Plain v. Roth

Mr. Chief Justice Sheldon delivered the opinion of the Court: The main question is as to the aqjplication of payments. During the time Divine held his note and mortgage he received rents from the store building. But he did not receive them as mortgagee in possession. He never was in possession of the mortgaged premises. The leases were all made by Althen, the mortgagor. It is found by the decree that during the time Divine held the note and mortgage, Althen was indebted to him on other notes to an amount which, with the interest on the note in question, exceeded all the rents Divine received, and that such other notes were paid during that time. We can have no doubt, from the evidence, that thes„e other notes were paid from these rents. The notes being unsecured, Divine had the right to apply the moneys received to their payment, instead of to the payment of his secured note, and if he had not so applied them, the law would make that application, unless Althen had directed otherwise. (Hare v. Stegall, 60 Ill. 380; Wilhelm v. Schmidt, 84 id. 183.) There is no pretense of any direction of Althen upon the subject, more than as may be shown by a certain lease from Althen to one Eriedman, made August 7, 1874, for a term of five years, at the rent of $650 per year, payable monthly, the rent being made “payable to B. L. Divine (who holds a mortgage) so long as Eriedman occupies the same, or until the mortgage is paid off, if he occupies as long. ” This would be evidence tending to show the purpose of Althen that the rents should apply on the mortgage, had all the rents received been under this lease. But Friedman occupied only one year, and paid $350 to Divine. This, and more, was applied on the Divine note, the interest for three years, to May 1, 1877, ($750,) being indorsed on the note as paid. We do not find, then, that there was any direction from Althen how the rents received should be applied, further, at least, than as to $350, and that it was erroneous to hold that they should be applied upon the mortgage debt, and not upon the unsecured indebtedness of Althen to Divine. We arrive at this conclusion entirely irrespective of the testimony of Divine in the case. Most,' if not all, of the unsecured indebtedness to Divine which was paid from the rents received, is established by independent testimony, but as, perhaps, it may not establish the entire amount, and a part may rest upon Divine’s testimony, it may be proper to consider the question of the admissibility of his testimony. It is objected to the competency of Divine’s testimony that he was interested in the event of the suit, and that he was not admissible as a witness against John E. Althen, the heir of the deceased mortgagor. The statute, in abolishing interest as a disqualification of a witness, makes the exception, that a party, or one interested in the event of the suit, shall not, of his own motion and in his own behalf, be allowed to testify therein when any adverse party sues or defends in certain representative capacities, one of them being that of heir. We are of opinion that Divine was interested in the event of the suit,—that he was interested in the record. Although he transferred the note to Plain without recourse, there was an implied -warranty on his part that the amount appearing upon the face of the note to be due was unpaid. (2 Parsons on Notes and Bills, 21; Robinson v. McNeill, 51 Ill. 225.) If the result of this suit should establish the application of the payments to be on the mortgage note, then there would be a breach of the warranty as to non-payment, and in a suit by Plain against Divine on the warranty, the record would establish the breach, and the amount of the liability,—hence the interest of Divine to show that the payments were on other indebtedness than the note. But it is claimed that it was indifferent to Divine on which indebtedness the application is made,—that if made on the mortgage note, and so he be made liable to an action by Plain, he would have his action over against the estate on the unsecured indebtedness, and hence his interest is balanced. Without stopping to inquire how this might be were the estate solvent, so that the remedy over would be productive, we are satisfied, from the evidence, that the estate is insolvent, and that the remedy over would be unproductive in satisfaction, in which case the interest of the witness can not be said to be balanced. It is said that under this exception of the statute the witness must testify in his “own behalf,” and that the witness did not here so testify. He did not testify in his own behalf as a party, but he did testify in his own behalf as a witness. We agree with the court below in holding this witness to be incompetent. At the time John Plain received rents, when he was the holder of the Divine and Pierce notes and mortgages, he held two judgments against John Althen, one of which was a lien on the mortgaged premises subsequent to the mortgage liens, and subsequent to the lien of one other judgment, and his other judgment was not a lien, no execution having been taken out. The same remarks may be repeated, as to him, as have been made with respect to Divine, as to not being a mortgagee in possession, and as to having the rents received by Plain apply on his judgments, instead of on the mortgages he held. We must hold in regard to Plain, as we do with respect to Divine, that there is no sufficient evidence of any direction from Althen on which indebtedness of Althen the rents received should be applied, and therefore it was the right of Plain to have them applied on the judgments which he held which were unsecured, and not on the mortgages. There was no evidence whatever of any direction of John Althen upon the subject, except the testimony of John E. Althen, that two or three months before his father died he heard a conversation between him and Plain, wherein Plain asked his father what he should do with the money received as rents from the store, and asked if he could apply it on the judgments he held, and his father told him he wanted it applied on the mortgage. John Plain contradicts this, testifying that he never received any directions from John Althen how to apply the money received for the rent, and denying that there was any such conversation as that .testified to by John E. Althen. We are not able to make out of this testimony any direction from John Althen as to making application of the rents received. Plain is competent to testify in regard to the conversation testified to by John E. Althen, although he would not otherwise be a competent witness. We think the decree improperly ordered that the store lot should first be sold. The rule as to compelling a mortgagee to satisfy his claim out of one fund to the exclusion of another has no application between debtor and creditor,—it applies only as between different creditors. Rogers v. Meyers, 68 Ill. 92. The fact that a mortgage covers a homestead, and also other property which is subject to a subsequent judgment lien, gives the debtor no right to have the latter property applied first to the payment of the mortgage debt, so that he may save his homestead. Jones v. Dow, 18 Wis. 241; White v. Polleys, 20 id. 503. It is suggested that this order of sale can do no harm to Plain, and therefore there is no error to give him any just cause of complaint; that as both his mortgages are prior to Roth’s mortgage, all he has to do is to first offer the store lot at public sale, and if there is not sufficient bid upon it to satisfy both his mortgages, then to have the homestead lot offered and sold. This entirely overlooks Plain’s judgment, which is a lien on the mortgaged premises,—the second judgment lien in order. The situation is, that Plain has a mortgage which covers only the store property; and another which covers the store property and the homestead, property, in which there is a waiver of the homestead, and he has a judgment which comes next after the Seus judgment. Now, it would he for the interest of Plain to have the homestead property first sold here, so that there will he more left which he may resort to for the payment of his judgment, and we think he should he left at liberty to have sale made in the order he may choose. The decree must be reversed, and the cause remanded for further proceedings in conformity with this opinion. Decree reversed.