text:
    Joshua Rawnsley and Andrew Barricklo v. The Trenton Mutual Life and Fire Insurance Company.
    1. Where it is manifest from the answer that an incorporated company is largely in debt, and has no available means or credit to enable it to meet its engagements, it is the plain duty of the court, and one of the leading objects of “the act to prevent frauds by incorporated companies,” to secure to the creditors of the insolvent company an equal distribution of its assets.
    2. Under such circumstances, the company will be declared insolvent, and the court will apply to it such provisions of the act as it shall deem advisable for the best interest of all concerned. But it does not follow that receivers should be appointed.
    3. The application refused where neither the protection of the public nor the interest of the creditors or stockholders required it. See Oakley v. The Paterson Bank, 1 Cr. Ch. R. 178.
    This was a bill for injunction and receivers, under “ the act to prevent frauds by incorporated companies.” The original bill was filed May 11th, 1852. The case was argued, and the application refused, May Term, 1852. (Sin. Ch. R. 95.) The complainants filed an amended bill July 13th, 1852. The cause was heard on the pleadings and proofs.

      Messrs. Beasley and Halsted, for complainants.

      Messrs. Dayton and Vroom, for defendants.
   The Chancellor.

By the act entitled “ An Act to Prevent Frauds by Incorporated Companies,” it is declared that if, after hearing the proofs and allegations of the parties, and upon inquiry into the matters or canso of complaint, it shall appear to the Chancellor that the said company has become insolvent, and shall not be about to resume its business in a short time thereafter, with safety to the public and advantage to the stockholders, it shall and may be lawful for the Chancellor to issue an injunction.

It is manifest, from the answer of the defendants, that this company is largely in debt, and has no available means nor credit to enable it to meet its engagements. Its ability to pay depends upon the ability of others,, who are its debtors. These debtors refuse to pay, and insist they are not legally bound to do so. So that this company is, at present, deprived of all the means to which the charter seems to look as the available fund to meet its engagements. Let us examine the answer, to ascertain the actual pecuniary condition of this company.

It does not appear by the afiswer, but the contrary is fairly to be inferred from its statements, that there is, at this time, one dollar in the treasury of the company, to meet its engagements. Its liabilities are large. Its creditors have resorted to the law, and brought suits against it. Judgments are obtained, and the company has had recourse to the premium notes, and to an assessment upon the policies. The amounts of the premium notes, and the policy assessment, are large enough to pay the debts. But these debtors refuse to pay, and the answer states that this failure on the part of the members to fulfill their engagements has brought them into difficulty, and, until removed, will render the company unable to pay its losses. The ability of the company to meet its demands depends upon the ability of its debtors, who are now resisting the demands made against them, on the ground that, at law, they are not legally liable. This company, then, presents the unpromising aspect of being largely in debt — of depending upon a large number of debtors for its ability to meet its liabilities; these debtors, scattered in all parts of the country, each indebted in small amounts, and, in a body, making one common cause of resistance against the claims made upon them by the company. It is now more than a year since these embarrassments came upon the company, and since it was ascertained that it would be necessary to look' to the premium notes, and the assessment against the policy-holders for relief yet it does not appear that the company has been able to collect a dollar from either of these sources. It is evident the company cannot resume its business in a short time with safety to the public and advantage to the stockholders.

It may be that the company will ultimately pay its debts; for, if the premium notes and assessment should fail, the guarranty capital will, in all probability, be sufficient to discharge the liabilities. But this guarranty constitutes a fund not provided by the charter. It is insisted that it can only be resorted to after the other resources of the company have failed and are exhausted. It is manifest, from the whole case, that this capital ought not to be looked upon as a fund in hand, which can be turned to account at any moment. It is not for me to decide now, when, or in what manner, or to what extent, this capital can be resorted to. This company is now embarrassed — it cannot meet its engagements — the fund to which its charter gives it recourse, under such circumstances, is withheld — it has not a dollar at its command.

What is the plain duty of the court, under such a state of things ? One of the leading objects of the “ act to prevent frauds by incorporated companies,” is to secure to the creditors of the insolvent company an equal distribution of its assets. Suppose the court withdraws its hand from this company, what will be the consequence? It will go on and prefer such creditors as it may select, and ultimately, if not successful in collecting its debts, its other creditors must be the losers. Situated as this company is, have not its creditors a right to the protection of the court, in securing to them an equal distribution of its assets?

It is further manifest, from the facts before me, that this company ought not to be permitted, under its present embarrassments, to resume its business of insuring. It is true, it appears that it is not the intention of the present directors to do so. But they may change their minds, or the present directors may be displaced by others. The safety of the public, as well as the interest of the stockholders, demand the security which this court only can give them, and which the legislature has provided.

For the purpose of subjecting the company to the salutary provisions of the statute, I feel bound to declare the company, in the contemplation of the act referred to, insolvent, and to apply to it such provisions of that act as I may deem advisable, for the best interest of all concerned. But it does not follow that receivers should be appointed. The act de-. dares that it shall and may be lawful for the Court of Chancery, if the circumstances of the case and the ends of justice require it, at the time of ordering the injunction, to appoint a receiver or receivers.

It does not follow that because an injunction is granted, receivers should be appointed. In 1 Green’s Ch. R. 178, Oakly v. The Paterson Bank, Chancellor Pennington says, “I am now moved, under the 8th section of the aforesaid act, to appoint receivers to take charge of the effects, and wind up the concerns of the bank. This I am authorized to do, ‘ if the circumstances of the case and the ends of justice require it/ This authority is a delicate one to be exercised. * * * * * * p[le effect of appointing receivers is to take the property out of the hands and control of those persons to whom the stockholders ***** have confided it. After the best reflection in my power to bestow on the subject, I have come to the conclusion that receivers ought not to be appointed. It by no means follows 'that because an injunction is granted, receivers should be appointed. They are independent questions.”

The protection of the public does not require that in this case receivers should be appointed ; nor is this course necessary for the interest either of the creditors or stockholders. On the contrary, it appears to me that no one, a stranger to the extensive business of the company, cañ advantageously wind up its concerns. Some of the directors have a deep interest to see that the debts of the company are diligently and expeditiously collected. Self-interest will prompt them to energetic measures in closing its affairs.

The management being left in the hands of the directors,, they will hereafter act under the immediate control and direction of the court. They will be enjoined from exercising any of the franchises of the company, except so far as may be necessary, in the most expeditious and economical manner, to collect its dues and pay its debts. They will be required from time to time to make such report as will keep the Chancellor advised of the condition of the company, and accomplish the ends contemplated by the act of the legislature.

It was urged as a strong objection against leaving the directors in the management, that they, or some of them, had been guilty of gross frauds. If there was any evidence of this, it would be a sufficient reason for their immediate removal. But I feel bound to say that, after a very careful examination of the answer put in by the president and treasurer, that any charge of fraud made by the bill has been fully and fairly met. There may have been indiscretion on the part of the directors, but there is nothing in this case, taking the explanations of the answer, to justify the charge of fraud. The withdrawal of a part of the guaranty capital is satisfactorily explained. As to the remuneration received by those who furnished this capital, it has proved a very inadequate premium for the risk they ran. The individuals whose obligations the company now hold for fifty thousand dollars, it is not pretended are, any of them, irresponsible for the amount of their respective engagements. This capital has increased the security of the creditors of the company; and, as far as the stockholders were concerned, they made no objection to this mode of the company’s increasing their business, until misfortune overtook the company.

Nor do I consider that it is any objection to the present directors continuing in the management, bécause the interest of the policy-holders and of the individuals who are liable for the guaranty capital is antagonistical. The policyholders will resist the payment of their premium notes and assessments, as well in the hands of a receiver of this court as of the directors. They can make their defence, if they have any, as well in one case as the other. That they will bo prosecuted with more perseverance by the directors, is a strong argument why the directors should not be disturbed. That there is a question between these conflicting interests as to which is primarily liable, is no reason why the directors should be displaced. That question will, in proper time, be settled by this court. As soon as the debts due the company are collected, and the directors make their report of assets on hand and available, and the debts of the company are ascertained, there will be a distribution of the fund among the creditors, so that in this way the issue must be made as to how, and under what circumstances the guaranty capital is to be made liable.

I shall, therefore, make an order declaring the company insolvent, under the act entitled “ An act to prevent frauds by incorporated companies;” and I shall make a further order that the directors lay before the court, on or before the first day of September next, under the oath of the president and treasurer, a full and complete inventory of all the estate, property, and effects of the company ; its nature and probable value, and an account of all the debts due from the said company, and of the debts due to it; ” and also to make report of their proceedings to the court every six months thereafter. These are the duties required of receivers under the 11th section of the act referred to.

It will be in the power of the court, at any time hereafter, whenever the circumstances of the case and the ends of justice require it, to appoint a receiver under the provisions of the act; and whenever any such, collision shall occur between such of the directors as are guarantors of the guaranty stock, and the policy-holders, or the individuals who' have given premium notes, as to render the discharge of the duties imposed upon the directors by the court incompatible with the rights of others interested in the company, it will be time enough for the court to interpose. I do not apprehend any such collision.

