Opinion
10-08-1907
HALKETT v. YOUNG et al.
William M. Clevenger, for complainant. Godfrey & Godfrey, for defendant Mutual Building & Loan Association of Atlantic City.
Bill by William G. Halkett against Leonard Young and others. Exceptions to master's report overruled.
William M. Clevenger, for complainant.
Godfrey & Godfrey, for defendant Mutual Building & Loan Association of Atlantic City.
MAGIE, Ch. The exceptions to the master's report were brought to hearing before Vice Chancellor Grey upon the last day on which he sat at chambers. He immediately dictated an opinion indicating his view that the exceptions should be sustained. This opinion was never revised, nor was any order sustaining the exceptions advised. The matter was brought to my attention after the death of the vice chancellor, and has been reargued before me.
The situation of the case is this: Complainant filed his bill to foreclose a mortgage given to him by Leonard Young and wife, upon property in Atlantic City. There were, at that time, three previous incumbrances upon the property. The first was a mortgage held by Mrs. Hand, who, being a party to this bill, consents to its being included in the decree. The second was a mortgage for $900 to the Mutual Building & Loan Association of Atlantic City. The third was a mortgage for $300 to the same association.
The contested question in this case relates to the association mortgages. At the time they were made, Young took out shares of stock of the association and assigned the same to it as collateral security for the moneys loaned to him. The contention of the complainant is that he is entitled in equity to have the value of those shares credited upon the sums due to the association upon the bonds of Young secured by both the mortgages and the assignments of stock. There is no contest but that Halkett, as a junior incumbrancer, has a right to require the prior incumbrancer, holding security upon two funds, to have the funds marshaled so that the superior lien should be satisfied, so far as may be, out of the fund upon which Halkett has no claim. Unless the evidence discloses that the association, before it had actual notice of Halkett's mortgage, had acquired some legal or equitable title to the shares so assigned to it other than the title acquired as security for their two mortgages, I think the settled rule should be applied, and the sole question is whether, upon the proofs, it appears that the association has acquired any title to those shares which will prevent the operation of the doctrine.
The two mortgages to the association were not made in the form in which mortgages to such associations are usually drawn. They were such mortgages as would be made by one person to another for an ordinary loan. They were payable at a definite time and required the payment of interest half yearly. Notwithstanding their form, I think the evidence requires that they be considered as loans made by the associations under the power conferred by the legislation creating such associations. The evidence discloses that Young was required by the association to become a shareholder therein and to assign to it the Shares taken as security, that on the books of the association Young was monthly charged with dues and fines on the shares, and also with monthly interest and premiums on the loans. The premiums required to be paid upon the loans amounted to 8 per cent. thereon, which would make the transactions usurious unless these mortgages are treated as building and loan association mortgages. As between Young and any one claiming under him and the association, I think they must be so treated.
The evidence further discloses that, at the time the loan of $900 was made by the association to Young, he was required to take out, and did take out, seven shares of the stock of the association. Upon the plan of organization, shares of the association became of the value of $300 each at maturity. The first mortgage upon the property on which the $900 loan was secured was $1,200. The seven shares of stock, it appears by the evidence, were required not only to secure the loan of $900, but to save the association from loss upon the first mortgage of $1,200. When the loan of $300 was made by the association, Young was required to take out, and did take out, an additional share of stock of the association. At the time of each loan Young assigned the shares of stock which he had been required to take out to the association. The assignments in each case were absolute on their face. There was no indication in the assignments that they were made as collateral security to the respective loans. But the evidence renders it perfectly clear that the sole purpose of the assignments at the time they were respectively made was to protect and secure the repayments of the loans simultaneously made. Afterward, and before Young made the mortgage to the complainant, the association loaned to Young $2,250, upon a mortgage upon other land than that on which Halkett took his mortgage,and at the time of that loan Young took out and assigned to the association eight additional shares of its stock as collateral thereto. The association contends that the shares of stock previously assigned to it to secure the $900 and $300 loans are held by it to further secure the loan of $2,250.
