Alexander v. Ghiselin , 5 Gill 138 ( 1847 )

Chambers, J.,

delivered the opinion of this court.

The first objection to the continuance of the injunction in this case is, that the appointment of the trustee did not suspend the rights of creditors to enforce their judgments.

The 5th section of the act of 1805, ch. 110, provides that the insolvent shall convey to his trustee all the property he has in possession. The 7th section directs a sale to be made of all the property conveyed to the trustee, and applies the proceeds to general creditors, after satisfying all judgments, incumbrances and liens; but no judgment to be entered after the insolvent’s application shall be a lien on his real property, nor shall any process against his real or personal property have any effect thereon, except writs of fieri facias, actually and bona fide levied before such application.

It is alleged that “ the insolvent is to convey what he possesses,” the receipt of which the trustee is to acknowledge, the trustee is to “ sell what is conveyed,” of course he is to sell only what the trustee has in his actual possession. If this be so, then the property in the hands of a tenant, a bailee, or a trespasser, belonging to an insolvent, is not to be sold--nor a mortgaged estate in possession of a mortgagee, allbough the mortgaged premises might be worth in a fair market, tenfold the amount of the debt: a construction which results in such conclusions cannot be adopted.

Again it is contended, that the provision, “ no process against real or personal property shall have any effect thereon, except writs of fieri facias, actually and bona fide levied before such application,” virtually asserts, that in the excepted case it shall have effect, and it is assumed that the sale by the sheriff must be the effect intended. This assumption is not warranted. The design of the law was to allow full force and effect to an execution levied as a lien or incumbrance, in connection with which words the process is mentioned, but not to determine, or in any manner to indicate, by whom a sale was to be made.

The true construction then of the act of 1805, and the supplementary acts relating to insolvent debtors, requires the trustee to take into his possession all the estate and effects to which the insolvent had the right of possession at the time of his application, and to sell and dispose of all his property, whether in possession, reversion, or remainder, and pay off the liens and incumbrances thereon, and to regard an execution as a lien upon personal property only in the case where it was actually levied before the insolvent’s petition.

The effect is certainly an important one. In the case of personal estate, it secures to the execution creditor a priority over all judgments not in the same condition, by making his debt a specific lien on the property seized in execution. There may possibly be cases in which a priority might be acquired over other judgments or incumbrances of equal date, in respect to real estate.

The leading and general design of all bankrupt and insolvent laws, is to insure a prompt and complete settlement of all the affairs of the party, and an early distribution amongst the creditors, as nearly in equal proportions as a regard to positive and acknowledged preferences will admit. To facilitate these objects, our law has wisely given to the trustee, to be appointed by the', court, the entire management of the estate, subject of course to-the control of the court by whom he is appointed, charging him with the duty of paying off liens and incumbrances, to which the estate might be subject. His duty requires him to make the earliest disposition and settlement regarding the interests of all the creditors—the particular lien creditor included—and brings all the claimants before one tribunal, whereas, by allowing sheriffs and mortgagees to participate in the administration of the trust, adverse interests are created, delays endangered if not ensured, and probably different, and possibly conflicting tribunals consulted.

The next ground of defence against the claim of the appellant, is that the agreement relied on in the bill, not being in writing, is void by the statute of frauds. If the assumption taken in the argument, that the alleged contract related to land as well as personal property, were well founded, it would be fatal. But the contract stated, and which the bill asks to have enforced, is an agreement to mortgage personal property alone. The debt was due from the party contracting, not the debt of another, and it was to be performed forthwith, so that the provisions of that statute do not affect it.

It is said however, that the registry acts, and particularly the act of 1729, ch. 8, make it void, as against creditors. This objection goes to the whole extent of the position, that an equitable mortgage cannot be enforced, except against the contracting party. No exception is made in the act, the terms of which are broad enough to defeat a bona fide purchaser, who has paid his money on the faith of a legal transfer or security, to be forthwith executed, if the rights of a creditor should happen to intervene, although the creditor had full notice of the transaction. There certainly is great difficulty in any general legislation on the subject, to avoid individual cases of serious hardship. The manifest injustice and oppression which a rigid execution of these registry acts according to their letter, would occasion, has led courts .of equity to construe them as they have the statute of frauds, in a way to avoid many of the inconveniences and injuries which a literal interpretation would inflict. How far in the aggregate the benefits of such a construction exceed the mischiefs, it is not the province of this eourt to decide. Wise and experienced jurists have differed in their opinions as to which would have been the more judicious course. All however agree, that a literal construction was not adopted, and to abandon at this period the precedents of all past time, would be to unsettle titles to property, destroy an entire system of chancery jurisprudence erected upon the supposed equity of these laws, and matured with the concurrence of many legislative enactments, and throw doubt and confusion over a large and important branch of the law, most intimately affecting the rights of every species of property.

