Opinion
01-10-1871
JONES & als. v. PHELAN & COLLANDER.
Lyons, for the appellant. Dunlop, for the appellees.
Absent, Joynes J., sick, and Christian J.
1. G is tenant of a house and lot leased of S, and he gives a deed of trust on a part of the personal property in the house, to secure a debt to P, which is recorded. He afterwards gives another deed of trust on all the property in the house, to secure a debt to J. S distrains for a year's rent upon the property embraced in the deed to secure P. By consent of all the parties, all the property conveyed in the deeds is sold, and after paying the rent there is a balance left. HELD:
1. S is entitled to be paid first his year's rent, out of the proceeds of the whole property, if necessary; but the proceeds of the property not embraced in P's deed is to be applied first to pay G.
2. After S is satisfied, P is entitled to have the balance of the proceeds of the property, embraced in his deed, applied to pay pro tanto his debt.
This was a bill filed in the Circuit court of the city of Richmond, by Phelan & Collander, merchants and partners doing business in the city of New York, against Jones & Griswold and Thomas M. Jones.
The facts of the case, so far as it is material to state them, are, substantially, as follows: On the 2d of October, 1865, Jones & Slater, a firm composed of Thomas M. Jones and L. T. Slater, leased to Jones & Griswold, a firm composed of J. C. Jones and W. B. Griswold, the building on the south side of Franklin street, near the Exchange hotel, in the city of Richmond, known as the " Canterbury Hall," from the 2nd day of October, 1865, the date of the lease, for the term of three years, thence next ensuing, to expire on the second day of October, 1868; yielding therefor, during the said term, the sum of $2,700 annually, payable in monthly instalments of $225 each, at the expiration of each month. The other terms of the lease need not be set forth. The building was used, and rented to be used, by the lessees as a billiard saloon and bar-room.
In about three months after the date of the lease, the lessees, Jones & Griswold, purchased of Phelan & Collander, of New York, nine billiard tables and their appurtenances, and brought them to the demised premises, and used them thereon. For $3,600 of the purchase money, Jones & Griswold executed their two notes to Phelan & Collander, for $1,800 each, bearing date the 3d day of January, 1866, and payable, respectively, ninety and one hundred and eighty days after their date. On the same day of the date of said notes, Jones & Griswold executed a deed of trust, whereby they conveyed the said nine billiard tables to John A. Coke, in trust to secure the payment of the said two notes to Phelan & Collander; which deed of trust was acknowledged and certified for record on the day of its date, and was recorded, accordingly, in the office of the court of Hustings for the said city, on the 5th day of January, 1866.
More than four months after the execution and recordation of the said deed of trust, to wit: on the 14th of April, 1866, Jones & Griswold executed their note to Thomas M. Jones for $3,000, payable on demand; and executed a deed of trust, whereby they conveyed, besides the said billiard tables and their appurtenances, the bar, bar fixtures, gas fixtures, and furniture on the demised premises, and all debts due the firm of Jones & Griswold; in trust to secure the payment of the said note to Thomas M. Jones; which deed of trust was duly recorded in the said Hustings court. This note of $3,000 was claimed to be due to Jones & Slater, instead of Thomas M. Jones; having been given, as was said by them, to secure money loaned to, and advanced for, Jones & Griswold, by Thomas M. Jones, acting for the firm of Jones & Slater, of which he was a member. Whether the fact was so or not, was deemed by the court immaterial. Sometime after the execution of the last-mentioned deed of trust, the lessors, Jones & Slater, sued out a distress warrant for the rent due them by their lessees, Jones & Griswold, which warrant was levied upon the billiard tables and their appurtenances aforesaid. But before any sale was made under the distress warrant, it was agreed between the parties, by their counsel, that the property conveyed by the deeds of trust might be sold under the same; but that the rights of the parties in the fund to be realized by such sale should not be affected by such agreement, but should be the same as if the said billiard tables and their appurtenances had been sold under the said distress warrant for rent. Accordingly, on the 24th of July, 1866, a sale was made by Grubbs & Williams, auctioneers, for and on account of the said trustees, of all the property conveyed by the said deeds of trust, and after paying out of the proceeds of said sale