author: Reed, Y. C.

text:
    The Clark Thread Company v. The William Clark Company.
    1. In a suit against a corporation to enjoin its use of the trade-marks of the complainant and to obtain an accounting of profits, the fact that a previous suit had been brought by the same complainant against the selling agent of the defendants for the same purpose, and that there had been a decree for an injunction, but no decree for an accounting in that suit, does not estop the complainant from obtaining an. accounting in the second suit, it appearing that the selling agent had been employed upon a salary and received no profits, and it appearing that upon that ground no decree for an accounting was made against him.
    2. A decree for an accounting in a suit for the infringement of trade-marks can only be made where an injunction is or could have been granted in the course of the suit.
    3. An injunction will be granted where it appears that, at the time the suit was begun, the defendant was infringing the right of the complainant to the exclusive use of trade-marks, although at the time of final hearing such practices had ceased, and although the defendant had promised a perpetual cessation of the infringement.
    On final hearing.

      Messrs. Randolph, Condiot & Black, Mr. Richard V. Bindabury, and Mr. Charles D. Meyer (of New York), for the complainant.

      Mr. Edward Q. Keasbey, and Mr. Henry B. Eonnolly (of New York), for the defendant.
   Reed, Y. C.

This bill is filed to enjoin the defendant from using certain trade-marks which are alleged to be the property of the complainant, and also for an accounting for the profits diverted from the complainant to the defendant by reason of the previous illegal use by the defendant of such trade-marks.

Both complainant and defendant are manufacturers of spool cotton thread. The complainant insists that long before the organization of the William Clark Company (the defendant), the Clark Thread Company (the complainant) had by use acquired an exclusive right to employ, in the sale of its goods, certain words and letters upon the labels upon its spools and boxes. It insists that the defendant has, by the use of the same or similar words and letters printed upon its labels upon its spools and boxes, infringed upon the property right of the complainant in its trade-marks.

The questions presented are, first, whether the Clark Thread Company had acquired an exclusive right to use a trade-mark; second, whether this right has been infringed by the defendant, and third, whether there should be an injunction against the further use of such trade-marks by the defendant, and for an accounting for profits arising from the illegal use by the defendant of such trade-marks.

An original examination of these questions in this case is excluded because of a previous adjudication made in the federal courts. This judgment is set up by both complainant and defendant as an estoppel against a relitigation of the points in issue, so far as the former decree circumscribed and defined the extent of the exclusive right of the complainant to use certain words and letters, and as an estoppel, so far as the judgment enjoined the use of these words and letters by the defendant. This previous adjudication is also set up by the defendant as a final determination against the right of the complainant to an account for profits in this case.

The points to be decided are resolved into an inquiry whether the decree in the former suit has put at rest all the questions raised by the pleadings in the present suit.

To understand the manner in which the suits are related, it is essential that the purposes of the first suit, the parties to it and the several decrees made in it shall be set out. It is equally essential that the pleadings in, and the progress of, the present suit, in relation to the former suit, shall also be exhibited.

The bill in the first suit was filed in the United States circuit court for the southern district of New York, in January, 1893. That suit was brought by the Clark Thread Company, the present complainant, against one Herbert G. Armitage. Armitage had been and then was the general manager of the sales department of the William Clark Company. The William Clark Company openly defended the suit against Armitage. The bill in that suit was filed upon the same facts as is the bill in the present suit. It specifically prayed for an injunction restraining the defendant from selling thread under the name or designation of “ Clarks,” or the “ William Clark Company,” or under a designation of which the word “-Clark” or “Clarks” should be a part, or from using, in connection with the thread, the collocation of the three letters “ N. E. W.,” horizontally arranged across a circular spool label or otherwise. The bill also prayed for an accounting for profits.

In May, 1895, a decree was made in that case by Judge Coxe, in the district court. By that decree the defendant was restrained from using the word “ Clark ” or “ Clarks ” except when those words occurred in the name of the corporation, viz., “ The William Clark Co.,” and when so used in good faith the word “ Clark ” was not to be printed in Gothic type or otherwise so as to be in violation of the injunction. The decree was silent as to the right of Armitage to use the letters “ N. E. W.,” the court refusing to restrain their use.

After this decree by Judge Coxe was made, the bill in the present case was filed on July 17th, 1895, against the William Clark Company, a New Jersey corporation. This bill, as I have already observed, is grounded upon the same facts as the previous bill, and prays for the same relief against the William Clark Company as the former bill had asked against Armitage, To this bill an answer was filed by the William Clark Company on November 14th, 1895, in which answer it was set up that the decree made by Judge Coxe in the former suit had established the right of the defendant to use the corporate name of the William Clark Company upon the thread sold by that company.

On November 27th, 1895, the complainant filed a petition of appeal from a part of the decree made in the circuit court of the United States to the United States court of appeals for the second circuit, and. on the same day the defendant Armitage filed a similar petition, appealing from parts of the same decree. These appeals were decided on May 28th, 1896. The court • of appeals affirmed the decree below in respect to its order restraining the defendant Armitage from using the word “Clark” or “ Clarks,” but the court also decreed that the defendant was not entitled to use the collated letters “IST. E. W.” upon its labels and circulars, and directed an injunction against Armitage accordingly. In the meantime, nothing had been done in the present suit subsequent to the filing of the answer.

After the adjudication in the court of appeals in the preceding suit, a supplemental bill was filed in this suit on August 1st, 1896. This bill set up the decree in the appellate court as conclusively determining between the parties in this suit the effect of and the extent of the infringement by the defendant of the trade-marks of the complainant. To this supplemental bill an answer was filed on March 3d, 1897. The answer admitted that the preceding decree was conclusive upon'all matters litigated in that suit, and claimed that, inasmuch as the bill in.the former case prayed for an accounting for profits, and as the decree in that case was silent upon that point, that the matter of accounting was thereby conclusively settled against the right of the defendant to an accounting, and so estopped the Clark Thread Company from now insisting upon a decree for an .accounting.

It is therefore perceived that, by the pleadings in this suit, it is assumed and admitted by both parties that, in so far as the decree in the federal court fixes the right of the parties in relation to the use of the word “ Clark ” or “ Clarks ” and the use of the letters “N. E. W.,” the judgment is to be regarded as a final determination.

The mooted point is whether the decree in the preceding case concludes the complainant from a decree for an accounting for profits in this case.

Assuming that the William Clark Company, by openly appearing and defending Armitage, its servant, for acts done within the line of his employment, are estopped from litigating anew any point in issue and decided in that cause (Lyon v. Stanford, 15 Stew. Eq. 411, 414, and cases cited), and assuming that, by the doctrine of mutuality of estoppels, the complainant was also concluded from again litigating in a suit against the master, any question so settled in a suit against the servant, the question remains, does the estoppel reach this matter of accounting ?

The effect of an estoppel by judgment may present two aspects — one where a second suit between the same parties is brought for the same cause of action; the second where a second suit between the same parties is brought not for the same cause of action, but for a cause of action so related to the cause in the preceding suit, that some matter, the establishment of which is essential to the recovery by the complainant in the last suit was in issue and determined in the preceding suit.

In respect to the first phase in which the question of estoppel presents itself, it is entirely settled that after one judicial determination by a court of competent jurisdiction, a second suit for the same matter, between the same parties or their privies, cannot be relitigated in the same or any other court. Nor does it matter that, in the first suit, evidence existed which was withheld or undiscovered, or that the law was misconceived by the court, or left uncited by counsel, or that no defence was made and judgment went by default, or that only one of several defences was interposed by the defendant; in spite of any of these defects in the prosecution or defence of the action, the judgment stands as an absolute bar against a second litigation of the same cause of action.

