Osborn v. Carr , 12 Conn. 195 ( 1837 )

Huntington, J.

This case embraces such a variety of persons, dates and conveyances, that it appears somewhat complicated. It is believed, however, that a careful examination and distinct understanding of these particulars, will render the precise question to be decided, extremely clear.

As no relief is sought by the plaintiffs, or by Carr, against Benham & Brown, and Isbell, Terrell & Tomlinson, the conveyances to them, in that view, may be laid out of the case. They are not made parties to these proceedings; and consequently, no decree can now pass against them. Independent, however, of the fact that they are not before the court, it is apparent., if they were, no decree ought to be passed against them; for it is found, the sales were made to them, by Goodyear, pursuant to the authority given him by the bank, and the avails, being the full value of the parcels sold to them, have been applied towards the payment of the indebtedness secured by the mortgages to the bank.

The court are clearly of opinion, that Osborn should be protected in the title which he has acquired to the property in Waterbury, sold to him, by Goodyear, in May, 1831. Carr has no equitable right to redeem this property ; for it is not included in the mortgage to him, and was sold previous to the date of his mortgage. Nor has he any just claim to the application of the proceeds of the sale, to the extinguishment of the mortgage debt to the bank. Osborn paid his money, on a bona fide contract for the purchase, made and executed before Carr had acquired any interest in the property: and although this contract was by parol, it was executed. The purchase moneys were paid pursuant to the agreement; possession was taken of the premises, by Osborn ; and has ever since been continued. His equity is certainly equal to that of Carr ; and having obtained the legal title, no principle which governs a of chancery, would justify us in disturbing what is now an united equitable and legal title in him.

We are also of opinion, that a similar protection is to be given to Hallock. His purchase was made bona fide, without actual notice of Carr's mortgage. The property was sold by those who had the title, and at a time when Carr had no interest in it. The cross-bill, as to Hallock, must, therefore, be dismissed.

The principal question presented by the record, and in regard to which the parties before the court, entertain directly opposite views, relates to the application of the moneys arising from the sale of the property situated in New-Haven. Carr, by his mortgage, acquired no specific interest in or lien upon this property : nor did De Forest & Co., by their mortgage, obtain any such interest, or lien in the property in Waterbury mortgaged to Carr. Each party, however, by his bill and cross-bill, seeks to throw the burden of the debt originally due to the bank, and now held by the plaintiffs by assignment, primarily upon the property not specifically mortgaged to the other. The plaintiffs, representing the bank, claim to foreclose the property in Waterbury mortgaged to Carr, unless the whole debt secured by it, and now due from Goodyear, is paid. Carr, on the contrary, insists, that he has a right to redeem the mortgages prior to his own; and that if he redeems, he is entitled to the entire pledge given for the debt;— and as the plaintiffs, or those whom they represent, have disabled themselves from giving him the entire security, in consequence of a conveyance of a part to bona fide purchasers, who (as we have decided) are entitled to hold it, they must, in order to give him the benefit of the whole pledge, deduct the value of the part so conveyed, from the amount of the mortgage debt. The object, therefore, of Carr's cross-bill, is, to compel the plaintiffs to deduct from their debt, which they hold by assignment, the value of the property in New-Haven which was sold, and to foreclose for the balance only, and to obtain a decree for redemption, upon payment of that balance. In support of his claim, he relies upon two general principles well settled in equity : 1. That a subsequent mortgagee has a right to redeem a prior|one, and to stand in his place: 2. That where a mortgagee has a lien on two different estates, and a subsequent mortgagee has a lien on one of them only, and the former elects to take his whole demand out of the estate in mortgage to the latter, the junior mortgagee will be entitled, either to have the first mortgagee resort to the estate not in mortgage to the junior creditor, and take satisfaction out of that, if it be sufficient, or to have the prior lien assigned to him, and to receive all the aid it can afford him. Park v. Clinton, 12 Ves. 60. Calkins v. Munsel & al. 2 Root 333. Sagitary v. Hyde, 1 Vern. 455. Aldrich v. Cooper, 8 Ves. 388. Trimmer v. Bayne, 9 Ves. 209. Cheesbrough v. Millard, 1 Johns. Ch. Rep. 409. 1 Pow. Mort. 262. a. 342. a. 344.

