Opinion
10-08-1888
LAMBERTVILLE NAT. BANK v. MCCREADY BAG & PAPER CO. et al.
W. L. Dayton and Mr. Lilly, for the motion. C. A. Skillman, contra.
Bill to foreclose. On motion under the rule, as on demurrer for misjoinder and for non-joinder, and for relief against a prior mortgage.
W. L. Dayton and Mr. Lilly, for the motion. C. A. Skillman, contra.
BIRD, V. C. The complainant is a second mortgagee. The first mortgage was given to Ashbel Welsh in his life-time, as trustee, to secure the payment of 40 bonds of $500 each. Mr. Welsh died, leaving a will, and naming therein his executors. It is admitted that by an arrangement to which many, if not all, of the bondholders consented, the mortgage so given to Mr. Welsh as trustee was assigned to a third person, who has since died, leaving a will, and naming therein the executors thereof. These last-named executors hold this mortgage so given in trust to Mr. Welsh.
1. The last-named executors are parties defendant, and this is thought to be erroneous. I think this contention is untenable. It must be admitted that no cautious practitioner would omit to bring in a party who held a lien of this character, so long as it was undischarged, or unless it was known that such holder disclaimed any interest in it.
2. Under the notice, it is claimed that the true parties to the bill as defend ants are the heirs and devisees of Mr. Smith. Now, if this be so, it is becausethe mortgage was held by Mr. Smith in trust. The question then is, does the fact that a mortgage is held in trust by the testator make it necessary that his heirs and devisees should be made parties to a bill to foreclose, rather than the executors of the will of the deceased trustee? Or, in case it should be considered that said executors are proper parties, as I have, as to these, concluded, then, should the heirs or devisees of the deceased trustee be brought in also? In ordinary cases the interest is in the mortgagee, and when he died, leaving a will, the mortgage passes as personal estate to his executor; and if he leaves no will, to his administrator. This is so because the entire interest is in the deceased at the time of his death. But in case the decedent was a mortgagee as trustee for bondholders, as in the case before me, with powers to collect and to pay over, then he has not the entire interest; while he has the legal, the equitable is in the bondholders. Now, in such case, what becomes of the legal title, on the death of the trustee? Perry, in his work on Trusts, says: "Upon the death of one of the original trustees, the whole estate, whether real or personal, devolves upon the survivors, and so on to the last survivor; and upon the death of the last survivor, if he has made no disposition of the estate by will or otherwise, it devolves upon his heirs, if it be real estate, and upon his executors or administrators if it be personal estate." Section 343. See, also, De Peyster v. Ferrers, 11 Paige, 13; Moses v. Murgatroyd, 1 Johns. Ch. 119. Nor have I been able to find any authority in conflict with this view. This view of the case excludes the right of the heir at law of Mr. Smith to be made a party before he can be bound by the decree, and, doubtless, the same observation will apply to the heirs of Mr. Welsh. But are the devisees included in this conclusion? As the case stands, I think they are. Supposing the law to admit of a distinction between the heir and devisee, I find nothing in the case that shows, nor was any fact presented on the argument, or even hinted at, that shows that the testator made any disposition of this trust-estate, or that he made any effort in that direction. Therefore it was not necessary to make the devisees parties.