When, however, a second suit is brought not for the same demand, but for a- cause which was a part of the same matter, but was not included in the first action, the estoppel is not so sweeping. In such instance only those issues which are common to both suits, and which had to be or were actually decided in the first suit, are regarded as res adjudieata in the second. This distinction between the two kinds of estoppel is lucidly stated by Mr. Justice Field in Cromwell v. Sac County, 94 U. S. 351. In that case there had been an action upon certain county bonds, in which action the county succeeded. In a subsequent action by substantially the same parties, upon other coupons on the same bonds, the previous judgment was set up as an estoppel. Mr. Justice Field, after speaking of the absolute estoppel as to every ground which might have been presented in the preceding case, when a second action is brought for the same cause, goes on to say: “ When a second action is upon a different claim, the judgment in the prior action operates as an estoppel only as to those matters in issue or points controverted upon the determination of which the finding of the verdict was rendered. In all cases, therefore, when it is sought to apply the estoppel of a judgment in one case to matters arising in a suit upon a different cause of action, the inquiry must always be as to the point or question actually litigated and.determined in the original action, not what might have been litigated or determined.”

In accordance with this view, it had been held in Steam Packet Company v. Sickles, 65 U. S. 333, that where the record of the. first suit does not show that the point involved was actually decided, parol evidence is admissible to show the state of affairs that existed at the trial, with a view to ascertain what was decided.

The point so decided, namely, that in the second class of estoppels it must appear that the point set up by way of estoppel Avas, or must have been, determined in the original suit, was reaffirmed in the case of Wilson v. Deen, 121 U. S. 525; was recognized in Dooley v. Potter, 140 Mass. 49; Daggett v. Daggett, 143 Mass. 516; Kilander v. Hoover, 111 Ind. 10; People v. Hall, 104 N. Y. 170; Bigley v. Jones, 114 Pa. St. 510; Russell v. Place, 94 U. S. 606.

The strictness with Avhich this rule has been applied is illustrated in the case of Burlen v. Shannon, 99 Mass. 200.

This was an action brought to charge the defendant for board furnished by the plaintiff to defendant’s wife. The defence set up was, first, that the defendant had been divorced by a decree of divorce granted by an Indiana court; second, that the Avife had later, herself, sued for divorce on the ground of cruelty and desertion, to which suit the husband had set up two defences— first, a denial of the cruelty and desertion, and second, that he had already obtained a divorce in Indiana, and that in the suit of the wife against him the cause was dismissed.

The judgment in this case was relied upon in the subsequent aclion for board as conclusively establishing the divorce, and so operated as a complete defence to the action brought against him for the wife’s board. But the court held otherwise, because the judgment which dismissed the wife’s suit for divorce might have gone upon either of two grounds, namely, that the husband was not guilty of cruelty and desertion or that he had been previously divorced. It not appearing, therefore, that the question of divorce must have been the ground upon which the case was decided, or was the ground upon which it was decided, the court refused to recognize the judgment of dismissal as an estoppel.

In the opinion in this case by Judge Foster, all the cases in .the Massachusetts court are collected in support of the doctrine that it must appear that the point involved was necessary to the judgment in the preceding cause, or was a fact in issue and was decided. In the language of Mr. Smith, in his learned note to the leading ease of Duchess of Kingston, 2 Sm. Lead. Cas. marg. p. 590 :

“It is not necessary that the point on which it is sought to estop should have been the only one in issue on the previous occasion; it is enough if it be one which must have been decided.”

The strictness in which this rule should logically be, and has been, enforced is illustrated by that leading case itself. In that case the house of lords had propounded to the judges the question whether a sentence by a spiritual court against a marriage in a suit for jacitation of marriage is conclusive evidence, so as to estop the counsel of the crown from proving the marriage in an indictment for polygamy. The answer of the judges was that (apart from the fact that the parties in the two proceedings were not the same) there was no estoppel because, in the ecclesiastical court, the sentence had only a qualified effect, viz., that the parties had failed in the proof, and that the libellant was free from all matrimonial contract, so far as yet appears, leaving it open to new proof of marriage, so that the sentence only proved that it did not yet appear that they were married, and not that they were not married. “The sentence and this judgment,” said Chief-Justice De Gray, “ may stand well together and both propositions be true.”

ISTow, the obvious rule controlling estoppels, as stated and illustrated by this case, is, in my judgment, applicable to the point involved in the present case. The test, as stated by Chief-Justice De Gray, is whether the decree in the former suit refusing an accounting, and a decree in this suit awarding an accounting, can stand together. The condition calling for the application of the rule, it is true, is in this case novel, but the applicability of the rule seems to be logically certain.

In the present case the estoppel against the master rests upon the identity of himself and his servant as defendants in the previous suit. It is apparent that if the identity of the two defendants in the two suits was not perfect in respect to their several responsibilities for the matters involved in the two suits, the causes of action would not be identical. The cause of action against the servant would not be the same cause of action for which the suit against the principal is prosecuted. As to those matters decided in the previous case, as to which there was perfect identification, i. e., matters done by direction of the master, and which could not have been decided for or against the servant without deciding that the power of the master to so direct his servant was with or without legal warrant, there was a complete estoppel against the latter. In respect to such conduct of the agent, an adjudication that it was or was not legal was an adjudication that the direction of the master was or was not legal. If, however, the decision in favor of the agent had been put upon the ground that the agent had done none of the acts charged, while it would be conclusive in a subsequent suit against the principal for the result of any of those acts of that agent, it would clearly afford no immunity to the principal for any act done by another agent. So of any act of the agent aside from the scope of his agency, either by original authorization or subsequent ratification, it seems entirely clear that a judgment for or against the former could not affect the latter. There would be no identification of parties in regard to such matters, and so the latter suit would have been brought for a different cause — indeed, against different parties. For instance, if the former suit in the federal court could have been and had been brought for a simple accounting and had failed because the agent had not sold any goods, it would have settled nothing in a suit against the principal for goods sold by any other agent. So if, by the terms of the agency, there was no right of the agent to receive profits, or he had received none, it is equally apparent that a judgment on that ground in favor of the agent would decide nothing as to the principal who had actually received profits. Now, the latter condition of affairs seems to be the present posture of the litigation before me. In the former suit brought by this complainant against the selling agent of the present defendant, the selling of the goods by the servant was. admitted, and it was conceded that the use of the labels by the servant was by direction of the master. The right of the agent depended upon the right of the master to use the interdicted labels. If the agent had no right, the master had none, and vice versa. The same evidence which supported or destroyed the right of one equally supported or refuted the right of the other. It was impossible to grant or refuse an injunction against the agent which did not rest upon the right of both master and servant to employ the questioned devices in the defendant’s absence. Conceding, then, that the defendant company had so identified itself with the servant in the preceding suit, as to be bound by the decision of the court in regard to the right of the agent to use the labels, it is entirely clear that so far the issues in the two cases are precisely the same.

