Kausler v. Ford

SlMRALL, J.: The 3d of February, 1857, R. L. Buck agreed to purchase from Downing & Ford a plantation in Washington and Issaquena counties, containing 1777 acres, for the price of about $17,000; three thousand dollars to be paid in hand and the balance in four annual installments, represented by promissory notes. As soon as convenient, Ford, in whom was the legal title, and who resided in Kentucky, was to make a deed of conveyance to Buck. By the agreement the vendors retained a lien on the property for the consideration money, and the same reservation was to be contained in the deed. On the 25th of the ensuing February, Ford made the conveyance to Buck, which was recorded in Washington county on the 27th of May, and in Issaquena county on the 18th of June of the same year. The deed conforming to the written agreement, did distinctly reserve a lien on the property for the deferred payments. Subsequently, the 1st of August, 1859, Buck sold and conveyed to George Kausler, an undivided half of the land, for which Kausler has made full payment. Later, the 1st of October, 1860, Buck sold the remaining half of the plantation, also a large amount of personal property, to Jacob Kausler for the price of $36,800, and took his notes for the several installments, five in all. To secure the debt, all of which seems to have been on a credit, Buck retained a lien on all the property, real and personal. — 298 — One or two years after this sale, a verbal arrangement was made between Ford & Downing, Buck and Jacob Kausler, to the effect that Buck should transfer to Ford & Downing the notes of Jacob Kausler, to an amount sufficient to discharge and extinguish Buck’s indebtedness to them, then amounting to about $14,000, principal, with interest thereon. In part consummation of this understanding, Buck did transfer (by indorsement without recourse) to Ford & Do wning, two of Jacob Kausler’s notes, one for $7,920, due January 1st, 1862; the other for $6,960, due January, 1864. But as the other notes of Kausler, held by Buck, were both of them largely in excess of the balance due by Buck to Ford & Downing, and as Jacob Kausler was not present at the time of Buck’s transfer, the further carrying out of the understanding was postponed until Kausler could divide one óf his notes, so as to execute a new note to Ford & Downing for the balance due them from Buck. Buck, in order to close up the transaction as far as practicable, gave his note to Ford & Downing for the balance OAving by him, $3,830.38, specifying in it that it was the residue of the purchase money for the land. James Ford and Downing’s administrators, the holders of the two notes of Jacob Kausler, aforesaid, and of Buck’s note for the $3,830.38, filed their bill against the parties in interest to the lands, seeking a foreclosure of the lien. George Kausler claims that he is an innocent purchaser from Buck, without notice of the lien retained by Buck’s vendors, and therefore his half of the land should be protected. For Buck’s estate it is claimed that the execution of his note for the $3,830.38, and the agreement therewith, released the lien as against his rights; and, 2d, that the transfer of the notes of Joseph Kausler did not carry with them an assignment of the lien, or a right to participate therein, by the indorsers; and, 3d, that if — 299 — wrong in that view, then Buck’s estate is entitled to share in the fund pari passu with Ford, according to the respective amounts of their debts. Buck’s administrator holds and owns two of Jacob Kausler’s notes. The question is, in what attitude -will a court of equity regard the several parties to these transactions? Upon what principles shall the respective rights be determined, and what is the measure of redress for the settlement of their respective claims against each other ? The liens reserved by Ford & Downing in the sale to Buck, and by the latter in his sale and conveyance to Jacob Kausler, are express liens, equitable mortgages, and are governed in many respects by different rules from those which apply to the vendor’s lien. It has been so repeatedly declared in this court, and the high court of errors and appeals, that the transfer of a note protected by a lien of this sort candes with it the lien also, that it is unnecessary to refer to the cases. The rule is different where the vendor, holding merely the implied lien, transfers the note or debt, which is the consideration of the land. It may be assumed, therefore, that the assignment by Buck to Ford & Downing invested them with the express lien, which was reserved by Buck as security for the debt. The novation of the debt, or any part of it, by substituting a new note, does not raise or discharge the lien. So long as the original debt, or any part of it, can be traced into the new note, the lien security follows it. The debt is the substantive thing, the note, in the contemplation of equity, is the form and proof of it. Lewis v. Starke, 10 S. & M. 120. To have the effect of extinguishing the lien, it must be shown that the intent of putting the debt in the new form was to. work an extinguishment. Ib. The note of Buck, given for the balance due upon the land, is — 300 — entitled to all the benefits of the lien that inured to the original notes. The question becomes one merely of evidence to connect it with the original indebtedness. The testimony in connection with the contents of the note are quite sufficient to satisfy the judgment that it was a continuation of the original debt, and, instead of being given in discharge of the lien, was meant to continue it. Ford has unquestionably a right to sell the entire tract to satisfy the debt due by Buck’s estate, if less than the whole should not pay the debt; for the lien expressed in the deed to Buck extends to the entire estate. But George Kausler bought half the property in 1859, and has paid the consideration money. He claims that being ignorant of the lien against Buck, he ought to be protected. The deed to his vendor, Buck, was recorded nearly two years before his purchase, and was therefore as effectual to charge him with notice of the incumbrance as actual knowledge of its existence. But we think that George Kausler may invoke another principle of equity successfully to his aid. Buck, when he sold to him, was solvent, and, therefore, perhaps, did not entertain the idea that his vendee’s half would ever be needed to make good his debt to Ford & Downing, and hence did not think it worth while so much as to notify him of the lien upon it. The remaining half of the plantation, with Buck’s other means, may have been supposed to have been quite enough to meet the debt due to Ford & Downing. It might be, if George Kausler had been informed of the lien; he might have been willing to make the purchase, esteeming the other half of the property and Buck’s other resources quite sufficient to meet his debt. In this view of the subject, if