Cited in Nichols v. Perry Patent Arms Co., 3 Stockt. 127; Barriclo v. Trenton Mut. Life & Fire Ins. Co., 2 Beas. 156; Street v. Citizens’ Fire Ins. Co., 2 Stew. 26; Street v. Citizens’ Fire Ins. Co., 2 Stew. 29.


source: Caselaw Access Project

author: The Chancellor.

license: Public Domain

text:
    William Wisham and Jacob S. Kay v. Nathaniel Lippincott and others.
    1. A joint creditor cannot be compelled in equity to proceed against the joint estate before resorting to the separate estate of an individual member of the firm, by the partner whose separate estate is resorted to. This would be inconsistent with the well-established principle that a partnership contract is several as well as joint.
    2. Where, on an application to dissolve an injunction, it appeared that the defendants who had answered, denied the fraud charged in the bill, but other defendants, more deeply interested in getting the injunction dissolved, remained silent, the court would not grant the motion. The complainants were entitled to the answer of the other defendants.
    3. The principle that “the separate creditors of each partner are entitled to be first paid out of the separate effects of their debtor, before the partnership creditors can claim anything,” cannot apply to creditors who have secured their debts by judgment and execution liens.
    1. The correctness of the principle, as a general rule, doubted.
    Motion to dissolve injunction on bill and answer.

      Messrs. Dudley and Dayton, for motion.

      Mr. Browning, contra.

   The Chancellor.

This bill is exhibited by William Wisham, a partner of some of the defendants in the suit, and by Jacob S. Kay, a separate creditor of Wisham. The defendants are, some of them, the partners of Wisham, and the others are the creditors of the firm.

The partners own several tracts of land in the county of Burlington. John Winship recovered a judgment in the Supreme Court against the firm, and caused execution to be issued thereon, and a levy to be made on the said real estate in the county of Burlington. William Wisham is the owner of considerable real estate in the county of Camden, in his own right, which he conveyed to the other complainant, Kay, to secure a debt he owed him; and at the time of such conveyance took from Kay an agreement to re-convey the property when the debt should be satisfied.

The bill alleges that the partnership property which is levied on, is sufficient to pay Winship’s judgment, and that for the purpose of raising the debts of Wisham’s individual property, and to embarrass and overreach him, Wiuship had been induced by the other partners, to have issued, on his judgment, a testatum ft. fa. into the county of Camden, and a levy to be made on Wisham’s real estate there. The prayer of the bill is, that the sheriff of Camden may be restrained from making sale of the real estate in the county of Camden, and the partners be decreed to account for the partnership concerns, &c.

On filing the bill an injunction was issued. The judgment creditors have not answered. The other defendants have, and relying on their answers, now move for a .dissolution of the injunction.

The complainants rely upon the principle that a joint creditor may be compelled, in equity, to proceed against the joint estate, before he will be permitted to resort to the separate estate of an individual member of the firm. As a general rule, he cannot be compelled to do so by the partner whose separate estate is resorted to. . This would be inconsistent with the principle, now well established, that a partnership contract is several as well as.joint.

In Wilkinson v. Henderson, 1 Mylne & Keene 582, in a suit by a joint creditor against the representatives of a deceased partner and the surviving partner, the plaintiff' was held to be entitled to satisfaction out of the assets of the deceased partner, though it was not proved that the surviving partner was insolvent. On behalf of the executors of the deceased partner, it was insisted that the equities, in respect of creditors, were, that joint debts should be satisfied-out of the joint estate, and that the separate estates of the partners should not be liable to the demands of the creditors, until the insufficiency or insolvency of the joint estate was established. In answer, the principle was relied upon, “that all contracts with partners are joint and several.” The master of the rolls decided that the plaintiff was entitled to a decree for the benefit of himself, and all other joint creditors, out of the assets of the deceased partner, and that the creditors were not compelled to pursue the surviving partner, in the first instance. See also note 1 Story, § 676.

Yow, it is manifest, that the remedy of a joint creditor cannot be less circumscribed against the estate of a living than of a deceased member of the firm. If a court of equity will lend its aid to a creditor of the firm, to collect his debt from the representative of a deceased partner, without compelling him, in the first instance, to pursue the surviving partners, much less will it interfere with such a creditor who has a lien for his debt upon the separate estate of a partner living, and compel him first to exhaust the partnership assets. As was remarked by counsel in the case of Wilkinson and Henderson, no prejudice can accrue to the separate partner, by holding that the creditor has a right to come upon his estate, in the first instance, for satisfaction of his demands, for, if the other partners be solvent, the partner whose estate is taken will have a remedy over, according to the subsisting equities; and if the other partners be insolvent, then the estate of the partner pursued is liable to make full satisfaction to the creditor.

Wisham, then, is not entitled to maintain this bill, upon the principle that a partner can compel a partnership creditor first to resort to the partnership estate. He must show some other ground of equity before the court will interfere. He alleges fraud — he charges that his co-partners and their creditors have fraudulently combined to defraud him. This charge the defendants who have answered, deny. But, on their answer, I ought not to dissolve the injunction. The complainants are entitled to the answers of the other defendants. Their silence gives color to the charge. They are the most deeply interested in getting this injunction dissolved ; and if they are entirely free from the charges made against them, it is a reasonable expectation that they would have promptly answered the bill. There is another ground of equity. The creditor has actually seized upon two funds for the payment of his debt. The complainants say that the manner in which he has pursued his remedy against the two funds, makes it equitable that he should exhaust the fund belonging to the joint estate first; because, upon it there are no other liens, and it is sufficient to pay the debt.

As to the rights of the complainant Kay, who is a separate creditor of Wisham. It is insisted that he is entitled to be first paid out of the effects of his debtor, before the joint creditor of the firm can claim anything. This would seem to be in conformity to the principle stated in 1 Story, § 675, that “ the separate creditors of each partner are entitled to be first paid out of the separate effects of their debtor, before the partnership creditors can claim anything.” But this principle cannoc apply to creditors who have secured their debts by judgment and execution liens, and occupying the relative position of the parties in this suit. If so, it utterly annuls and destroys the principle before stated, that every partnership debt is joint and several. I doubt very much its correctness as a general rule. A Court of Chancery may, undoubtedly, where the equities between the partners are to be adjusted, and where the assets are before the court, and the court called upon to marshal them, apply such a rule. Story, § 676, note 1, says, “If the true doctrine be, that a partnership contract is several, as well as joint, then there seems no ground to make any difference whatsoever, in any case between joint and several creditors, as to payment out of joint or separate assets.” He'adds, “This is now the established doctrine.” I have no hesitation in saying that, when a joint creditor of the firm has a judgment and execution levied upon the separate effects of one of the partners, this court ought not, in mere compliance with any such rule as that the separate creditors of each partner are entitled to be first paid out of the separate effects of their debtor before the partnership creditors can claim anything, interfere with such execution, either on the application of any one of the partners, or any creditor of the firm, or separate creditor of any of its members.

As I have remarked already, there is, in this case, something besides the application of such a rule entitling the complainants to the interference of the court.

The motion to dissolve is denied.


text:
    Henry McCall, Jr., v. John Yard and others.
    1. In a bill to foreclose a mortgage, tbe rights of all encumbrancers at the commencement of the suit, not made parties, are not bound or affected by the decree.
    2. If the first mortgagee brings a bill to foreclose against the mortgagor, and obtains a decree without making subsequent encumbrancers parties, their rights are not foreclosed. And their remedies still remain against a purchaser claiming under the decree (Canhy v. JRidgwa/y, October Term, 1826.)
    On motion to dissolve injunction upon answer.

      W. Halsted, for motion.

      Beasley and P. D. Vroom, contra.

   The Chancellor.

I assume that the deed from Glent-

worth and wife to Wain, of the 1st January, 1831, embraces the land in controversy. Although this was denied by the complainant’s counsel on the argument, it is not made a question by the pleadings, and for the purposes of this motion should be considered as conceded.

The defendant claims title through Elizabeth Marshall, by virtue of two mortgages executed to her by Glentworth and wife — one dated' October 20th, 1829, the other July 14th, 1827.

Elizabeth Marshall assigned her mortgages to The Trenton Banking Company.” The barik filed a bill for the foreclosure and sale of the mortgaged premises. The only parties defendants were the devisees and heirs-at-law of the mortgagor. A decree for sale was made April 8th, 1834, and The Trenton Banking Company ” purchased the property at the sheriff’s sale under that decree. By sundry mesne conveyances under this purchase the defendant derived his title to the property.

The complainant, who holds under the deed to Wain of 1831 — who was not made a party to the suit in chancery, and who, it is admitted, is in possession — files his bill and asks that the rights of Wain, which he alleges were not foreclosed or interfered with by the proceedings in chancery, may be ascertained and established, the complainant tendering himself ready to redeem, or submit to such terms, for the purpose of securing his rights, as the court may deem equitable and just. He asks that the defendant, in the meantime, may be restrained from prosecuting against him a suit at law, for the injury done by the complainant’s using and occupying the land, by overflowing it with the back water from his millpond.