It having appeared that the first two assignments of seven shares and one share were, in equity, made to secure the respective loans, the owner thereof had a right to assign them absolutely, or to secure the subsequent loan of $2,250; but in my judgment there is no evidence that any assignment of those shares to secure the later mortgage ever took place. Mr. Young evidently did not contemplate the last mortgage at the time of the two first loans. There is nothing to indicate that, when the last loan was procured, Young agreed that any shares of stock should be held by the association to secure that loan other than those which were simultaneously taken out and assigned. In Young's application for the loan of $2,250, he proposes to assign to the association, as collateral security therefor, eight shares of its stock in another series than those in which the previous shares were held by him. There is evidence from the secretary of the association that the association understands that the stock assigned to it may be held by it to secure any indebtedness, present or future, of the assignor. This claim cannot be supported except upon proof that the assignor, subsequent to the first assignment for a particular purpose, has knowingly assented to the association holding the stock for a new loan. In the absence of such proof, I think the assignments to the association to secure the $900 and $300 loans have impressed the stock with the function of securing those respective loans and no others, and that Halkett is entitled in equity to have the value of that stock credited upon the amounts due upon the association's two mortgages, to the exoneration of the real property upon which Halkett's mortgage has been made.
This seems to be adverse to the opinion of Vice Chancellor Grey; but I am satisfied that, had he come to revise and correct that opinion, he would not have advised a decree to sustain the exceptions.
In my judgment the exceptions must be overruled, and the report confirmed.
NOTE.
[a] The doctrine of marshaling assets will not be applied between creditors having claims which are liens on the homestead and other property and junior creditors, as to whose liens there is no waiver of homestead. —(Ala. 1871) Ray v. Adams, 45 Ala. 168; (Ark. 1876) Marr v. Lewis, 31 Ark. 203, 25 Am. Rep. 553; (1882) Flask v. Tindall, 39 Ark. 571;
(Cal. 1873) McLaughlin v. Hart, 46 Cal. 638; (Ill. 1873) Brown v. Cozard, 68 Ill. 178; (1886) First Nat. Bank v. Briggs, 22 Ill. App. 228; (Iowa, 1883) Equitable Life Ins. Co. v. Gleason, 62 Iowa, 277, 17 N. W. 524; (1885) Grant v. Parsons, 67 Iowa, 31, 24 N. W. 578;
(Kan.' 1877) Colby v. Crocker, 17 Kan. 527; (1877) La Rue v. Gilbert, 18 Kan. 220; (1889) Frick Co. v. Ketels, 42 Kan. 527, 22 Pac. 580, 16 Am. St. Rep. 507;
(Ky. 1891) Flowers v. Miller, 16 S. W. 705, 13 Ky. Law Rep. 250;
(Mich. 1887) Armitage v. Toll, 64 Mich. 412, 31 N. W. 408;
(Minn. 1876) McArthur v. Martin, 23 Minn. 74;
(Neb. 1889 McCreery v. Sohaffer, 26 Neb. 173, 41 N. W. 996; (1890) Mitchelson v. Smith, 28 Neb. 583, 44 N. W. 871, 26 Am. St. Rep. 357;
(N. C. 1882) Butler v. Stainback, 87 N. C. 216: Wilson v. Patton, 87 N. C. 318;
(Pa. 1854) Appeal of Smith, 23 Pa. 310, 2 Pittsb. Leg. J. (O. S.) 38;
(Tenn. 1889) White v. Fulghum, 87 Tenn. (3 Pickle) 281, 10 S. W. 501;
(Va. 1883) Scott v. Cheatham, 78 Va. 82. CONTRA, see.
(Ala. 1883) Cochran v. Miller, 74 Ala. 50; (Miss. 1890) Hodges v. Hickey, 67 Miss. 715, 7 South. 404;
(S. C. 1882) State >Sav. Bank of Anderson v. Harbin, 18 S. C. 425; (1890) Bowen v. Barksdnle, 33 S. C. 142, 11 S. E. 640; (1896) People's Bank v. Brice, 47 S. C. 134, 24 S. E. 1038.
[b] (U. S. 1899) Where a fraudulent grantee made a valid mortgage on the property conveyed, with other property, on a finding by a court of equity that the creditors of the grantor are entitled to set the conveyance aside, the mortgagee will be required to first exhaust the other property covered by his mortgage.—Thompson Nat. Bank v. Corwine (C. C.) 89 Fed. 774, affirmed on rehearing of part of case (1899) 95 Fed. 54.
