Whittaker v. Belvidere Roller Mill Co.

Grey, V. C. This case has been discussed upon these points: First. Was there such a tender of the amount due the complainants that it was effectual to require the complainants to accept the money paid to the clerk, and thus stop the interest and costs ? Second. Is the bond (one of those secured by the complainants’ mortgage) formerly held by Edward B. Searles, and now claimed to be held by Henry B. Miller, still a lawful and unsatisfied claim ? Third. If a sale of the mortgaged premises shall be directed, what shall be the order of the sale and application of the several parcels to the payment of the complainants’ mortgage? As to the tender. This bill has been filed in the name of Josephine Whittaker to foreclose the mortgage now in suit. Besides the complainant Whittaker, there were several other persons who held bonds secured to be paid by the mortgage, but the suit was' then in her name alone as sole complainant. The subpoenas had been issued and returned. Mr. Taylor, a lawyer, on the 13th day of January, 1896, called on Mr. Dahlke, the complainants’ solicitor, at his office, and stated to him that he represented Mr. Miller, John Morris and others; showed him $550, offered it to him, and asked him if he would assign the Josephine Whittaker bond to Mr. Morris. Nothing is proven to have been said to show what right Miller, Morris and others had to make a tender or to demand an assignment. Mr. Dahlke refused to accept the money or to assign the bond. Subsequently Mr. Taylor paid the money to the clerk of the court of chancery. The amount named was intended to be the total of the debt and also the costs of this suit up to that date. At the time — 679 — of the alleged tender, January 13th, 1896, Josephine Whittaker was the sole complainant, and it is contended that the offer made satisfied her claim and terminated her right to any additional interest or costs in this suit. The efficiency of the tender claimed to have been made is denied upon the ground that the offer was not a tender of the payment of the bond, but a proposition to purchase it. To make an effectual tender, it must appear that at the time when it was made the party making it had the right to tender payment of the debt, as in the case of the debtor himself or his representatives, or the holder of the title to the estate on which the debt was a lien; or that he had the right to require a transfer of it, as in the case of subrogation of a surety, or redemption sought by the holder of some subsequent lien having that equity. The demand should clearly disclose the right of the party making the offer, so that the creditor may be notified of his duty to accept. The party to whom the tender is made must be the holder of the debt, or some person representing him who has, at the time of the tender, power to accept it, and if the circumstances call for a transfer of the debt, has also power to assign it. The offer proven in this case was clearly not one to pay and satisfy the debt. It was a request to assign it upon payment of the amount due. The attorney who made it himself testifies that the complainants’ solicitor offered to accept the money and deliver over the bond canceled. This was refused. The solicitor was willing to accept payment and cancel the bond, but he would not assign it. Yo evidence has disclosed that Mr. Morris had in his own individual capacity any position which entitled him to demand an assignment of the complainants’ bond, and if he had any such it was certainly not disclosed to the complainants’ solicitor at the time of the offer to pay the money, so that it might clearly be known in what right the demand was made; nor has it been shown that the complainants’ solicitor, of whom alone the request was made, had any power to assign the complainants’ bond to Mr. Morris either in satisfaction of payment offered or in recognition of a lawful offer to redeem. Presumably after suit was brought the bond was in the hands of the complainants’ solicitor for collection, and, if — 680 — payment was made, cancellation and delivery of the bond might be held to be incidental to the business he was authorized to do for the complainants. If anyone were entitled to an assignment of the bond, the demand therefor should, in my view, have been made upon the obligee or owner. A solicitor engaged in collecting a bond by foreclosure of a mortgage securing it, has not, as incidental to that business, power to assign it. If a demand for an assignment upon tender of amount due to a solicitor is to be supported, it must be proven that a power to assign has been given by the holder to the solicitor. The date of the subsequent payment to the clerk of this court was not stated in the answer, nor was it definitely proven, but I am satisfied that the money was not actually paid to the clerk until after the additional complainants had been admitted and some time after the answer was filed. When tender is made after suit has begun, and is set up