But when we leave the ground upon which the injunction went, and reach the matter of an accounting for profits, the two cases present quite different aspects. It is apparent at once that, assuming that both principal and agent were guilty of violating the property rights of the complainant by an illegal use of its trade-marks, nevertheless the question of the liability of each to account for profits must depend'upon1 entirely different considerations. A decree for an accounting could go only if it appeared that there was something for which the defendant was liable to render an account. If the court is satisfied that nothing is due to the complainant from the defendant, no further proceedings will be permitted and the bill will be dismissed. Campbell v. Campbell, 4 Halst. Ch. 738; Stout v. Seabrook’s Executors, 3 Stew. Eq. 187.

The same obvious course in refusing an accounting in a-patent case was taken in Bergmann v. Macmillan, 17 Ch. Div. 423, Mr. Justice Fry saying that he could not direct an accounting for profits which were non-existent.

It is entirely clear from the record in the preceding case and the testimony in this, that this was the reason why the decree in the former case was silent upon the question of accounting. It appeared in the evidence of the preceding case, without contradiction, and was stated in the brief of counsel for the defendant in that ease, that Armitage was an employe of the 'William Clark Company upon a stated salary, beyond which he received nothing. All the profits received from sales made through his agency went to the present defendant. If the agent received no profits, it did not follow that the principal received none. Therefore, the decree in the first case, based upon the fact that the agent had received no profits, could not conclude the complainant from an accounting against the principal for profits which it had received. The two decrees can stand together.

In my judgment there exists no estoppel against a decree in favor of the complainant for an accounting.

But the defendant interposed another objection against the award of an accounting for profits. This objection is based upon the insistence that a court of equity has no jurisdiction to entertain a suit simpliciter for an accounting for profits; that such an accounting can only be awarded as incidental to an injunction; that the complainant is not, in this suit, entitled to an injunction.

The first and second of these propositions are entirely settled. The only way a court of equity can acquire jurisdiction to order an accounting for profits in this class of suits is by obtaining jurisdiction over some equitable matter with which the matter of accounting is so interwoven as to justify the court in settling all questions in one suit. The query remains, then, is the complainant entitled to an injunction?

At the date when this bill was filed, in July, 1895, it is entirely clear that the defendant was violating the right of the complainant by selling goods under labels having upon them the letters “ N. E. W.” It is undenied that this conduct continued' until after the decree in the United States court of appeals, on May 28th, 1896. Since then the words and letters, the use of which was interdicted by that decree, have not been employed by the defendant. The defendant insists, for this reason, that no decree enjoining it from such infringement should now be assigned against it.

It may be remarked that the property right which a party has in a trade-mark is of the same quality as a copyright or the right to a patent, and the remedies accorded to the owner of either of these kinds of property are, except as they may be controlled by statutory regulations, analogous. The rule which prevails in the federal court in respect to the granting of an accounting in patent cases is that the right does not depend upon the question whether there is need for the injunction at the time of the hearing. The rule as stated in Bragg Manufacturing Co. v. Hartford, 56 Fed. Rep. 292, is this: “ The test of jurisdiction [to decree an accounting] applied in the later cases is whether the bill is filed in season to enable the complainant, under the rules and practice of the court, to move for and obtain an injunction before the expiration of the patent.” If so, although there may be nothing for the injunction to restrain at the time of the hearing (the patent having expired), yet, jurisdiction having existed, to grant an injunction upon the bill filed, the account will be decreed. Singer Manufacturing Co. v. Wilson Sewing Machine Co., 38 Fed. Rep, 586.

The condition of affairs which existed at the time of the filing of the bill and continued to exist thereafter for ten months, was such as to entitle the complainant to a preliminary injunction, and conceding that the defendant has ceased to infringe since May 28th, 1896, that cessation will not defeat the complainant’s right to a decree. Even if there is coupled with the fact of past cessation a promise of a perpetual discontinuance of the infringement, this will not defeat the injunction. Where, upon a bill to enjoin infringements of patent rights, the defendant admits the infringement and asserts that, after the bill was filed, he refrained from the use of the thing patented and asserts that he will not afterwards infringe, this is no reason why the injunction should not issue or be made perpetual. Rumford Chemical Works v. Vice, 14 Blatchf. 179; Wollensak v. Reilrer, 28 Fed. Rep. 427; North American Iron Works v. Fiske, 30 Fed. Rep. 622; Celluloid Manufacturing Co. v. Arlington Manufacturing Co., 34 Fed. Rep. 324; Facer v. Midvale Steel Works Co., 38 Fed. Rep. 231; 1 Spell. Mr. Relief 829, and other cases there cited.

The principle upon which the injunction goes is that the defendant was a wrongdoer when the bill was filed, and having been a wrongdoer once, he may be so again, in spite of his asseveration that he will not repeat the infringement; and further, that if the defendant intends in good faith to keep his promise, the injunction will not harm him, otherwise it will be a security for the plaintiff that his right will not be again invaded. Although these cases were those where the bill was filed to enjoin the infringement of patent rights, yet, as already observed, they stand upon the same principle as bills to restrain infringement of copyrights .or trade-marks. The rule controlling the allowance of a final injunction in respect to one of these rights logically applies to cases of violation of all.

Mr. Kerr lays it down as the rule in regard to bills to restrain the violation of trade-marks, that the owner of a trade-mark, where the mark has been illegally taken by another, is not bound to rely upon his assurance or promises not to repeat the illegal appropriation of the mark, but is entitled to the protection of the court by injunction. Kerr Inj. 422; Millington v. Fox, 3 Myl. & C. 338; Edelsten v. Edelsten, 1 De G., J. & S. 185 ; Geary v. Norten, 1 De G. & S. 11.

I will advise a decree enjoining the defendants and for an accounting for profits, in accordance with the prayer of the bill.


source: Caselaw Access Project

author: Stevens, V. C.

license: Public Domain

text:
    Mary Eibel et al. v. Auguste Von Fell et al.
    A court of equity will rescind a transaction entered into upon the faith of a material misrepresentation false in fact, if the person to whom it was made relied upon it and in consequence suffered injury. The fact that it was made innocently will not prevent such rescission. In this respect the rule of equity is broader than the rule of law in an action for deceit, where it is necessary to prove moral fraud in order to support the action. — Held, that although the vendor had made a material misrepresentation in reference to the property sold, the conduct and acts of the vendees, after they had knowledge of the facts amounted to a ratification of the sale.
    On final hearing.

      Mr. Warren Dixon, for the complainants.

      Mr. George J. MaEwan, for the defendants.
   Stevens, V. C.

On October 5th, 1892, Auguste Yon Fell and her husband, the defendants, sold and conveyed to Mary and Jacob Eibel, the complainants, a house and lot in Griffith street, Jersey City, for $3,500. Of the consideration, $1,000 was paid in cash at or before the delivery of the deed, $2,000 was represented by a mortgage then on the property, payment of which was assumed by the vendees, and the balance ($500) by a mortgage given by the vendees to the vendors. In March, 1896, the complainants commenced this suit to rescind the sale, the bill alleging that it was represented to complainants at the time they purchased that the house was “ a perfectly new house, in absolutely good condition,” and that they afterwards learned that it was “an old building and had been put in repair and fixed up for the purpose of selling it as a new building.”

The bill does not show when complainants first became aware of the falsity of the representation, but at the trial it was admitted that they knew of it within two months after the sale. Notwithstanding this knowledge, they paid to the defendants in installments, before the money was due, the whole of the principal and interest secured by the $500 mortgage, and in addition they repaired the property and collected the rents. They did not offer to reconvey until over three years after they had knowledge of the fact.