Certainly it would be a novel doctrine in Maryland, to assert that the Chancery court cannot specifically execute a contract for a mortgage, or other equitable lien against creditors. The rule that “ equity regards as done that which was agreed to be done,” was imported with other parts of the system by our ancestors. The instances in which it has been enforced, and against the very terms of the registry acts, are numerous.

The every day occurrence of proceedings to enforce a conveyance bond, is a familiar instance. Who doubts the authority of a Chancery court to direct a conveyance, where the party in possession, under a bond of conveyance has paid the purchase money; or that the title would prevail against creditors whose judgments were intermediate between the creation of the equitable title by the bond, and the legal title by the decree and deed? and yet our registry laws all the while declare that no estate in the lands for above seven years, shall pass, alter or change, except by a conveyance formally acknowledged and registered within a limited period.

Indeed, some of the appellee’s solicitors did not deny that a written contract to execute a mortgage clearly expressed, made bona fide, and for full value, would raise an equity for the party claiming under such contract, that would prevail over the legal rights of creditors. The decisions of this court in the cases referred to at the bar, so clearly establish this doctrine that it is impossible to doubt it. They object however, that this contract is not in writing. It is asked by way of answer to this objection, by what law is a written contract required ? The equity is as great, all other considerations being equal, in the one case as the other. The danger of mistake, and the greater facility of obtaining false testimony in the proof of a verbal agreement, has occasioned statutory enactments, distinguishing them in certain enumerated cases. In all others they are on the same footing; personal property may be transferred in many instances, and the title pass by parol contract. We know of no decision which has asserted that a contract to execute a mortgage for personal property, may not also be by parol, except in the cases which the statute of frauds requires to be in writing. On the contrary, several of the cases cited were on parol contracts. See Mogg vs. Baker, 8 Mees & Wels. 195. Massey & McIllvain, 2 Hill, 421. McMechen & Maggs, 4 H. & J. 132. If the contract be as well established, it imposes the same moral and equitable obligation to perform it, when made verbally, as if made in writing, and the legal effect of the terms of the agreement will be the same in the one case as the other.

The greater difficulty of proving the precise terms and import of the agreement is necessarily incurred by the party setting it up, and courts of equity have properly required that every agreement shall be clearly and explicitly established, before they will lend their aid to enforce it.

A further objection to the contract alleged in this bill is, that it has not the certainty and explicitness required, so far as regards the alleged agreement with T. S. Alexander, and with regard to that, with Mrs. Ghiselin it was contingent, and that she has not performed the condition on which it was to depend.

And first, as to Mrs. Ghiselin’s agreement: the statement is, that she held a clear mortgage, so far as it appears, the first incumbrance for $10,000 on the whole real estate, said to be worth $40,000: thus Secured, she was prevailed on to agree that this incumbrance should be postponed, in favor of the individuals who were expected to loan the sum of $15,000 to her son, to pay off and discharge the liens on his estate and other debts, on condition that she should receive as additional security, a mortgage on the negroes of her son. Two individuals had promised to loan this amount on receiving mortgages, to which hers should be postponed, and it was confidently anticipated by all, that the $15,000 would be procured on these terms. The deeds were prepared, as well the mortgages to the persons who were to loan the money, (one of which for $8,000, was executed both by .Mrs. Ghiselin and her son) as the mortgage to .Mrs. Ghiselin on the negroes. In this condition of things, the person who had agreed to loan the remaining $7,000, declined doing so, and the amount could not be and has not been procured.

In a court of law, a party claiming under a contract must claim according to its terms. If he venture to speculate on a contingency, over which he has no control, he must abide the issue, and if the event does not occur as he assumed, the contract is at an end. But even at law, if one party be prevented by the other from performing the contract, he can recover from that other by showing a performance of as much as it was permitted him to perform, and a readiness to perform the residue.