These principles, in their application to ordinary cases, are not denied. It is not, however, admitted, that they are applicable to cases where the just rights of third persons will be impaired ; and the court are of an opinion, that neither party is entitled to the aid of the court, to the extent claimed by each, respectively.

The bank, (and the plaintiffs, who represent them, assumed their responsibilities) had duties to perform to each of the mortgagees subsequent to them, viz. Carr and De Forest & Co. They held separate mortgages of two different estates of the mortgagor, on one of which, Carr had subsequently acquired a lien by mortgage, and on the other, De Forest & Co. had obtained a similar lien. So far as relates to a redemption of the mortgages to the bank, Carr and DeForest 6p Co. may be considered as the debtors of the bank, who could not justly impair their rights as against each other. In the case of Stevens v. Cooper, 1 Johns. Ch. Rep. 425., the Chancellor says: “ The court will likewise compel the creditor to aid the right of contribution, by assigning his bonds and securities to the debt- or, or surety, or owner of the land, whom he charges with his whole demand; and they will not permit him, voluntarily, to defeat this right. He owes a duty to his debtors not to impair their rights, as against each other.” He adds, with, reference to the case before him: “ Here, the mortgagee has deprived the owners of two lots, of this recourse, by previously discharging the other lots; and he ought not, then, in equity, to charge them with a greater burden than they would have been subject to, upon the principle of contribution, if no such discharge had taken place.”

If from the facts found, it appears, that the plaintiffs and (jarr have equal equity, and neither has priority over the other, the propriety of applying the rule which governs courts of equity, will be quite obvious. That rule is — where land is charged with a burden, the charge ought to be equal, and one part ought not to bear more than its due proportion ; and equity will preserve this equality, by compelling the owner of each part, to a just contribution. Sir Wm. Herbert's case, 3 Co. 14. Harris v. Ingleden, 3 P. Wms. 98. Cheese-brough v. Millard, 1 Johns. Ch. Rep. 409. Stevens & al. v. Cooper &, al. 1 Johns. Ch. Rep. 425. Campbell v. Miner & al. 4 Id. 334. Derry v. Earl of Winchelsea, 1 Cox 318. S. C. 2 Bos. & P. 270. 1 Pow. Mort. 344. note. If neither has any superior equity, and the fact that one has procured the legal title, cannot, upon the facts found, give him priority over the other, nothing can be more clear than that equity and justice require that each tract of land should bear its share of the burden cast upon it, according to its value. An incumbrance is thrown over the whole property. It should be raised, by each party, in proportion to the benefit which he will receive, by its removal. Neither ought to claim priority, or a benefit, at the expense of the other: and the case before us, is, in principle, the same, as if the bank had filed a bill to foreclose, against both mortgagees ; and both had brought the money into court; and the facts appearing as they now do, by cross-bill or otherwise, the court were required to direct what amount each was to pay, as between themselves. We propose, then, to examine whether, upon the facts found, either has a priority over, or a superior equity to, the other.