It was admitted that the house, as originally built, was one story high, and that Mr. Yon Eell, after he became the owner, raised it and put another story under it. At the trial he denied having represented it as a new house. He said that he fully explained to complainants what he had done, and that he told them merely that it was as good as new.”

The evidence showed that after complainants took possession they were obliged on different occasions to make repairs. About a year after the purchase it was found necessary to replace some of the old floor beams and weather boards, which were found to be rotten, with new ones. The carpenter work cost $38, and there was some painting, the cost of which does not definitely appear. With this exception it is not clearly proved that the repairs were necessitated by faulty construction.

The complainants now ask that the transaction be rescinded.

The rule of equity applicable to this subject is well settled. So far as applicable to the facts of this case, it may be stated thus: A court of equity will rescind a transaction entered into upon the faith of a material representation, false in fact, if the person to whom it was made relied upon it and in consequence suffered injury.

There is this distinction between the rule of equity and the rule of law : At law, moral fraud must be shown to have been present in the misrepresentation (Cowley v. Smyth, 17 Vr. 382); in equity the complainant may succeed, although the misrepresentation was innocent (Arhwright v. Newbold, 17 Ch. Div. 320; Redgrave v. Hurd, 20 Ch. Div. 1).

Under these rules if the representation was as the complainants claim it was, viz., that the house was a new house, they would, supposing there was no obstacle arising out of their own conduct, be entitled to succeed both at law and. in equity, because the statement must have been fa se to the knowledge of the defendant making it. If the representation was as defendants claim it was, viz., that the house was as good as new, then I think that the complainants would still be entitled to succeed in equity, because the assertion, in this form, was false in fact, even if we assume that defendant, who seems to have personally superintended the work of reconstruction, did not know that the building contained the rotten timbers. It is true that it was the assertion of an opinion, but, as it seems to me, it was the assertion of an opinion which contained within it the assertion of a fact, viz., that the materials used in rebuilding were not rotten. Opinions of this kind may afford ground for an action. Smith v. Land and House Property Corporation, 28 Ch. Div. 15. Although the cost of replacing this rotten material did not probably exceed, if it amounted to, $100, I cannot say that the defect was trivial. Had the real condition of the building been known to the complainants, I doubt very much whether they would have purchased for the price agreed upon.

.There is, however, an objection to the complainants’ recovery which seems to be insuperable. They both admit that, within two months after they purchased, they knew the house was not a new house. They say that they were almost immediately obliged to repair because of the condition in which they found it. They had the rotten timbers replaced about a year after they bought. Notwithstanding this, they continued to pay the interest on both mortgages and to pay the principal of one of them. They continued, moreover, to lease the different floors of the property to tenants, to collect the rents and in all respects to deal with the property as their own. They kept on doing this for nearly three years and a half after they first discovered, as they say, the falsity of the representation, and for nearly two years and a half after they had replaced the rotten timbers. I think that, by this conduct and these acts, they ratified the transaction. Pom. Eq. Jur. § 916. It is said that the payments of principal and interest on the $500 mortgage were made ignorantly and under an apprehension that if not promptly made the mortgagees would foreclose and thus forfeit their interest. But it appears that the payments of principal were made before they were due, and no reasonable explanation is given of those other acts indicating an intention to affirm, to which I have alluded. The true explanation of their conduct appears to be found in the fact, not seriously controverted at the trial, that the property, was really worth about what complainants paid for it; that it, for the greater part of the time, rented well and yielded a fair return for the money invested, and that not until rents fell did complainants seriously entertain the idea of questioning the transaction. Says Mr. Justice Depue, in Williamson v. New Jersey Southern Railroad Co., 2 Stew. Eq. 320: “The vendor may rescind the contract of sale and reclaim the property until, with a knowledge of the fraud, he elects to ratify and confirm the sale. * * * Delay in exercising the. power of rescission is evidence of an election to treat the sale as valid, of more or less weight, according to the circumstances of the case, but of itself does not operate as an estoppel unless, in the meantime, superior rights of third persons have intervened.” In that case the vendor, the car company, got nothing of value in return for the cars which it delivered, and did no acts in respect of the worthless bonds which it received in payment, indicating an intention to ratify the sale after' it became aware of the fraud. In the case in hand, the vendees, long after they discovered the facts, continued to treat and deal with the property as their own. Both their acts and their delay in exercising the power of rescission seem to me to be strong evidence of an election to treat the sale as valid, I come to this conclusion the more readily because, if the complainant’s contention be well founded, he m'ay still resort to an action of deceit, in which he will recover an exact equivalent for the injury which he claims to have suffered at the hands of the defendants. The justice of this case, after so much delay, will be far better subserved by such a recovery than by a rescission.


author: Grey, V. C.

