Summary
discussing "technique of protecting junior creditors ... known as ‘marshaling the assets’," under which, "[w]hen one creditor may have recourse to two funds more than ample for his full satisfaction, while a junior creditor has recourse to but one fund, which will prove inadequate for his payment if the senior creditor has primary recourse to it, the court will often ‘marshal the assets’ and compel the former to exhaust the fund on which he alone has a lien before allowing him to use the other fund"
Summary of this case from In re Estate of JakobiecOpinion
No. 81-167
Decided March 5, 1982
1. Mortgages — Discharge — Performance of Conditions Where mortgagors executed a promissory note to mortgagee secured by a lien on a shipping vessel, and a second mortgage on real estate, and at a later date the vessel was sold at public auction conducted by the United States Government, some of the proceeds of which were paid to mortgagee by the U.S. District Court, but which left a balance of $4,837.16 in interest that had accrued from the date of the court award on January 24, 1980, until the date that mortgagee actually received the proceeds on May 15, 1980, the federal district court proceeding did not extinguish the mortgagors' debt, where neither the federal court nor the superior court, in a subsequent proceeding brought by mortgagors to enjoin foreclosure on the real estate, had ruled that the debt was paid.
2. Mortgages — Discharge — Performance of Conditions A mortgagor's debt is extinguished only when he performs the obligation which the mortgage was given to secure.
3. Mortgages — Discharge — Performance of Conditions Where mortgagors had not performed their obligations under the mortgage, their debt was not extinguished.
4. Mortgages — Foreclosure — Default Under the conditions of a power-of-sale mortgage, a mortgagor is required to pay the principal and interest secured by the mortgage to the mortgagee and breach of this condition entitles the mortgagee to foreclose. RSA 477:29(b), (c); 479:25, :26, :27, :27-a (Supp. 1979).
5. Mortgages — Foreclosure — Injunction Where one condition of a power-of-sale mortgage of the mortgagor required the mortgagor to pay the principal and interest secured by the mortgage to the mortgagee, and the mortgagor owed interest to the mortgagee, the superior court erred in granting the mortgagor's petition enjoining foreclosure, since the mortgagee was entitled to foreclose.
6. Mortgages — Discharge — Performance of Conditions Where mortgagors executed a promissory note to mortgagee secured by a lien on a shipping vessel, and a second mortgage on real estate, and at a later date the vessel was sold at public auction by the United States Government, the refusal of the federal district court to award interest to the mortgagee in awarding him a claim for proceeds from the sale of the vessel was not determinative of the issue of whether the mortgagors still owed the interest, since the court refused to award the interest to avoid working a substantial hardship on the remaining lienholders of the vessel, by marshaling the available assets.
7. Debtor and Creditor — Marshaling Assets — Generally Under the technique of marshaling assets, a court will compel a senior creditor, who has recourse to two funds more than ample for his full satisfaction, to exhaust the fund on which he alone has a lien before allowing him to use the other fund, when a junior creditor has recourse to but one fund, which will prove inadequate for his payment if the senior creditor has primary recourse to it.
8. Res Judicata — Generally — Civil Actions Res judicata would prevent a party from asserting its claim only if the matters litigated in the present proceeding were directly in issue, and either admitted by the pleadings or actually tried in a prior action.
9. Res Judicata — Actions Not Barred — Particular Cases Where mortgagors executed a promissory note to mortgagee secured by a lien on a shipping vessel, and a second mortgage on real estate, and at a later date the vessel was sold at public auction by the United States Government, the refusal of the federal district court to award interest to mortgagee in awarding him a claim for proceeds from the sale of the vessel was not res judicata as to the interest claim so as to prevent mortgagee from bringing foreclosure proceedings in state court, since nothing concerning the mortgage was pleaded, tried or otherwise raised in the federal court, and the federal decree denying interest was rendered in a different context, to preserve the claims of junior lienholders of the vessel.
10. Mortgages — Foreclosure — Costs and Fees Where the mortgagors, in the promissory note, agreed to pay reasonable attorney's fees and costs of collection if suit or collection proceedings were brought on the note, they were liable for attorney's fees and costs where the mortgagee brought foreclosure proceedings to recover interest due on the note.
11. Mortgages — Foreclosure — Defenses Where mortgagors suffered no inequity, prejudice, or surprise when mortgagee brought foreclosure proceedings to recover interest due on a promissory note, laches was inapplicable as a reason for enjoining foreclosure, especially where the mortgagors knew all along that the mortgagee was attempting to pursue his claim.
Ross Davis, of Manchester (John F. Davis on the brief and Clifford Ross orally), for the plaintiffs.
Smith, Currier, Connor, Wilder Lieberman P.A., of Nashua (Joyce A. Wilder on the brief and orally), for the defendant.
The issue in this case is whether the Superior Court (Dalianis, J.) properly enjoined the defendant from foreclosing its mortgage on the plaintiffs' property. We hold that the defendant was entitled to foreclose in order to collect interest that had accrued on a note executed by the plaintiffs. Accordingly, we reverse.
In October 1976, the plaintiffs executed a promissory note to Southern New England Production Credit Association (Southern). The note was secured by a lien on the "Two Jims," a shipping vessel, and by a second mortgage in the amount of $75,000 on real estate the plaintiffs owned in Brookfield, New Hampshire. Three years later, the vessel was forfeited to the United States Government for violations of customs and narcotics laws. It was sold at a public auction conducted by the United States Government for $149,000 in late December 1979, and the proceeds were delivered to the clerk of the United States District Court for the District of New Hampshire (the federal district court).
