Besley v. Lawrence , 11 Paige Ch. 581 ( 1845 )

The Chancellor.

Even if the complainants were right in supposing that they were entitled to have the $700 note, to the Bank of Salina, paid out of the proceeds of the property assigned to Wood and P. Hasbrook, so as to give them the benefit of the Adams bond and mortgage under the creditor’s bill, they were not entitled to any relief upon this original bill, to which their judgment debtor is not a party. If a decree had been obtained against J. Hasbrook in the creditor’s suit, an original bill, in the nature of a supplemental bill, might perhaps have been filed, setting forth such decree, without stating all the proceedings in the creditor’s suit at length. But as no decree had been obtained establishing any right in the complainants as against the defendant in that suit, a simple supplemental bill, original only as to these new parties, would have been the proper proceeding to bring this new claim before the court. And if the merits of the case were with the complainants, I should be compelled to reverse this decree, and to dismiss their bill; but without prejudice to their right to file a supplemental bill in the creditor’s suit.

Upon a careful examination of the facts, however, I am satisfied that the vice chancellor erred in supposing that these complainants had an equitable right to have the $700 note, to the bank, paid out of the proceeds of the property assigned to Wood and P. Hasbrook for the benefit of the creditors of the assignor. The complainants’ bill was filed more than a fortnight after J. Has-brook had made the conditional assignment of the bond and mortgage, to pay the $700 note, as well as the provision for it, as a preferred debt, in the assignment to Wood and P. Hasbrook for the benefit of all the creditors of the assignor. To understand, therefore, what were the rights of these complainants, which they acquired by the filing of that creditor’s bill, it is' necessary to see what were the equitable rights' of the creditors, whose debts were provided for in the assignment subsequent to. the bank debt, as between them and J. Hasbrook.

The assignment of the bond and mortgage to Jaquith & Case, although it was in form a sale of the bond and mortgage to them, ppon condition that they should pay the note of $700 which they had signed as sureties for J. Hasbrook, was in effect a security to them; as no time was specified within which they should comply with the condition of the assignment, so as to give them an absolute title to the bond and mortgage. And as the assignment of the goods, &c. to Wood and P. Hasbrook, which was executed the same day, gave Jaquith & Case a right to priority of payment out of the assigned property, they had in fact two funds to which they could resort, for payment of the note to the bank, to indemnify themselves as sureties. The rule that where one creditor has two funds of his debtor to which he can resort for payment, and another creditor has a specific or general lien upon one of those funds only for the payment of his debt, equity will compel the first creditor to resort to that fund to which the lien of the other does not extend, is unquestionably applicable to this case. But the equity of the creditors who are provided for in the assignment to Wood and Hasbrook, subsequent to the provision for the indemnity of Jaquith & Case by the priority which is given to the holders of the $700 note, is entitled to a preference, in point of time, to the equity of these complainants; whose equity arose, from the filing of their creditor’s bill, fifteen days after the' assignment. Previous to the filing of the creditor’s bill against J. Hasbrook, if he had attempted to throw the payment of the $700 note upon the fund which had been assigned for the benefit of creditors, giving certain preferences, so as to get back his bond and mortgage, which had been assigned on the first of July to secure the payment of the same note, I think a court of equity ought to have compelled Jaquith & Case to resort to the bond and mortgage in the first place; so as to relieve the fund which had been assigned for the benefit of other creditors, from this charge thereon. Or if that fund was applied to the payment of the note, the other creditors, whose debts were first provided for in the assignment for their benefit, would, in equity, have been entitled to be subrogated to the rights of Jaquith &■ Case, as the assignees of the bond and mortgage. I th ink Wood and Hasbrook acted properly, in reference to the equitable rights of the other creditors provided for in the assignment to them, who were subsequent to the holders of the $700 note, in refusing to pay that note out of the proceeds of the assigned property, and to throw the charge of that note upon the bond and mortgage, if possible. These complainants, therefore, who stood in the situation of having an equity subsequent in point of time, could not be defrauded by having the prior equity, in favor of the other creditors, worked out by the arrangement by which the bond and mortgage were applied to the payment of the $700 note; as J. Hasbrook intended it should be at the time he assigned it to Jaquith' & Case.

By the terms of that assignment, the absolute title of the bond and mortgage was vested in the assignees, in case they paid the note which they had signed as sureties. And when they subsequently caused the debt tobe paid to the bank, by the arrangement which they made with Lawrence, they performed the condition upon which the bond and mortgage were assigned to them. They therefore had both the legal and equitable right to assign and transfer the bond and mortgage to Lawrence, absolutely and unconditionally. . And these complainants are not in a situátion to inquire whether Wood and Hasbrook, the assignees, have or have not applied the assigned property to the payment of the other preferred debts, in the .manner or in the order specified in the assignment. The amount of such preferred debts, exclusive of the $700 note to the Bank of Salina which was paid by the sale of the mortgage, exceeds the whole proceeds of the assigned property. Those preferred creditors, therefore, are alone entitled to call the assignees to account for the disposition of the assigned fund, or to inquire whether Lawrence may not have obtained, from one of the assignees, portions of the assigned fund which such preferred creditors were entitled to receive.

The decree of the vice chancellor was therefore erroneous, and must be reversed, so far as it affects the rights or interests of the appellant Lawrence; and the bill, as to him, must be dismissed with costs. The proceedings must also be remitted to the vice chancellor, so that the proper directions may be given for the discharge of the receiver, and the settlement of his accounts, if he has received the bond and mortgage, or the proceeds of the samel