Dyson v. Simmons

Alvey, J., delivered the opinion of the Court. The bill in this case was filed by the appellee as assignee of Elizabeth A, Simmons, of a mortgage and single bill, for $2500; the single bill being executed by John L. T. Jones, and the mortgage by the said Jones and his wife; both instruments bearing date the 19th of April, 1871. The mortgage was in all respects duly executed and acknowledged by the mortgagors, and the consideration sworn to by the mortgagee ; and it was filed for record within the time prescribed by law, and actually recorded, in Montgomery County, where the land mortgaged is situate; but the acknowledgment and affidavit having been made before a justice of the peace in Frederick County, there was an omission to obtain the clerk's certificate of the official character and qualification of the justice, as required by the Code, Art. 24, sec. 3. The — 214 — mortgagor, Jones, being largely indebted on contracts made both before and since the date of the mortgage, upon which a large number of judgments have been recovered ■subsequent to that date, the present bill is filed to enforce the mortgage, thus ineffectually recorded, upon the footing of a contract, and as an equitable charge upon the land embraced in it. This is resisted by the judgment creditors, upon the ground that their judgments have created liens upon the land, and that such liens cannot be displaced or interfered with by a prior unrecorded or equitable mortgage, which should only be enforced as against the mortgagor, and his ordinary or non-lien creditors, existing at the date of the mortgage. Two questions arise: 1st, whether the lien of a judgment can be displaced or subordinated to that of a prior equitable mortgage or charge ? and, 2ndly, if such mortgage or charge can be enforced as against judgment liens, in what order are the creditors to be affected thereby ? 1. The principle is now so well settled, that it would seem to be beyond all question and controversy, that if a party makes a mortgage, or affects to make one, but it proves to be defective, by reason of some informality or omission, such as failure to record in due time, defective acknowledgment, or the like, though even by the omission of the mortgagee himself, as the instrument is at least evidence of an agreement to convey, the conscience of the mortgagor is bound-, and it will be enforced by a Court of equity. Taylor vs. Wheeler, 2 Vern., 565 ; Mestaer vs. Gillespie, 11 Ves., 621, 624; Price & Bevan vs. McDonald, 1 Md., 414. As against the mortgagor himself this proposition was never regarded as questionable, (Carson & Vickery vs. Phelps, 40 Md., 73,) but as against judgment creditors of the mortgagor, obtaining their judgments subsequent to the date of the mortgage, there was formerly some dispute. The question, however, both in England and in this State, has been long since settled; and the — 215 — cases, without an exception, so far as we are informed, hold that a judgment, being but a general lien, must be subordinated to the superior equity of a prior specific lien, created by a defective mortgage or conveyance. Judgments create liens only because the land is made liable by statute to be seised and sold on execution; (Miller vs. Allison, 8 Gill & John., 38 ; Combs vs. Jordan, 3 Bland, 284, 298-310; Eschbach vs. Pitt, 6 Md., 77; Tayloe vs. Thompson, 5 Pet., 358 ; ) but such lien secures to the creditor neither jus in re nor jus ad rem: Ex parte Knott, 11 Ves., 609, 617; Lacy vs. Fugle, 2 Phill., 442; Conrad vs. The Atlantic Ins. Co., 1 Pet., 442-3. At the time of the execution of this mortgage the mortgagor had full and complete power of conveying or charging the land, provided it was bona fide as against existing creditors, and the general principle is, that if a party has power to charge certain lands, and agrees to charge them, in equity he has actually charged then ; and a Court of equity will enforce the charge. Alexander vs. Ghiselin, 5 Gill, 187; Rolleston vs. Morton, 1 Dr. & War., 195. And the fact that judgments have been subsequently recovered against the party agreeing to convey or charge the land, will in no manner defeat the right to have the agreement executed. As has been very properly said, a judgment has relation to the time when it is entered up. It will not affect any bona fide conveyance made for value before that time, for it only attaches upon that which is then, or after-wards becomes the property of the debtor. The fact that the debtor may retain the property at law does not change the principle upon which a Court of equity proceeds. If the propert) is charged in equity before the entry of the judgment, the judgment will not affect such charge. Whitworth vs. Gaugain, 1 Phill., 728, 729. The judgment creditor therefore stands in the place of his debtor, and he can only take the property of his debtor, subject to the equitable charges to which it was justly liable in the — 216 — hands of the debtor, at the time of the rendition of the judgment, — except in those cases where the principle may have been modified by express statute. Taylor vs. Wheeler, 2 Vern., 565; Finch vs. Earl of Winchelsea, 1 P. Wms., 277, 282; Sir Simeon Stewart’s case, cited in Burn vs. Burn, 3 Ves., 573, and stated and approved in Alexander vs. Ghiselin, 5 Gill, 185. In no case to he found in the boots is the question more directly and strongly presented than in that of Whitworth vs. Gaugain, 3 Hare, 416. In that case, an equitable mortgagee of lands was held to be entitled in equity to enforce his charge on the lands in priority to a creditor of the mortgagor, who, without notice of the equitable mortgage, had, subsequently thereto, recovered judgment against the mortgagor, and obtained actual possession of the lands by writ of elegit and attornment of the tenants. A stronger case than that could hardly he stated ; and yet it was held, upon full review of the cases, that, notwithstanding the