one year's rent to Jones & Slater, and the amount of taxes due and chargeable on the property, a net balance remained of $834 48, which is the subject of controversy in this suit between the parties claiming under the deeds of trust aforesaid respectively. The suit was brought by Phelan & Collander against Jones & Griswold, Jones & Slater, and Thomas M. Jones and others. In the course of the suit, the Circuit court decreed that a commissioner should ascertain and report who, of the parties, was entitled to the fund in controversy. Commissioner Pleasants accordingly executed this order, and was of opinion, and so reported, that the fund was apportionable, pro rata, between the parties claiming under the said deeds of trust respectively; Phelan & Collander, claiming under the first deed, being entitled to $489 80, and T. M. Jones, claiming under the second deed, being entitled to $344 68; which two sums make up the amount of the fund in controversy, $834 48. Both claimants excepted to this report; both of them claiming the whole of the fund in controversy. The cause then came on to be finally heard on the papers formerly read, and the report and exceptions, when the court, being of opinion that the plaintiffs, Phelan & Collander, were entitled to the whole fund in controversy, made a decree accordingly. And from that decree the defendants, Jones & Slater and Thomas M. Jones, applied for and obtained an appeal to this court.
Lyons, for the appellant.
The appellants insist that they are entitled to the whole fund.
I. Because their lien, as landlords, covered the whole property in the house, to the extent of their rent, and was superior to all others.
II. Because they had the right to sell the billiard tables for the satisfaction of their rent, without selling the other property, of which they were purchasers for valuable consideration. In respect to which they stand in the same relation as any other purchaser of the same property would have done; who would have been under no liability to the appellees to make good their debt out of his property upon which they had no lien.
III. The doctrine of marshalling securities does not apply to the case. That doctrine applies only to a case in which one party has two funds liable for one debt, and another party has an inferior lien upon one of the funds. The court of chancery may require the first lienor to exhaust the fund upon which he alone has a lien, before he resorts to the other fund; but when there are two debts and two funds, the court has no authority to require the entire surrender of them in order to protect a lienor who has no lien upon it. That would be to take one man's property and give it to another, which no court can do.
In support of the first point, I submit:
First. That the 11th and 12th sections of chapter 138, concerning rents, Code of Virginia, p. 618, is absolutely conclusive of the case. By those sections it is provided that, where a lien is created after the lease, the property, which is the subject of the lien, is still liable to the landlord's distress for rent. Indeed, I do not understand the counsel for the appellee to deny that. That being true, there is no authority whatever for requiring the landlord to select any particular portion of the rents for his distress, and especially none for requiring him to select that upon which he has another lien, to the destruction of that lien, for the benefit of a third party.
If the landlord were claiming like the appellees, by virtue of a prior deed of trust which covered the whole property, and by another deed of trust which covered only a part of it and was posterior to it, would there be any pretence for saying that the claimant under the first lien in such a case could be compelled so to use his first lien as to destroy his second lien, for the benefit of the claimant under the third. There is an old maxim, fully recognized, " Sic utere tuo ut non alienum læ das. 'DD' But I have never heard of one which said, " Sic utere tuo ut tuum læ das. 'DD'
The doctrine of marshalling securities is founded in the first maxim, and will be found to be fully treated of by Story, vol. 1, chapter 13, sec. 633, et seq. page 598, and is thus stated: " The general principle is, that if one party has a lien on, or interest in, two funds for a debt, and another party has a lien on, or interest in, one only, for another debt, the latter has a right, in equity, to compel the former to resort to the other fund in the first instance for satisfaction of the claims of both parties, whenever it will not trench upon the rights, or operate to the prejudice, of the party entitled to the double fund." This doctrine was so clearly expounded by Lord Eldon in the case of Aldrich v. Cooper, 8 Ves. R. 382, that I cannot deem it even beneficial to enlarge upon it.