1. Has Carr any such priority or equity over DeForest & Co., as to the property in New-Haven ?

Certainly not, on account of the nature of his debt. The debt of each was bona fide :

Nor from any knowledge in fact, on the part of De Forest & Co., that Carr had a mortgage on the property in Water-bnry ; for they had no actual notice of that lien :

Nor from constructive notice, by the record of Carr's deed, when they received their mortgage ; for such notice is limited, in its effects, to the specific incumbrance recorded. It is notice only to persons claiming a right subsequently, in the very property described in the recorded deed. It is so fa,r notice, because the mortgage is required to be recorded in the town where the land lies ; and being so recorded, the law declares. that a subsequent incumbrancer shall be considered as having actual notice of the first mortgage, and having such notice, he shall acquire no right in that property, which shall interfere with the rights of the first mortgagee. Neither Carr, nor DeForest &• Co., by constructive notice of each other’s deeds, can gain any priority or advantage, the one over the other, except in the specific property conveyed to each respectively. Carr cannot insist, that the property in New-Haven shall first be applied to the payment of the mortgage debt, for his benefit; nor can De Forest & Co. insist, that the property in Waterbury shall be first so applied, for their benefit. Indeed, we have already settled this controverted point, by protecting Halloclc, the purchaser under De Forest &• Co. ; for he had constructive, and equivalent to actual notice of Carr's mortgage ; and if Carr is entitled to the whole proceeds of the sale of the property in New-Haven, when he makes payment of the whole debt, he can hold the property itself against a purchaser, who bought with notice. But we have already decided, that Hallock is to be protected in the purchase.

Nor can Carr claim any superior equity, as to the lands in New-Haven, because his deed was prior in time : for his specific lien was only upon the property in Waterbury; and DeForest &■ Co.'s mortgage of the property in New-Haven, and the equity growing out of it, were as much prior in time to Carr's, as was Carr's prior in time as to the property in Waterbury. If each had taken a mortgage on the same day, or De Forest & Co. on the next succeeding day, would priority in time impair the equality of the equity ?

Nor was there any neglect or default on the part of DeForest & Co. (if any at all) which is not equally chargeable to Carr. De Forest & Co were under no greater obligation to enquire into the state of the Phoenix Bank title, as connected with the mortgage to Carr, than was Carr to enquire of them regarding it, when he took his mortgage. If it was the duty of De Forest & Co. to have enquired, when they took their mortgage, whether Carr had not a mortgage of a part of the lands in Waterbury, it was equally the duty of Carr, to have enquired whether the bank did not hold a second mortgage, for a portion of the same debt, of lands in _ New-Haven:

Nor was there any fact known by De Forest & Co., to put them on enquiry, which they neglected to improve, and which impairs their equity. They had not notice of any fact, which could give Carr a superior claim to themselves, to property in which he had not acquired the remotest interest. It is true, they had constructive notice of Carr's mortgage; and we are asked to extend the doctrine of such notice, to other lands lying in other towns. So to extend it, would be unjust and inexpedient. We are satisfied with the rule, which gives full effect to this kind of notice, in its application to the same lands; at least, we are not disposed to depart from it. But we can readily foresee the injurious results which would follow a further extension of it. If Carr had taken a mortgage of the lands in New-Haven, and neglected to record it, would he have gained priority, by reason of the constructive notice of the mortgage to him, of the lands in Waterbury 7 Would he be permitted to avail himself of such notice, to protect his unrecorded deed, at the expense of a subsequent bona fide purchaser, without actual notice ?

2. De Forest & Co. have no superior claim in equity, to have the debt thrown wholly on the property in Waterbury :

Either, because their mortgage is specifically on the property in Neio-Haven, and Carr's is not; for Carr may properly reply to such a claim, “ my mortgage of the lands in Waterbury is specific, and yours is not specific upon that property; and if merely because one is specific, and the other is not, a priority is gained as to the fund, by which the incumbrance, common to both, is to be raised, I am as much entitled to it as you are

Or because the mortgage of the property in New-Haven, is subsidiary; for in point of fact, it was additional, and is so found by the court. Both mortgages to the bank, were, so far as it regards this controversy, primary :