as a defence, the money must be paid into court with the filing of the answer. Shields v. Lozear, 7 C. E. Gr. 452. To be effective, such a payment into court must precede or be coincident with the filing of the answer setting it up. The answer gives notice to the complainant that the money which the defendant contends satisfies her claim is awaiting her acceptance. If it is not in court when the answer is filed, the complainant is not required to take notice of a subsequent deposit which the defendant makes at such time as may suit his convenience. The deposit in court did, however, become forceful as against the complainant when she filed her petition asking to be allowed to take it out of court in satisfaction of her bond. This application was an acceptance of the tender, and was filed on the 23d day of March, 1896. On February 4th, 1896, long before the date of the actual payment to the clerk, or the application of Josephine Whittaker (the original complainant) for the money, the other complainants, William II. Searles and Adam B. Searles, had been admitted as complainants in respect of their $1,700 bond also secured by complainants’ mortgage, and the cause was proceeding with them as complaiuants. No pretence of a tender of the amount due on their bond has been set up. — 681 — The defence of a tender which satisfied the complainants’ claims and should have terminated the further running of interest and costs, is, therefore, a failure as against either the original or the substituted complainants. The second point argued is the question, Was the bond (secured by the complainants’ mortgage) which was formerly held by Edward B. Searles, and is now claimed to be held by the defendant Henry B. Miller, a lawful and unsatisfied claim ? The defendant Henry B. Miller, in his answer, states that long before the bill in this case was filed, he furnished the money to take up this bond, and took an assignment of it and of Edward B. Searles’ interest in the complainants’ mortgage securing that bond. The complainants’ claim is that the bond was paid by the Belvidere Roller Mill Company, under its covenant, in its deed for lot Ho. 1. On April 6th, 1895, Edward B. Searles assigned this bond to L. De Witt Taylor under .these circumstances: Taylor had procured a judgment against Searles for one of his clients, and au order for discovery &c. in aid of his execution. He heard that Searles had this bond, procured an order forbidding its payment, saw Searles, induced him to assign the bond to him (Taylor), and to allow the amount due on the judgment in part payment for the bond. Taylor paid the balance due on the bond in cash. Taylor swears that he was not then attorney for the Belvidere Roller Mill Company; that he did this with his own money, and that the bond became his individual property. Edward B. Searles intimates in his testimony that he supposed, in his dealings with Taylor, that he was receipting and discharging, and not transferring, the bond. But he does not deny that Taylor took the assignment as above stated, and that he understood Taylor was going to use it to get the money back. It is obvious that Taylor expected to collect the bond for the benefit of his client for whom he had judgment. If Taylor had paid off and satisfied the bond, there would have been no reason for Edward B. Searles allowing the judgment to be credited as part payment for the bond, which both agree was done. I think at this stage of this transaction the — 682 — bond was not paid by the Belvidere Roller Mill Company, but was lawfully transferred to Taylor and was unsatisfied in his hands. On June 22d, 1895, Taylor assigned the bond to the defendant Henry B. Miller under these circumstances: Not very long, perhaps a week or two, after Taylor had received the bond, he applied to Mr. Yetter, the secretary and treasurer of the Belvidere Roller Mill Company (the owner of lot No. 1, and under covenant to pay this bond and others secured by the complainants’ mortgage), and asked him to furnish the money for this assignment. Mr. Yetter swears he loaned the money to Taylor, and produced a check dated April 17th, 1895, indicating that at that date a check for $454.10 was drawn against the account of the Belvidere Roller Mill Company. Mr. Yetter testifies this check-of the Belvidere Roller Mill Company was given to Taylor for the bond which Taylor had taken up • that Taylor wanted to use the money which he had advanced on this bond, and a party intended to furnish it later. The company had some money at the time, and Yetter states that he, as treasurer, took Taylor’s due-bill for it and loaned him the money, not getting the bond. On June 21st, 1895, the defendant Henry B. Miller gave his check, not to Taylor, but to the Belvidere Roller Mill Company, for $450, and on June 22d, 1895, the bond was assigned to him by Taylor. It is quite evident that, from April 17th, 1895, to June 21st of that year, the money of the Belvidere Roller Mill Company had been put up to satisfy