These are the outlines of the case. The defendant meets the complainant at its threshold, by denying that the complainant has any rights. It is insisted that the decree in chancery foreclosed and barred all the rights which the complainant now sets up, and that it was not necessary to make Wain a party to the suit, because the conveyance from Glentworth and wife to him, was subsequent to the mortgage upon which the suit in equity was instituted.

I do not consider this an open question in New Jersey. It received a niost thorough investigation by the late Chancellor Williamson, in the case of Canby v. Ridgway, October Term, 1826. Ridgway, the holder of the first mortgage, filed his bill to foreclose, &c., but did not make Canby, who held a second mortgage, a party. The Chancellor says: “ From an attentive examination of the authorities, and of the correct practice of the court, I am satisfied that it was the duty of Ridgway, in order to have made his decree effectual against the complainant, and the other encumbrancers, to have made them parties to his bill. The rule has been long and conclusively settled, that in a bill to foreclose a mortgage, the rights of all encumbrancers at the commencement of the suit, not made parties, are not barred or affected by the decree.” After reviewing a great number of authorities, the Chancellor concludes: “ If the first mortgagee brings a bill to foreclose against the mortgagor, and obtains a decree without making subsequent encumbrancers parties, their rights are not foreclosed, and their remedies still remain against a purchaser claiming under the decree.” On appeal to the Court of Errors, this decision was affirmed in May Term, 1829.

What the complainant's particular equities are in this case, or whether he is entitled to a decree in his favor, are matters which I am not now called upon to decide. There are many facts and circumstances involved in the case, which may very materially affect these questions, and which, upon the motion now before me to dissolve the injunction, I do not feel myself called upon to examine.

The rights which the complainant asks the court to protect, were not foreclosed by the decree under which the defendant claims. Those rights can only be ascertained and established here. He has sought the proper tribunal for protection, and he ought not to be disturbed in his possession by the defendant, until the equities of the parties are settled. Should the final decree be against the complainant, it will settle the controversy at law. He admits that .he backs the water on the land. If he cannot be protected in doing so, by the equity he sets up here, he has no further defence to the suit.

The motion is denied, without costs.

Cited in McCall v. Yard, 3 Stockt. 65; Chilver v. Weston, 12 C. E. Gr, 438.


text:
    Between Jacob Hinchman, complainant, and Ellen Stiles and others, defendants.
    1. The principle is well settled that a widow is entitled to her dower in an equity of redemption.
    2. If land is sold under a prior mortgage, in which the wife joined, and the husband is dead at the time of foreclosure and sale, the court will protect the widow’s thirds to the surplus, against a mortgagee whose mortgage she did not unite with her husband in executing.
    8. But a second mortgage cannot be postponed to a third; it does not lose its priority from the mere fact that the wife did not sign it. The husband has the right to mortgage his interest in the land without his wife’s consent, and a third mortgage can derive no superiority on that interest to the second mortgage, because he has procured a lien on the further rights of the wife.
    This was a bill to foreclose, filed by the complainant, August 6th, 1852. The cause was set down for hearing upon the bill, and the answer filed by Ellen Stiles.

      Teneyck, for complainant.

      Dudley, for defendants.
   The Chancellor.

David Stiles, before his marriage with Ellen Stiles, one of the defendants, on the fifth of March, 1849, made and executed a mortgage to Benjamin H. Lippincott, on a tract of land in the county of Burlington, to secure a debt of one hundred and forty-four dollars. This mortgage was afterwards assigned to the trustees of Griffith M. Roberts, who now hold the same, and who are defendants in this suit.

On the 24th day of April, 1849, which was after his marriage with the said defendant Ellen, David Stiles made and executed a mortgage to the defendant, Rebecca Slim, to secure a debt of four hundred dollars. Ellen, his wife, did not join in this mortgage. It did not cover the lot mortgaged to Lippincott, but was on a tract of land adjoining thereto.

On the first day of April, 1850, David Stiles and Ellen, his wife, mortgaged to the complainant both tracts of land embraced in Lippincott’s and Rebecca Slim’s mortgages, to secure a debt of one thousand dollars.

The bill is filed on this third mortgage. David Stiles is dead. His widow, Ellen, is made a defendant, and has answered the bill. The other mortgagees above named are also made parties, and several judgment creditors whose liens are subsequent to the mortgages.

The widow has no rights to be protected as against the first and third mortgages. The first was executed before her marriage with the mortgagor; and in the execution of the third she joined with her husband, in the manner prescribed by the statute. But as against the mortgage second in priority, which was not signed by her, she insists her dower right is to be protected.

The principle is well settled in New Jersey, and, I believe, very generally in American courts, that a widow is entitled to her dower in an equity of redemption. A court of equity will always protect her rights, and not allow them to be defeated by any technical rules. If she has an interest in the premises, and has not mortgaged it, the mortgagee has no right to appropriate it to pay his debt. If the land is sold under a prior mortgage, in which the wife joined, and the husband is dead at the time of foreclosure and sale, the court will protect the widow’s thirds to the surplus, against a mortgagee whose mortgage she did not unite with her husband in executing. In Titus v. Neilson and others, 5 Johns. Ch. R. 452, the wife of the mortgagor joined in a mortgage in fee; the mortgagor afterwards executed a second mortgage, in which the wife refused to join. A bill was filed on the first mortgage, and a decree made for sale, but before sale the mortgagor died. The widow filed her petition, and it was held that she was entitled to her dower out of the surplus proceeds remaining, after the first mortgage debt was satisfied. The principle is recognized in Table v. Table, 1 Johns. Ch. R. 45; Hawley v. Bradford, 9 Paige 200; Bell v. The Mayor, &c., of New York, 10 Paige 49 ; Harts horne v. Hartshorne, 1 Green’s Ch. 349; besides which, numerous other authorities might be cited.

The difficulty in this case is here. The bill is filed by the third mortgagee. It is the intervening mortgage — the second mortgage — that was not executed by the widow. The widow, by her answer, insists that the first and third mortgages are first to he paid, and that after her costs are paid out of the surplus, the second mortgagee must take two-thirds of the residue, and the one-third must be invested for her benefit. And so her counsel contended on the argument. But on what principle can the second mortgage be postponed to the third ? It does not lose its priority of payment, from the mere fact that the wife did not sign it. The husband had the right to mortgage his interest in the land without his wife’s consent, and a third mortgagee can derive no superiority over that interest to the second mortgagee because he has procured a lien upon the further rights of the W’ife.

The amount due on the first mortgage, together with that mortgagee’s costs, must be first paid out of the proceeds of the lot which the mortgage covers. If there is more than sufficient for that purpose, the residue, or so much thereof as is necessary, must be appropriated to pay, first, the third mortgagee’s costs, and then his mortgage. If the proceeds of tiie sale of the one lot pay off the first and third mortgages, there is no difficulty. Out of the proceeds of the other lot, the widow’s costs of this suit must first be paid, and one-third of the residue must be invested so that she may receive the interest during her life. The balance goes to pay the second mortgage, and, if not sufficient for the purpose, the mortgagee, at the death of the widow, will be entitled to the principal invested for the widow’s benefit, or so much of it as will bo required to satisfy his claim. But .suppose the third mortgage is not paid by the proceeds of the sale of the first lot, how, then, are the rights between the second mortgagee and the widow to be settled, consistent with the rights of the third mortgagee ? The second mortgagee says: “ I am willing the widow’s costs should be paid out of the fund. I will take two-thirds of the surplus, and the other third must be invested for the widow’s benefit during her life.” But to this, the third mortgagee objects. His mortgage covers all the widow’s interest in the- fund, arid her costs cannot be paid out of the fund, nor can an investment of any part of it be made for her benefit, until the third mortgage is discharged. Nor can the third mortgagee claim any of the fund until the prior encumbrance (the second mortgage) is discharged. There is no’question in litigation between the second and third mortgagees. They make no point in the case.

The mortgages must be paid according to their priority. Should there be a. surplus after paying all the mortgages, the widow, perhaps, may claim something more than the one-third of the surplus. She may be entitled to her costs, and to have the amount of her interest in the fund, which went to pay the second mortgage, first deducted, and also to have the one-third of the balance. But I have not well considered this point. When the property comes to be sold, it may •be unnecessary to do so.

Let a master state the accounts, and let there be a decree for sale, directing the lot embraced in the first mortgage to be first sold, and out of the proceeds let the first mortgagee’s costs, and the amount due him, be paid ; and the residue, if any, be appropriated, first, to pay the third mortgagee’s costs, and then the amount due on his mortgage. Let the proceeds of the sale of the other lot be brought into court, subject to further directions.


text:
    Peter A. Johnson v. James Tuttle and others.
    1. The fact that a judgment was allowed to stand open for twenty-four years, when the creditor had under execution, and within his reach, property ample to pay the judgment, is not conclusive that it was satisfied ; the indulgence may be explained.
    2. When called upon by a bona, fide purchaser or mortgagee, a creditor must account for personal property he has levied upon; he must show that it did not go to pay his judgment. The presumption of law is that it did.
    This was a bill exhibited against the executors of Jacob Gray, who was a judgment creditor of James Tuttle and others, defendants, to foreclose their rights, and to sell the mortgaged premises.
    The cause was put down for hearing on the bill, answer, replications and proofs.
    The state of the case sufficiently appears in the opinion of the Chancellor.

