Sheppard v. Berkshire Life Insurance

Mr. Justice Baldwin delivered the opinion of the court. Considering at the outset the contention of the Berkshire Life Insurance Company, that the case was not one within equitable jurisdiction, because there was an adequate remedy at law, it seems clear to us that in no other forum could the questions involved be properly disposed of. This suit is, in effect, a bill of review as to that portion of a decree previously entered, which purported" to approve a part of the Mas-. ter’s report referring to the disposition and payment to the Insurance Company of the proceeds of a foreclosure sale. In the last of the four foreclosures the Master reported his distribution to the Insurance Company of the entire proceeds of the sale, and this report was confirmed. This suit attacks that portion of the report, and seeks to have the court modify the order or decree so as to show that the Insurance Company was not entitled to the surplus, because the last foreclosure was on a mortgage which was merely collateral to an existing indebtedness, and that the act of the Insurance Company in securing payment to itself of this surplus constituted in law a fraud upon complainant and the court. Upon the case made by the bill, the action of the Company in getting the court to approve the payment to and the retention by it of more than $12,000, after it had been fully paid the amount owing to it, together with" all costs and expenses would, even if free from wrongful intent, constitute such fraud in law as to confer jurisdiction upon a court of equity. Sargent Co. v. Baublis, 127 Ill. App. 631. Besides, upon the allegations of the bill and cross-bill, the Company is in legal contemplation a trustee, with funds in its possession, which are subject to a trust in favor of others, thus imposing a duty upon it like that of pledgee toward the owner. Colebrook on Collateral Securities, sec. 87; Wetherell v. Johnson, 208 Ill. 247; Union Trust Co. v. Rigdon, 93 Ill. 458; Iron Co. v. Brick Co., 82 Ill. 548. The Berkshire Life Insurance Company had three separate mortgages upon lots 2, 3 and 4, respectively, and a subsequent additional mortgage upon a part of lot 1, and covering also these three lots, and it clearly appears that this last was merely collateral. The Company had the undoubted right to proceed at the same time to foreclose both the principal and the collateral security. Colebrook on Collateral Security, Par. 113; Furness v. Union Mat. Bank, 147 Ill. 570. The sale upon the last or collateral mortgage having brought more.than the amount due the Company, the surplus belonged not to it, but to Sheppard, the owner of the equity of redemption, or, under the circumstances in this case, to him and to Curran. Colebrook on Collateral Sec., par. Ill, etc.; Hopkins v. Hemm, 159 Ill. 416, 418. The fact that the Berkshire Life Insurance Company was itself the purchaser at the foreclosure sale does not change the situation, it being the same as if a third party had thus purchased. The Company thereby became obligated to pay the amount bid for the property. Haigh v. Carroll, 209 Ill. 576, 580; Lightcap v. Bradley, 186 Ill. 510, 524. From the whole record, including the instructions given by the Berkshire Life Insurance Company to the Master, as to the amount due it, we cannot say, that Sheppard and Curran are precluded from asserting and relying upon the fact that the last mortgage was merely collateral, and though they might not prevent its foreclosure, they were clearly entitled to prevent more than one satisfaction of the Company’s claim. Nor can we agree with the contention made by the Insurance Company that the record in the last foreclosure case constituted an adjudication to the effect that the amount shown by the decree was justly owing to it, and that the foreclosure was entirely independent of, and bore no relation to the other foreclosure suits, which would be binding upon Sheppard and Curran. No issue was presented by the pleadings in that case which made it a material issue, so far as the right of foreclosure was concerned, as to whether the mortgage was or was not a collateral one. Russell v. Epler, 10 Ill. App. 304; Voge v. Breed, 14 Ill. App. 538, 542. Nor do we think the relief sought in this bill is barred by laches. The order of distribution complained of was entered December 12,1906, and the bill herein was filed December 26, 1907. No circumstances are shown in the evidence justifying a conclusion that it would be inequitable to allow complainant to proceed in his effort to procure the relief