[c] (U. S. 1874) A debtor's lands were bound by the lien of a judgment creditor on an obligation not containing a waiver of homestead. One parcel of them was also bound by a deed of trust junior in dignity to the judgment. The law of Virginia makes the right of homestead superior to a judgment, but makes it liable to waiver by deed of trust. The bond secured by the deed of trust did not contain a waiver of homestead. Held, on the homestead being taken to satisfy the judgment by virtue of the waiver of homestead in the deed of trust, that the trust deed lienor was not subrogated to the judgment as to the lands as to which the right of homestead is not expressly waived, the trust deed being displaced by the judgment.—In re Cogbill (D. C.) Fed. Cas. No. 2,954 [2 Hughes, 313].
[d] (U. S. 1874) Where there is a judgment without waiver of homestead, and a junior mortgage with waiver, there is no case for marshaling assets, as each creditor has but one fund; but a simple question of priority arises, and the waiver of homestead inures to the benefit of the judgment as the senior lien.—In re Cogbill (D. C.) Fed. Cas. No. 2,954 [2 Hughes, 313].
[e] (Ala. 1901) Where a debtor, after having executed a mortgage upon his homestead, makes a general assignment for the benefit of his creditors, and in the distribution of the assets the mortgagee of the homestead receives a pro rata payment, a judgment creditor, who had recorded his judgment in the office of the judge of probate of the county of the debtor's residence, and whose judgment contained no waiver of homestead exemptions, has no interest in the homestead conveyed in the mortgage, which entitles him to be subrogated to the rights of the mortgagee, even to the extent the mortgagee participated in the distribution of the funds arisingfrom the property assigned, or entitling him to a marshaling of the debtor's assets.—First Nat. Bank v. Browne, 128 Ala. 557, 29 South. 552, 86 Am. St. Rep. 156.
[f] (Ark. 1876) A. held a mortgage on two tracts of land. B. also held a mortgage on one of the tracts. In a proceeding by A. to foreclose, B. sought to compel him to exhaust the tract not embraced in his mortgage first. The widow of the mortgagor, who was also a party, claimed a homestead in the latter tract. Held, that by reason of the widow's equity, the securities should not be marshaled.—Marr v. Lewis, 31 Ark. 203, 25 Am. Rep. 553.
[g] (Cal. 1896) Where a vendor retains title until payment of the price, and takes a lien on other land as collateral, a junior mortgagee of the latter tract may compel him to exhaust the property sold before resorting to the collateral. —Kent v. Williams, 114 Cal. 537, 46 Pac. 462.
[h] (Conn. 1882) Where A. holds a mortgage on two pieces of land, and B. a later mortgage on the second piece and also on a third piece, and the first and second pieces are more than enough to satisfy the first mortgage, but the second and third pieces, with the second incumbered, are insufficient to satisfy the second mortgage, it is a rule of equity that the first piece shall be first applied upon its mortgage debt so as to leave as much as possible of the second piece for the benefit of B.'s mortgage. —Andreas v. Hubbard, 50 Conn. 351.
[i] (Ill. 1867) When a person holds a deed of trust, to secure a debt, of a tract of land previously unincumbered, and of the surplus of the homestead of the debtor above $1,000, he is not bound to resort to the homestead to satisfy his lien because some other person has taken a subsequent mortgage of the unincumbered tract.— Dodds v. Snyder, 44 Ill. 53.
[j] (Ill. 1883) Where a creditor has a mortgage covering a store lot, and another on the store property and the homestead of the debtor, in which there is a waiver of the homestead, and also a judgment which is junior to that of a third person, the creditor may have the homestead sold first to satisfy his mortgage.—Plain v. Roth, 107 Ill. 588.
[k] (Ind. 1898) Where one creditor has a judgment lien on several properties of the judgment debtor, and others have liens, some on all the properties and others on a part only, a bill to marshal assets will lie.—Rownd v. State, 152 Ind. 39. 51 N. E. 914, re-arfirmed, 152 Ind. 39, 52 N. E. 395.