      J. J. Scofield and P. J). Vroom, for the complainant.

      A. Whitehead and W L. Dayton, for the judgment creditors.
   The Chancellor.

The complainant holds two mort-

gages made and executed by James Tuttle and wile.

On the 26th of May, 1834, James Tuttle was indebted to the complainant in the sum of twelve hundred and fifty dollars. For this amount Tuttle gave the complainant his promissory note of that date, endorsed by Yoadiah P. Thomas, Joseph Bleything and Charles Ford. To secure its payment he and his wife executed a mortgage upon lands in Morris county, to one of the endorsers, Yoadiah Thomas, and Thomas assigned it to the complainant.

On the 10th of December, 1839, Tuttle, in order further to secure the amount due on the said note, with his wife, executed another mortgage to the complainant upon other land in the county of Morris.

On the 20th of December, 1821, Jacob Gray recovered a judgment, in the Inferior Court of Common Pleas of the county of Morris, against James Tuttle, for the sum of two thousand three hundred and two dollars and seventy-two cents, besides costs. Since then Gray has deceased. The complainant has exhibited this bill against Gray’s executors and others, .defendants in the suit, to foreclose their rights,, and to sell the mortgaged premises to pay his debt. The contest is in reference to this judgment. The complainant insists the judgment has been satisfied.

The complainant alleges that the age of the judgment, in connection with the fact that it was allowed to stand open for twenty-four years, when the creditor had under execution, and within his reach, property ample to pay the judgment, is evidence that it was in some way satisfied between the parties. And some other circumstances are urged to show that the court ought to come to this conclusion.

The indulgence which was shown by Gray to Tuttle is explained. There was a family connection between them: their wives being sisters. The terms on which they lived, and their business relations with each other, are sufficient to-account for the fact of much leniency and indulgence on the part of Mr. Gray. But the executors show, by the dealings and settlements between Tuttle and Gray, and between Tuttle and themselves, as well as by the declarations of Tuttle, and numerous letters written by him, that Tuttle, up to the time of his death, which occurred. after the bill was filed, considered and dealt with the judgment as open and unsatisfied. The complainant insists that the declarations of Tuttle, and his letters, are not admissible as evidence against the complainant. The rule that a party cannot offer his own declarations as evidence is not applicable. Tuttle and Gray are brought into this suit, as well adverse to each other as to the complainant. The rights which Gray is called upon to establish are adverse to Tuttle’s. When Gray is called upon to establish his judgment against Tuttle, Tuttle’s declarations are competent for the purpose. Such declarations are not in favor of the party making them, but against his interest. There is no allegation in the bill of collusion, nor is there any evidence to excite the suspicion that the judgment was kept on foot to defeat the complainant, or for any other unlawful purpose.

It is shown that numerous payments were made on the judgment in large and small sums, from time to time, in money and otherwise. Questions were raised on the argument, as to the admissibility of some of the evidence, on both sides, in reference to these payments, as well as to the effect and sufficiency of it. The complainant insists that the payments actually proved, show the judgment paid. But all these questions will more properly and fairly come up before the master upon a reference.

There is one matter, however, connected with taking the accounts, which, I consider, it is proper I should decide now.

In the year 1821, an execution was taken out on this judgment, and, by virtue of it, the sheriff levied upon certain personal property belonging to the defendant. From the pleadings in the cause, as well as the evidence, I am satisfied that, both by the rules of law and equity, the personal property so levied upon was, pro tanto, a payment upon the judgment.

If the property so levied upon had been of sufficient value to satisfy the judgment, and so charged in the bill, and not denied, I should have declared the judgment satisfied, as respects the complainant’s mortgages. In Wood v. Toney, 6 Wend. 562, a perpetual stay of execution was ordered, on the application of a bona fide purchaser of lands bound by judgment, where it appeared that an execution had been issued, and personal property of the defendant in the execution levied upon to an amount sufficient to satisfy the judgment. On a previous application, on behalf of the defendant in execution, the court had, under the circumstances of the case, refused to set the execution aside. The plaintiff in the judgment, or his assignee, had ordered a stay on the execution, and the property had been left in the hands of the defendant. "Without saying that this court will lay it down, as a rule, that where a judgment creditor has levied upon personal property sufficient to pay his judgment, he may not relinquish his lien upon it, for the benefit of his debtor, without putting in jeopardy his lien on the real estate, I feel clear in declaring the rule in equity to be that when called upon by a bona fide purchaser or mortgagee, the creditor must account for the personal property he has levied upon. He must show that it did not go to pay his judgment. The presumption of law is that it did. When the sheriff levies upon property, it is his for the special purpose of paying the execution in his hands. The defendant must be credited pro tanto, and the plaintiff must look to the sheriff. If the property has been disposed of, by the fraud of the debtor, or been appropriated to his own use, with the consent of the plaintiff, as between the plaintiff and defendant, their respective rights, as to any lien upon real estate, are not affected. As between the plaintiff and a bona fide purchaser, or encumbrancer, a different case is presented, and their equities must depend upon the particular circumstances of the case.

In the case of Luther v. Onondaga C. P., 19 Wend. 79, on an application for a mandamus to the pleas, A., defendant in execution, fraudulently removed from the county, property which Luther, as deputy sheriff, had levied upon, and the sheriff was ordered to pay the amount of the execution. He paid it, and took an assignment of the judgment. The court allowed Luther to be subrogated in the place, of the plaintiff, as against the defendant, but not as against the purchasers of his real estate, on subsequent judgments and executions.

In Hayden v. The Agent of the State Prison at Auburn, &c., 1 Sand. Ch. Rep. 195, the assistant Vice-Chancellor applied the rule very rigidly, and determined that the levy of an execution,.upon sufficient personal property to pay it, is a satisfaction of the judgment as to junior encumbrances upon real estate, although, in consequence of the sheriff’s indulgence to the debtor, and the plaintiff’s neglect to enforce it the levy actually produces nothing to apply on the execution.

In this case, the bill alleges that certain personal property was levied on, and specifies the property, and prays that the judgment creditor may be compelled to raise and satisfy the amount found due on the judgment, by first selling the personal property levied on, before resorting to the mortgaged premises. It is true the complainant does not state his rights in the matter with very great precision, but there is enough in the bill to give him the relief to which he is entitled under the circumstances. The defendants admit in their answer the fact of the levy on the personal property. They make the execution and accompanying levy exhibits. They do not set up in their answer that they have not had the full benefit of the personal property levied upon, nor do they give any account of its disposition. It was taken by the sheriff. It was in his custody, and beyond the control of the defendant in execution, for the purpose of paying the judgment. The presumption of law is that it was so appropriated. The complainant having shown that the judgment creditor took the property to pay his judgment, it must be credited on the judgment, unless the defendants show some reason why it should not be. It may be true, as was suggested on the argument, that the levy was made subject to other liens which claimed the property, or that the judgment creditor converted it to his own use. But the law presumes no such thing; and if any reason exists why the amount of this property, which the creditor took by process of law to pay the judgment, was not so appropriated, it should have been set up in the answer, and been proved. Jacob Wilson, the sheriff who had the execution, says he made the levy and returned the execution. He thinks he did nothing with the execution after the levy until 1840, when he advertised and adjourned from time to time until he had notice that there was an injunction. He says he does not know what became of the personal property that he levied on. It was not very common for him to let the property remain without sale, without orders from the plaintiffs. Upon such evidence, can there be á doubt that, if the question was between the plaintiff and defendant in execution, the defendant would be entitled to a credit to the amount of the value of the property levied on? The complainant stands on much better ground. He is a bona fide purchaser for a full consideration. The injunction issued in this case did not stay the sale of the personal property ; it only enjoined the sheriff from selling the mortgaged premises.

As to the release to Rodgers, and the sale by Tuttle to Howell, I do not see that the judgment creditor can be prejudiced by them. The complainant in his bill sets up no equity in reference to these matters, and no question in relation to them is put in issue by the pleadings. They are introduced into the answer for the purpose of showing that Tuttle dealt with the judgment as open and unsatisfied.

Let there be a reference to a master to take an account of what is due to the complainant on his mortgages, and also the amount due on the judgment, with directions to credit on the judgment the proceeds of the sale of the personal property levied on; or if there has been no sale, then the value of the property, except such part of it as the defendants can show was not appropriated to.their judgment, and the benefit of which they were deprived,, through no negligence or default of their own or that of the sheriff.