text:
    Josephine Whittaker et al. v. Belvidere Roller Mill Company.
    1. When a mortgage securing payment of several bonds is in process of foreclosure, an offer to pay that one of the bonds which is held by the complainant, and the costs of the pending foreclosure to date, accompanied by a demand for an assignment of the bond, is not such a tender as will stop the running of interest or the accruing of costs.
    2. Such a demand can only be made in behalf of some person having an equitable right to stand in the place of the holder of the bond, and that right must be disclosed when the demand for assignment is made.
    3. The demand must be made upon the holder or some person authorized to make the assignment. A solicitor employed to collect the bond by foreclosure of the mortgage has no power to assign them and is not a proper person upon whom to make a demand for an assignment.
    4 Where a tender after suit begun is set up in an answer, the money must be paid into court precedently to or coincidently with the filing of the answer. If the money is not in court on the filing of the answer, the complainant is not compelled to take notice of a subsequent deposit.
    5. The right of a second mortgagee to have the assets and securities marshaled so that a preceding mortgagee may be required to look first to the lands on which the second mortgage is not a lien, is absolute against the mortgagor, and against his voluntary fraudulent grantee of the lands on which the second mortgage is not a lien.
    6. The purchaser at a foreclosure sale under a second mortgage receives the title which the mortgagor had at the time of the delivery of that mortgage, and attendant upon that title he takes the right which the second mortgagee received, to have the assets marshaled, and he may assert this equity against the subsequent voluntary and fraudulent grantee of the mortgagor.
    On bill to foreclose &c.
    The bill in this case was originally filed by Josephine Whit-taker, as sole complainant, against the Belvidere Roller Mill Company, Adam B. Searles and William H. Searles, executors &c. of Erederick Searles, deceased, and others, defendants, to foreclose a mortgage, with prayer that the defendants answer under oath, and for the ordinary decree for foreclosure and sale of the mortgaged premises.
    On and prior to May 22d, 1890, Adam B. Searles was the owner of four lots of land in the town of Belvidere, lot No. 1 being a mill property situate in and being part of the block lying between Front street, Second street, Depue street and the Delaware river, and the other pieces lying separately and having other uses. At that time Searles was in financial distress and his creditors were pressing him for settlement. He sought to arrange with them, and was able to induce an agreement to be entered into by all but one Hess. The latter refused to parley or delay, and was pushing a suit for his claim against Searles to judgment. Searles made bonds to the complainants and a number of others of his creditors, obligating himself to pay their several debts upon the death of his father, Frederick Searles. These bonds he secured by a mortgage made to the complainants and other several bondholders, and recorded on May 22d, 1890. The mortgage covered lot No. 1 (the mill property) and also lots Nos. 2, 3 and 4, and will hereafter be referred to as the complainants’ mortgage.
    On May 23d, 1890, Searles made another bond and mortgage to Robert E. Morris and others of his creditors (one of whom was Levi Ott), to secure payment of several bonds also made by him to each creditor. This mortgage was dated and recorded on May 23d, 1890, at twenty minutes past one o’clock in the afternoon, and will hereafter be referred to as the Morris mortgage, and included only lot No. 1, the mill property.
    On the same day, May 23d, 1890, Searles conveyed to Levi Ott the whole block lying between Front, Second and Depue streets and the Delaware river, including the mill property, lot No. 1, in the description of that block, and also another lot on South Water street not included in any of the mortgages. This deed was dated May 23d, 1890, and was expressed to be in consideration of $1, and contained a recital that the conveyance was not to be deemed to affect the interests of Ott in the mortgage made by Searles to Morris, Ott and others, on lot No. 1 (part of the property conveyed), but that Ott’s interest in that mortgage was to continue to be a lien on lot No. 1. This deed also contains covenants of seizin, power to convey, general warranty, and against encumbrances, except from certain named mortgages, of which two are those of the complainants and Morris and others. It was recorded May 23d, 1890, at half-past three o’clock in the afternoon.
    On the same day, May 23d, 1890, Adam JB. Searles conveyed lots Nos. 2, 3 and 4 to his son, Roderick B. Searles, by deed expressed to be.for the consideration of $100, with full covenants of seizin, power to convey, general warranty, and against encumbrances, except five mortgages of which the complainants’ is one. This deed was recorded May 23d, 1890, at ten minutes past five o’clock in the afternoon.
    Neither of these two deeds contained any covenant or agreement on the part of the grantees to pay off any of the encumbrances.
    On the 18th day of August, 1890, Ott conveyed to the Belvidere Roller Mill Company lot No. 1 in the complainants’ mortgage (the mill property), with a slight variance in the boundary lines, by which the lot conveyed to the roller mill company is somewhat less than that mortgaged to the complainants, leaving the title to two strips of land, parts of lot No. 1 of the mortgaged premises, still remaining in Ott at that date. This deed contains an agreement on the part of the grantee to assume and pay four mortgages, one of which was the complainants’, and another the Morris mortgage, as part of the consideration of this conveyance. It was recorded on the 24th day of November, 1890.
    The Belvidere Roller Mill Company entered into possession under this conveyance, and paid off a number of the bonds which were secured to be paid by the complainants’ mortgage. A number of them, however, remained unpaid. Among these was one held by Josephine Whittaker, the original complainant, and another held by Frederick Searles, who died, in February, 1894, testate, and whose executors have been admitted as complainants and are now prosecuting this suit.
    Josephine Whittaker filed the bill in this case on December 20th, 1895, for the foreclosure and sale of all four of the lots constituting the mortgaged premises, making her co-mortgagees and the holders of the Morris mortgage, and the grantees of Adam B. Searles, defendants. While this suit was pending the holders of the Morris mortgage also foreclosed upon lot No. 1, and it was purchased at the foreclosure sale, from the sheriff) by the defendant Philip M. Miller. ■
    On January 13th, 1896, after he had bid in the property, but before he had any deed, an offer to the solicitor of the complainants in this cause, made on the last-named date, was claimed to be a tender of the amount due to the sole complainant Josephine Whittaker. This offer was refused because coupled with a demand for an assignment of the claim. Shortly afterwards, on the 3d day of February, 1896, the executors of Frederick Searles were admitted as parties complainant.
    On the 4th day of February, 1896, the defendant Philip M. Miller, as purchaser of lot No. 1 under the Morris mortgage, and the defendants Hemy B. Miller, L. De Witt Taylor and John M. Morris, claiming to be holders of certain of the bonds secured by the complainants’ mortgage, were admitted as defendants. At some time after this (the date is left uncertain by the proofs) the amount claimed to have been tendered the complainants’ solicitor was paid to the clerk of this court by the defendants’ solicitor.
    The defendants L. De Witt Taylor, Henry B. Miller and John W. Morris, claiming to be the holders of some of the bonds secured by the complainants’ mortgage, filed their joint and several answer setting up their interests as owners of those bonds, and the defendant Philip M. Miller, the owner of lot No. 1, by purchase under the Morris foreclosure, sets up by way of answer and cross-bill, first, the alleged tender and payment to the clerk, which it is asserted satisfied the amount due Josephine Whittaker, then the sole complainant; second, the equity of the defendant Philip M. Miller, as owner of lot No. 1, to have lots Nos. 2, 3 and -4 (title to which stands in the name of Roderick B. Searles) sold and applied to the payment of the complainants’ mortgage debt before lot No. 1 is so applied.

      The case came to a hearing upon the bill, answer and cross-bill, and testimony was taken in support of the issues raised.

      Mr. John L. Mahllce, for the complainants.

      Mr. L. De Witt Taylor, for the defendant.
   Grey, V. C.

This case has been discussed upon these points:

First. Was there such a tender of the amount due the complainants that it was effectual to require the complainants to accept the money paid to the clerk, and thus stop the interest and costs ?

Second. Is the bond (one of those secured by the complainants’ mortgage) formerly held by Edward B. Searles, and now claimed to be held by Henry B. Miller, still a lawful and unsatisfied claim ?

Third. If a sale of the mortgaged premises shall be directed, what shall be the order of the sale and application of the several parcels to the payment of the complainants’ mortgage?

As to the tender. This bill has been filed in the name of Josephine Whittaker to foreclose the mortgage now in suit. Besides the complainant Whittaker, there were several other persons who held bonds secured to be paid by the mortgage, but the suit was' then in her name alone as sole complainant. The subpoenas had been issued and returned. Mr. Taylor, a lawyer, on the 13th day of January, 1896, called on Mr. Dahlke, the complainants’ solicitor, at his office, and stated to him that he represented Mr. Miller, John Morris and others; showed him $550, offered it to him, and asked him if he would assign the Josephine Whittaker bond to Mr. Morris. Nothing is proven to have been said to show what right Miller, Morris and others had to make a tender or to demand an assignment. Mr. Dahlke refused to accept the money or to assign the bond. Subsequently Mr. Taylor paid the money to the clerk of the court of chancery. The amount named was intended to be the total of the debt and also the costs of this suit up to that date. At the time of the alleged tender, January 13th, 1896, Josephine Whittaker was the sole complainant, and it is contended that the offer made satisfied her claim and terminated her right to any additional interest or costs in this suit. The efficiency of the tender claimed to have been made is denied upon the ground that the offer was not a tender of the payment of the bond, but a proposition to purchase it. To make an effectual tender, it must appear that at the time when it was made the party making it had the right to tender payment of the debt, as in the case of the debtor himself or his representatives, or the holder of the title to the estate on which the debt was a lien; or that he had the right to require a transfer of it, as in the case of subrogation of a surety, or redemption sought by the holder of some subsequent lien having that equity. The demand should clearly disclose the right of the party making the offer, so that the creditor may be notified of his duty to accept. The party to whom the tender is made must be the holder of the debt, or some person representing him who has, at the time of the tender, power to accept it, and if the circumstances call for a transfer of the debt, has also power to assign it. The offer proven in this case was clearly not one to pay and satisfy the debt. It was a request to assign it upon payment of the amount due. The attorney who made it himself testifies that the complainants’ solicitor offered to accept the money and deliver over the bond canceled. This was refused. The solicitor was willing to accept payment and cancel the bond, but he would not assign it. Yo evidence has disclosed that Mr. Morris had in his own individual capacity any position which entitled him to demand an assignment of the complainants’ bond, and if he had any such it was certainly not disclosed to the complainants’ solicitor at the time of the offer to pay the money, so that it might clearly be known in what right the demand was made; nor has it been shown that the complainants’ solicitor, of whom alone the request was made, had any power to assign the complainants’ bond to Mr. Morris either in satisfaction of payment offered or in recognition of a lawful offer to redeem. Presumably after suit was brought the bond was in the hands of the complainants’ solicitor for collection, and, if payment was made, cancellation and delivery of the bond might be held to be incidental to the business he was authorized to do for the complainants. If anyone were entitled to an assignment of the bond, the demand therefor should, in my view, have been made upon the obligee or owner. A solicitor engaged in collecting a bond by foreclosure of a mortgage securing it, has not, as incidental to that business, power to assign it. If a demand for an assignment upon tender of amount due to a solicitor is to be supported, it must be proven that a power to assign has been given by the holder to the solicitor.