prayed for. We are satisfied from the entire record that the Berkshire Life Insurance Company is not entitled to retain the balance or surplus of $12,559.64, but that it equitably belongs to Sheppard, or to Sheppard and Curran. As between Sheppard and Curran, the contention of Curran is, in effect, that Sheppard acquired title to the property subject to a distinct and clear charge upon it; that if he held the lots now they would be subject to the encumbrance for which, as between Sheppard and Curran, the property would be primarily liable, and accordingly that the surplus fund of $12,-559.64, which stands in lieu of the property, is likewise so charged. In September, 1892, Curran was the owner of lots 1, 2, 3 and 4. He then mortgaged lots 2, 3 and 4, severally, to secure $20,000 upon each. These several mortgages were extended by an extension agreement, dated March, 1903, at which time he gave, as collateral thereto, a fourth mortgage covering these three, and a portion of lot 1, except the north fifty-six feet thereof. In September, 1892, he had encumbered the north fifty-six feet of lot 1 by a trust deed to Hair, trustee, (which was subsequently acquired by the Berkshire Life Insurance Company), and on September 20,1893, the same property was conveyed to Howell, trustee, to secure $8,000, with interest, owing to Matilda McLean. Then in September, 1903, Curran conveyed all of lots 1, 2, 3 and 4 to Anable, subject to all these encumbrances, which by the terms of the warranty deed to him Anable expressly assumed and agreed to pay. Sheppard acquired the property with notice of the encumbrances upon it, and the conveyance to him, made practically contemporaneously with the deed to Anable, was expressly subject to them. Therefore, his equity of redemption, as it is called, was the ownership of whatever there should be left of the property after these liens had been paid, and Sheppard should not be allowed to take the fund in its entirety to the exclusion of Curran. To allow this would be inequitable. Chicago D. & V. R. R. Co. v. Field, 86 Ill. 270, 273; Home Savings Bank v. Bierstadt, 68 Ill. App. 656, 660. The law is clear, that whenever the mortgage debt forms a part of the consideration of the purchase, although the purchaser has not entered into any covenant or agreement to pay it, he is bound to the extent of the property to indemnify the grantor. The law implies a promise to that effect from the nature of the transaction. 1 Jones on Mortgages, Par. 751, with citations. . Curran should be protected against the Howell trust deed, in the foreclosure of which a deficiency decree of $1,175.63 against him was entered on May 20, 1907, in the foreclosure suit brought by Matilda McLean. In other words, Matilda McLean should equitably obtain payment of her claim from the fund. Hempstead v. Watkins, 6 Ark. 317; Marsh v. Pike, 10 Paige, 595. Curran also claims that he should be reimbursed the sum of $491.25, that being the amount paid out by him in part in defending a suit at law, prosecuted against him by the Insurance Company, upon some of the notes secured by the collateral mortgage, and in part for his defense in the four foreclosure suits. The record shows that the amount claimed by Curran is a reasonable amount, if the property is subject to this charge. Curran bases his contention upon the ground that since the property, and, because of the sale, now the fund, is primarily liable for the indebtedness, he should be protected against all costs and expenses incurred by him by reason of the failure of Anable and Sheppard to pay the notes in question. If they had been promptly paid, he would not have been sued, and compelled to incur this expense. We 'do not find any sufficient authority to sustain this contention. We are holding, in this case, that the fund is' liable as a principal for the payment of the original indebtedness, with interest, but it does not appear that, in the conveyance to Anable, in which he assumed and agreed to pay the encumbrances therein stated, there was any clause or covenant by which Anable agreed to indemnify Curran, his grantor, and save him harmless from any suits which might be brought against him on account of his having given the original notes and mortgage. Such a liability could only be created by contract. In any event, Sheppard should have been notified and asked to defend by Cur-ran, and this was not done. The decree of the court below is reversed and the cause remanded, with instructions to enter a decree in conformity with the views herein expressed. Reversed and remanded.