Opinion
No. 21051
Decided November 14, 1928.
Marshaling liens — Assignment for creditors — Rule requiring creditor with lien upon two funds to exhaust exclusive lien — Inapplicable where inequitable to general creditors, when.
Under an assignment for benefit of creditors, where one creditor holds a mortgage on both real estate and personalty of the debtor and a subsequent judgment creditor has a lien on the real estate only, the latter can not invoke the rule of equity that where one has a lien upon two funds and another a subsequent lien upon one of them only, the former will be compelled first to exhaust the subject of his exclusive lien, it appearing that the application of such rule would be inequitable and deprive general creditors of payment upon their claims.
ERROR to the Court of Appeals of Licking county.
This case comes into this court on motion to certify from the Court of Appeals of Licking county. The facts incident to the controversy, as disclosed by the record, may be stated as follows:
Frank Langel was the owner of a farm and considerable chattel property in Lima township, Licking county, Ohio. He made an assignment to the defendant in error, Eugene Moore, for the benefit of his creditors. At the time of the assignment his property was incumbered as follows: First, a mortgage on the real estate to the Ohio-Pennsylvania Joint-Stock Land Bank Company; second, a real estate and chattel mortgage to the Pataskala Banking Company to secure an indebtedness of approximately $3,500, such mortgages being executed at the same time to secure the same indebtedness; third, Anna V. Langel, plaintiff in error, and mother of Frank Langel, held cognovit notes of said Frank Langel, and had taken judgment thereon, amounting to $4,000, upon which execution had been issued and levy made upon the real estate, but no levy made upon the personal property.
In the probate court of Licking county, in a proceeding to marshal liens and sell the assets of the said Frank Langel, it was held that the claim of the Ohio-Pennsylvania Joint-Stock Land Bank Company upon its mortgage was the first and best lien; that the entire debt of the Pataskala Banking Company, amounting approximately to $3,500, should be paid out of the balance of the money realized from the sale of the real estate, but that none of the Pataskala Banking Company claims should be paid out of funds received from the sale of the chattel property; that so much as remained from the funds arising from the sale of the real estate should be applied upon the judgment lien of plaintiff in error, Anna Lengel, and that the balance of her claim should be regarded as the claim of a general creditor, and that she should pro-rate with the general creditors in any balance of the funds in the hands of the assignee.
This finding of the probate court was affirmed by the court of common pleas, and likewise affirmed in the Court of Appeals. Error is now prosecuted to this court to reverse such conclusion.
Messrs. Fitzgibbon, Montgomery Black, for plaintiff in error.
Messrs. Flory Flory and Mr. Eugene Moore, for defendant in error.
It is the position of the plaintiff in error that the Pataskala Banking Company's claim should be paid out of the money realized from the sale of the real estate, as well as the money received from the sale of the chattel property, in the proportion that the amount available from each bears to the entire debt of the Pataskala Banking Company; the theory of the plaintiff in error being that the Pataskala Banking Company has two funds to which it may look for payment of its claim, and that, therefore, such funds should be subject to the payment of the banking company's claim in such way as to inure to the best interests of Anna Langel, plaintiff in error, who has a lien in one fund only.
This right to compel a marshaling of liens for the benefit of Anna Langel is contested by the general creditors, speaking through the assignee, as the application of the proceeds from the sale of the personal property to the claim of the banking company would prevent the general creditors from realizing any amount on their claims, it being the contention of the defendant in error that the doctrine of marshaling liens claimed by plaintiff in error should never be enforced, where the result will prejudice the rights of third parties. In other words, the Pataskala Banking Company and Mrs. Langel are the first and second parties concerned with the two funds sought to be marshaled, but the general creditors are interested third parties.
The interests of such third parties would be highly prejudiced if the rule contended for by plaintiff in error were to prevail. Such principle is recognized by the following authorities: 4 Pomeroy's Equity Jurisprudence (4th Ed.), Section 1414; Green v. Ramage, 18 Ohio, 428, 51 Am. Dec. 458.
We believe that this case comes within the exception to the general rule of equity that, where one creditor has a lien upon two funds, and another a subsequent lien upon one of them only, the former will be compelled first to exhaust the subject of his exclusive lien, and that to enforce such rule would be inequitable to the rights of the general creditors; it appearing that they would be deprived of payment upon their claims.
Our conclusion is that the courts below were right in regarding the balance of the claim due Mrs. Langel the same as that of any general creditor of the estate; she not having made any levy upon the personal property and having no lien thereon superior to the rights of the general creditors. Marshaling will not be applied to the detriment of a third person having an equal equity to that of the person seeking to invoke the rule. The judgment of the court below is therefore affirmed.
Judgment affirmed.
MARSHALL, C.J., ALLEN, KINKADE, ROBINSON, JONES and MATTHIAS, JJ., concur.