a request made upon it to raise the amount due on this bond. That company had obligated itself, by its covenant in the Ott deed, to pay this bond and others, and had paid a number of them. The death of Frederick Searles had brought the bonds to be due. In response to a'request for the money due on this bond, that company’s check was used, it is claimed, not to pay, but to loan, the amount to the holder, and two months after, on Henry B. Miller’s check drawn to the company’s order, and on which by the endorsement it appears to have received the money, the bond was assigned by the holder to Mr. Miller. How it came about that the company should be paid by Miller for a bond it claims it did not.own, and that a — 683 — transfer of the bond should be made the next day to the party who paid the money to the company, is not explained. The impression I have received from the evidence as to this transaction is that Mr. Taylor secured the bond as he testified; that he wanted the money -on it; that he demanded it of the company which had covenanted to pay it; that it could not refuse payment, and that its treasurer adopted the subterfuge of a pretended loan of the company’s funds until an arrangement could be effected by which the bond could be assigned to some one else than the company, to create the appearance that it was still outstanding. The payment by Miller to the company, while he got the assignment from Taylor, satisfies me that the company, after its payment of the amount of the bond to Taylor, was the real owner of it, and the subsequent assignment by Taylor to Miller was made at the company’s instance to avoid the appearance of payment of the bond. The company which had agreed to pay this bond was, in this view, the real owner of it from April 17th to June 22d, 1895, and being by its covenant in the Ott deed, under the construction given to such a covenant (in the cases of Klapworth v. Dressler, 2 Beas. 62; Hoy v. Bramhall, 4 C. E. Gr. 570, and Stiger v. Mathone, 9 C. E. Gr. 430), the principal debtor, and bound to pay this debt, its action was in effect a performance of its agreement to make payment of the bond; and having thus satisfied its own debt, its subsequent procurement of the assignment to Miller was a nullity as against the other parties secured by the mortgage. The third point discussed was as to the order of sale and application of the several lots mortgaged to secure the complainants’ debts. It is insisted with great vigor, for the defendant Philip M. Miller, that the undertaking of the Belvidere Roller Mill Company to pay the four mortgages as part of the consideration money of the conveyance of lot No. 1, by Levi Ott to that company, by deed of August 18th, 1890, was a personal covenant only, not attaching to lot No. 1 nor charging any equitable burden upon it to respond first to the payment of the four mortgages assumed to be paid by the company as part of the consideration of the conveyance.. It is further urged that the — 684 — conveyance to Roderick B. Searles of lots Nos. 2, 3 and 4 by Adam B. Searles, was in fraud of his (Adam’s) creditors, and that lots Nos. 2, 3 and 4, the title to which stands in the name of Roderick B. Searles, the fraudulent grantee, should be treated as if held by Adam B. Searles, the- fraudulent grantor, and that they should be first sold to pay the mortgage debts. The mortgage being foreclosed in this suit is subsequent to two of the mortgages named in the deed as assumed to be paid by the Belvidere Roller Mill Company, grantee. As to these two, the bill asks no relief and asserts no equity. There is no reason that the holders of these prior mortgages should be made parties. The sale will be subject to these prior liens. The other mortgage given by Searles to Morris and others on May 23d, 1890, has been foreclosed, and the defendant Philip M. Miller, by purchase at the sheriff’s sale, holds title under it. The question involved is the superiority of the equities of the several contesting parties — the complainants, the defendant Philip M. Miller and the defendant Roderick B. Searles. To determine this it is necessary that their relations to each other, touching the four several tracts constituting the mortgaged premises, should be first ascertained. On and prior to May 22d, 1890, Adam B. Searles owned all of the tracts. The complainants are his creditors as holders of his bonds secured by complainants’ mortgage, which became a lien on all four tracts on May 22d, 1890. The defendants Henry B. Miller, John Morris and L. De Witt Taylor claim to occupy the same position. The defendant Philip M. Miller is the purchaser of lot No. 1 of the mortgaged premises, under the foreclosure of a mortgage made by Adam B. Searles to Robert E. Morris and others on May 23d, 1890, and is entitled to stand in the place and assert the equities of the Morris mortgage. All these parties are, therefore, creditors, or entitled to the equities of creditors, of Adam B. Searles, the complainants, and the