Sibley v. Baker

Cooley, J. This is a foreclosure case, and the questions which arise-relate to the marshaling of securities. It seems that the mortgagor first gave a mortgage to complainant on three parcels of land, which for our present purpose we may designate as parcels one, two and three. Afterwards he gave a second mortgage to complainant on parcels one and two, and still later a third mortgage to defendant Winchester on parcels two and three. The complainant foreclosed the second mortgage in chancery, making Winchester a party to the suit, and the decree which he obtained directed that parcel two, for Winchester’s protection, should be sold last. The sale was made as directed, and defendant Isbell became the purchaser of both parcels for a sum in the aggregate equaling the amount due upon the decree, taking them subject to the first mortgage. The present suit was after-wards brought for the foreclosure of the first mortgage, and in this it is shown that defendant Isbell has become the purchaser of complainant’s interest in parcels one and two, but on the understanding that when sale is made on the foreclosure of this mortgage, parcel three shall be sold [314] first. And the question now is whether the decree shall be in accordance with this understanding, or whether, on the other hand, defendant Winchester has not a right to demand that the first parcel to be sold shall be parcel one. The circuit judge thought he had, and made decree to that effect. To determine whether this .decree was right, we may apply some very simple tests. It must be conceded that complainant while holding the first and second mortgages had a right to have the latter protected on any foreclosure of the former, so far as the land mortgaged could give protection; the just presumption being that both parties understood when giving and taking the same that both securities were to be made effectual, and not that any rule of law was to be applied by means of which one should be made to destroy the .other. But in order to protect the second mortgage, the mortgagee must have had the right, on the foreclosure of the first mortgage, to have parcel three sold first, since, as the second mortgage only covered parcels one and two, if those should be first resorted to for the satisfaction of the first mortgage, and sufficient for the purpose should be realized from them, the effect would b.e that the second mortgage would thereby be cut off, and complainant would have received no benefit whatever from parcel three having been included in his mortgage. It will not be claimed, we suppose, that the giving of a third mortgage could have the effect to take from the holder of the others any right he had to make his securities available; and if not, then parcel three, after such mortgage was given, must have remained as it was before, the primary fund for the satisfaction of the first mortgage. And this order of sale being established for the protection of the second mortgage, a purchaser on the foreclosure of that mortgage must have a right to insist upon being pro- - [315] tected in Ms purchase, inasmuch as the right in the mortgagee to have the securities marshaled would be of no value to him if it did not continue for the protection of the purchaser. This being the law, we must suppose defendant Winchester to have been aware of it, and to have understood when he took his security on parcel three that it was liable to be the first resort for the satisfaction of the first mortgage. We shall reach the same conclusion by a simple application of the familiar rule, that where a mortgage is foreclosed which covers several parcels, some of which have been sold, or incumbered by the mortgagor since it was given, the sale of the parcels shall be decreed to be made in the inverse order of their alienation. This rule, as between the first and second mortgages, requires parcel three to be first sold when the former is foreclosed. If those mortgages had been given to different persons, this would be conceded; but we think it can make no difference that both were given to the same person. We perceive no reason in the fact of complainant holding one mortgage which should make a second any less available to him as a legal security, than it would have been if taken by a third person; and it could not be equally available if a purchaser under it would not be equally protected. And in this connection it may be well to bear in mind the design and object of the rules for the marshaling of securities at the instance of subsequent incumbrancers. Those rules never assume to take from a prior incumbrancer any substantial right; their purpose is to require the prior incumbrancer to-enforce his just rights in such order of priority as, without loss to himself, will protect, as far as may be practicable, the subsequently acquired interests of others. But the-claim of defendant Winchester, if conceded, would have deprived complainant, as owner of the second mortgage, of a substantial right, as we have already seen. [316] The right of this defendant may also be tested by ascertaining what privilege of redemption he would have had if the first mortgage had been foreclosed under the statute, and all the parcels sold separately. Parcel three he might redeem, because he has a mortgage on the equity of redemption in that, which has never in any way been cut off or extinguished. But he could not redeem parcel two and claim a right to be subrogated to the rights of the mortgagee therein, because his lieu on the equity of redemption in that parcel has been extinguished by the foreclosure and sale under the second mortgage. Neither could he redeem and claim the like right of subrogation as to parcel one, for upon that he never had any lien, nor has he had any right in respect to it, except that it should be made use of as a fund for the protection of his mortgage. But that right was claimed by, and conceded to, him on the foreclosure of the second mortgage, and to concede it again, on the foreclosure of the first, would be inconsistent with the corresponding right on the part of the purchaser under the second mortgage, which, being first in date, is also first in equity. It is said on behalf of defendant Winchester, that he has never, until now, had an opportunity to protect his interest in parcel three, because, had he bid, at the sale under the prior foreclosure, a sum greater than the amount due on the decree, it must have been paid over to the mortgagor, and consequently would have been of no avail in reducing the securities. But this is a mistake; any surplus on that sale must have been paid into court, and would have been applied on some one of the securities on the proper petition being presented. It is also said that defendant Isbell made his purchase under the second mortgage subject to the first. This appears to. be true, but it also appears that it was part of the arrangement that -when' the' first mortgage was fore [317] closed parcel three should be first sold. As an agreement to this effect was in accordance with the order established by law, and therefore wronged no one, we discover nothing to preclude its being made. The substance of the arrangement was, that he bought subject to the first mortgage, but with the understanding that when that mortgage was foreclosed, the relative rights of parties as then established by law should not be disturbed. ■ The decree of the circuit court in chancery must be so modified as to conform to these views, and the cause must be remanded for further proceedings. The costs of defendant Isbell on this appeal will be taxed in the cause and added to the amount for which sale is to be made under the decree. The other Justices concurred.