Or because Carr, prior to the mortgage to De Forest & Co., and the sale to Coley & Smith, and the assignments by the bank, had brought no bill to redeem, or to have the bank resort first to the property in New-Haven; for Carr had no actual knowledge of the mortgage to De Forest & Co., until after the assignment by the bank, and the sale to Coley & Smith — at least, none is found. He was not bound, by the constructive notice arising from the record, (as applicable to the point we are now examining) for the same reason that De Forest & Co. were not bound, by the constructive notice arising from the record in 'Waterbury. Again ; it may well be doubted, whether a reasonable time had elapsed to file a bill. The deed to De Forest & Co. is recorded June 1, 1833. The release from the bank is dated September 6, 1833 ; and recorded September 15, 1833. The deed to Coley 6p Smith was executed on the 6th of September, 1833. Further ; the rights of Carr do not grow out of the mere fact that he brings a bill to redeem. It is that fact, in connexion with his mortgage. Both concur to give effect to them. His rights in other mortgage securities, for the same debt, when they exist at all, do indeed arise immediately from the exercise of the power of redemption, or from the proceedings on a bill to foreclose ; but the deed to him, gives him the right to redeem. That is inseparable from his deed, as against the mortgagor and first mortgagee. It grows out of, and is dependent upon, it; and neither the mortgagor nor the first mortgagee, sustaining that character only, can prevent him from redeeming subsisting, unpaid, prior mortgages for the same, or a part of the same, debt. Freeman & al. v. McGaw & al. 15 Pick. 87. As to them, the rule is the same as if it had been inserted in the mortgage to him, that upon the payment of the debt to the bank, he should have the benefit of all the real securities given for the same, or a portion of the same debt, which should remain outstanding and unpaid. It is only because the mortgages to Carr and De Forest & Co. are distinct and separate, and of distinct pieces of land in different towns, that De Forest & Co., when they took their mortgage, are to be considered as having acted bona fide, and not chargeable with such notice as will prevent them from having an equity in their mortgage, equal to Carr's equity in his. These facts very properly deprive Carr of any just claim to have the property in New-Haven first applied in extinguishment of the debt due the bank.