Cited in Schanck v. Arrowsmith, 1 Stock. 329; Banta v. McClennan 1 McCar. 123.


text:
    John McKelway et al. v. The New England Manufacturing Co., of South Trentou, and others.
    1. Where the funds in the hands of receivers for distribution among the creditors of a company, after paying prior encumbrances, amounted to much more than sufficient to satisfy the claims of the complainants, and it appeared by the bill that there was a fund in court raised out of the property of the mortgagors, by a decree of this court, for the very purpose of paying, with other debts of the company, those due to the complainants, it was held to be inequitable to permit tire complainants to enforce their claims against other lands; sufficient lands of the mortgagors having-already been sold, under a decree of the court, to satisfy their mortgages.
    2. Where two creditors have liens, the one on two funds of a debtor, and the other on one of them only, the creditor having the Hen on the two will, in equity, not be permitted to invade the common fund until he has exhausted the other. But this principle is not applicable where mortgagees object to the payment of a prior mortgage out of a common fund, raised in part by the sale of the mortgaged premises, there being no allegation in the bill that the property sold did not bring enough to pay off the first mortgage. If it did, then the money taken out of the common fund to pay the first mortgage, will, in equity, be taken as that portion of the fund realized from the sale of the mortgaged premises.
    The bill alleges that on the 28th March, 1833, the Trenton Delaware Falls Co. purchased of S. R. Hamilton and wife, and John McKelway and wife, about 17 acres of land, in the township of N., in the county of B., at the time subject to a mortgage by Peter A. Hargous to N. Belleville, dated 27th Nov., 1835, to secure $3000, and which mortgage was subsequently assigned to Robert McCall.
    That the said company, on or about the 20th day of January, 1837, became seized, by purchase, of other tracts of land; one tract on the route of the branch raceway, in the township of N. aforesaid, one other tract being the raceway in the counties of Hunterdon and Burlington.
    That the said company being indebted to the Trenton Banking Company, about 2d April, 1833, mortgaged to the bank all its real estate in the counties of Hunterdon and Burlington, to secure the sum of $4000; and about same time made a second mortgage to the said bank on all their said real estate, to secure the further sum of $6700.
    That after the execution of the said mortgages, to wit, on the 20th March, 1840, the Falls company purchased of Budd Sterling and wife, for- $300, one acre in the said township of N.
    That on the 1st day of January, 1841, the said Falls company purchased of Peter T. Smith, for $1312.88, three tracts of land situate in the county of Mercer.
    That the receivers appointed by this court, under the decree of Nov. 7th, 1843, sold all the premises of the said Falls company for $50,000, and the proceeds have been appropriated by them to the payment of the Hargous mortgage, and the Trenton Banking Company’s mortgage and judgment.
    That about the 22d May, 1834, the Trenton Banking Company recovered judgment against the Falls company for $5237.87, and levied on lands purchased of T. B. Sartori, and also one of the lots purchased of P. T. Smith, and on all the real estate of the Falls company, without describing it; and that the said levy included the lot of land afterwards released and conveyed by the Falls'company to Brown, Hansen and Benson, and that the same are subject to the Hargous mortgage and the bank judgment.
    That the said Falls company having become embarrassed, a bill was filed by one Andrew Carrigan, on 29th May, 1843, and on the 9th June of the same year, receivers were appointed.
    That on the 20th day of February, 1844, the receivers sold all the real estate and property of the said Falls company, under an order of the court, and which sale was afterwards ratified, and by the report of the master, there remained in the hands of the receivers, after deducting their disbursements and commissions, $49,751=82.
    That the receivers reported to the court that they had proceeded to ascertain the amount and priority of the several mortgage and judgment debts, and that Schedule A, annexed to said report, contained a statement of the several claims which had been presented to them ; and that Schedule B contained a statement of the order and priority of the mortgage and judgment debts, &c.

      That, in said Schedule B, the Hargous mortgage is stated as first entitled to priority of payment, and the two mortgages, and a judgment to the Trenton Bank next entitled to priority.
    That, by a decree of the court, the receivers paid out of the said funds in their hands, the mortgage and judgment debts due the bank, and also the Hargous mortgage.
    That, in 1839, while the Hargous and bank mortgages and bank judgment were liens unpaid, the Falls company made an indenture of sale or release to David S. Brown, William R. Hansen, and John C. Benson, of a mill site, being part of the 17 acres before mentioned, and covered by the Hargous mortgage.
    That the consideration in the deed is $1666.66, and yet no part of the same was ever paid by the said grantees, or in any way secured to be paid; and that the said Brown, Hansen and Benson had notice, actual or constructive, of .the said encumbrances at the time of the conveyance to them.
    That, on the 14th of January, 1843, the Falls company sold and conveyed part of the 17-acre tract to Xenophon -L Maynard, and while it was subject to the said mortgage and judgment liens.
    That, about the 3d of February, 1843, and before the said mortgages and judgment were paid off as aforesaid, the said Falls company conveyed a mill-site, part of the said 17 acres, to Thos. J. Stryker.
    That the said land so conveyed to Brown, Hansen and Benson, to Maynard, and to Stryker, ought to have been made to contribute its proportion toward the payment of the said mortgages and judgment; and yet the same were paid out of the general fund in the hands of the receivers.
    That, although the said mortgages and judgment have been paid, the same are still uncanceled of record.
    That, in 1841, Benson conveyed his interest in the said tract to Brown and Hansen, and they conveyed to the Hew England Manufacturing Company.
    That, the said Falls company being justly indebted to the complainants and other persons, on the 2d day of June, 1836, executed to their said creditors a mortgage upon all the lands and tenements which had been purchased or appropriated by the said Falls company, by virtue and in pursuance of their act of incorporation, and not theretofore conveyed by them to other persons, situate in the townships of Ewing and Trenton, in the county of Hunterdon, and in the township of Nottingham, in the county of Burlington, and which mortgage was executed to secure to the individuals therein mentioned the respective sums therein named, making, in all, the sum of $9220.97.
    That, on the 4th of June, 1836, the said company executed another mortgage, on the same premises, to Armitage, Green, and others, to secure the several sums therein mentioned, and to the individuals therein named, making, in all, the sum of. $7395.45.
    That the funds with which the receivers paid the Hargous and bank mortgages and judgment, were raised and made from the proceeds of the sale of the real estate of the said Falls company, on which the complainants’ mortgages were encumbrances.
    That the said Hargous mortgage and the bank mortgage and judgment being liens, as well on the property sold to Brown, Hansen & Benson, to Maynard, and to Stryker, as well as on the real estate mortgaged to the complainants, ought to have called upon the owners of those respective lots to contribute their ratable proportion. But that these mortgages and judgments having been paid out of funds, the proceeds of sales of land on which the complainants’ mortgage was a lien, and thus depriving the complainants of the benefit of their encumbrance and lien, the complainants ought to be permitted to stand in the place and stead of these mortgagees for the amount or proportion to which the said lots so sold Brown, Hansen & Benson, Maynard and Stryker, would have been liable to contribute towards the payment of the said mortgages and judgment, in case the said mortgagees had proceeded to compel the said mortgaged land to bear its ratable portion. .

      The bill further charges that the said premises conveyed to Brown, Hansen & Benson, Maynard and Stryker, are situated in the county of Burlington, and that although the mortgages of complainants purport to embrace all the real estate of the Falls company, as well in the county of Burlington as in the county of Hunterdon, yet the same were recorded only in the county of Hunterdon, by reason whereof the said mortgages were not liens or encumbrances on the land conveyed to Brown, Hansen & Benson, Maynard and Stryker, which were situated in the county of Hunterdon. But, as to this allegation, the bill was amended, and it is charged in the amended bill, that Brown, Hansen & Benson, Maynard and Stryker, at the time of the respective conveyances to them, had notice of the mortgages held by complainants.
    The prayer of the bill is, that the complainants may be decreed to stand in the place and stead of Robert McCall, who held the Hargous mortgage at the time it was paid off, and of the Trenton Banking Company, and may be entitled to receive of and from the New England Manufacturing Company, (grantees of Brown, Hansen & Benson), Xenophon J. Maynard and John Sheppard, (grantees of Thomas J. Stryker), respectively, each a proportionate sum of money as the said Robert McCall and the Trenton Banking Company might have received in case they had proceeded to enforce their liens and encumbrance against the said lots of land so conveyed by the Trenton Delaware Falls Company to the said Maynard, Sheppard and Brown, Hansen & Benson, and that the said The New England Manufacturing Company, Maynard & Sheppard, may be decreed to pay to the complainants, respectively, such an amount of money as the said lands so conveyed are now worth, or as they were worth, at the time of the said conveyance, or such other sum proportioned to the whole value of the property of the said “ The Trenton Delaware Falls Company,” out of which the said McCall and the bank received the principal and interest of their said mortgages and judgment, as shall be agreeable to equity. And that the complainants may be permitted, if necessary, to use the name of the said McCall and his mortgage, and also the name of the said bank and their mortgage and judgment, for the purpose of enforcing them as liens.
    This was an amended bill. To the original bill a general demurrer had been filed, which was sustained. The bill was then amended, according to some suggestions made by the Chancellor in his opinion, but without any intimation by him that the bill, if amended, could be sustained.
    To the amended bill a general demurrer was filed on behalf of Sheppard, one of the defendants, and another on behalf of the “ New England Manufacturing Company.”

      C. S. Green and W. L. Dayton argued in support of the demurrer.

      W. Halsted, contra.

   The Chancellor.

The Hargous mortgage covers seventeen acres of land, in the county of Burlington. It was made to secure $3000, and is dated the 27th November, 1835.

The bank mortgage is next in priority. It embraces the seventeen-acre tract, and all the real estate of the Falls company, both in the counties of Burlington and Hunterdon.