The date of the subsequent payment to the clerk of this court was not stated in the answer, nor was it definitely proven, but I am satisfied that the money was not actually paid to the clerk until after the additional complainants had been admitted and some time after the answer was filed.

When tender is made after suit has begun, and is set up as a defence, the money must be paid into court with the filing of the answer. Shields v. Lozear, 7 C. E. Gr. 452. To be effective, such a payment into court must precede or be coincident with the filing of the answer setting it up. The answer gives notice to the complainant that the money which the defendant contends satisfies her claim is awaiting her acceptance. If it is not in court when the answer is filed, the complainant is not required to take notice of a subsequent deposit which the defendant makes at such time as may suit his convenience. The deposit in court did, however, become forceful as against the complainant when she filed her petition asking to be allowed to take it out of court in satisfaction of her bond. This application was an acceptance of the tender, and was filed on the 23d day of March, 1896.

On February 4th, 1896, long before the date of the actual payment to the clerk, or the application of Josephine Whittaker (the original complainant) for the money, the other complainants, William II. Searles and Adam B. Searles, had been admitted as complainants in respect of their $1,700 bond also secured by complainants’ mortgage, and the cause was proceeding with them as complaiuants. No pretence of a tender of the amount due on their bond has been set up.

The defence of a tender which satisfied the complainants’ claims and should have terminated the further running of interest and costs, is, therefore, a failure as against either the original or the substituted complainants.

The second point argued is the question, Was the bond (secured by the complainants’ mortgage) which was formerly held by Edward B. Searles, and is now claimed to be held by the defendant Henry B. Miller, a lawful and unsatisfied claim ?

The defendant Henry B. Miller, in his answer, states that long before the bill in this case was filed, he furnished the money to take up this bond, and took an assignment of it and of Edward B. Searles’ interest in the complainants’ mortgage securing that bond.

The complainants’ claim is that the bond was paid by the Belvidere Roller Mill Company, under its covenant, in its deed for lot Ho. 1. On April 6th, 1895, Edward B. Searles assigned this bond to L. De Witt Taylor under .these circumstances: Taylor had procured a judgment against Searles for one of his clients, and au order for discovery &c. in aid of his execution. He heard that Searles had this bond, procured an order forbidding its payment, saw Searles, induced him to assign the bond to him (Taylor), and to allow the amount due on the judgment in part payment for the bond. Taylor paid the balance due on the bond in cash. Taylor swears that he was not then attorney for the Belvidere Roller Mill Company; that he did this with his own money, and that the bond became his individual property. Edward B. Searles intimates in his testimony that he supposed, in his dealings with Taylor, that he was receipting and discharging, and not transferring, the bond. But he does not deny that Taylor took the assignment as above stated, and that he understood Taylor was going to use it to get the money back. It is obvious that Taylor expected to collect the bond for the benefit of his client for whom he had judgment.

If Taylor had paid off and satisfied the bond, there would have been no reason for Edward B. Searles allowing the judgment to be credited as part payment for the bond, which both agree was done. I think at this stage of this transaction the bond was not paid by the Belvidere Roller Mill Company, but was lawfully transferred to Taylor and was unsatisfied in his hands. On June 22d, 1895, Taylor assigned the bond to the defendant Henry B. Miller under these circumstances: Not very long, perhaps a week or two, after Taylor had received the bond, he applied to Mr. Yetter, the secretary and treasurer of the Belvidere Roller Mill Company (the owner of lot No. 1, and under covenant to pay this bond and others secured by the complainants’ mortgage), and asked him to furnish the money for this assignment. Mr. Yetter swears he loaned the money to Taylor, and produced a check dated April 17th, 1895, indicating that at that date a check for $454.10 was drawn against the account of the Belvidere Roller Mill Company. Mr. Yetter testifies this check-of the Belvidere Roller Mill Company was given to Taylor for the bond which Taylor had taken up that Taylor wanted to use the money which he had advanced on this bond, and a party intended to furnish it later. The company had some money at the time, and Yetter states that he, as treasurer, took Taylor’s due-bill for it and loaned him the money, not getting the bond. On June 21st, 1895, the defendant Henry B. Miller gave his check, not to Taylor, but to the Belvidere Roller Mill Company, for $450, and on June 22d, 1895, the bond was assigned to him by Taylor.

It is quite evident that, from April 17th, 1895, to June 21st of that year, the money of the Belvidere Roller Mill Company had been put up to satisfy a request made upon it to raise the amount due on this bond. That company had obligated itself, by its covenant in the Ott deed, to pay this bond and others, and had paid a number of them. The death of Frederick Searles had brought the bonds to be due. In response to a'request for the money due on this bond, that company’s check was used, it is claimed, not to pay, but to loan, the amount to the holder, and two months after, on Henry B. Miller’s check drawn to the company’s order, and on which by the endorsement it appears to have received the money, the bond was assigned by the holder to Mr. Miller. How it came about that the company should be paid by Miller for a bond it claims it did not.own, and that a transfer of the bond should be made the next day to the party who paid the money to the company, is not explained.

The impression I have received from the evidence as to this transaction is that Mr. Taylor secured the bond as he testified; that he wanted the money -on it; that he demanded it of the company which had covenanted to pay it; that it could not refuse payment, and that its treasurer adopted the subterfuge of a pretended loan of the company’s funds until an arrangement could be effected by which the bond could be assigned to some one else than the company, to create the appearance that it was still outstanding. The payment by Miller to the company, while he got the assignment from Taylor, satisfies me that the company, after its payment of the amount of the bond to Taylor, was the real owner of it, and the subsequent assignment by Taylor to Miller was made at the company’s instance to avoid the appearance of payment of the bond. The company which had agreed to pay this bond was, in this view, the real owner of it from April 17th to June 22d, 1895, and being by its covenant in the Ott deed, under the construction given to such a covenant (in the cases of Klapworth v. Dressler, 2 Beas. 62; Hoy v. Bramhall, 4 C. E. Gr. 570, and Stiger v. Mathone, 9 C. E. Gr. 430), the principal debtor, and bound to pay this debt, its action was in effect a performance of its agreement to make payment of the bond; and having thus satisfied its own debt, its subsequent procurement of the assignment to Miller was a nullity as against the other parties secured by the mortgage.