I content myself with saying, that here the appellee asks the court so to apply the doctrine as to violate it in both respects.
Thus--First. The landlords, qua landlords, have not two funds liable to them as landlords, which puts the case beyond the rule of marshalling. Secondly. The court is asked to make such an application of the rule as would be " to the disadvantage of the party holding the double fund," which is forbidden by the rule.
Again: Jones & Slater, as claimants under the deed of trust, are not the Jones & Slater who claim as landlords; and the question is to be decided as if the parties claiming under the deed of trust were Simpson & Jenkins or any others. Then the question is, what right has the court so to interfere with Simpson & Jenkins as to compel them to give Phelan & Collander an advantage over Simpson & Jenkins? Everybody will say, I am sure, it has none whatever; and so this court said in the case of Alley v. Rogers, 19 Gratt. 366.
Dunlop, for the appellees.
We contend that the personal property on the premises stood subject to the following liens, and in the following order, viz:
First. The bars, bar fixtures, furniture, & c., subject first to the landlord's lien.
Second. The billiard tables, subject second to landlords' lien; but the bar, bar fixtures, & c., must first be exhausted before the landlords can go against the billiard tables; or if they choose to proceed against the billiard tables first, then they must place Phelan & Collander in their shoes, and give them their (the landlords') rights against the bar, bar fixtures, furniture, & c.
Third. If the other effects on the premises alone are sufficient to satisfy the rent, then the billiard tables, or if the other effects and a part only of the billiard tables are required, then the remaining part of said billiard tables are subject to the lien of Phelan & Collander.
Fourth. After the satisfaction of the rent, and of the two notes to Phelan & Collander for $1,800 each, then whatsoever remains would be subject to the payment of the bond to Thomas M. Jones.
This order of these several liens, and the principles of equity established thereby, have been long the settled opinions of the highest courts of this land.
In Gill v. Lyon & als., 1 Johns. Ch. R. 447, Chancellor Kent decided, if a mortgagor sold part of the mortgaged premises, and the remainder was sold under subsequent judgments and executions, the mortgage must first be satisfied out of the lands purchased under the judgments; and that the first purchaser from the mortgagor was not bound in equity to bear any portion of the mortgage debt, unless the residue of the mortgaged premises should not be sufficient to satisfy it. The subsequent purchaser took only such right as the mortgagor had in the remainder of the mortgaged premises, and the mortgagor was bound to apply the land he had retained to discharge the mortgage debt, and not to suffer the debt to fall upon the portion of land he had sold.
In Clowes v. Dickenson, 5 Johns. Ch. R. 235, 240, the same great chancellor says: " If there be a judgment against a person owning at the same time three acres of land, and he sells one acre to A, the two remaining acres are first chargeable in equity with the judgment debt, whether the land be in the hands of the debtor himself or of his heirs. If he sells another acre to B, the remaining acre is then chargeable, in the first instance, with the debt as against B, as well as against A; and if it should prove insufficient, then the acre sold to B ought to supply the deficiency, in preference to the acre sold to A, because, when B purchased, he took his land chargeable with the debt in the hands of the debtor, in preference to the land sold to A; he must take the land with all its equitable burdens; it cannot be in the power of the debtor, by an act of assigning or selling his remaining land, to throw the burden of the judgment, or a ratable part of it, back upon A. "
It cannot be in the power of Jones & Griswold, by the act of assigning the remaining effects, to throw the burden of the rent, or a ratable part of it, back upon Phelan & Collander, who have already given such an extremely valuable consideration for the conveyance of the billiard tables and their appurtenances to Coke for their benefit. In Conrad v. Harrison, 3 Leigh 532, it was held that the third mortgagee has no right to call on the second mortgagee to contribute pro rata to the satisfaction of the debt due the first mortgagee.