Next is the bank judgment.- The mortgage and judgment together were for the sum of $11,938.87.

Then come the two mortgages of the complainants — one for the sum of $9220.92, the other for $7395.45. These mortgages embraced all the lands of the Falls company in Ilubterdon and Burlington counties, which had been purchased and appropriated by the company, by virtue of their act of incorporation.

It does not appear by the bill that there were any other encumbrances on the real estate of the Falls company, nor that the company owed any debts, except those thus secured by these liens.

The funds in the hands of the receivers, for distribution among the creditors of the company, amounted to $49,751.82. The receivers paid out of this sum $24,091.89 in liquidation of the Hargous mortgage and the bank mortgage and judgment. This left a balance in their hands of $25,659.95 — an amount much more than sufficient to satisfy the claims of the complainants. It thus appears by the hill that there is a fund in court, raised out of the property of the mortgagors by a decree of this court, for the very purpose of paying, with other debts of the company, those due to these complainants. Why, then, should the complainants have the relief they now ask? Why should the court grant them aid, to enforce their liens against property in the hands of the grantees of this company, when sufficient money has already been raised to satisfy the complainants’ debt. There is no account given in the bill as to the disposition of the balance of the fund. The bill alleges that the court decreed the priority of the Hargous mortgage, and the bank mortgage and judgment, and ordered them paid, and that they were accordingly satisfied by the receivers. Why the complainants were not paid out of the fund does not appear. If the bill be true, they are entitled to payment, and the fund is on hand for the purpose.

It may he that the fund has been otherwise distributed. But in deciding the cause, as it is before me on a general demurrer to the bill, I must take the case as the complainants have made it. The facts as stated are to be considered as true, and no extrinsic circumstances of explanation can be considered, either on behalf of the complainants or defendants. In this view, the complainants themselves show that it would be inequitable to permit them to enforce their claims against other lands, when sufficient land of the mortgagors have already been sold, under a decree of this court, to satisfy their mortgages.

But there are other difficulties, apparent by the bill, to prevent the complainants obtaining the relief they seek.'

All the mortgages in question cover the seventeen-acre tract in the county of Burlington. Subsequent to the execution of these mortgages, the Hew England Manufacturing Company, by several mesne conveyances under the Falls company, became seized of a small portion of this tract, Xenophon J. Maynard of another small portion, and John Sheppard of another. ' The fund in the hands of the receivers was made out of that portion of the seventeen acres not conveyed to these grantees, and out of other real (¡state of the company in Burlington and Hunterdon counties, covered by the bank’s and complainants’ mortgages, but not covered by the Hargous mortgage. This fund having been raised in part out of property, which the complainants’ mortgage did embrace, and the Hargous mortgage did not, the complainants insist an equity attaches in their favor to enforce the Hargous mortgage against the land held by “The New England Manufacturing Company,”. Sheppard and Maynard.

It is true the principle is, as the complainants insist, that where two creditors having liens, the one on two funds of a debtor and the other on one of them only, the creditor having the lien on the two will, in equity, not be permitted to invade the common fund until he has exhausted the other. It is the application .of this principle that the complainants seek by their bill to enforce} and unless it can, in some way, be made applicable to the case, this suit cannot be maintained.

How is it applicable, as between the complainants and the Hargous mortgage ? The complainants insist the Hargous mortgage was paid out of a fund which belonged to them, and which was the proceeds of land in the county of Hunterdon. But how does this appear ? The Hargous mortgage had the first lien on the fund which was realized from the sale of that part of the seventeen acres sold by the receivers. There is no allegation in the bill that the portion of the seventeen acres so sold did not bring enough to pay off this mortgage. If it did, then the money taken out of the common fund to pay this mortgage will, in equity, be taken as that jjortion of the fund realized from the seventeen acres. To obviate this difficulty, the complainants amended their bill. But the amended bill is as deficient in this particular as the original bill. By their amendment, the complainants allege, “that the residue of the land belonging to the said ' The Trenton Delaware Falls Company/ in the county of Burlington, after the sale and release of the said lots so sold to the said David S. Brown, William E. Hansen, and John C. Benson, and Xenophon J. Maynard, &c., were not sufficient to pay and satisfy the said mortgage to the said Peter A. Hargous and the said two mortgages to the said 'The Trenton Banking Company/ with the interest due thereon at the time of the sale and release of the said lots respectively.” But the question is not whether, at the time of the sale and release of those respective lots by " The Trenton Delaware Falls Company,” the residue of the company’s land in the county of Burlington was of sufficient value to satisfy the Hargous and bank mortgages; but was the portion of the seventeen aeres sold by the receivers, of sufficient value, or did they raise out of it enough to pay the Hargous mortgage ? Unless the complainants show the negative of this inquiry on the face of their bill, they have no equity.

As to the equities existing between the bank mortgages and the mortgages of the complainants. These mortgages all covered the same property. The bank mortgages were entitled to priority of payment, out of the funds in the receivers’ hands. They have been paid, without resorting to the lands conveyed to “ The New England Manufacturing Company,” Maynard and Stryker. The complainants ask that they may enforce the bank’s mortgages for their benefit against the lands held by these grantees, or that their equities may, in some way, be established, upon the ground that as between the bank mortgages and their own, the former should have been first satisfied out of these lands. But why ? All the complainants now ask is that they may have the benefit of these lands to satisfy their mortgages. Why is “ The Trenton Banking Company ” brought into court for that purpose ? The complainants’ mortgages cover this land, as well as the bank mortgages; and if the land is liable at all for the complainants’ debts, it must be appropriated for the purpose, by enforcing their own mortgages. It is no ground of complaint against the bank, that it has left a fund untouched, upon which the complainants, as well as they, had liens in common. This was to the complainants’ benefit. By their original bill, the complainants placed themselves upon this equity; they alleged that their mortgages were not liens on the land in the hands of the grantees of the Falls company, because the mortgages had not been recorded in the county of Burlington, where the lands were located. With regard to their mortgages, therefore, they insisted that, with the bank mortgages, they were liens upon the fund in the hands of the receivers, a fund common to both as creditors ; but that in addition, the bank mortgages were liens upon the lands held by the grantees before named, and, in equity, these lands ought to have been appropriated to pay the bank mortgages before the common fund was resorted to. But by their amendment to the original bill, the complainants allege that the grantees of “ The Trenton Delaware Falls Company ” had notice, both actual and constructive, of the complainants, mortgages. How, then, can the complainants claim the equitable interference of this court for their relief, upon the ground that their mortgages were not liens upon the land in question ?

I am aware that all these amendments were made upon the suggestion of the late Chancellor, after he had sustained a general demurrer to the original bill. But these matters are now submitted to my decision, and I must dispose of them according to my best judgment. I do not dissent from the opinion of the late Chancellor, that the original bill was deficient for want of equity. But I do not think any amendments could help it.

The demurrer must be sustained, and the bill dismissed, with costs.


text:
    George D. Small v. Elias E. Boudinot. Elias E. Boudinot v. George D. Small.
    1. A party who seeks redress on the ground of fraud, must point out and specify the fraud. A general charge of fraud is not sufficient.
    2. That the complainant has understood that a sale was conducted fraudulently; that the defendants and others specified were the wrongdoers, and that they suppressed certain facts which ought to have been made known, is not a sufficient statement of the facts which constitute the alleged fraud. It should appear in what respect the sale was fraudulently conducted, or what facts were suppressed to the detriment of the complainant.
    3. S. being the owner of a valuable tract of land, entered into an agreement with a number of individuals to sell them the land. By the agreement, the purchase was made up into shares of one thonsand dollars each * — B. was the owner of one share, and S. of five. The terms were that a certain per cent, was to be paid down ; the property was then to be sold under the management and control of the majority of the shareholders, and S. was to be paid the balance of liis purchase money out of the ¡proceeds of the sale. It was sold in building lots, and B. became the purchaser of a lot for five thousand dollars; he paid one thousand five hundred dollars of the purchase money, and, for the balance, gave a bond and mortgage. On a bill filed by B., alleging that the sale was fraudulent, because there were under-bidders for the said property, in opposition to the complainant, B., and in behalf of S., to inflate the price of the property, it was held that, as the complainant was one, of the owners of the property, making the sale as well as the defendant, that there could have been no underbidding without the authority of the complainant himself. That the complainant should at least have alleged and proved that it was a secret contrivance, without his knowledge or consent.
    Tho original bill in tbis cause was a bill for sale of mortgaged premises, filed by Small against Boudinot. The cross-bill was filed to compel Small to take a re-conveyanee of the property, cancel the mortgage, and the bond it was given to secure, and account for the principal and interest money paid <on the bond and mortgage. The case is fully stated in the •opinion of the Chancellor.

      Grover, for complainant, Small.

      Wm. Pennington, for defendant, Boudinot.

      Gifford, for complainant in cross-bill.