Now, as to the bondholders. Should they be brought in? Although there is no mention of this question in the notice, it was not resisted on that ground by counsel for the complainant, and I therefore feel at liberty, not only, but regard it as my duty, to consider it; for it is important to all concerned to know whether every person interested is bound by the decree which shall follow. Perry, in the work above referred to, section 881, says: "As a general rule, all the cestuis que trust must be before the court, in rder that the rights of all parties in interest may be ascertained, and future litigation avoided." This principle is explicitly sustained in Willink v. Banking Co., 4 N. J. Eq. 377. There are but few, if any, exceptions to this rule; only in cases where the cestuis que trust are so numerous as to make the proceedings burdensome, in which case all need not be brought before the court; and in cases where it is plain that some person stands in their place, whose duty it is, with the aid of the court, to protect the interests of all. These two exceptions, I think, are sustained by the opinion of the court of errors in Water Co. v. De Kay, 36 N. J. Eq. 552. I will quote in part: "A single bondholder, in cases of this sort, will not be permitted in a court of equity to proceed for his demand without bringing in the other bondholders in some form or manner. Story, Eq. Pl. 102, 103, 157. The trustee, having refused to file a bill of foreclosure, was made a defendant as the representative of the other bondholders. "Whether the bill be filed by the trustee named in such a mortgage, or by a holder of some of the bonds, the court will protect the right of other bondholders, although they are not made parties, and do not appear in the suit. They may come in and prove their claims before the master, and obtain satisfaction of their demands, equally with the bondholders, who are complainants in the suit. Story, Eq. Pl. 99, 104n; 1 Daniell, Ch. Pr. 217; Cockburn v. Thompson, 16 Ves. 321: Good v. Blewitt, 19 Ves. 336; 2 Jones, Mortg. § 1385. Thechancellor properly directed a reference to the master to ascertain the whole amount due on the mortgage." It is proper, therefore, to omit the bondholders in such cases, if the trustee be in court to represent them; for if, when one or more bondholders, less than all, files or file his or their bill, the court has the power to protect the interests of all the other bondholders, surely the court can do as much when all of the bondholders are represented by the trustee or the lawful custodian of the mortgage, and who holds it as security for the payment of the bonds. I think that the case last cited should be my guide. And in this case there is great reason for it. The mortgage which secures these bonds is the first lien on the premises named therein. The complainant, being the second mortgagee, has not the power to compel the said first mortgagee to appear and answer; nor can he compel the bondholders to appear and answer. But if the holder of the mortgage which secures the bonds comes in and answers, or submits his mortgage to the master, then will arise the situation contemplated by Mr. Justice DEPUE, when he said that the court would protect the interests of the bondholders. But if the holder of the mortgage does not come in, then there is nothing to move the vigilance of the court. I conclude, therefore, that the bondholders are not necessary parties in a case where the holder of the mortgage which secures the bonds is made a party and such mortgage is a first lien.
Again, it is said that the bill is imperfect in that there is no prayer for the sale of a small parcel of land, which is included in the said first mortgage, and is not in the subsequent mortgages. Counsel for the motion insists that the complainant cannot proceed until ho has first compelled or procured the said first mortgagee to apply the value of that small parcel to the liquidation of his mortgage, thereby giving greater assurance to the subsequent mortgagees of the payment of the amount due on their mortgages. Although counsel pressed this point as though the law on the subject was clearly settled in accordance with their contention, I am not satisfied that, in any such case, the subsequent incumbrancer can compel the prior mortgagee to act at all, any further than to surrender his mortgage on the tender of the amount due. The first mortgagee is perfectly secure in his rights as such, and has an undoubted right to stand upon them, unmolested by any subsequent incumbrancer, just as he contracted for those rights. As long as the prior incumbrancer remains passive, I cannot comprehend how a volunteer, as to him, can put him to any inconvenience, or to the hazard of any costs. Of course, in such a case, should he come in and prove his mortgage, the court could reach the matter, and would have the right to make an equitable decree; but as long as the prior mortgagee is not the actor, and refuses to respond to the process of any subsequent incumbrancer, I cannot but think that he is justified in doing so, and that it would be highly inequitable for the court to attempt to compel him to proceed either to foreclose or to answer. Nor does the case present the slightest hardship. The subsequent mortgagees accepted their mortgages with full knowledge of the rights of the first mortgagee, and of the extent of their lien. They labor under no surprise. Any one of them can accomplish all they ask for, on the plainest principles of equity. They have the right to discharge the said first mortgage, and ask that they may stand in the place of the said first mortgagee. I am of the opinion that any subsequent incumbrancer can do this. I can see no reason for requiring the complainant in this case to take any particular steps in that direction. If he is willing to proceed, and run the risk of making his money, without availing himself of all the rights which the law gives to him, it seems most plain to me that he may do so. And what rights one subsequent mortgagee has in this particular, another has as well. Therefore any such mortgagee can redeem the said first mortgage, and thus enable himself to do exactly what he claims it is the duty of the first mortgage holder to do; that is, bring all the land into the market under the same decree, and thus enable the court to marshal the fund equitably.
I think that the motion to strike out so much of the bill as relates to the payment of premiums on the life-insurance policy of the mortgagor must prevail. The allegation is that the complainants took this policy as collateral; but nothing else appears, except that the complainants paid certain premiums, without showing in any way that it was any part of the mortgage contract. Therefore so much of the bill as is framed with the view of imposing additional burdens on the mortgaged premises will be striken out. But as the further motion is that the complainant be required to account for the value of this policy, which it is its duty to do, so much of the bill as is necessary to show the rights of the respective parties in this regard will be retained. The motion, with respect to the insurance policy, will prevail.