In McClung v. Beirne, 10 Leigh 394, 403, Tucker P. referring to Clowes v. Dickenson, and Conrad v. Harrison, above quoted, says: " The argument seems to me unanswerable, that the right of the prior vendee to demand that his vendor's land should, for his relief, be first charged under an elegit, cannot be taken away without his consent. The consequences of the contrary doctrine are also worthy of the gravest consideration. A debtor who, after judgment, has sold part of his lands, has every temptation to defraud his grantee of his right to resort to the residue for his relief. He has every inducement to sell that residue and pocket the price, the purchaser holding it free from more than a pro rata charge. It is worth nothing in his own hands, but by selling it to another it brings profit to himself. It is said, indeed, that the law has settled the rights of the alienees. It has declared that all are in æ quali jure, and that equity cannot control the law. I do not think so. Admit that all are upon an equal footing at law, the question still recurs, whether one may not have superior equity to another. This is admitted, as it respects the vendor himself. If the elegit takes (as in strictness it must take, and as in fact it usually does take,) all the lands, as well the alienee's as the debtor's, the alieneee has no relief at law, but yet he may have relief in equity against the debtor himself? Why? Because he has superior equity. So, if all are alienees, they are all in æ quali jure at law; but the prior has superior equity over the latter. He had, before the last alienation, an equitable right to charge the land so aliened. Has he lost that right by the last alienation? Does not the last alienee take subject to that equity? Assuredly, if he purchased with notice of it." Vid. 1 Lomax Dig. 19.
Thomas M. Jones took subject to the equity of Phelan & Collander. He cannot plead want of notice of the conveyance to Coke for the benefit of Phelan & Collander, as the deed of trust to Coke was recorded in the Hustings court of the city of Richmond; and the Acts of Assembly especially provide that, when a deed of trust or mortgage, conveying real estate or goods and chattels, shall have been duly admitted to record, it shall be notice as to creditors and subsequent purchasers. Vid. Code, ch. 118, § 5.
Tucker P. continues, in McClung v. Beirne: " If he had notice that there were other lands which were bound by it (the judgment), and which were previously aliened, he had notice that what he was buying was, in his vendor's hands, bound for their indemnity. If, therefore, it be admitted that the last alienee can protect himself at all, it is not upon the principle that he is in equity in æ quali jure, but upon the ground that he purchased without notice of the equity, and is therefore not affected by it. It is enough here to say, that where the last alienee cannot so protect himself, he must be the first to suffer. "
Beverley v. Brooke, 2 Leigh 425, is supposed to be adverse to these principles of law. But of that, Tucker P., in McClung v. Beirne, says it was decided without the question now at issue being fully discussed, and without the respectable authorities (10 Serg. & Rawle 450; Clowes v. Dickenson, 5 Johns. Ch. R. 235) being brought before it; and as one of the three judges then sitting, afterwards, in Conrad v. Harrison, expressly renounced it, " it stands now as the decision of only two judges, and so is no longer an authority."
In conclusion, I will simply refer to a case reported by De Gex in his Bankruptcy Cases (Vid. Ex parte Stephenson, De Gex's Bankruptcy Cases 586), which runs singularly on all fours with the present cause. In it a landlord distrained upon goods of his tenant, and sold part of them, which were subject to a mortgage. The tenant became bankrupt. Held: That the mortgagee was entitled to stand in the place of the landlord, and to be paid the amount of his mortgage debt out of the proceeds of the goods taken under the distress which were not comprised in his security." This was decided by Vice Chancellor Knight Bruce, in December, 1847, in accordance with Aldrich v. Cooper and als., 8 Vesey 382.