judgment had been executed to the extent of obtaining actual possession of the land, under the elegit, the equitable mortgagee had the superior equity, and, consequently, was entitled to priority. That case was affirmed on appeal, upon full review of the authorities by the Lord Chancellor, (1 Phill., 728,) and it has been fully approved in subsequent cases. Abbott vs. Strattan, 3 Jones & Lat., 614; Eyre vs. McDowell, 9 H. L. Cas., 619, 642; Beavan vs. Lord Oxford, 6 De G. M. & Gord., 507. These cases are the stronger, as they involve the consideration of the Act of 1 & 2 Vict., ch. 110, as applicable to England, and the similar Act of 3 & 4 Vict., ch. 105, as applicable to Ireland, which enacted that a judgment shall operate as a charge on all lands of which the judgment debtor shall, at the time of entering up judgment or afterwards, be seized or possessed, or over which such judgment debtor shall, at the time of entering up judgment or afterwards, havo any disposing power which he might, without the consent — 217 — of any other person, exercise for his own benefit. These statutes, it was decided, contained nothing to vary the rule as to the equities to which the property may be subject. For, as said by Lord Cranworth, in Eyre vs. McDowell, supra, the debtor could not have appropriated the land in question to the liquidation of his debt, without first satisfying the claim of his equitable mortgagee, and the Legislature did not intend to enable the creditor by judgment to take what his debtor could not give. This well established principle of the English cases has been fully adopted in our owm; and the cases to which we are about to refer are, we think, quite decisive of the question under consideration. The first of these is the case of Hampson vs. Edelen, 2 H. & J., 64, where there was a contract of purchase, and a part only of the purchase money paid; it was held, that a judgment recovered by a third person against the vendor, in the interval between the making the contract and the full payment of the purchase money, or the conveyance of the estate, could not defeat or impair the equitable interest of the vendee ; and that the judgment constituted no lien on the land to affect the right of the cestui que trust, the purchaser. Then we have the case of Repp vs. Repp, 12 Gill & John., 341. There a father deeded his land to his son, and took from the latter an agreement in writing, though neither acknowledged nor recorded, to pay certain amounts to his other children. For these amounts, the son executed his bonds, and left the father in possession of the land. The son afterwards became insolvent, and deeded the land to his insolvent trustee for the benefit of his creditors, among whom were various judgment creditors. On this state of case, it was held, that a lien existed for the payment of the bonds out of the proceeds of the land, as against the son, his trustee, and judgment and general creditors. And in the still later case of Alexander vs. Ghiselin, 5 Gill, 138, 181, 185, though a case — 218 — for the specific execution of an agreement for a mortgage of personal property, the Court recognized, in the fullest manner, the principle that equitable mortgages of real estate will be enforced, not only against the contracting party, but his judgment and other creditors. It is clear, therefore, that the fact of the existence of judgments, recovered subsequent to the date of the mortgage, gives to the judgment creditors no such fixed lien upon the land as to exclude or defeat the security intended by the mortgage ; and it was in accordance with this view that the decree appealed from was passed. 2. Then, the next question is, as against what creditors can this equitable mortgage be enforced, under the statutes of this State? This is not an application, under sec. 23 of Art. 16 of the Code, to admit the mortgage to record. It is an application to enforce a non-recorded mortgage as an equitable charge; the recording in fact being abortive, because of the failure to procure the certificate of the official character and qualification of the justice taking the acknowledgment. But we think the rule prescribed by sec. 23 of Art. 16 of the Code, just referred to should be applied to this case. This being a mortgage that could have been recorded, there is no reason why the mortgagee should be in any better condition on this application than he would be if this were an application to admit his mortgage to record, because it was not recorded within the time prescribed by law, or if the mortgage had been admitted to record by a decree of the Court, passed under the statute, and this were an application to enforce it. In such case, by the terms of the statute, it is declared that such deed or mortgage shall nothin any manner, affect the creditors of the party making such deed, who may trust such party after the date of the said deed.” This section of the Code embodies the 11th section of the Act of 1785, ch. 72 ; and its construction has been the subject of consideration in — 219 — several cases which occur iu our reports. In the case of Wickes vs. Chew, 4 H. & J., 543, 547, one of the earliest cases, while holding that the provisions of the statute did not apply in that case, the Court said that the statute was not intended to give relief in cases which were before without remedy; hut was intended to give additional remedy, by enabling a party acquiring equitable rights, under a deed not operative in law for want of recording, to perfect those rights, by applying to the Chancellor to order the original instrument to be recorded, and thus to give it the effect which by law it would have had, if recorded in due time, instead of going into chancery to enforce a specific performance or compel a conveyance. The statute was intended, say the Court, to give a cumulative remedy to persons able to contract, and who, by deed, acquire rights which equity will protect. In a later