Opinion
Argued December 15, 1902
Decided January 6, 1903
Henry D. Merchant and Abel Merchant, Jr., for appellants. Robert E. Whalen for respondents.
This controversy is over the priority of liens on certain real estate and is waged between the legatees of a testator on the one side and the mortgagee of his residuary devisee on the other. The courts below have held that the legacies are still liens and must be paid out of the proceeds of the sale of the real estate upon which they were charged by the testator, but not until after the payment of the amount secured by a mortgage given thereon by testator's devisee, his son, to whom the testator gave an interest in the farm after giving the legacies to his two daughters, directing the legacies to be paid out of the farm, the devise to the son being in the following words: "I also give and bequeath to my son Charles, all my real estate and personal property after the payment of my just debts and funeral expenses together with the expense of settling my estate, and the payment of above-named legacies." In other words, the judgment gives to the mortgagee of a devisee of the remainder after payment of legacies and other charges priority of payment over such legacies.
Our examination of the situation leads us to a different conclusion. Testator by his last will and testament gave to plaintiff and her sister legacies payable "out of my said farm by my executor." The will in terms, therefore, declares a lien upon the farm, which by a later provision of the will passes to his son Charles after payment of such legacies and other charges. This lien was created and recorded long before the mortgage came into existence, and the first inquiry is: Were the legacies still liens when, on May 1, 1884, Charles gave a mortgage on his interest in the farm to defendant Hidley? They necessarily were unless (1) they had been paid, or (2) had become barred by some Statute of Limitations, or (3) the liens had been released by the legatees. It is found as a fact by the trial court that they had not been paid. There is neither finding nor evidence that the liens had been released. The Statute of Limitations had not as yet even started to run, because the will provided that the farm should not be sold during the life of the testator's widow without her consent, and also because there had not been a judicial settlement of the executor's accounts. (Code Civ. Proc., § 1819.)
It is clear, therefore, that the legacies were liens at the time when Charles gave to defendant Hidley a mortgage upon his interest in the property. And it was inferentially so found by the courts below, which held that the legacies are still a lien upon the farm, and entitled to payment next after the payment of the Hidley mortgage. The plaintiff's legacy and that of her sister, therefore, had been liens upon the farm by the express terms of the will for something like sixteen years before the giving of the Hidley mortgage, and it necessarily follows that such mortgage was at the time of its making a subsequent lien to those of the legatees which were created by the testator, for the mortgage lien was created by his devisee, whose rights in the property were by the testator subordinated to the liens of the legatees.
How, then, has it happened that these liens of the legatees have lost their priority? The legacies are still liens, for the Statute of Limitations has not run against them, and their priority cannot be taken away by a court of equity unless the legatees' conduct has been such that good conscience now requires that their priorities shall be surrendered to this mortgagee. There must at least be on the part of the legatees a failure to perform some duty which they owed defendant mortgagee by which the mortgagee lost some advantage which, but for the wrongful or neglectful act of the legatees, she would have had.
It is suggested that when Charles accepted the devise to him, as he did when he executed the mortgage to the defendant Hidley, he became personally liable to pay the legacies, and the legatees could have proceeded against him, and should have done so for the benefit of the mortgage, inasmuch as failure to do so would operate to release some part of the security for the payment of their legacies.
It is not the rule, however, that a prior incumbrancer is bound at his peril to search for subsequent liens when about to release a part of his security, for, in order to impose upon him the obligation to regard this equity, his conscience must be affected by knowledge of the facts upon which the equity depends, or by notice sufficient to put him upon inquiry. ( Sherman v. Foster, 158 N.Y. 587, 596; Howard Ins. Co. v. Halsey, 8 N.Y. 271, 273.) It was not sufficient for the defendant Hidley, therefore, to show that the legatees had lost remedies against Charles or against the estate in order to discharge the legatees' liens upon the farm to the extent of her mortgage, the liens being created by the will of the testator which was the same instrument under which Charles acquired his interest in the property. She had to go further and prove that the legatees had actual notice of her mortgage; that she requested them to proceed against Charles and that she had suffered actual damage which could have been avoided by timely proceedings against him.
Nothing of the kind is to be found in the findings, nor was any evidence offered tending to establish any one of the three facts necessary to entitle the mortgagee to secure the aid of equity in giving her lien priority to that of the legatees, for actual and definite damage to her as the result of deliberate neglect by the legatees can alone justify equity in transposing the order of the liens against the legatees' protest.
The rule is otherwise where a legatee appeals to a court of equity to impress a lien upon the real estate of a testator in his favor, for then before equity will interfere it must appear that others will not suffer because of his delay in pursuing the personalty of a testator in those cases in which the personal estate is primarily liable, but in this case the aid of equity is not invoked by the legatees to impress a lien — that matter was attended to by the testator, who created a lien in advance of vesting the title in the devisee whose rights therein only were mortgaged to defendant Hidley.
The mortgagee had notice of the fact of the liens, for the will was recorded long before she acquired her mortgage. If she wished the legatees to press for collection such other securities as they had, in order to relieve to some extent the burden of their liens upon the mortgaged property, she should have informed them of her lien and made request for action on their part looking in that direction. She not only did nothing of the kind, but has failed to prove that the legatees would have secured a dollar had they resorted to all the remedies that the law gave them, and, hence, it does not appear that defendant mortgagee was ever damaged by the non-action of the legatees. There is no precedent in this state for the destruction of a lien created by operation of law or by a testator for the benefit of a subsequent lien under such circumstances, nor will established equitable principles admit of one.
The judgment should be reversed and a new trial granted, with costs to abide the event.
GRAY, O'BRIEN, BARTLETT and HAIGHT, JJ., concur; CULLEN and WERNER, JJ., absent.
Judgment reversed, etc.