MONCURE, P., after stating the case, proceeded:
If Phelan and Collander had taken a deed of trust from Jones and Griswold on the billiard tables to secure the purchase money, and caused the deed to be recorded before the property was carried on the leased premises, the lien of the deed would have been good against the lessor's claim for rent, and only the lessees' interest in the property, to wit, the equity of redemption, would have been liable to distress. But the deed of trust to Coke to secure the debt to Phelan & Collander, was executed after the billiard tables had been carried on the premises, and while they were thereon; and therefore, at the time of the execution of the deed, the said property was liable to distress; but for not more than one year's rent, whether accrued before or after the creation of the said lien. Code of 1860, p. 618, ch. 138, § 11. There was at that time only three months rent actually due, but still the property became liable to distress to the extent of one year's rent. That liability existed, however, only for the security of the lessors to that extent; and if, when they sued out their distress warrant, there was unencumbered property of the lessees on the leased premises, that property ought to have been distrained and subjected to the payment of the rent due, before the property conveyed by the said deed of trust; which latter property ought to have been subjected to the payment only of the balance of the rent remaining unpaid after applying to the payment thereof the net proceeds of the sale of the unencumbered property.
This would undoubtedly have been the case had no subsequent deed of trust been executed by the lessees on the property on the leased premises not included in the first deed of trust. If no such subsequent deed had been executed, and if, by an agreement between the lessors, lessees and creditors secured by the first deed, all the property on the leased premises, as well that included in the first deed as that not so included, had been sold for the purpose of having the proceeds of sale distributed among the parties according to their respective rights; could there be any doubt as to the manner in which the distribution would be made? Is it not clear that the proceeds of the property not included in the deed of trust would first be applied to the payment of the rent due to the lessors, and that the proceeds of the property included in that deed would only be applied to the payment of any rent which might remain unpaid after applying the proceeds of the other property as aforesaid? I presume there can be no controversy on this subject. The lessees owe the rent to the lessors, who have a lien (by their right of distres) for its security, on all the property on the leased premises. But the lessees owe another debt, for the security of which they have executed a deed of trust on a part of the said property, leaving the other part unencumbered by the deed. Are not the lessors bound to resort, for the payment of the rent due to them, first to that part of the property on which they have a lien which is not included in the deed of trust, before they can resort to that part which is so included? To state the case is to answer the question. None of the rights or remedies of the lessors can be taken away or impaired; but they must be so used as not to injure the rights of others.
Such would be the state of the case if the second deed of trust had not been executed; that is, the deed to Guigon to secure a debt alleged to be due by the lessees to Thomas M. Jones. How does that deed affect the case? Does it impair those rights to which we have seen the creditors claiming under the first deed would clearly have been entitled if the second deed had not been executed?
When the second deed was executed, the lessors had a lien for the rent due them, on all the property on the leased premises, and Phelan & Collander had an inferior lien, by deed of trust, on a part of that property, which deed of trust was duly recorded. These trust creditors had a right, as between themselves and the lessors and lessees, to require that the property on the leased premises, and not included in the deed of trust, should be applied to the payment of the rent due to the lessors, before the property included in the deed should be resorted to for that purpose. The second deed of trust was obtained by Thomas M. Jones, the creditor thereby secured, with knowledge, actual or constructive, of the existence of the first deed, and of the rights of the creditors thereby secured; the second deed embracing, not only the property included in the first deed, but also the property on the leased premises, not included in that deed. How, then, can the creditors, claiming under the second deed, stand on any higher ground, in regard to the rights of the creditors claiming under the first, than the lessees themselves, from whom he was a purchaser, with notice of those rights, and in whose