defendants Henry B. Miller, John Morris and L. De Witt Taylor, claiming under the complainants’ mortgage as of the date of May 22d, 1890, and the defendant Philip M. Miller, under the Morris mortgage as of the date of May 23d, 1890. — 685 — At the time of the making of botli these securities Adam B. Searles was in great financial distress. These two mortgages were both made to secure the payment of his. bona fide debts. He was unable to effect a settlement with another of his creditors, and to prevent him from realizing his claim, Searles conveyed lots Nos. 2, 3 and 4 (mortgaged to the complainants) to his son, Roderick B. Searles. This is the testimony of Adam B. Searles himself. He also conveyed lot No. 1 (the mill property) on the same day to one Levi Ott, for the nominal consideration of $1, in order, as he testifies, “to give time that I might dispose of this property. * * * The proceeds of the property if it was sold would come to me.” In the deed to Ott was inserted a recital to save Qlt’s claim, as one of the mortgagees in the Morris mortgage of the lot conveyed, from the operation of a merger. Both Ott and Roderick B. Searles appear to have known that the purpose of these conveyances was to delay the creditors of Adam B. Searles. The* latter appears to have had the control of the property conveyed by both deeds quite as completely after as before the conveyances were made. Indeed, it is fully testR fied by Adam B. Searles himself that the deed to Roderick was made to avoid the judgment about to be entered in a suit pending in favor of the pursuing creditor, Mr. Hess, and he (Adam) has had the rents ever since. The deed to Ott was made at the same time and was parcel of the same transaction induced by the same purpose, and the same control was retained by Adam B. Searles over lot No. 1 conveyed by it. In my view, both these deeds were made to hinder and delay creditors, and were fraudulent and void under the statute of frauds. They must, therefore, so far as they relate to the claims of these creditors, be treated as if they were ineffective and the title still remained in Adam B. Searles. When the mortgage of the complainants was made on May 22d, 1890, it became a lien on lots Nos. 1, 2, 3 and 4. When the mortgage to Morris and others was made on May 23d, 1890, on lot No. 1 only, the mortgagees, Morris and others, took with their mortgages an equity ehtitling them to require the complainants to resort in the — 686 — first instance for satisfaction of their mortgage to the other lots, Nos. 2, 3 and 4, mortgaged to the complainants, upon which the Morris mortgagees liad no lien, and to look to that lot No. 1, on which they had a lien, only for the residue of the complainants’ claim which might remain unpaid from the sale of the other lots. This principle of so marshaling the assets of a debtor that all his creditors may be paid, is a well-established head of equity jurisprudence, and is always applied in cases where it is not injurious to the superior claim of the precedent mortgage, and no superior equity has affected this property. In the matter in hand there does not appear to have existed, at the time the Morris mortgage was taken, any reason why the application of this rule would affect the complainants’ lien injuriously. All the mortgaged lots then belonged to the common debtor, Adam B. Searles. Lot No. 1 was a separate and distinct property having a special use. Lots Nos. 2, 3 and 4 are not shown to have had any such relations to No. 1 as would require that they should all be sold as an entirety. As the parties stood at the time the Morris mortgage was made, the only party to be affected was Adam B. ■Searles, the common debtor. All the lots must, in any event, stand to pay the complainants’ mortgage, but the complainants cannot resist such order of application for that purpose as may protect the claims of the Morris mortgagees, if it is not injurious to the complainants. Adam B. Searles’ interest in the property, held by him when the Morris mortgage was given, might be affected, but by the mortgages which he had made he had charged the lots with the payment of these debts, and he had no equity which he could assert against such an application of the premises mortgaged as would most nearly pay all of the mortgages. As against him the right of the creditor to have the assets marshaled was absolute. Herbert v. Mechanics’ Building and Loan Association, % C. E. Gr. SOS, 504-. As between the parties interested in the lots at the time the Morris mortgage was given, the right of the Morris mortgagees to have the assets marshaled seems to have been unquestionable. It only remains to inquire whether the subsequent events have taken from them their existing equity. After the Morris mortgage had been given and recorded, the — 687 — deed conveying lots Nos. 2, 3 and 4 to Roderick B. Searles was made. If this had been a bona fide deed for a valuable consideration paid, without notice of the outstanding equity of the Morris