Nor have De Forest &■ Co. obtained a prior right to have their debt paid out of the property in New-Haven, at the expense of the property in Waterbury, by reason of their having acquired the legal title to the whole, through the assignment from the bank. We have not adopted, in this state, the doc-ir¡ne 0f tacking mortgages, so as to give priority to a third mortgagee over an intervening one. This is a consequence of the admitted rule, that the registry of a deed, is, here, constructive notice, and equivalent to actual notice, of the specific mortgage which is recorded. It is admitted, the weight of authority in England, sustains the doctrine, that there, the third mortgagee may gain priority over the second, by purchasing in the legal title, although the second deed is recorded ; for the registry of the second incumbrance, is not held, there, to be constructive notice to the third. Latouche v. Dusenberry, 1 Sch. & Lef. 157. Bushell v. Bushell, Id. 90. Morecock v. Dickins, Amb. 678. 4 Kent’s Com. 173. 176. But even in England, if the third mortgagee has notice in fact, of the second mortgage, when he takes his own, he gains no priority, by buying in the legal title ; for in such case, he comes in fraudulently. It is true, that notice of the mesne incumbrance, at the time of purchasing in the legal title, is not material; for if he had no notice when he lent his money, as distinguished from the time when he gets in the legal title, he will be protected. The reason is obvious. It was equitable, not fraudulent, to take his mortgage without notice; and the foundation of the whole doctrine of tacking, in England, is, that when the third mortgagee receives his mortgage bona fide, without notice, his equity is considered equal to that of the second ; and each, it is said, may honestly race for the legal title; and he who first gets it, has both law and equity for him ; and the legal title and equal equity prevail over the equity. Marsh v. Lee, 2 Vent. 337. Brace v. Dutchess of Marlborough, 2 P. Wms. 491. Ex parte Knott, 11 Ves. 608. Taylor v. Baker & al. 5 Price 306. Were v. Moore &. al. 8 Price 475. Belcheir v. Butler, 1 Eden, 523. 2 Pow. Mort. 450. a. 575. 4 Kent’s Com. 176. 177. But in Great-Britain, actual notice to the third mortgagee is sufficient to prevent him from tacking; because, with such notice, it would be fraudulent in him to endeavour to gain an advantage at the expense of the second mortgagee. In this state, the record of Carr's deed was equivalent to actual notice to Be Forest <§• Co., of the existence of that deed. They may, therefore, be said to have known, when they took their mortgage, that Carr had a prior one on the property in Waterbury. This is the spirit of our registry act; and if it does not amount to this, it is worse than useless. It follows, therefore, that De Forest <£• Co., having what is equivalent to actual notice of Carr’s mortgage, could not, by buying in the legal title, give their mortgage a priority over Carr’s, as to the lands in Waterbury. As to that specific property, Carr has the better equity ; for he is prior in point of right. 4 Kent’s Com. 178. Carr’s rights are prior and superiour to those of De Forest Co., in that property, except that as assignees of the bank, the latter have both the legal title and a better equity, so far as relates to the mere extinguishment of the debt due to the bank; and with notice of that mortgage to Carr, they can do nothing which will give their mortgage a priority over his. If, however, by buying in the legal title, they can give their mortgage a priority, (which they, or their assignees, are now seeking to do,),they, in effect, would deprive Carr of the benefit of his mortgage, so far as the amount of the mortgage debt to De Forest Co. extends ; for, in this way, they would compel Carr to redeem their mortgage, before he could reap the fruits of his own ; and this in the face of what is equivalent to actual notice of his mortgage. They would, in this manner, acquire a right in the property in Waterbury, interfering with Carr’s rights in it; which they cannot do with actual, or what is equivalent to actual, notice. Hence it follows, that the doctrine of tacking, as understood in England, and which is merely giving priority to a third mortgagee, as to his mortgage, over an intermediate incum-brance, by buying in the legal title, cannot exist here; because the record of the second mortgage is equivalent to actual notice of its existence. Such has always been the law of this state. Franklin v. Gorham, 2 Day, 150. 2 Sw. Dig. 185. But notwithstanding De Forest & Co. could not gain priority, as to their mortgage, over Carr, for the reasons stated, it is clear they have equal equity with him, as to the incumbrance of the debt due the bank, which was upon both tracts, the bank bemg mortgagees of both: for the record of Carr’s deed is only constructive notice of that very incumbrance, and its effect is to prevent De Forest ⅜* Co. from doing any act which will impair or defeat his rights in that property. It was not notice, which made it inequitable to take a mortgage upon other property in another town, and on whick Carr had no lien, This point has been, however, before considered. They have, each, equal equity in the tracts mortgaged to each, separately : and each, as to his own mortgage, is prior in time to the other. It is solely on this principle, that we have protected the purchaser under He Forest Sf Co. He, equally with them, had constructive notice — actual notice in effect— of Carr’s mortgage ; but we hold it did not deprive him of the character of a bona fide purchaser.