seat alone he can sit? That he cannot stand on higher ground than they, in regard to those rights, is clear, both upon principle and authority; and is well established by the decisions of this court. See Conrad v. Harrison, & c., 3 Leigh 532; McClung v. Beirne, 10 Id. 394; and cases therein cited, especially the cases of Gill v. Lyon, 1 John. Ch. R. 447; Clowes v. Dickenson, 5 Id. 235; and Nailer v. Stanley, 10 Serg. & R. 450. In Beverley v. Brooke, 2 Leigh 425, it was held, that " all the alienees of the lands of a debtor bound by a judgment or recognizance, no matter in what order the alienations were made, are bound to bear equally the burden of satisfying the judgment, by mutual contributions, pro rata, according to the value of the property held by them; all being considered as in æ quali jure, without regard to the priority of their purchases or conveyances." It is remarkable that in that case the decisions of Chancellor Kent, in the cases above cited from 1 and 5 John. Ch. R. were not referred to by the counsel who argued, or the court which decided the case; though Mr. Johnson, one of the counsel, urged in argument the same general reasoning on which those decisions are founded. Judge Carr, one of the three judges who decided that case, afterwards changed his views, and expressed a contrary opinion in Conrad v. Harrison. And in McClung v. Beirne, a contrary decision was made to that of Beverley v. Brooke; the majority, who decided McClung v. Beirne, being of opinion that, after the change of the views of Judge Carr, Beverley v. Brooke should be regarded as the decision of only two judges, and, therefore, not as a binding authority. But McClung v. Beirne was, itself, a decision of only two judges. So that that case only balanced the case of Beverley v. Brooke, and left the law on the precise question involved in those two cases in an unsettled state. In the later cases decided by this court on the subject, McClung v. Beirne has been followed, and Beverley v. Brooke has been considered as overruled. Rodgers v. McCluer's Adm'r, & c., 4 Gratt. 81; Henkle's Ex'x, & c. v. Allstadt, & c., Id. 284; Alley, & c. v. Rogers, 19 Gratt. 366. The case of Beverley v. Brooke was the case of a judgment, and the decision was founded upon the peculiar nature of that lien. Conrad v. Harrison was the case of a mortgage, and was distinguished on that ground by two of the judges, who decided it from the case of Beverley v. Brooke.
But all the judges who sat in Conrad v. Harrison concurred in the decision of that case, and its authority has never been doubted. It plainly applies to the case now under consideration, which is not the case of a judgment lien, but that of a lessor's lien for rent, which stands on the same principle with the lien of a mortgage in regard to the subject of the present enquiry. I therefore think that Conrad v. Harrison is conclusive of this case, and that, upon the principles declared in that case, the appellees, Phelan & Collander, are entitled to the entire fund in controversy in this case.
It can make no difference that the distress warrant of the lessors in this case was levied on the property conveyed by the first deed of trust, instead of the property not conveyed by the first but conveyed by the second deed of trust. The lessors could not, in that way, defeat or impair the right of the creditors secured by the first deed, who may obtain by subrogation what they might have obtained by marshaling the securities.
It was contended by one of the counsel of the appellants, that the doctrine which was applied in Conrad v. Harrison, and is sought to be applied in this case, is not applicable to personal, but only to real estate. think it is applicable as well to personal as to real estate. The same reason exists for its application to each, and I have never before heard a question raised as to its being applicable alike to both. Of course the doctrine of Beverley v. Brooke could have been applicable only to real estate, because a judgment is a lien only on real estate.
Since writing the above, I have been reminded by my brother Staples of the case of Enders, & c. v. Brune, 4 Rand. 438; and referred by him to the case of Slade v. Van Vechter, 11 Paige R. 21, as being not only cases of the application of the doctrine of Conrad v. Harrison to personal estate, but also cases strongly sustaining the decision of the court below in this case. I have also examined the case of ex parte Stephenson, De Gex's Bankruptcy Cases 586, referred to in the brief of the counsel for the appellees (to which case I had not access when I prepared the foregoing opinion), and I find it to be, as maintained by that counsel, singularly applicable to the present case. The subject in that case also was personal estate.
I am of opinion that there is no error in the decree of the Circuit court, and that it ought to be affirmed.
The other judges concurred in the opinion of the President.
DECREE AFFIRMED.