Opinion
Decided July 20, 1933.
Mortgages — Foreclosure — Remedy of marshaling securities, not available, when — Paramount incumbrancer delayed, inconvenienced or prejudiced — Both funds must belong to same debtor, and senior creditor have lien thereon — Surety executed mortgage to secure notes — Second mortgagee cannot compel first mortgagee to exhaust remedies against principal maker, when — Exoneration of surety not available to his creditor.
1. Equitable remedy of marshaling securities is not available if application thereof will delay or inconvenience paramount incumbrancer in collection of debt or prejudice him in any manner.
2. To obtain relief under doctrine of marshaling securities, both funds must belong to same debtor, and senior creditor must have lien on both funds.
3. Where surety on notes executed mortgage against property owned by him to secure payment of notes, holder of second mortgage against same property held not entitled, under doctrine of marshaling securities, to compel mortgagees under first mortgage to exhaust remedies against property of principal maker of notes upon which he has no lien before foreclosure of mortgage and application of proceeds to mortgage debt.
4. Right of surety for exoneration against principal is personal right and not right to which creditor is entitled to be subrogated.
APPEAL: Court of Appeals for Logan county.
Messrs. Lippincott Lippincott, for plaintiff.
Mr. J.K. Rockey, for defendants.
This case comes to this court on appeal from the Court of Common Pleas of Logan county, Ohio.
This is an action brought by the plaintiff, Claudia Parker, for foreclosure of a mortgage executed and delivered by Charles E. Wheeler and Mabel G. Wheeler, his wife, to Ollie De Long, Grover De Long and Floyd De Long, on lot 137, Orchard Island, Indian Lake, Washington township, Logan county, Ohio, the title to which, at the time and delivery of said mortgage, was owned by and stood of record in the name of Charles E. Wheeler, to secure the payment of certain notes of the same date as said mortgage executed and delivered by Charles A. Wheeler, as principal, and the said Charles E. Wheeler, as surety, to the said De Longs; the plaintiff holding said notes and mortgage as the assignee of the said De Longs.
The plaintiff does not make the necessary allegations for, or request, personal judgment on the notes.
The defendants in the case are Mabel G. Wheeler, widow; Charles A. Wheeler, Dorothy Ritzler, Marie Enslen, children and heirs at law of said Charles E. Wheeler, deceased; Samuel Deffenbaugh, to whom said Charles E. Wheeler had conveyed said property subsequent to the execution and delivery of the mortgage above mentioned and who had reconveyed said property to the said Charles E. Wheeler before his death by a deed which had not been entered of record in Logan county, Ohio, and J.K. Rockey, to whom the said Charles E. Wheeler subsequently executed and delivered a mortgage on the premises aforesaid securing the payment of certain notes of the said Charles E. Wheeler to said J.K. Rockey.
All the defendants in the case were served with summons, and all are in default for answer or demurrer to the petition, except the defendant Rockey.
Defendant Rockey, in his answer and cross-petition sets forth the indebtedness owing to him by Charles E. Wheeler, deceased, and the mortgage given by Charles E. Wheeler to him on the real estate above mentioned, to secure the payment thereof, and alleges that the conditions of said mortgage have been broken. He also alleges that Charles E. Wheeler was insolvent at the time of his death, and that, if plaintiff is permitted to foreclose her mortgage without resort to judgment and execution against Charles A. Wheeler, the principal on the notes secured by plaintiff s mortgage, insufficient funds will be realized from the sale of said mortgaged property to pay the mortgage of the plaintiff and to pay his said mortgage; the mortgage of plaintiff being prior to defendant Rockey's mortgage.
Defendant Rockey asks that plaintiff be required to take judgment against the said Charles A. Wheeler, principal on the said notes held by plaintiff, to have execution issued on such judgment, to levy on the property of said Charles A. Wheeler, and have the proceeds realized on said execution applied to the payment of plaintiff's claim before resorting to any of the proceeds of said real estate for the payment of plaintiff's claim, and that defendant Rockey's mortgage be foreclosed, and that the proceeds of said real estate, after application of such portion thereof to the payment of plaintiff's claim as may be necessary to pay the balance owing thereon — after the application of the proceeds of sale of Charles A. Wheeler's property on judgment and execution — be ordered paid to him on his said mortgage claim.
The case is submitted to this court on an agreed statement of facts, which is as follows:
"1. It is agreed between all the parties not in default for appearance in this case that the following is a statement of the facts agreed upon for the submission of the same to the court of appeals.