mortgagees to have the assets marshaled, the purchaser would have received an interest superior to the latent equity of the Morris mortgage. Herbert v. Mechanics’ Building and Loan Association, 2 C. E. Gr. 499. But, as has been shown, this deed was a mere sham to avoid or postpone the payment of Adam B. Searles’ debts. It had no operation as against Adam B. Searles’ creditors who held the Morris mortgage. Their equitable right to have the complainants’ mortgage first paid, if possible, out of lots Nos. 2, 3 and 4, was unaffected by such a deed, and so remains to this day, as Roderick B. Searles still holds the title to those lots. No court of equity would permit a debtor, as against whose property an equity had become established, even though it be latent, to nullify its effect by making a purely voluntary deed. To allow this would make such equitable rights not absolute as against the debtor, but existing solely at his will. Nor has the fraudulent voluntary grantee any status to question the justice of this rule, for it does not injure him. He has parted with nothing, and has not changed his position so that he would lose anything by the enforcement of the equity. His deed is unquestionably within the operation of the statute of frauds, and therefore absolutely futile to vest any rights in him as against the creditors of Adam B. Searles, his grantor. The conveyance to Roderick B. Searles did not, in my view, in any way deprive the Morris mortgagees of their right to marshal the assets. Next comes the inquiry whether the deed made by Adam B. Searles to Levi Ott, on May 23d, 1890, conveying lot No. 1, in any way destroyed this equity of the Morris mortgagees. But the same criticism applies to this transaction. This conveyance of lot No. 1 was purely voluntary, for a nominal consideration and in fraud of Searles’ creditors. It contained a covenant of general warranty, and although it excepts the mortgages in question from the covenant against encumbrances, they are not excepted from the general warranty. If this deed had been for a full and valuable consideration paid, Ott would himself have — 688 — had a right to the same equity as the Morris mortgagees to-compel the satisfaction of the complainants’mortgage in the first place out of lots Nos. 2, 3 and 4. As it was a voluntary and fraudulent deed, it had no effect to give him any rights as a bona fide purchaser. He took the same place which his voluntary grantor had held, and no more. The next step iu the title came by the deed of August 18lh, 1890, from Ott to the Belvidere Roller Mill Company. By this bona fide deed, Ott imposed upon that company a covenant to pay off these two mortgages as part of the consideration money of the conveyance, and it is claimed that the defendant Philip M. Miller purchased from the Belvidere Roller Mill Company by sheriff’s sale, with notice of this covenant, and that he stands in the position of that company, and Engle v. Haines, 1 Halst. Ch. 186, is cited in support of (he position. Since Finley v. Simpson, 2 Zab. 311, it has been uniformly held that such a covenant as that inserted in the deed to the Belvidere Roller Mill Company, is, if the deed is accepted by the grantee, binding on him, though the deed is signed by the grantor only. This obligation enures in equity to the benefit of the mortgagee, who has by the covenant assumed the payment of the mortgage debt. Klapworth v. Dressler, 2 Beas. 62; Hoy v. Bramhall, 4 C. E. Gr. 570. But there is no compulsion upon the mortgagee, whose debtor has thus provided an additional covenant for the payment of the mortgage debt, to accept the benefit of this covenant and resort to it at the sacrifice of other equities. The rights of the mortgagee against the purchaser are adjudged not because of any original equity in him, but to avoid circuity of action and to save the mortgagor from being harassed for payment of the debt, and, then being driven to seek relief from the purchaser upon whom the ultimate liability must fall. Crowell v. Hospital of St. Barnabas, 12 C. E. Gr. 656. The mortgagee, by the covenant, becomes entitled to be substituted in the place of the mortgagor, but he is under no obligation to enforce the covenant unless he chooses to do so. He may look only to his mortgage and to its equities, if he likes. Nor can the taking of such a covenant by the mortgagor, from the pur — 689 — chaser, force the. mortgagee' to give up the equities attendant upon his mortgage, and to accept in their place the covenant of some party of his debtor’s selection to pay his debt. The equity to have the securities marshaled, outstanding in the mortgagees having a lien only upon one fund, can only be taken away by the consent or act of those mortgagees themselves, or by the intervention of some superior equity, as that of a bona fide purchaser without notice. The Belvidere Roller Mill Company is in no way harmfully affected by the marshaling of the securities. It has bound itselfj as purchaser of lot No. 1, to pay