[l] (Iowa, 1858) Where a homestead is mortgaged to secure one partnership creditor, the release of the mortgaged premises by the mortgagee, after an assignment of the partnership for creditors, and his receipt of a share of the proceeds of the partnership assets, do not entitle the other creditors to be subrogated to his rights under the mortgage.—Dickson v. Chorn, 6 Iowa (6 Clarke) 19, 71 Am. Dec. 382.
[m] (Iowa, 1858) Where a husband and wife mortgaged a homestead to secure payment of a partnership debt, of which firm the husband is a member, and subsequent to the execution of the mortgage the firm makes an assignment for the benefit of creditors, the mortgagee is entitled to a pro rata share in the proceeds of the assets of the partnership in the hands of the assignee, and the homestead is liable only for a deficiency.—Dickson v. Chorn, 6 Iowa (6 Clarke) 19, 71 Am. Dec. 382.
[n] (Iowa, 1877) One who, holding a mortgage upon the property of another, including his homestead, subsequently purchases the homestead, has the right, notwithstanding the purchase, to insist that the nonhomestead portion of the property shall be applied to the discharge of his mortgage, to the exclusion of junior liens. —Linscott v. Lamart, 46 Iowa, 312.
[nn] (Iowa, 1898) Where a creditor intervenes in an action by another creditor, who, by a prior garnishment, had acquired a higher and better right to the fund than he had, it does not present a case for the application of the equitable doctrine of marshaling assets.—Richards v. Cowles, 105 Iowa, 734, 75 N. W. 648; Findley v. Lucas Land & Live Stock Co., Id.; Same v. Moore, Id.
[o] (Iowa, 1899) A junior chattel mortgagee was not prejudiced by the senior mortgagee releasing a mortgage for the same debt on the mortgagor's homestead, because resort to the homestead to satisfy the debt would not have been permitted until after the exhaustion of the other security.—Tolerton & Stetson Co. v. Anderson, 108 Iowa, 217, 78 N. W. 822.
[oo] (Ky. 1883) A creditor who has a contract lien on the debtor's homestead may be properly allowed to prorate with other creditors of the insolvent estate for the full amount of the claim, before compelling him to resort to the sale of the homestead for the payment of any part of his claim.—Trimble v. McGuire. 4 Ky. Law Rep. 986.
[p] (Ky.) The rule of equity that a creditor who can resort to two funds will not be allowed to disappoint another creditor, who has a lien on only one of the funds, can never be invoked so as to deprive a debtor of his homestead.— (1885) Buckner v. Samuels, 6 Ky. Law Rep. (abstract) 660: (1899) Ralls v. Prather, 21 Ky. Law Rep. 555, 52 S. W. 800, denying rehearing 21 Ky. Law Rep. 322. 51 S. W. 318.
[pp] (Ky. 1888) A landlord, having a lien on all the goods of his tenant, should be paid out of the goods which a mortgage of a part of them did not cover.—Vogler v. Smith, 10 Ky. Law Rep. (abstract) 364.
[q] (Ky. 1902) A guardian having realized a certain sum on stock of his wards, under order of the court to do so, and to invest the proceeds at a specified price in a 200-acre tract of land belonging to himself, purchased, as such guardian, 134 acres of the land at a sale under an execution levied against himself. At a subsequent sale of a different 28 acres of the tract under another execution issued against the guardian, he notified the execution creditor, who became the purchaser, that the land belonged to his wards. Held that, since the wards' lien covered all the tract not already secured by them, while the purchaser had a claim on only a portion thereof, the wards would be obliged to first exhaust the portion to which his claim did not extend.—Smith's Ex'r v. May, 24 Ky. Law Rep. 873, 70 'S. W. 199.
[qq] (Ky. 1903) Where property mortgaged by a brewing company was insufficient to pay this mortgage and overdue taxes, and debts owing to laborers and materialmen, which were entitled to priority, and which were also liens on unincumbered property, the mortgagees were entitled to have such property first applied to such tax and labor liens before subjection of the mortgaged property thereto. —Herman Goepper & Co. v. Phoenix Brewing Co., 25 Ky. Law Rep. 84, 115 Ky. 708, 74 S. W. 726.
[r] (Ky. 1904) Where one sells land and takes a mortgage on other land of the grantee as additional security for the purchase price, he will be compelled, as against the holder of a junior lien on the mortgaged premises, to first resort to the land sold for the satisfaction of his claim for the purchase money.—Griffin v. Gingell, 25 Ky. Law Rep. 2031. 79 S. W. 284.