There are other reasons than those which we have suggested, which, independent of decided cases in our own courts, would constrain us to reject the English doctrine of tacking. It is unjust and inequitable, and is supported there, only by the weight of authority. Chancellor Kent calls it “ harsh and unreasonable.” He says : “ There is no natural equity in tacking ; and when it supersedes a prior incumbrance, it works manifest injustice. By acquiring a still more antecedent in-cumbrance, the junior party acquires, by substitution, the rights of the first incumbrancer over the purchased security ; and he justly acquires nothing more. The doctrine of tacking, is founded on the assumption of a principle which is not true in point of fact; for, as between A, whose deed is honestly acquired and recorded to-day, and B, whose deed is with equal honesty acquired and recorded to-morrow, the equities upon the estate are not equal. He who has been fairly prior in point of time, has the better equity ; for he is prior in point of right.” 4 Kent’s Com. 178., 179. In the case of Brace v. Dutchess of Marlborough, 2 P. Wms. 491., the master of the rolls remarks : “ It seems reasonable, that each mortgagee should be paid according to his priority, and hard to have a second mortgagee without remedy, who might know, when he lent his money, that the land was of sufficient value to pay the first mortgage, and also his own : to be defeated of a just debt, by a matter inter alios acta, a contrivance betwixt the first mortgagee and the third, is great severity : but this has been settled upon solemn debate, in a case in 2 Vent. 339., Marsh v. Lee.” This case was decided by the chancellor, with the assistance of Sir Matthew Hale, (then Chief Baron) and was, perhaps, the first case in which the English doctrine of tacking, was fully established. It was a precedent subsequently followed with evident reluctance, and which the courts in Westminister-Hall did not feel at liberty to overrule. It may be added, that this doctrine is generally exploded in the United States, by which “ we are relieved from a multitude of refined distinctions, which have given intricacy to this peculiar branch of equity jurisprudence.” 4 Kent’s Com. 178., 179. Grant v. The United States Bank, 1 Caines’ Ca. in err. 112.

If the foregoing views are correct, neither Carr nor Re Forest Sp Co., upon the facts found by the court, can claim any superior equity or priority, the one over the other, as to their several mortgages. Each tract should, therefore, contribute to remove the incumbrance of the debt secured to the bank, so far as it is common to both, according to the respective value of each tract. The fund arising from the sale of the property in New-Raven, is not to be subjected in the hands of Re Forest cj* Co., to any claim to which it was not before subject. The rule in equity is merely, that the election of one claimant, shall not prejudice the claims of the other. 1 Pow. Mort. 344. Each party ought to contribute, in proportion to the benefit which he will receive, by the removal of the incum-brance ; or, in the words of the rule heretofore stated, where land is charged with a burden, the charge ought to be equal, and one part ought not to bear more than its due proportion ; and equity will preserve this equality, by compelling the owner of each part, toa just contribution.

To apply these principles to the case before us, the following advice is to be given the superior court.

Let a decree of foreclosure pass against Goodyear, Bate-man, and Sperry c}' Perkins, to take effect, unless they pay the whole amount found due to the plaintiffs from Goodyear Sf Sons, secured by the mortgages to the bank ; and let them be foreclosed, respectively, in the order mentioned above.

Let the superior court ascertain the amount due the plaintiffs on the debt to the bank secured by the mortgage of the property in New-Haven. The value of the lands in Water bury, mortgaged to Carr, is already found — 6360 dollars; and also of those set off upon execution to Sperry Sp Perkins — 1500 dollars. The value of the lands in Neio-Raven, is found to be 6500 dollars ; from which is to be deducted the debt due to the corporation of Yale-College ; and the remainder is to be taken as their value, for the purposes of the case before us. Then, as the united values of the three tracts, is to the amount due the plaintiffs on the debt to the bank, secured by the mortgage 0f the lands in New-Haven, so is the value of the lands jn New-Haven, to the proportion of the debt which they ought to discharge. From the whole amount of the debt found due the plaintiffs, secured by the two mortgages to the bank, with interest to the time of the decree, let there be deducted the sum found by the above proportion to be paid out of the avails of the sale of the lands in New-Haven, with interest to the time of the decree, and the remainder will be the amount which is to be found due the plaintiffs on the debt to the bank, as against Carr. Let a decree of foreclosure pass against Carr, to take effect, if, after the failure of Goodyear, Bateman, and Sperry Perkins to make payment of the sum required to be paid by them, he shall fail to pay the amount to be paid by him. If Goodyear, Bateman, and Sperry Sf Perkins shall make payment, within the time limited to them respectively, let a decree of foreclosure pass, as to the property mortgaged to Carr, against them, in the order mentioned above, in favour of Carr, unless they pay to him the amount found due to him and secured by his mortgage.

Let the cross-bill be dismissed as to Hallock, without costs.

In this opinion the other Judges ultimately concurred.