Kennelly v. Kelly

Carpenter, J. On the third of March, 1871, John Kelly and Neal P. Kelly owned blackacre, and John Kelly owned whiteaere. On that day John Kelly borrowed $3,000 of the Chelsea Savings Bank, Neal P. Kelly signing with him and for his accommodation a note for that amount. That note was secured by a mortgage of blackacre and whiteaere, jointly executed by the owners. On the 20th of November, — 337 — 1872, the note being unpaid, John Kelly sold whiteacre to Bernard Kelly, with covenants that the same was free from all incumbrances. In October, 1873, Bernard Kelly died intestate, whiteacre descending to his heirs. In March, 1880, Ferris W. Cady, assignee of the estate of John Kelly, an insolvent debtor, pursuant to an order of the court of probate, sold John Kelly’s interest in blaekacre to James Kennelly. In May, 1882, James Kennelly, not knowing that the money obtained from the savings bank was for the benefit of John Kelly alone, paid to the bank the full amount of the note, and caused the bank to transfer the same and assign the mortgage to his son, the plaintiff. Upon these facts the court decreed a foreclosure against James Kennelly and Neal P. Kelly, the owners of blaekacre, and dismissed the complaint against the heirs of Bernard Kelly, the owners of whiteacre. The plaintiff and Neal P. Kelly appealed. As between John and Neal P. Kelly, it was John’s debt. He was bound to pay it all; and if Neal P., or his property, was required to pay any part of it, he was bound to indemnify him. The whole burden of the security therefore, as between the makers of the note, in equity rested upon whiteacre and John’s interest in blaekacre. When John sold whiteacre, with covenants against incumbrances, he transferred that burden to his interest in blaekacre; and if that was of sufficient value, Neal had a right to insist that it should pay the whole debt. The savings bank, however, was not bound bj the equities existing between the makers. In addition to the obligation resting upon John to pay the whole debt as the real debtor, he had obligated himself to relieve whiteacre of the incumbrance by the covenants in his deed to Bernard. So far forth, therefore, as Neal P. and Bernard’s heirs are concerned, the note was for John to pay. How did James Kennelly stand after he purchased John’s interest in blaekacre ? The claim that the whole debt rested on James Kennelly cannot be maintained; and for the reason that, when he purchased the equity of redemption, lie purchased it as it — 338 — appeared of record, supposing that Neal was equally interested with John. He had no knowledge of the arrangement between them, he did not assume the mortgage debt, and did not otherwise assume any personal responsibility. The mere purchase of an equitjr of redemption assumes nothing, and risks nothing except the interest purchased. That being so, how did he stand after' he purchased the mortgage note ? We cannot accede to the claim made in behalf of Neal P. Kelly, that it was a payment of the note, and operated to free all the land of the mortgage. As we have before said, when he purchased the equity of redemption he did not assume the mortgage debt or any personal responsibility. He stood in the shoes of John Kelly in respect to the land, but not in all respects as regards the debt. It is not the same, therefore, as it would have been if John Kelly-had taken up the .note, for it was not his debt personally, and it was Kelly’s. John Kelly could pay his debt, but he could not purchase it. Jamés Kennelly, as the case stood, could purchase an interest in the note. . It follows therefore, that the plaintiff acquired, and now holds, some rights in the mortgage debt; and that advances us another step in our inquiry. What are those rights? Obviously such rights only as his father would have had. What rights, then, did he acquire by paying or purchasing the note ? And first, what right did he acquire against the heirs of Bernard Kelly ? It is very clear that the bank would have had a right to a foreclosure against them, and so would any disinterested person purchasing the note in good faith. The conveyance to Bernard did notimpair the security in respect to them. The plaintiff insists that James Kennelly stands upon the same high equitable grounds. We think not. This claim has. already been partially ánswered ; but we will consider it further. The claim ignores the fact that James Ken-1 nelly is an owner of the equity of redemption; and that as between himself and the other owners a portion of the debt in equity belongs to him to páy; and' that'portion as between himself and Bernard’s heirs is exactly measured by the value of the one-half of blackacre, which he purchased subject to — 339 — -the mortgage. If that is sufficient to pay the whole -debt, ■then the debt is paid as to them, and they are discharged; •if