[rr] (Ky. 1905) Where part of a judgment debtor's property is not subject to the lien which the judgment creditors have by reason of their attachment, a prior lien holder must first exhaust all the property covered by his lien which is not covered by the attachment.—Jones v. Dulaney & Mitchell, 27 Ky. Law Rep. 702, 86 S.W. 547, judgment modified 27 Ky. Law Rep. 810, 80 S. W. 977.
[s] (La. 1906) Where a single first mortgage rests on two plantations owned by A. and B. respectively, but the entire debt is due by A., the plantation of B. cannot be made to contribute to the payment thereof unless the proceeds of the sale of A.'s plantation are insufficient, and, while the mortgagee may seize both plantations, the mortgagor may demand the plantation of A. alone be sold, if by such sale sufficient may be realized to satisfy the mortgage, and if A., the mortgagor, refuse to make such demand, B. as his creditor may exercise the right.—Blanchard v. Naquin, 116 La. 806, 41 South. 99.
[ss] (La. 1906) A creditor holding collateral security may be required to exhaust such security before being allowed to participate in the distribution of a common fund which is insufficient to pay in full the debts of the common debtor, and a reasonable time may be allowed him for the discussion of such security, during which the distribution of so much of the common fund as is tentatively attributed to the payment of his debt may be suspended.—Campbell v. J. I. Campbell Co., 117 La. 402, 41 South. 696, decree affirmed on rehearing 117 La. 418, 41 South. 702.
[t] (Miss. 1898) As against an incumbered homestead, securities will not be marshaled in favor of judgment creditors.—Koen v. Brill, 75 Miss. 870. 23 South. 481, 65 Am. St. Rep. 633.
[tt] (Miss. 1905) A grantee in a deed from a trustee, acting under trust deeds securing an indebtedness to the grantee subsequent in time to another trust deed securing a different debt, acquires, in effect, a mere equity of redemption, and a right, if his own security proves insufficient, to a marshaling of assets, compelling the creditors secured by the prior deed to go first against the security on which such grantee has no lien—Dickson v. Sledge, 38 South. 673.
[u] (Neb. 1909) Where a husband and wife mortgaged their homestead owned by the wife, together with other lots owned by the husband, to C, and afterwards executed a second mortgage to B. on the lots owned by the husband, on foreclosure of both mortgages, a decree requiring C. to exhaust the property not embraced in the homestead before selling the same was proper.—A. A. Cooper Wagon & Buggy Co. v. Irwin, 83 Neb. 832, 120 N. W. 430.
[uu] (Ohio, 1898) A party owned three lots subject to a mortgage. A relative purchased the mortgage, and released one of the lots, which was used by the mortgagor as a homestead. Subsequently a judgment was recovered against the mortgagor and levied on the three lots, and the two of them not used as a homestead were sold, and the proceeds claimed by the mortgagee. The judgment creditor thereupon claimed that the release of the homestead lot was a fraud upon him, and asked that the mortgagee be compelled to proceed against such homestead lot to satisfy her mortgage so as to cut off the homestead rights of the mortgagor, and leave the proceeds of the two other lots to be applied to satisfy his judgment. Held, the equity rule that where a party has security on two funds and a later lienholder has security on only one of the two funds, that the first lienholder will be compelled to exhaust his exclusive fund as far as it is applicable to his claim, so that the second party may have full equity in the other fund, does not apply.—Kilgore v. Miller, 19 Ohio Cir. Ct. R. 93, 10 O. C. D. 464.
[v] (Pa.) Where some of the judgments against a debtor are without waiver of exemption on his part, the holders can compel the judgment creditors with waiver to resort first to the exempt fund for payment.—(1860) Appeal of Shellv, 36 Pa. (12 Casey) 373; (1864) Appeal of Pittman. 48 Pa. (12 Wright) 315; (1872) Kehler v. Miller. 1 Leg. Chron. 35, 4 Leg. Gaz. 125; (1874) Ankrim v. Kyle, 6 Lane. Bar, 74; (1877) Grover & Baker Sewing Mach. Co. v. Gruber, 2 Pears. 288; (1889) Hallman v. Hallman, 124 Pa. 347, 16 Atl. 871, 23 Wkly. Notes Cas. 375. CONTRA, see (1872) Appeal of Feak, *81 Pa. (32 P. F. Smith) 76; (1876) McCowen v. Eisenhuth. 2 Pears. 262.