case, it was decided that a mortgage, omitted to be recorded in due time, from no fraudulent design, will, under the statute, be decreed to be recorded, and that the mortgaged premises he sold for the payment of the mortgaged debt; with a saving in favor of purchasers without notice, and that the mortgage shall not, in any manner, affect the creditors of the mortgagor, who may have trusted him after the date of the mortgage. Sprigg vs. Lyles, 2 Gill & John., 446. See also the cases of Pannell & Smith vs. The Farmers’ Bank, 7 H. & J., 202; Sixth Ward Build. Asso., No. 5, vs. Wilson, 41 Md., 506, 514. Hone of the creditors, therefore, becoming such after the date of the mortgage, can be, in any manner, affected by the enforcement of the mortgage. Here, all the judgments against the mortgagor appear to have been rendered after the date of the mortgage; but many of them were for debts contracted before that time. It becomes necessary, therefore, to determine in what order the liens of the several judgments for debts prior to the date of the mort — 220 — gage are to be displaced, and what are the rights of the judgment creditors as among themselves, having respect to the mortgage claim. It is conceded, as we understand, that the lands embraced in the mortgage constitute the only fund for the payment of debts ; and, consequently, there is no question of marshalling as among the different classes of creditors. The judgment creditors are entitled to the benefit of their liens on the land, according to their priority in date, as among themselves; but, as against the mortgagee, those judgments rendered on prior contracts must be subordinated and made to give place to the mortgage, if that he necessary for the satisfaction of the mortgage debt. There is no evidence in the record of any ordinary or non-lien debts contracted by the mortgagor since the mortgage, and which still remain unpaid. All the debts contracted since the mortgage appear to have taken the form of judgments. And it is apparent that the fund realized from the sale of the land is largely insufficient to pay all the judgments, and the mortgage debt beside. In such state of case, the judgments rendered on contracts or causes of action existing at the date of the mortgage, must be taken in their inverse order of date, and the distributions made to them, or which would have been made to them but for the mortgage, must be applied to the mortgage debt instead of the judgments ; that is to say, the last judgment rendered for any debt or cause of action existing at the date of the mortgage, must be the' first to yield to the mortgage, and so in the inverse order of the judgments for debts or claims antedating the mortgage. To whatever distribution those judgments would be entitled, if the mortgage had not been made, the mortgagee will be entitled by substitution, to the extent of full payment, if the distributions to such judgments be sufficient for the purpose. But the judgments rendered on contracts made after the date of the mortgage, whatever may he the order of their rendition, remain unaffected by the — 221 — mortgage; they are entitled to distribution in their order of priority as if the mortgage had not been made. This order of distribution is in accordance with the principle upon which the Chancellor acted in the case of Pannell & Smith vs. The Farmers’ Bank, 7 H. & J., 202, and we think his construction of the statute was, in this respect, entirely correct. The claim of no creditor, subsequent to the date of the mortgage, whether it be in the form of a judgment or otherwise, is in any manner affected by such construction and mode of distribution. He gets exactly what be would have received if the mortgage bad not been executed, and he in justice can claim no more. The fact that the prior debts, and the judgments that may have been rendered thereon, are overreached by the mortgage, can certainly furnish neither equity nor reason for placing the creditors subsequent to the mortgage in a more advantageous position, with respect to the fund, than if the mortgage had not been made. While their claims are not to be affected, by the enforcement of the mortgage, they should not be allowed to take any special advantage from it, as they certainly would do, if all prior debts were simply rejected, and the fund be thus increased for the payment of their claim. There is nothing in the statute to justify the conclusion that the Legislature intended to produce any such result. Such being our opinion in regard to the rights of the parties and the mode of distributing the fund, we quite agree with the Court below, that there is no evidence in the record sufficient to affect any of the subsequent creditors with notice of the mortgage, except Mrs. Cornelia Jones, the wile of the mortgagor, for whose benefit the deed of trust was made, of the 17th April, 1875. This deed is made to embrace the land that is embraced in the prior mortgage, now the subject of controversy; but the deed is to secure a debt due the wife long before the date of the mortgage; and as it is made to the son of the mort — 222 — gagor in trust for the benefit of the wife, who joined in the prior mortgage, the deed must be regarded as affected with notice to the wife of the existence of the mortgage, and therefore cannot be set-up as against the mortgage. Price & Bevans vs. McDonald, et al., 1 Md., 403. (Decided 8th March, 1878.) The two series of auditor’s accounts, each series designated as accounts A, B, O, and D, and which were ratified by the Court below, properly distributed the fund, in accordance with the principle of distribution which we have stated. The Court below was therefore right in overruling the various exceptions to those accounts, and in ratifying such accounts, to the exclusion of the others, reported by the auditor at the instance of some of the judgment creditors. Decree and order affirmed, with costs, and cause remanded.