"2. On or about May 1, 1929, Charles Albert Wheeler, purchased a lot on West Elm Street, Lima, Ohio, from Ollie De Long, Grover De Long and Floyd De Long for the sum of $2250.00 of which sum $1000.00 was paid in cash, and on said date three notes were executed by Charles Albert Wheeler as principal maker and Charles E. Wheeler as surety, each in the amount of $416.67, one due in one year, one in two and one in three years from date, payable to Ollie De Long, Grover De Long and Floyd De Long, and on the same date, to secure the payment of the said three notes, Charles E. Wheeler as surety and Mabel G. Wheeler his wife, made a mortgage conveyance on Lot No. 137, Orchard Island, Indian Lake, Washington township, Logan county, Ohio, which mortgage was immediately and duly entered of record in Logan county, Ohio, Mortgage Volume 72, page 437.
"3. A short time after the execution of said notes and mortgage, Charles E. Wheeler, the owner of said Lot No. 137, deeded said Lot No. 137 to Charles Albert Wheeler, and a short time thereafter Charles Albert Wheeler deeded said lot 137 to Charles E. Wheeler and in said deed the said Charles Albert Wheeler, as grantor, agreed to pay the said notes and mortgage in the sum of $1250.00 and accrued interest now a lien on said premises, being Lot No. 137 as aforesaid, which deed is of record in the recorder's office of Logan county, Ohio, Volume 141, page 326. Plaintiff objects to paragraph as to competency.
"4. The first note was paid on or about May 1, 1930, by Naomi Wheeler, wife of Charles Albert Wheeler, and when the second note became due in May, 1931, it was not paid and the payees threatened to bring action.
"5. The said Naomi Wheeler, wife of Charles Albert Wheeler, is the daughter of the plaintiff, Claudia Parker and the said Claudia Parker knew that Charles Albert Wheeler was the principal maker of said notes, and that said sum of $1250.00 was part of the purchase price for said lot on West Elm Street, Lima, Ohio, and Charles E. Wheeler was surety on said notes, that said mortgage was given by said Charles E. Wheeler as surety to secure the payment of said three notes, and further that Charles Albert Wheeler was not able to pay said notes and she, the plaintiff wanted to help Charles Albert Wheeler and his wife, and knowing the aforesaid did on or about July 9, 1931, purchase for the face value plus the accrued interest the second and third notes, which two notes were then endorsed to the plaintiff by the three De Longs and the mortgage securing the same was then transferred and entered of record.
"6. That the second and third notes have not been paid and that the face thereof and the accrued interest are now due in the total sum of $1037.50 with interest from June 1, 1933.
"7. Charles E. Wheeler passed away insolvent and the only property he had at his decease was said Lot No. 137, as aforesaid described, of about the value of $1,000.00.
"8. That Charles Albert Wheeler has property that could be made subject to levy, execution and sale, the sale value of which is unknown.
"9. It is also agreed that when this action was filed in Logan county, Ohio, Charles E. Wheeler was deceased and that said property was then standing in his name; that he had conveyed away said property after making the mortgage herein mentioned to Samuel Deffenbaugh; that Samuel Deffenbaugh had conveyed said property back to Charles E. Wheeler before his death by a deed which has not been entered of record in Logan county, Ohio; that Charles E. Wheeler, deceased, left surviving him, Mabel G. Wheeler, his widow, Charles Albert Wheeler, Dorothy Ritzler and Marie Enslen, his only three children, all residing in Allen county, Ohio; that service of summons was had on each of them in Allen county, Ohio.
"10. It is further agreed that on August 4, 1930, Charles E. Wheeler executed and delivered to J.K. Rockey his promissory note in the sum of $1500.00 and that there is now due and payable on said note the sum of $1736.25, bearing six per cent interest from date hereof.
"11. It is further agreed that as security for said note said Charles E. Wheeler executed and delivered a mortgage conveyance to J.K. Rockey on said Lot No. 137, as aforesaid described, that said mortgage was duly recorded in the recorder's office of Logan county, Ohio, Volume 73, page 527, and is a lien on said aforesaid described real estate, and that the conditions of said mortgage have been broken."
For the relief which the defendant Rockey asks as against the plaintiff, he relies upon the following equitable principle:
"The equitable remedy of marshaling securities, with that of marshaling assets, depends upon the principle that a person having two funds to satisfy his demands shall not, by his election, disappoint a party having but one fund. The general rule is, that if one creditor, by virtue of a lien or interest, can resort to two funds, and another to one of them only, — as, for example, where a mortgagee holds a prior mortgage on two parcels of land, and a subsequent mortgage on but one of the parcels is given to another, — the former must seek satisfaction out of that fund which the latter cannot touch." Pomeroy's Equity Jurisprudence, Second Edition, vol. 5, page 5078, Section 2288.