[vv] (Pa. 1883) Where the liens on real estate sold at a sheriff's sale are (1) a mortgage, (2) a judgment, and (3) another mortgage, and the first mortgage is paid in full, but the balance is insufficient to pay the judgment in full, the debtor's exemption claimed by defendant is to be appropriated to the payment of the judgment, and not to the second mortgage.—Downington Building & Loan Ass'n v. McCaughey, 4 Pa. Co. Ct. R. 230.
[w] (Pa. 1899) Where a prior attaching creditor has a claim upon two funds, one of which is exempt as to a subsequent attaching creditor, the court will compel the prior creditor to satisfy his claim out of the fund against which the other cannot resort, before applying the other fund—Peterson v. Russell, 9 Pa. Super. Ct. 332, 43 W. N. C. 396.
[ww] (Pa. 1899) A subsequent attaching creditor as to whose judgment exemption has not been waived, may compel a prior attaching creditor in whose favor the exemption provided by Act April 9, 1849, was waived, to resort to that fund in the hands of a garnishee to which the subsequent attaching creditor has no rights.— Peterson v. Russell, 9 Pa. Super. Ct. 332, 43 W. N. C. 396.
[x] (S. C. 1894) The owner of 290 acres of land, which included her homestead, which was mortgaged for $1,000, conveyed it to the mortgagee by a deed which stipulated that the mortgage should be left open to protect it against intervening incumbrancers, and took from the grantee a note for $1,000. Afterwards the land was bought at sheriff's sale by a junior judgment creditor of the mortgagor, who offered to redeem from the mortgage, and demanded possession. No homestead had been assigned, but the mortgagor claimed that the note represented her homestead interest. Held, that such purchaser was entitled to have such mortgage satisfied out of the homestead interest, if any existed, on which his judgment was not a lien, under the two-fund rule; and, as the mortgage would exhaust such interest, he was entitled to redeem from the mortgage and to possession.— Craig v. Miller, 41 S. C. 37, 19 S. E. 192.
[xx] (S. C. 1894) The fact that such land is a single tract, and not susceptible of division, does not render the two-fund doctrine inapplicable. —Craig v. Miller. 41 S. C. 37, 19 S. E. 192.
[y] (Tenn. 1883) The husband conveyed two tracts of land by trust deed to secure debts owed several debtors, one of which tracts was the homestead; and subsequently, together with his wife, he conveyed the homestead by a trust deed, releasing it to secure one of his creditors. Held that, as between the creditors, the tract on which A. and his wife did not reside should be sold first, then the tract on which was the homestead, the homestead being set apart, and, if the amount thus realized was insufficient to pay all the debts, then the homestead tract absolutely and in bar of the homestead.—Parr v. Fumbanks, 79 Tenn. (11 Lea) 391.
[yy] (Wis.) Where a mortgage covers the homestead, and also other property which is subject to. a junior lien, the debtor has no right to have the latter exhausted to satisfy the mortgage in order to preserve his homestead.—(1804) Jones v. Dow, 18 Wis. 241; (1866) White v. Polleys, 20 Wis. 503, 91 Am. Dec. 432.
[z] (Wis. 1874) Laws 1870, c. 133, provides that, where any portion of the mortgaged premises consists of a homestead which can be sold separately without injury to the owner, it shall not be offered for sale on foreclosure until all other lands covered by the mortgage have beensold. Held, that a subsequent mortgagee, whose mortgage was taken after the passage of the act, and which was not a valid lien on the homestead for lack of the wife's signature, could not insist that the homestead should be sold first to pay the prior mortgage.—Hanson v. Edgar, 34 Wis. 653.
[zz] (Wis. 1876) Since Laws 1870, e. 133, on foreclosure of a mortgage covering the mortgagor's homestead, a subsequent mortgagee of the same lands without the homestead cannot insist that the homestead be first sold to pay the mortgage in suit, although his lien was acquired prior to the passage of said act.—Smith v. Wait, 39 Wis. 512.