insufficient, then the debt is paid to the extent of that value, and as to the unpaid balance, James Kennedy is a purchaser. ■That is to say, he is bound to exhaust his interest in black-acre before he can touch whiteacre. And then he may resort to whiteacre. In this his position is different from that of John Kelly, had he paid or purchased the note. John Kelly could not have resorted to whiteacre at ad, for two reasons: the whole debt was his to pay, and he had covenanted with Bernard Kelly to free whiteacre of the incumbrance; and therein exists the exemption which Bernard Kelly’s heirs would have enjoyed. But James Kennedy was under no personal obligation to pay the debt, and he was no party to the covenant with Bernard Kelly, and was unaffected by it personally, although the land which he purchased was thereby charged with an additional burden. We cannot treat the whole note as paid, for he was under no personal obligation to pay it ad; it was not for his interest to do so, and manifestly he did not intend to do so. In the face of these facts the law will- not presume that he paid it. Whiteacre is therefore holden for the balance of the note after deducting the value of Kennedy’s interest in blackacre. Counsel for Bernardos heirs contend that white-acre is discharged on the authority of Sanford v. Hill, 46 Conn., 42. This case differs from that. There several pieces of land were mortgaged to secure one debt. The mortgagor sold one piece to Hid, covenanting that it was free from incumbrances. He subsequently sold another piece subject to the mortgage to Sanford. Afterwards the mortgagee foreclosed and Sanford redeemed. He then sued Hid for a contribution. The court held that he could not recover. But it- appears in that case that the land purchased by Sanford was of sufficient value to pay the whole debt. Secondly, what right did he acquire against Neal P. Kelly ? When Neal signed the mortgage deed he charged his land, with the payment of the whole debt. "As we have — 340 — seen, he did so for the accommodation of John. While the creditor had a lien on it for the full amount, John, had he paid the debt, would have had no claim upon it. James Kennelly who paid the note stands in the shoes of John to this extent; he must submit so far as Bernard Kelly’s heirs are concerned to have the whole of- his land applied to the payment of the debt. But his relation to Neal is different. Neal is a maker of the note and primarily liable for the whole debt. Had he simply mortgaged his property to secure John’s debt without being personally liable, then Kennelly could not have resorted to that security until his own land was exhausted; and if that was sufficient to pay the whole debt that would release the security furnished by Neal. But Neal did more. He signed the note and thereby became personally liable for the whole debt; so that when Kennelly bought or took up the note we must presume that he did so relying on the personal responsibility of Neal. He might be willing to redeem knowing that Neal was ultimately liable for the debt, after deducting the value of one half of blackacre, but without such liability the presumption is that he would not redeem unless it should appear that his own land is worth more than the incumbrance. • There is some embarrassment in determining to what extent the decree is erroneous, arising from the fact that it does not appear what the value of Kennelly’s interest in blackacre is. If that value is equal to the full amount of the debt then the whole debt is paid as to Bernard Kelly’s heirs, and the complaint as to them should be dismissed. But as Neal Kelly is a maker of the note and presumptively liable for one half the debt, we think in that case the plaintiff is entitled to a decree against him for that amount. If that value does not exceed one half the debt, then the plaintiff is entitled to a decree for the balance against Neal P. Kelly and Bernard Kelly’s heirs. If it exceeds one half the debt, and is less than the whole, then the plaintiff is entitled tó a decree against Bernards’ heirs for the balance, and -against Neal P. Kelly for one half of the debt. If on — 341 — the foreclosure Bernard Kelly’s heirs shall be compelled to pay any portion of the debt, they will have equitable rights against Neal P. Kelly’s half of blackaere, to be adjusted in the present or a future suit. Thus it is clear that the decree requiring Neal P. Kelly to pay the full amount of the debt or be foreclosed, is erroneous; and, as injustice may have been done the plaintiff, and probably was, in dismissing the complaint against Bernard Kelly’s heirs, that portion of the judgment also must be reversed, although it is possible that the court will ultimately come to the same result as to that part of the case, upon a more complete finding of the facts. In this opinion the other judges concurred.