The rule in equity is much more broad, and permits a party specifically to enforce a contract, who has performed so much of it as to incur loss; if he is in no default for not performing the residue. The argument must assume that Mrs. G. was to procure a lender before she can be in default. Such certainly was not the case. Her contract was to release to the persons from whom her son was to procure the loan. If Edmonson had refused, and another person had been found by Robert Ghiselin willing to make the loan on the same terms, she was hound by her contract to release to such other person. But it was the office of Robert Ghiselin to find the lender, and it was his failure to do so, that made it impossible for her to release according to her contract.

She is therefore in the attitude of a party who has performed so much of the contract as it was possible, and ready to perform the rest, but prevented from doing so, by the act of (he other contracting party. This part performance has occasioned a postponement of her lien to the extent of $8,000; she is not therefore, as the authorities describe it, “in statu quo.” To this extent, she is injured by her part performance, and is entitled therefore to a specific execution of the contract, or to such relief as in the altered condition of the property is equivalent thereto.

Then, as to Alexander, the statement of the • bill is, that being the son-in-law of Mrs. G., and participating in the arrangement by which her former lien was to be waived, and her debt further secured by a mortgage on the negroes, and finding that his large claim would be postponed for many years, “he required, and Ghiselin agreed, that Alexander should likewise have a security and indemnity upon said negroes.” The terms of this agreement do not seem to be vague or uncertain; a creditor in procuring from his debtor the security of a mortgage on his family of negroes, another creditor engaged in the arrangement, and finding mortgages given upon the land on a long credit, and a mortgage on the negroes for a still longer credit, and anticipating great delay in the payment of his debts, demands of the debtor “ to give him indemnity and security on the same negroes,” and the debtor agrees to do so. It is clearly a contract to secure the last named creditor by a mortgage on the same negroes, which were previously agreed to be mortgaged to Mrs. Ghiselin, and of course subject to her mortgage; so far then as this statement of the agreement is concerned, it is not subject to the exception taken. But it is said another contract is alleged, and a different one, in that part of the bill which is supposed to rely on the language of the bill of sale, as the contract. In regard to that transaction it is alleged that Alexander, at the request of Robert G., prepared the deeds, including the mortgage of Robert G., to both Mrs. G. and Alexander, of his stock of negroes, which mortgage was delivered to R. G., and is filed as an exhibit in the cause. Now this is either a subsequent agreement, or it is not. If it be a subsequent agreement it must supersede the first, as far as they differ; and then the agreement to execute this particular mortgage must be regarded as the subsisting and only contract between the parties. If it be so, and such is the correct view of the case, there is an end to the objection now discussed. Whatever reason may be urged against it, most clearly the want of sufficient certainty cannot.

If however, it be not regarded as a subsequent contract, then the effort to enlarge by the mortgage, the terms of the original agreement, will not render it more vague or uncertain than it was originally.

The question of consideration, so far as regards the agreement with Alexander, was alluded to in the argument, but chiefly in reference to any supposed contract, based upon the consideration of forbearance. Whether an existing creditor demanding specific security for his debt, and obtaining the promise of the debtor to comply, is to be considered in a court of equity, as favorably as a creditor, who at the moment of becoming a creditor, obtains a pledge for a specific security has been much agitated, and the decisions have not been uniform on the subject.

In Burn & Burn, 3 Ves. 573, a case is cited as having been decided both by the then Chancellor, Lord Rosslyn, and his predecessor, Lord Thurlow, in which the facts were these:— Sir Simeon Sluart being pressed by a creditor in his neighborhood, engaged by letter to “ make him a mortgage upon some part of his Hampshire estates,” and afterwards made a conveyance to trustees, for the payment of all his debts, and died leaving both general and judgment creditors, and without having executed the mortgage. It was held that the agreement to mortgage was to be regarded in equity as a mortgage from the date of the letter, and the debt was classed before the judgment creditors. The authority of that decision is sanctioned by sound reason. If a general creditor who has indulged his debtor on the faith of his ability to pay all his debts, shall commence the race of vigilance, as soon as the prospect of declining ability shall discióse the probable prudence of a specific security, and by pressing his debtor does all he can to obtain a lien on a particular portion of his debtor’s effects, how will justice or equity be violated by compelling the debtor to execute his agreement, if by accident or from unwillingness he has failed to comply with it, more than in the case of a party who relies on a similar agreement, and advances a consideration on the plighted faith of the other contracting party?

The existence of a debt is at law a consideration for an express promise, equivalent to the advance of an equal amount for the transfer of property, and certainly ought to be a sufficient basis in equity on which to rest an agreement, fair in all other respects, and will sustain an agreement by a debtor to give a specific lien to a creditor.