Creditors of the plaintiffs submitted claims for the proceeds. The defendant, one of the creditors, filed an affidavit on January 18, 1980, stating that, as of that date, its claim against the plaintiffs amounted to $107,966.51, which represented the balance due on the October 1976 note.
The Federal District Court (Devine, C.J.) awarded Southern $107,966.51 on January 24, 1980. One week later the defendant, still unpaid, advised the federal district court that if the matter were "delayed further" it wished to amend its affidavit to reflect the interest that had accrued since the original affidavit was submitted.
After an additional hearing regarding the claims of other creditors, the federal district court on March 31, 1980, held that $107,966.51 of the proceeds should be disbursed to Southern. Southern objected, claiming that figure was no longer valid due to the accrual of interest at $40.66 per day. Southern received $107,966.51 on May 15, 1980, but did not receive the $4,837.16 in interest which it requested. The court, however, refused to pay interest out of the proceeds available from the sale of the ship.
Southern then began to foreclose its mortgage on the plaintiffs' Brookfield, New Hampshire, real estate in order to recover the interest on the plaintiffs' note. The plaintiffs obtained a permanent injunction against foreclosure from the superior court, and the defendant appealed.
We agree with Southern that the federal district court proceeding did not extinguish the plaintiffs' debt, which the plaintiffs assert is "paid in full." Neither the federal district court nor the superior court ruled that the plaintiffs' debt was paid. In fact, the superior court neither granted nor denied the defendant's request for a ruling that "the note and mortgage . . . are still outstanding."
[2-5] A mortgagor's debt is extinguished only when he performs the "obligation which the mortgage was given to secure." Phinney v. Levine, 116 N.H. 379, 380, 359 A.2d 636, 638 (1976). The plaintiffs' debt was not extinguished because they had not performed their obligations under the mortgage. The plaintiffs' January 1978 mortgage was a power-of-sale mortgage under the statutory conditions listed in RSA 477:29(b). One condition is that the mortgagor "shall pay . . . the principal and interest secured by the mortgage" to the mortgagee. RSA 477:29(b) (emphasis added). Breach of this condition entitles the mortgagee to foreclose. RSA 477:29(c); RSA 479:27; RSA 479:25, :26, :27-a (Supp. 1979). Because the plaintiffs owed interest and the defendant was entitled to foreclose, the superior court erred in granting the plaintiffs' petition.
[6, 7] The plaintiffs assert that the federal district court order, in which the court refused to award interest, was determinative of the interest issue. We disagree. In denying Southern's claim for interest, the court reasoned as follows: "As is obvious from examination of the dollar amounts of claims made as against the proceeds available . . . to allow Southern an award of interest in addition to its claimed $107,966.51 would work a substantial hardship upon the remaining lienholders." This quote indicates that the court refused to award interest to the defendant because such an award would have depleted the proceeds of the ship sale and deprived junior creditors of any recovery.
The technique of protecting junior creditors is known as "marshaling the assets." When "one creditor may have recourse to two funds more than ample for his full satisfaction, while a junior creditor has recourse to but one fund, which will prove inadequate for his payment if the senior creditor has primary recourse to it," the court will often "marshal the assets" and compel the former to exhaust the fund on which he alone has a lien before allowing him to use the other fund. Sanborn, McDuffee Co. v. Keefe, 88 N.H. 236, 238-39, 187 A. 97, 98-99 (1936); see Kidder v. Page, 48 N.H. 380, 382 (1869). The federal district court rejected Southern's claim for interest in order to protect the junior creditors. The court essentially marshaled the available assets; but it did not rule that Southern was forever barred from recovering interest.
[8, 9] Because we are satisfied that the federal district court action concerned the proceeds of the impounded ship alone, we reject the plaintiffs' argument that Southern is barred by res judicata from pursuing its interest claim. Res judicata would prevent Southern from asserting its claim only if the matters litigated in this proceeding were "directly in issue, and either admitted by the pleadings or actually tried" in a prior action. Laconia Nat. Bank v. Lavallee, 96 N.H. 353, 355, 77 A.2d 107, 108 (1950) (citations omitted); see Town of Nottingham v. Lee Homes, Inc., 118 N.H. 438, 444, 388 A.2d 940, 943 (1978). Nothing concerning Southern's mortgage was pleaded, tried, or otherwise raised in federal district court. Southern, therefore, is not bound by that court's decree denying recovery of interest because the decree was rendered in an entirely different context.
In a request it submitted to the superior court, Southern asked for attorney's fees and costs. The request was erroneously denied. In their October 1976 note, the plaintiffs agreed to the following: "In the event this note is placed in the hands of an attorney for collection or suit is brought on the same, or any portion thereof, or if collected by any court proceedings, the undersigned, jointly and severally agree to pay reasonable attorney's fees and costs of collection as may be permitted by law to be charged." Accordingly, we find the plaintiffs liable for attorney's fees and costs.
Although it is unclear from the record whether the trial court enjoined Southern's foreclosure because of "laches," the issue of laches was raised on appeal, and we feel compelled to address it. The plaintiffs suffered no inequity, prejudice, or surprise, especially because they "knew all along that [the defendant] was attempting to pursue his claim." Wood v. General Elec. Co., 119 N.H. 285, 289, 402 A.2d 155, 157-58 (1979). The doctrine of laches, therefore, is inapplicable.
We remand for dissolution of the injunction and for an assessment of attorney's fees and costs.
Reversed and remanded.
All concurred.