There are, however, important exceptions to this equitable principle, among which are the following:
"Relief will not be given if it will delay or inconvenience the paramount encumbrancer in the collection of his debt, or prejudice him in any manner; for it would be unreasonable that he should suffer because someone else has taken imperfect security. Thus, relief has been denied where the fund to be resorted to has been dubious, or one which might involve the creditor in litigation; and a mere personal remedy has been held insufficient to warrant interference." Pomeroy's Equity Jurisprudence, vol. 5, page 5080, Section 2289; Palmer v. Snell, 111 Ill. 161.
The case of Palmer v. Snell, above referred to, is quite similar to the instant case. In that case a person holding a mortgage on a number of tracts of real estate brought an action to foreclose the same. One of the defendants who had purchased one of the tracts covered in the mortgage subsequent to the execution of the mortgage asked that the plaintiff be required to bring suit against another transferee of a tract covered by said mortgage, on the agreement of said transferee to assume and pay such mortgage, before resorting to the property of such defendant for the satisfaction of such mortgage. In that case, on pages 166 and 167 of the opinion, the court held that the rule invoked which compels a first resort to a particular one of two funds for a creditor's benefit, can reach but one of them, would not be applied in that case so as to require, first, the exhaustion of the personal remedy against the transferee. The court, in its opinion, further states that:
"This rule will not be enforced whenever it will trench upon the rights or operate to the prejudice of the party entitled to the double fund. * * * The mortgagee's right to a prompt foreclosure of his mortgage is not to be impeded by compelling a first resort to any personal remedy the mortgagee may have."
In volume 26, Ohio Jurisprudence, at page 100, it is stated:
"* * * In order that the doctrine of marshaling assets may be applicable, the senior creditor must have a lien in the several funds out of which payment is to be made. These several funds must be the property of the common debtor, tangible in form, and not a mere chose in action." (Italics ours.)
At page 102 of the same volume it is stated:
"It is indispensable to the maintenance of a bill to marshal assets that the creditor have a lien on the several funds out of which payment is to be made. He cannot be driven to seek payment out of assets upon which he has no lien, nor is there, even as against the debtor, any equity, cognizable by a chancellor, upon which to found a decree to that effect."
In the instant case the relief sought by the defendant Rockey would delay and inconvenience the plaintiff, who is the paramount incumbrancer, in the collection of her debt, and would prejudice her by involving her in litigation in an endeavor to collect from sources other than the mortgaged property itself, and would also compel the plaintiff to resort to a mere personal remedy; each and all of which conditions, as above set forth, will prevent the application of the equitable principle relied on by defendant Rockey.
It is one of the elements in the application of this principle that, in order to obtain relief, both funds must belong to one debtor, and the senior creditor must have a lien on both funds. In the case at bar, the real estate security was the property of Charles E. Wheeler, and the other property which the defendant Rockey seeks to compel the plaintiff to pursue is the property of Charles A. Wheeler, upon which the senior creditor does not have a lien, so that the case does not present facts in which the equitable principle above mentioned can be applied.
This case is strictly an equitable action for foreclosure, and no money judgment is asked. Consequently, the statute with reference to the rights of sureties in the rendition of judgments against them and their principals does not apply.
Neither does the decision in the case of Eckert v. Myers, 45 Ohio St. 525, 15 N.E. 862, apply to the instant case, as the decision in that case is based on the rights of a surety himself and not on the rights of a creditor of a surety.
The defendant Rockey was not a surety of Charles E. Wheeler, the owner of the real estate upon which foreclosure is sought, and consequently does not come within the protection of the statute. The defendant Rockey is only a creditor of the surety.
The right of a surety for exoneration against his principal is a personal right and not a right to which a creditor is entitled to be subrogated. Any right Charles E. Wheeler had as surety of Charles A. Wheeler, for exoneration or otherwise, can be exercised only by the executor or administrator of Charles E. Wheeler, and for the benefit of all persons interested in his estate, whether as devisees, heirs, or creditors, and cannot in any event be exercised for the benefit of one creditor to the exclusion of all other interested persons. As the personal representatives, if any, of Charles E. Wheeler, deceased, are not parties to this case, the questions as to the exercise of such right, and its extent, do not arise in this case.
Holding these views, all the relief sought by the defendant Rockey as against the plaintiff will be denied, and a decree for foreclosure of plaintiff's and defendant's mortgages, similar to the decree entered in the lower court, will be entered in this court.
Decree accordingly.
CROW, P.J., and KLINGER, J., concur.