both the complainants’ and the Morris mortgage debts, and it cannot be injured if the equity of the Morris mortgagees to require the complainants to look first to lots Nos. 2, 3 and 4 is enforced. It does not resist its enforcement. The party unfavorably affected is Roderick B„ Searles, the owner of lots Nos. 2, 3 and 4. If he can compel the complainants to look first to lot No. 1 for their mortgage debt, he can retain lots Nos. 2, 3 and 4, in accordance with the original fraudulent plan, to avoid payment of Adam B. Searles’" debts, because there will probably be sufficient proceeds of lot No. 1 to pay the complainants’ debt, without calling on lots Nos. 2, 3 and 4, and the Morris mortgage is no lien on the latter three lots. It-was held in Herbert v. Mechanics’ Building and Loan Association, supra, that the right of a second mortgagee to have the assets marshaled was superior to the right of «a judgment creditor of the mortgagor who had acquired a lien upon the assets included in the first mortgage, but not in the second,, and which were sought to be first charged. The principle propounded is that the equity of the second mortgagee is vested in him on the taking of his mortgage.' The mortgagor’s subsequent judgment creditors have no higher rights than the mortgagor; their equity is inferior. The equity is absolute as to the' debtor himself, is subject to the legal and equitable claims -of prior creditors, but cannot be impaired or in any way injuriously affected by the intervention of those of a later date, unless they be bona fide purchasers without notice, or holders'of some other — 690 — superior equity. So iu this case, in my view, the equity of the Morris mortgage and of the defendant Philip M. Miller, who has succeeded to its rights by his purchase at the sheriff’s sale, is superior to any rights arising upon the after-created covenant imposed by the mortgagor or his grantee. I cannot regard Roderick B. Searles as a bona fide purchaser in any aspect of his relations to this case. If there be any virtue in the covenant made by the Belvidere Roller Mill Company to assume the payment of these mortgages, let those who are injured by its breach bring their action therefor. It cannot, in a court of equity, under the circumstances recited, deprive the parties interested of equities existing before that covenant was made. Neither the mortgagor nor his fraudulent grantee, Roderick B. Searles, can compel the first mortgagee to resort first to that tract upon which the first and second mortgages are both liens, and thus free the other tracts not included in the second mortgage, nor can they deprive the second mortgagee of his equity to have the assets so-marshaled that both mortgages may, if possible, be paid. It is mistakenly assumed that Philip M. Miller, who purchased at the foreclosure sale under the Morris mortgage, occupies the position of a grantee from the Belvidere Roller Mill Company, and that he is bound by its covenant entered into by the acceptance of the deed from Ott, of which Miller had notice. The title acquired by Philip M. Miller, the purchaser at the foreclosure sale under the Morris mortgage, was not that of the Belvidere Roller Mill Company, charged with the equities incumbent upon that company. The purchase at a foreclosure sale relates back to the title passed by the mortgage foreclosed, and conveys to the purchaser the estate which the mortgagor had in the mortgaged premises on the day of the delivery and record -of that mortgage, freed from subsequent equities, unless superior by reason of lack of notice &c., as hereinbefore discussed. In the case under consideration, the defendant Miller, by the deed from the sheriff, acquired the title which Adam B. Searles had on the 23d day of May, 1890, when he delivered the mortgage to Morris and others with all its attendant equities, and free from equities which Searles or subsequent holders of the prop — 691 — erty had afterwards imposed on it. In the case of Engle v. Haines, above cited, the grantor received a title of a date not prior but subsequent to the imposition of the covenants, and it was properly held that his estate was subjected to the payment of the purchase-money. Upon all the questions argued I will therefore advise, first, that there has been no tender shown; second, that the bond formerly held by Edward B. Searles, claimed to be assigned to Henry B. Miller, has been paid; third, that the lots Nos. 2, 3 .and 4, held by the defendant Roderick B. Searles, should be first sold and the proceeds applied to the satisfaction of the bonds secured by the complainants’ mortgage and costs of foreclosure, and lot No. 1, held by the defendant Philip M. Miller, should be secondly sold and its proceeds applied to satisfy any balance remaining due on the complainants’ mortgage; that an order of reference be made to a master to ascertain and report the amounts due &c., on which reference the evidence taken on the hearing may be used, subject to these conclusions.