The late case of Burn vs. Carvalho, 4 Myl. & Craig, 690, fully confirms this doctrine. There the' debtor having property in the hands of his agent abroad, agreed with his creditor to apply such property, or a sufficient part of it, to the discharge of his liability, and sent directions to his agent for that purpose, but became bankrupt before his instructions had or could have reached the hands of the agent.

The assignees of the bankrupt in an action of trover, recovered the goods which had been delivered subsequently to the commission, issued against the bankrupt. Yet the Vice Chancellor, and subsequently on appeal, Lord Chancellor Cottenham held the agreement to give the lien, and it was enforced against the creditors claiming under the commission.

It is by one of the solicitors particularly urged upon the court that the lien cannot in this case be made out against Robert Ghiselin, and hence he concludes it cannot possibly be enforced against the creditors. It is to be remembered that the case is now before the court on a motion to dissolve the injunction on the bill and the answers; that the answers are to be taken as true, so far as they affect the interests of the defendants respectively making them, and so far as they are responsive to the bill, and the statements of the bill are to be received as true so far as they are not denied.

It has been shown that the bill alleges an agreement sufficient to entitle the appellant to the aid of the court, if it be made out. It is conceded the answers of the other defendants, except Ghiselin, do not deny the agreement—they profess to know nothing on the subject, and rely on their legal and equitable rights.

The answer of Ghiselin in so many terms, admits “ that the complainant Alexander, proposed, and he agreed to give him also a lien on his negroes as security for his debt,” and also “ that the various papers set forth in the bill, (amongst which, be it remembered, is the mortgage to Mrs. Ghiselin and Alexander) were prepared by said Alexander, at his (It. Ghiselin's') request;” he alleges however, that the mortgage was to be a security for the debt, after the $15,000 should be raised and received as contemplated, and denies that he ever agreed to give such mortgage to the “prejudice of the then existing judgment creditors.”

As against him, therefore, it would seem obvious, there must be an enforcement of the lien, so as not to affect judgment creditors being such at the date of the agreement—admitting what perhaps might well be doubted, that this part of the answer was strictly responsive, and not in avoidance. How far this restriction or qualification would, if proved, affect the case at any future stage of it, we are relieved from the necessity of considering, because the complainant Alexander, in person and as solicitor for Mrs. Ghiselin, has expressed to the court during the argument, their entire willingness to have such qualification attached to the agreement, and to claim their liens thereunder, subject to existing judgments, and allowing them a priority.

It appears therefore, that in the present position of the case, the bill being admitted by one defendant and not denied by the others, the agreement must be regarded by the court as subsisting. How far its existence subject to the prior rights of judgment, creditors, would have entitled the appellants to claim a continuance of the injunction, is a question not necessary to discuss, because the injunction was proper on the other ground, that is to say, the right of the trustee to administer the fund.

The only remaining objection is that an injunction bond was not filed. It is certainly proper as a general rule, very rarely, if ever to be departed from, that an injunction bond should be required when an application is allowed that delays the recovery or receipt of money, or which lessens or in any respect endangers any existing securities, or renders liable to loss thereby any money or profits, or property, which the adverse party is by the injunction prevented from receiving or enjoying. There should have been an injunction bond in the present instance, and on failure to file it before the injunction issued, the defendants in the court below could and should have applied by petition for an order requiring such bond to be given by a reasonable period, to be limited for that purpose, or, on default to have the injunction dissolved. Such a proceeding would still be proper, and would be directed in the court below, if the continuance of the injunction was dependent upon a question of fact or law yet to be established.

But whatever might be said, if there was any longer a doubt as to the issue of the application for an injunction, it would be an idle and perfectly useless form, and of course unnecessary now to require an injunction bond, because it is the direct result of the opinion above expressed, that the injunction, the only effect of which is to restrain the judgment creditors from proceeding to sell, must be perpetual, it being in all the answers admitted that the complainant Alexander is the trustee duly appointed under the insolvent law, and therefore having authority to take into his possession all the effects of the insolvent, and administer them as he must do, on the responsibility of his bond as trustee.

The case must however be remanded for the purpose of allowing further proceedings and such final decree as justice and equity shall require, upon proof to be taken in relation to the agreement alleged in the bill.

DECREE REVERSED AND CAUSE REMANDED.