Buck had continued the owner of half the property; it would have been the Suggestion of natural justice (and such also is the equity doctrine) that Ford should be confined to Buck’s — 301 — half to realize his money until that was exhausted, and should only go upon Kansler’s half for the deficit. When Jacob Kausler negotiated his purchase, the situation of the property was altogether different. He had knowledge that half of it had been sold to George Kausler, and also that Buck’s debt to Ford & Downing was unpaid and was a lien upon the property. He would look to the value of the land he was about to buy, and the personal property relatively to the amount of Buck’s debts, and determine whether it was a safe purchase. His purchase amounted to $36,000, payable in five annual installments. It was his fight to take up Buck’s debt to Ford & Downing, and have such payments credited on his debt to Buck. What was his right independent of contract, was partly effected by agreement? His indebtedness to Buck more than twice exceeded Buck’s to Ford & Downing. It would be, therefore, equity and good conscience as against him to impose the balance due for the original purchase by Buck on his half the land, and that, too, independent of any agreement that he should directly take up Buck’s noté by a substitution of his own. Such is the well-established doctrine of courts of equity. The principle has received various applications, but it rests on the same essential reason. As where a creditor has a lien upon or an interest in two funds, and another has a lien upon but one of them, the latter has the right to drive the former to get his satisfaction out of that fund, to which he has an exclusive claim, where it will not prejudice him. Wiggin v. Door, 3 Sum. 414 ; Lanny v. Duke Athol, 2 Atk.; 1 Story Eq. Jur., § 633. Nor is there an exception, if one creditor has a mortgage on two estates, and the other upon but one of them. United States v. Duncan, 12 Ill. 523 ; United States Ins. Co. v. Shearer, 3 Md. Ch. Decis. 381. Where there are conflicting interests and equities to the same property, equity will so deal with, and admin — 302 — ister to them, as to mete out equal justice to all parties. Although it may not defeat or postpone the prior equity, it can so limit and apply it as to give to each the measure of right. Ford has an equit}*- senior to that of any other party, which extends to the whole estate; but as that estate has passed to subsequent purchasers, half to one and half to the other; and, as we have seen, the last purchaser should more properly be charged with the equity of Ford than the .first, the chancellor may adjust the incumbrance resting upon the entire estate, as between these purchasers, so as to limit it to the last one, if thereby he does not impair the rights of Ford, but may give full effect to them. This may be attained by applying Ford’s lien for the balance of Buck’s debt to the half interest sold to Jacob Kausler, and not permitting it to touch George Kausler’s half, unless it be necessary to supply a deficit. If a debtor sell part of his property, the whole being under judgment liens, the puschasers from the debtor can compel the creditors to go against the property retained by the debtor and exhaust that before taking in execution that sold. Dickinson v. Clowes, 9 Cow. 405. If the debtor, whether by judgment or mortgage, sell off, at different times, the encumbered property, the property will be liable to the creditor holding the lien, in the inverse order of the alienations. The first purchaser may, through the chancery court, remit the creditor to the property of purchasers subsequent to himself, and force him to obtain satisfaction, beginning with the last, and he cannot be touched except for a balance after the property of the others has been exhausted. Guion v. Knapp, 6 Paige Ch. 35 ; Aural v. Wade, Lloyd & Gould, 252 ; Agricultural Bank v. Pallen, 8 S. & M. 359. ■ We are of opinion, therefore, that the balauce of the purchase money from Buck to Ford should be raised from the half of the property sold to Jacob Kausler; and if that half should 'not on sale produce enough to — 303 — pay the debt, then the deficit to he raised out of George Kausler’s half. As to the notes of Jacob Kausler, held respectively by Ford and Buck’s estate, we think they stand upon an equal footing, each creditor being entitled to share in the proportion the debts bear to each other in any surplus, after paying Buck’s debt to Ford, which the half interest of Jacob Kausler may produce on a sale. Buck’s estate being insolvent, Ford has no greater right to any money which that estate may realize on Jacob Kausler’s notes than the other creditors. Ford has no lien or preference on these notes. It is the case of a creditor who has passed by indorsement, without recourse, in due course of business, for value, two notes (retaining two himself), all protected by a lien. Each has an interest in the lien proportioned to the amount' of his debt, and the product of the lien will he distributed on that basis. Cage, ex’r, v. Iler, 5 S. & M. 410 ; Parker v. Mercer, 6 How. (Miss.) 420. We think the bill is not obnoxious to the objection of multifariousness. Nor were the complainants under a duty to tender a deed with their hill, nor to have averred a tender before bill filed, as insisted for the appellants. What is urged for multifariousness, is nothing more than a narrative of facts, somewhat involved, of the relations and interests of the several parties in the subject of the suit. After setting out the written contract, the averment is, upon information and belief, that Ford had made a deed with reservation of lien, and discovery and production of the deed is asked. The deed in fact had been executed, and was shortly .afterward filed in the suit. It is not, then, the case of a vendor, who is under obligation to convey, upon payment of the money, seeking payment out of the .land, without showing a performance, or offer to perform his part of the contract. The principle invoked for the appellants is entirely — 304 — reasonable and just, but does not apply in this case. It was not error, therefore, to overrule the demurrer. The decree of the chancellor, not conforming to the views herein expressed, is reversed, and a decree will be rendered here, limiting the complainants in the first instance, to a sale of Joseph Kausler’s half of the plantation, the proceeds to be first applied to the payment of the costs of the chancery court; secondly, to the debt from Buck to Ford, as represented by his note; the surplus, if any, to be divided between the complainants and Buck’s administrator, in the proportion of the amount of the notes of Jacob Kausler, respectively held by them. If Jacob Kausler’s half of the premises shall not on sale realize enough to pay Buck’s debt aforesaid, then so much of George Kausler’s half of the premises be sold as will provide for the balance.