The third point discussed was as to the order of sale and application of the several lots mortgaged to secure the complainants’ debts. It is insisted with great vigor, for the defendant Philip M. Miller, that the undertaking of the Belvidere Roller Mill Company to pay the four mortgages as part of the consideration money of the conveyance of lot No. 1, by Levi Ott to that company, by deed of August 18th, 1890, was a personal covenant only, not attaching to lot No. 1 nor charging any equitable burden upon it to respond first to the payment of the four mortgages assumed to be paid by the company as part of the consideration of the conveyance.. It is further urged that the conveyance to Roderick B. Searles of lots Nos. 2, 3 and 4 by Adam B. Searles, was in fraud of his (Adam’s) creditors, and that lots Nos. 2, 3 and 4, the title to which stands in the name of Roderick B. Searles, the fraudulent grantee, should be treated as if held by Adam B. Searles, the- fraudulent grantor, and that they should be first sold to pay the mortgage debts.

The mortgage being foreclosed in this suit is subsequent to two of the mortgages named in the deed as assumed to be paid by the Belvidere Roller Mill Company, grantee. As to these two, the bill asks no relief and asserts no equity. There is no reason that the holders of these prior mortgages should be made parties. The sale will be subject to these prior liens. The other mortgage given by Searles to Morris and others on May 23d, 1890, has been foreclosed, and the defendant Philip M. Miller, by purchase at the sheriff’s sale, holds title under it.

The question involved is the superiority of the equities of the several contesting parties — the complainants, the defendant Philip M. Miller and the defendant Roderick B. Searles. To determine this it is necessary that their relations to each other, touching the four several tracts constituting the mortgaged premises, should be first ascertained. On and prior to May 22d, 1890, Adam B. Searles owned all of the tracts. The complainants are his creditors as holders of his bonds secured by complainants’ mortgage, which became a lien on all four tracts on May 22d, 1890. The defendants Henry B. Miller, John Morris and L. De Witt Taylor claim to occupy the same position. The defendant Philip M. Miller is the purchaser of lot No. 1 of the mortgaged premises, under the foreclosure of a mortgage made by Adam B. Searles to Robert E. Morris and others on May 23d, 1890, and is entitled to stand in the place and assert the equities of the Morris mortgage. All these parties are, therefore, creditors, or entitled to the equities of creditors, of Adam B. Searles, the complainants, and the defendants Henry B. Miller, John Morris and L. De Witt Taylor, claiming under the complainants’ mortgage as of the date of May 22d, 1890, and the defendant Philip M. Miller, under the Morris mortgage as of the date of May 23d, 1890.

At the time of the making of botli these securities Adam B. Searles was in great financial distress. These two mortgages were both made to secure the payment of his. bona fide debts. He was unable to effect a settlement with another of his creditors, and to prevent him from realizing his claim, Searles conveyed lots Nos. 2, 3 and 4 (mortgaged to the complainants) to his son, Roderick B. Searles. This is the testimony of Adam B. Searles himself. He also conveyed lot No. 1 (the mill property) on the same day to one Levi Ott, for the nominal consideration of $1, in order, as he testifies, “to give time that I might dispose of this property. * * * The proceeds of the property if it was sold would come to me.” In the deed to Ott was inserted a recital to save Qlt’s claim, as one of the mortgagees in the Morris mortgage of the lot conveyed, from the operation of a merger.

Both Ott and Roderick B. Searles appear to have known that the purpose of these conveyances was to delay the creditors of Adam B. Searles. The* latter appears to have had the control of the property conveyed by both deeds quite as completely after as before the conveyances were made. Indeed, it is fully testR fied by Adam B. Searles himself that the deed to Roderick was made to avoid the judgment about to be entered in a suit pending in favor of the pursuing creditor, Mr. Hess, and he (Adam) has had the rents ever since. The deed to Ott was made at the same time and was parcel of the same transaction induced by the same purpose, and the same control was retained by Adam B. Searles over lot No. 1 conveyed by it. In my view, both these deeds were made to hinder and delay creditors, and were fraudulent and void under the statute of frauds.

They must, therefore, so far as they relate to the claims of these creditors, be treated as if they were ineffective and the title still remained in Adam B. Searles. When the mortgage of the complainants was made on May 22d, 1890, it became a lien on lots Nos. 1, 2, 3 and 4. When the mortgage to Morris and others was made on May 23d, 1890, on lot No. 1 only, the mortgagees, Morris and others, took with their mortgages an equity ehtitling them to require the complainants to resort in the first instance for satisfaction of their mortgage to the other lots, Nos. 2, 3 and 4, mortgaged to the complainants, upon which the Morris mortgagees liad no lien, and to look to that lot No. 1, on which they had a lien, only for the residue of the complainants’ claim which might remain unpaid from the sale of the other lots. This principle of so marshaling the assets of a debtor that all his creditors may be paid, is a well-established head of equity jurisprudence, and is always applied in cases where it is not injurious to the superior claim of the precedent mortgage, and no superior equity has affected this property. In the matter in hand there does not appear to have existed, at the time the Morris mortgage was taken, any reason why the application of this rule would affect the complainants’ lien injuriously. All the mortgaged lots then belonged to the common debtor, Adam B. Searles. Lot No. 1 was a separate and distinct property having a special use. Lots Nos. 2, 3 and 4 are not shown to have had any such relations to No. 1 as would require that they should all be sold as an entirety. As the parties stood at the time the Morris mortgage was made, the only party to be affected was Adam B. ■Searles, the common debtor. All the lots must, in any event, stand to pay the complainants’ mortgage, but the complainants cannot resist such order of application for that purpose as may protect the claims of the Morris mortgagees, if it is not injurious to the complainants. Adam B. Searles’ interest in the property, held by him when the Morris mortgage was given, might be affected, but by the mortgages which he had made he had charged the lots with the payment of these debts, and he had no equity which he could assert against such an application of the premises mortgaged as would most nearly pay all of the mortgages. As against him the right of the creditor to have the assets marshaled was absolute. Herbert v. Mechanics’ Building and Loan Association, % C. E. Gr. SOS, 504-. As between the parties interested in the lots at the time the Morris mortgage was given, the right of the Morris mortgagees to have the assets marshaled seems to have been unquestionable. It only remains to inquire whether the subsequent events have taken from them their existing equity.

After the Morris mortgage had been given and recorded, the deed conveying lots Nos. 2, 3 and 4 to Roderick B. Searles was made. If this had been a bona fide deed for a valuable consideration paid, without notice of the outstanding equity of the Morris mortgagees to have the assets marshaled, the purchaser would have received an interest superior to the latent equity of the Morris mortgage. Herbert v. Mechanics’ Building and Loan Association, 2 C. E. Gr. 499. But, as has been shown, this deed was a mere sham to avoid or postpone the payment of Adam B. Searles’ debts. It had no operation as against Adam B. Searles’ creditors who held the Morris mortgage. Their equitable right to have the complainants’ mortgage first paid, if possible, out of lots Nos. 2, 3 and 4, was unaffected by such a deed, and so remains to this day, as Roderick B. Searles still holds the title to those lots. No court of equity would permit a debtor, as against whose property an equity had become established, even though it be latent, to nullify its effect by making a purely voluntary deed. To allow this would make such equitable rights not absolute as against the debtor, but existing solely at his will. Nor has the fraudulent voluntary grantee any status to question the justice of this rule, for it does not injure him. He has parted with nothing, and has not changed his position so that he would lose anything by the enforcement of the equity. His deed is unquestionably within the operation of the statute of frauds, and therefore absolutely futile to vest any rights in him as against the creditors of Adam B. Searles, his grantor. The conveyance to Roderick B. Searles did not, in my view, in any way deprive the Morris mortgagees of their right to marshal the assets.

