo Lewis, viz. the Phoenix Bank, the New-Haven County Bank, the Meriden Bank, and William H. Elliott, in proportion to their respective claims against him. That the proceeds of the “ Bethany property,” after deducting the costs and expenses of the suit, in that case, be divided among the aforesaid creditors, and Wm. B. & G. Lewis, in proportion to the interest conveyed to the latter and Milo Lewis respectively, by virtue of the mortgage deed to them ; and that the share of the said creditors be divided among them, in the same manner, as the proceeds of the “ Naugatuck property.” In this opinion the other Judges concurred. Special decree.