      Wm. Pennington, for defendant,
    Elias E. Boudinot. The
    defence raised by the answer of Mr. Boudinot, and insisted upon in the cross-bill, is that the sale of the property for which he gave the mortgage sought to be foreclosed in this suit, was fraudulent and void.
    1st. Because there was under-bidding at the sale among the parties interested, by which the price was inflated. Thus, while Mr. Boudinot was acting under the impression of a fair and open sale, the company, and Mr. Small among them, were secretly plotting against him — placing it beyond the power of any purchaser to obtain the property for less than a fixed and exorbitant price.
    I refer to the answer of George D. Small, the present complainant, for the facts in the suit in chancery, against John J. Plume, which accompany the papers, and which it is agreed, with the depositions in that case, shall be read in this cause. Indeed, the answer of Mr. Small might legally be read, I suppose, as an admission on his part, in writing, of the transaction. The whole answer,.though put in the most favorable aspect for his side, still discloses the important fact of under-bidding and want of fairness in the public sale.
    A sale made under these circumstances is fraudulent. Howard v. Castle, 6 Tenn. Rep. 642; Baxwell v. Christie, Cowper 395 ; Bramley v. Alt, 6 Vesey, Jr., 622, and in note; 1 Story’s Commentaries on Eq., where all the'cases are cited in the note page 297, § 293.
    2d. The price bid for the property under this state of things was exorbitant, being more than three times its value. 4 Dess. 697.
    3d. By the articles of vendue, the buildings were to be removed. The terms are positive.
    The buildings on this property were an eye-sore, and subscribers to the property were no doubt obtained for the very purpose of getting them removed. I notice a subscription for the purchase of the property, in the name of Stephen "Van Cortlandt, for two thousand dollars. This was, no doubt, to aid in getting clear of the buildings. This gentleman lived in a retired way, with a fortune, and it was an object to get a building out of the way, used for all kinds of public shows and military companies, for it was, and well called Cadet’s Hall.
    But it is said this clause in the articles did not extend to a purchaser of the lot on which the buildings were situated. He might let them remain, if he pleased. This was not the spirit or object of the condition, as we presume. The other lots were not as valuable with adjoining ones, covered with old buildings, as if new ones were to be erected. Indeed, it is doubtful whether the sales could have been made at all, if these buildings had remained. It makes a wide difference with purchasers.
    The fact of the building remaining to-day, is admitted in Small’s answer. He places himself on his right to retain the building.
    Mr. Small is the owner of the property; the title came from him. Can he, at any rate, retain the possession of the property, keep his buildings on the lot, and yet demand of Mr. Boudinot, interest on his purchase, from the day of sale? He should, before enforcing payment of his bond and mortgage, we respectfully insist, deliver possession of the lot purchased by Mr. Boudinot, freed of the old building, according to the terms of sale.
    But it may be insisted that all this might have constituted a sound objection to Mr. Boudinot’s taking his deed, but, having done so, and given his mortgage, the contract is executed, and it is now too late to raise these objections.
    I answer, that before a decree for sale can be ordered, a sum of money must be found due the complainant, upon a binding contract, and, if the contract and sale be fraudulent and void, the whole must fall to the ground. Mr. Boudinot will consent that all the papers be canceled, which is all the complainant should, in conscience, ask.

      There is a very great difference between this and the case of Small v. Plume. That was a purchase made by Plume at the second sale, and not at the first, at which the underbidding took place, admitted by Small, in his answer. The Chancellor expressly grounds his decision on that distinction.
    The ground was also taken by Small’s counsel, that in Plume’s ease, under the articles of second sale, the building (in the singular) standing on the lot purchased by him, should be removed, whereas, in the case of Boudinot, at the first sale, it was admitted, and is unqualifiedly so expressed as a substantial part of the contract, that all the buildings should be removed.
    Public morals require this practice of’ under-bidding frowned upon by the courts, both of law and equity, especially the latter.
    The sale was made at the time of the great monomania which pervaded the country, and which contracts have, to a great extent, been held' invalid, even without special circumstances of fraud, by parties themselves, and sometimes by the courts, upon slight circumstances.
    The case is a very hard one, and I trust the Chancellor will see good ground for annulling the entire contract, and if not, that he will refuse to allow interest until the possession of the lot, cleared of the old buildings, is proved to have been made.

      A. Gifford, for complainant in cross-bill.

      Under-bidding.

      Bramley v. Alt, 3 Vesey 626, note. This note refers to the case of Walker v. Nightingale, 3 Bro. P. C. 263.
    Persons bidding for the vendor, attend for no other purpose but to mislead the judgment and raise the price upon the buyer, beyond what any other, person who really wants the thing, will give.
    A purchaser judges of the value by his own judgment and the information of others. If he sees ten persons to be supposed not connected, bidding as if for themselves, the fact conveyed to his mind is, that there are ten persons who think the property of that value. Great competition is evidence that it may be of much greater value than he thought. Suppose he sees.several persons bidding for a house, that will influence his judgment. An auction is upon a different principle from a private sale. In the former, the vendor renounces the right of fixing the price, and agrees to sell at such price as a competition shall raise it to.

      Inadequacy of Price.

    1 Madd. 424-5.
    The effect of inadequacy of price upon contracts is such that where a sale has been made for a very low price, or extremely unreasonable, the court will not enforce a specific performance.

      Seymour v. Delaney, 6 Johns. Ch. Rep. 222.
    An agreement must be fair and just in all its parts, otherwise a specific performance will not bo decreed. Inadequacy of price, though not so great as to amount to a fraud, may be a sufficient ground for refusing to decree a specific performance of a contract; and though mere inadequacy of price, without other circumstances, may not be sufficient to sot aside the transaction, yet it may be sufficient to induce the court to withhold its discretionary power to enforce the performance of the contract for the sale of land.

      Rodman v. Zilley et al., Saxton’s Rep. 324.
    Courts of equity seldom interfere to set aside sales and contracts on the ground of inadequacy of price — they leave the parties to their legal remedies. Put when they are called on for extraordinary aid to enforce a contract, they take the liberty to examine into the consideration to be given — its fairness and equality, and all the circumstances connected with it. And if. anything manifestly inequitable appears in that part of the transaction, they never will lend their power to carry the contract into execution, and refers to the case of Seymour v. Delaney, in 6 Johns. 222, above.

      Cirtheral v. Ogilvie, 1 Dess. 258, and (d) note, and opinion of court 263.

    The court in this case refused to decree the specific performance of a contract for the sale of land, where the inadequacy of price was very great, though no direct fraud or imposition was shown, and the court say that (p. 256,) though inadequacy of price may not alone be sufficient ground to set aside a contract, yet is a material ingredient and will go a great way where the property has been sold for a sum grossly inadequate to its real value, &c., and in page 263.
    The court, on full consideration of the case and all the circumstances attending it, and from the evidence on the part of the defendants (although there was no proof of fraud or imposition on part of the complainant,) are of opinion that the sum for which the land was agreed to be sold, is grossly inadequate to its real value. That being an unreasonable contract, and a very hard bargain, it would be unreasonable and unjustifiable to decree a specific performance of the agreement.
    How far equity will go in permitting parol evidence as to intentions of a party, and how far the proceedings at first sale influenced the second sale.

      Woolman v. Hearn, 7 Vesey 216, 219.
    Here the plaintiff contended she had signed an agreement to pay a rent of seventy-three pounds, but that she signed it under a belief that such was the rent payable by the defendant, the real agreement being for a lease at the same rent he paid his landlord, and offers parol evidence to prove an express agreement; she was to have it on the same terms he had it, and to show that nothing could be meant by that expression but the same rent.

    The court say that by the rule of law, independent of the statute of frauds, parol evidence cannot be received to contradict a written agreement. But when equity is called on to exercise its peculiar jurisdiction, by decreeing a specific performance, the party to be charged is let in to show that

      under the circumstances the plaintiff is not entitled to have the agreement specifically performed, and that there are many cases where parol evidence of such circumstances has been admitted, as in the case of Baxter v. Lester, when, upon the face of the judgment, a specific sum was to be given for timber; but it was shown by parol that the defendants were induced to give that upon the representation that it was valued by two timber merchants, which was not true.

      Clark v. Grant, 14 Vesey 519.
    Here specific performance of an agreement in writing, for a lease for sixty years, was refused upon parol evidence of an alteration stipulated for at the time, and upon the faith of which the party assented, the defendant had signed the agreement upon faith of a certain alteration in the premises being made, and the court say that it would be against equity, and a fraud on the defendant, to insist upon his performance of an agreement which he only signed on the faith of an alteration being made in one of its terms. It has been ruled that it is not open to a plaintiff to supply or correct a term of a written agreement by parol, but it has never been determined that a defendant cannot set up a parol engagement in opposition to a party who, having entered into it, seeks to have a written agreement performed independently of it, and they decree that the bill shall be dismissed, unless the plaintiff shall execute such a lease as the defendant promised he was to have.
    In the case of Boudinot, it was not only made a condition of sale, (in the written articles of purchase,) that the buildings should be removed, but it was proved that so it was given out at the time of sale expressly.

      Concealment of intentions to keep the buildings on the premises.