Next comes the inquiry whether the deed made by Adam B. Searles to Levi Ott, on May 23d, 1890, conveying lot No. 1, in any way destroyed this equity of the Morris mortgagees. But the same criticism applies to this transaction. This conveyance of lot No. 1 was purely voluntary, for a nominal consideration and in fraud of Searles’ creditors. It contained a covenant of general warranty, and although it excepts the mortgages in question from the covenant against encumbrances, they are not excepted from the general warranty. If this deed had been for a full and valuable consideration paid, Ott would himself have had a right to the same equity as the Morris mortgagees to-compel the satisfaction of the complainants’mortgage in the first place out of lots Nos. 2, 3 and 4. As it was a voluntary and fraudulent deed, it had no effect to give him any rights as a bona fide purchaser. He took the same place which his voluntary grantor had held, and no more.

The next step iu the title came by the deed of August 18lh, 1890, from Ott to the Belvidere Roller Mill Company. By this bona fide deed, Ott imposed upon that company a covenant to pay off these two mortgages as part of the consideration money of the conveyance, and it is claimed that the defendant Philip M. Miller purchased from the Belvidere Roller Mill Company by sheriff’s sale, with notice of this covenant, and that he stands in the position of that company, and Engle v. Haines, 1 Halst. Ch. 186, is cited in support of (he position.

Since Finley v. Simpson, 2 Zab. 311, it has been uniformly held that such a covenant as that inserted in the deed to the Belvidere Roller Mill Company, is, if the deed is accepted by the grantee, binding on him, though the deed is signed by the grantor only. This obligation enures in equity to the benefit of the mortgagee, who has by the covenant assumed the payment of the mortgage debt. Klapworth v. Dressler, 2 Beas. 62; Hoy v. Bramhall, 4 C. E. Gr. 570. But there is no compulsion upon the mortgagee, whose debtor has thus provided an additional covenant for the payment of the mortgage debt, to accept the benefit of this covenant and resort to it at the sacrifice of other equities. The rights of the mortgagee against the purchaser are adjudged not because of any original equity in him, but to avoid circuity of action and to save the mortgagor from being harassed for payment of the debt, and, then being driven to seek relief from the purchaser upon whom the ultimate liability must fall. Crowell v. Hospital of St. Barnabas, 12 C. E. Gr. 656. The mortgagee, by the covenant, becomes entitled to be substituted in the place of the mortgagor, but he is under no obligation to enforce the covenant unless he chooses to do so. He may look only to his mortgage and to its equities, if he likes. Nor can the taking of such a covenant by the mortgagor, from the purchaser, force the. mortgagee' to give up the equities attendant upon his mortgage, and to accept in their place the covenant of some party of his debtor’s selection to pay his debt. The equity to have the securities marshaled, outstanding in the mortgagees having a lien only upon one fund, can only be taken away by the consent or act of those mortgagees themselves, or by the intervention of some superior equity, as that of a bona fide purchaser without notice.

The Belvidere Roller Mill Company is in no way harmfully affected by the marshaling of the securities. It has bound itselfj as purchaser of lot No. 1, to pay both the complainants’ and the Morris mortgage debts, and it cannot be injured if the equity of the Morris mortgagees to require the complainants to look first to lots Nos. 2, 3 and 4 is enforced. It does not resist its enforcement. The party unfavorably affected is Roderick B„ Searles, the owner of lots Nos. 2, 3 and 4. If he can compel the complainants to look first to lot No. 1 for their mortgage debt, he can retain lots Nos. 2, 3 and 4, in accordance with the original fraudulent plan, to avoid payment of Adam B. Searles’" debts, because there will probably be sufficient proceeds of lot No. 1 to pay the complainants’ debt, without calling on lots Nos. 2, 3 and 4, and the Morris mortgage is no lien on the latter three lots.

It-was held in Herbert v. Mechanics’ Building and Loan Association, supra, that the right of a second mortgagee to have the assets marshaled was superior to the right of «a judgment creditor of the mortgagor who had acquired a lien upon the assets included in the first mortgage, but not in the second,, and which were sought to be first charged. The principle propounded is that the equity of the second mortgagee is vested in him on the taking of his mortgage.' The mortgagor’s subsequent judgment creditors have no higher rights than the mortgagor; their equity is inferior. The equity is absolute as to the' debtor himself, is subject to the legal and equitable claims -of prior creditors, but cannot be impaired or in any way injuriously affected by the intervention of those of a later date, unless they be bona fide purchasers without notice, or holders'of some other superior equity. So iu this case, in my view, the equity of the Morris mortgage and of the defendant Philip M. Miller, who has succeeded to its rights by his purchase at the sheriff’s sale, is superior to any rights arising upon the after-created covenant imposed by the mortgagor or his grantee. I cannot regard Roderick B. Searles as a bona fide purchaser in any aspect of his relations to this case. If there be any virtue in the covenant made by the Belvidere Roller Mill Company to assume the payment of these mortgages, let those who are injured by its breach bring their action therefor. It cannot, in a court of equity, under the circumstances recited, deprive the parties interested of equities existing before that covenant was made. Neither the mortgagor nor his fraudulent grantee, Roderick B. Searles, can compel the first mortgagee to resort first to that tract upon which the first and second mortgages are both liens, and thus free the other tracts not included in the second mortgage, nor can they deprive the second mortgagee of his equity to have the assets so-marshaled that both mortgages may, if possible, be paid.

It is mistakenly assumed that Philip M. Miller, who purchased at the foreclosure sale under the Morris mortgage, occupies the position of a grantee from the Belvidere Roller Mill Company, and that he is bound by its covenant entered into by the acceptance of the deed from Ott, of which Miller had notice. The title acquired by Philip M. Miller, the purchaser at the foreclosure sale under the Morris mortgage, was not that of the Belvidere Roller Mill Company, charged with the equities incumbent upon that company. The purchase at a foreclosure sale relates back to the title passed by the mortgage foreclosed, and conveys to the purchaser the estate which the mortgagor had in the mortgaged premises on the day of the delivery and record -of that mortgage, freed from subsequent equities, unless superior by reason of lack of notice &c., as hereinbefore discussed. In the case under consideration, the defendant Miller, by the deed from the sheriff, acquired the title which Adam B. Searles had on the 23d day of May, 1890, when he delivered the mortgage to Morris and others with all its attendant equities, and free from equities which Searles or subsequent holders of the property had afterwards imposed on it. In the case of Engle v. Haines, above cited, the grantor received a title of a date not prior but subsequent to the imposition of the covenants, and it was properly held that his estate was subjected to the payment of the purchase-money.

Upon all the questions argued I will therefore advise, first, that there has been no tender shown; second, that the bond formerly held by Edward B. Searles, claimed to be assigned to Henry B. Miller, has been paid; third, that the lots Nos. 2, 3 .and 4, held by the defendant Roderick B. Searles, should be first sold and the proceeds applied to the satisfaction of the bonds secured by the complainants’ mortgage and costs of foreclosure, and lot No. 1, held by the defendant Philip M. Miller, should be secondly sold and its proceeds applied to satisfy any balance remaining due on the complainants’ mortgage; that an order of reference be made to a master to ascertain and report the amounts due &c., on which reference the evidence taken on the hearing may be used, subject to these conclusions.