      Shirley v. Stratton, 1 Bro. C. C. 440.
    This was a bill for the specific performance of an agreement for the purchase of an estate in marshland at Banking, in Essex, and for the payment of a sum of one thousand pounds, the purchase money. The defence was that the estate was represented to defendant as clearing a net value of ninety pounds per annum, and no notice was taken to him of • the necessary repair of a wall to protect the estate from the river Thames, which would be an outlay of fifty pounds per annum ; and it appearing upon evidence there' has been an industrious concealment of the circumstance of the wall during the treaty. Bill dismissed, with costs.

      Meade v. Webb, 1 Bro. P. C. 308.
    In treaties for an agreement, a willful and industrious concealment of a material fact by one of the parties, in order to keep the other in ignorance, is a gross fraud, and will, in equity, set aside the contract.
    As to fraud not charged in the bill, but replied to fully in the answer.

      Cooper’s Equity Pleadings, p. 314 ; 1 Vesey, Sr., 535.
    A defendant is not obliged to answer facts without being stated or charged in the bill, but if defendant does answer to suoh facts, and plaintiff replies to such answers, they are properly put in issue, though they were not charged in the bill.

      How far a general charge in a bill permits particular evidence as to circumstances.

      Faulder v. Stuart, 11 Vesey 301.
    Question whether there is such a charge in the bill, as to the payment of the consideration of an assignment, as entitles plaintiff to an answer as to all the circumstances. I have always understood that a general charge enabled you to put all questions upon it that are material to make out whether it was paid.

      Small v. Boudinot.

    The points raised on the argument in this case have greater force when it is considered that the great object of the sale, which appears by the pleadings and evidence in both the cases of Plume and of Boudinot, that the object of the purchasers was not speculation, (as will be seen by the result of the sale, by scarcely one hundred dollars) — or any immediate profit; but was to deliver the town and neighborhood from acts and scenes of a demoralizing tendency, and to build up with substantial buildings on the site of those which were dilapidated and unsightly. Purchasers were induced to bid, under the positive assurances that the buildings should certainly be removed — a positive condition, which must stand as a subsisting ground of specific performance, as in the case of Clarke v. Grant, 14 Vesey 524. “ It would be,” says the master of the rolls, “against equity and a fraud on the defendant, to insist upon his performance of an agreement which he only signed on the faith of an alteration being made in one of its terms — but for this promise there would probably never have been any agreement at all.”

    The question is, can Boudinot be made to comply with a contract, the most important terms of which never have been, in the least degree, attempted to be performed by the vendor, and when fraud, deceit and the grossest advantage have been taken?
   The Chancellor.

The original bill was filed by Small against Boudinot, on a mortgage given by Boudinot and wife to Small, to secure, in part, the purchase money for the land embraced in the mortgage. Boudinot, by his answer, sets up fraud in the sale, and further, that the conditions of the sale have not been complied with.

The object of the cross-bill is to compel Small to take a re-conveyance of the property, cancel the, mortgage and the bond it was given to secure, and account for the principal and interest money paid on the bond and mortgage.

Small was the owner of a valuable tract of land in the city of Newark. In 1836 he entered into a written agreement with a number of individuals to sell them the land. By the agreement the purchase was made up into shares of one thousand dollars each. Boudinot was the owner of one share and Small of five shares. The terms were, that a certain per cent, was to be paid down, the property was then to be sold under the management and control of the majority of the shareholders, and Smal.1 was to be paid the balance of his purchase money out of the proceeds of the sale. It was sold off in building lots at public sale, and Boudinot became the purchaser of a lot at five thousand dollars. He paid one thousand five hundred dollars of the purchase money, and for the balance gave the bond and mortgage in question, upon which several years’ interest has been paid.

The bill alleges the sale was fraudulent.

First. That “ there were under-bidders for the said property, and that such under-bidding upon the same, in opposition to the complainant, was in behalf, or at the instance of the said George D. Small, to inflate the price of the property ; and the price at which the same was struck off was far beyond what the said property would bring, and beyond what any other person would have been willing at that or other time, before or since, to give for the same.”

There were twenty-eight owners of the property. The sale was made by them ; and of which number the complainant in the cross-bill was one, as well as the defendant. How, then, there could have been under-bidding at the sale in opposition to the complainant, and on behalf, or at the instance of the defendant, cannot well be conceived. If there,_ were any bids in opposition to the complainant, in behalf of the defendant, they were not under-bids, but bona fide bids, by which the defendant was bound. What authority had Small to underbid ? He could not do it without the authority of the vendors. It is not . alleged that they gave him any authority. If they did, as the complainant was one of the vendors himself, he ought to go further, and, at least, allege and prove that it was a secret contrivance without his knowledge or consent.

Again. The complainant alleges that he continued to pay interest on\his bond until he was informed “ that the said sale was the result of contrivance and management between Small and some of the committee, secretly and designedly to deceive and defraud the purchasing (purchasers) at said sale.”

But what the contrivance between Small and some of the committee was, and how the said sale was the result of such contrivance, is not stated, but left to conjecture. The complainant had before alleged that the under-bidding was at the instance and on behalf of Small. This has no connection with the charge of contrivance between Small and the committee.

There is one other allegation of fraud in the bill. I will state it in the language of the bill: “ That he has understood, since the payment of the said interest and notes, that the said sale was promoted and set forward, and was carried on, by means of a secret understanding between the said George I). Small and some person or persons on the committee appointed to conduct the sale as aforesaid, and in a fraudulent manner, for the purpose of deceiving your orator, Elias E. Boudinot; and that there were such proceedings had on the part of the said persons composing the said committee, or some of them, upon arrangement made with the said George D. Small, as were suppressive of such facts as ought to have been known to the bidders, and such as were fraudulent, to deceive the said purchasers, and especially your orator; and that there was, in the inception of the said agreement for purchasing as aforesaid, and conduct of the said sale, fraud, misrepresentation and concealment on the part of the said George D. Small, by means of which the said purchase was made by your orator, Elias E. Boudinot, and with a design to sell off the said lots, and particularly the lot sold to your orator, at a price inflated and far beyond its value.”

It is apparent that a charge like this is no foundation for relief. A party who seeks redress, on the ground of fraud, must point out and specify the fraud. A general charge of fraud is not sufficient. The party alleging it must state the facts which constitute the fraud. A general charge of fraud in a bill is not sufficient to authorize a decree for the complainant, on demurrer to the bill. McCaleb v. Perry, 5 Heyward 88. How can the defendant meet this charge ? How can he answer it ? The charge is only this : that the complainant has understood (without even averring his belief of its truth) that the sale was conducted fraudulently; that the committee and Small were the wrong-doers, and that they suppressed certain facts which ought to have been made known. In what respects the sale was fraudulently conducted, or what facts were suppressed, to the detriment of the complainant, we are not told.

The fraud is denied in the answer, without any reserve, and I do not think there is the least evidence to suspect even that any fraud upon the complainant was contemplated or practiced, either by Small, or the committee, or by any one else. All the evidence upon which the complainant’s counsel rely is that, at the sale, two lots were purchased in on behalf of the vendors. But how can this affect the purchase of the complainant ? Suppose the other lots were fraudulently sold, and that, by the contrivance of the defendant, the price was run up and became exorbitant; unless the complainant can show that the persons who were his competitors at the sale for the very lot he purchased, were fictitious bidders, and that he was defrauded, the fact that there were under-bidders for other lots, and fraud in the sale, can avail the complainant nothing.- Now, it is not shown that there were any bidders against the complainant. From everything that appears in the case, the complainant obtained the lot at his own price. The complainant does not show himself entitled, either to the morality or the law laid down by Lord Mansfield in Baxwell v. Christie, Cowper 395. There is no fault in the counsel who drafted this bill — the facts are wanted upon which a bill can stand.

As to the relief asked for, on the ground that the conditions of sale have not been complied with. The third condition was as follows :

3. The buildings will be sold, to be removed within thirty days from this date, from the premises.

The buildings were sold separate from and after the sale of the lots. Small bought a lot upon which was a building, and afterwards purchased the building. He has not removed it, and the complainant insists he has a right to have the contract rescinded, and the parties placed in statu quo.

As to all the allegations in the bill, of motives and declaratons of the vendors in prescribing this condition of the sale, they cannot be considered. The condition is reduced to writing, and the motives of the parties, or their subsequent parol declarations, cannot give construction to it. Besides, no attempt was made to prove the allegations, and as far as the character of the charges would admit of a denial by him, they are denied by the answer of the defendant.

This condition of sale was a matter between the vendors and the purchasers of the buildings. It was not a condition upon which the lots were sold. The purchaser of a building took it npon the condition that he would remove it in thirty days. Of what benefit is this condition of sale to a purchaser of a lot without a building ? If it is a farm-house; if the condition requires its removal, it does not prevent another of like character being erected on the same lot. If the object to be accomplished, and which was in view of the parties interested, was to rid the lots of a certain description of buildings, this condition did not accomplish it. The purchasers were in no wise restrained as to the character or description of buildings to be erected, nor were they prohibited from' retaining buildings already there.

It is not necessary to examine the other demands upon which the relief sought for by the cross-bill is resisted.

The cross-bill must bo dismissed, with costs. The complainant in the original bill is entitled to his decree, with a reference to a master to compute the amount due on his mortgage.