Case ID: ohio-ch_1/html/0249-01.html
Source: Caselaw Access Project
Author: {"author": "Wright, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

THE MIAMI EXPORTING COMPANY v. THE BANK OF THE UNITED STATES, AND J. AND A. RUFFNER.
    Mortgages — sale on execution — trustee—overreaching—lien of a judgment on the mortgagor’s interest — chanceiy practice — offer to pay in bill — qua timet.
    Courts of law look upon mortgages as mere security for a debt, and a mortgagor in possession as the owner.
    A mortgaged has only a chattel interest, the mortgage remaining only a chose in action, until foreclosed, or possession under it by the mortgagee.
    Until foreclosure or possession by the mortgagee, the mortgagor’s interest is liable to levy and sale upon a judgment against him, and the piuchaser stands in his shoes as to the right to redeem the mortgage.
    A purchaser of the mortgagor takes the mortgaged property, subject to the incumbrance of the mortgage, aud if he buy in an outsanding claim of earlier date than the mortgage, it enures to the benefit of the mortgaged estate in confirmation of it, and as incident to the title; he can only claim priority for the actual amount paid, he cannot hold for his own debt against the mortgagor, ñoras an independent older right.
    A judgment is not perse a lien upon a mere equity* • t
    
    A trustee cannot enter into a contiact on the subject of his trust, for his own benefit} such contract is for the benefit of the tiust fund.
    It is now the acknowledged doctrine, that parol evidence is admissible to show that a deed was a mortgage only, notwithstanding it appears absolute on its face.
    Whether a deed is a mortgage or not, is determined by its object; if given as a security, it is a mortgage, whatever its form; thefact of its being so given determines its character, not the evidence of the fact.
    A trust tacitly created, though more difficult to establish than one expressed, has the same consequence attached to it.
    A conveyance once established asa mortgage, always remains so, except it would operate fraudulently to hold it so agaiust subsequent purchasers without notice.
    Wheie the mortgagor’s inteiest has been sold on execution, while he held possession, a subsequent mortgagee cannot overreach the purchaser’s right of redemption by an absolute release to him by the mortgagor, and buying in an old incumbrance, though the actual expense of getting in the incumbrance will be allowed as a charge ou the estate.
    Such purchaser, as well as a subsequent mortgagee, has a right in equity to compel a prior mortgagee who has other security, to exhaust the other security, before he resort to the fund on which they have a joint claim.
    The rule is, that where an answer in chancery denies an allegation in the bill, two witnesses, or one and corroborating circumstances, are necessary to do away the answer; but that rule does not apply to corporations who answer without oath; as to them, the denial presents an issue to be tried on the weight of evidence as at law.
    An offer to pay the balance due on a mortgage, which is sought to be foreclosed, but the omission is formal, and the couit may decree its payment and relief, without such offer in the-bill. /
    Chancery will sometimes grant relief béyond what is prayed for in the bill, if all the parties in interest are in court, and it is necessary to do justice.
    That the purchase of real satisfied the judgment on which it was sold, will not prevent thé purchaser from resorting to chancery to quiet his title, and remove a cloud upon it.
    In Chancery. The bill in this case states, that on the 3d of January, 1822, Joseph Ruffner mortgaged one hundred and sixty-three acres of land in Butler county, a house and lot, No. 22, on Mata street, Cincinnati, and lots 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11,12,13, 14, 15, 16, 17, 18, 19, 20, 21, 25 and 26, in McFarland’s subdivision of that city, to the Bank of the United States, to secure the payment of sundry notes given by him, and endorsed by Abraham Ruffner, his brother.
    That on the 5th of January, 1822, Joseph Ruffner mortgaged the same property, and also lots 360, 361, 362, 385, 386, 387, 388, and part of lot 8 in the Cutter tract, in and near Cincinnati, to Abraham Ruffner, in order to secure him for his endorsements. This mortgage was in the form of an absolute deedy
    That in June, 1823, the Miami Exporting Company recovered a judgment against Joseph Ruffner, for $9202 78, besides costs. Execution was issued upon this judgment, and the lots 360, 361, 362, 365, 366 and 367, levied upon, and sold on the 11thof January^ 1825, to the complainatits.
    That in April, 1827, Joseph Ruffner settled with the Bank of the United States, and executed a- release to it of all the property included in the mortgage to the Bank, together with considerable other property. He also procured Abraham Ruffner, for the sole consideration of being discharged from his endorsements, to release to the Bank his interest in so much of the property as was embraced in both mortgages, and to convey to the Bank me remainder of the property included in the mortgage from Joseph Ruffner to him, embracing the six lots purchased by the complainants on their execution. The Bank then, knowing that Abraham Ruffner had no other interest in said lots, save that of a mortgagee, and that the residue of the property conveyed to it by the Ruffners was more than sufficient to secure the debts for which they were mortgaged to Abraham Ruffner.
    That Joseph Ruffner, ever .since the execution of the mortgages, has been, and still is, in possession of said property. The Bank of the United States, refusing to release the said six lots, this bill is brought to compel them to release, and for general relief.
    The answer of the Bank of the United States admits the conveyances, judgment, and sale, in the bill set forth; but, denies knowing when it took the conveyance from Abraham Ruffner, that the deed from Joseph to him was only a mortgage. It claims that Joseph Ruffner was at that time largely indebted to the Bank, and that Abraham’s endorsements for him then amounted to $8669 47; while Joseph’s other liabilities were, at that time, $15,958 34. It asserts that the property has been applied, first, to satisfy the debts for which Abraham was security, and secondly, to the other debts. That the property mortgaged was subject to earlier encumbrances, which it has been compelled to extinguish; that lot 22, on Market street, was sold for ,f 1976 62, upon a prior encumbrance, and has been so withdrawn from the mortgage. It claims also, that between 1825 and 1827, finding the titles to the six lots purchased at sheriff’s sale, by the complainants, to be in one Betsey Drake, the Bank, as assignees of the Ruffners, procured from her a deed.
    The answer of the Ruffners admit the general allegations of the bill, but set forth several incumbrances on the lots, which existed when they were mortgaged to the Bank of the United States.
    To these answers, there is a general replication. The proof taken was read. The case appears in the opinion of the Court.
    
      V. Worthington, for the complainants.
    
      Storer and Fox, contra.
   Wright, J.

delivered the opinion of the Court. There are several important questions presented for consideration in this case.

Had Joseph Ruffner, in June, 1823, any legal interest in the six lots now claimed by the complainants, which was subject to the lien of their judgment, liable to sale upon execution, so that they acquired by their purchase any legal or equitable estate?

Courts of law now look upon mortgages as mere security for a debt; and so firmly is this doctrine settled, that it is said to be an affront to common sense to hold a mortgagor in possession of the mortgaged property, not to be the legal owner of it. The mortgagee, notwithstanding the form of the conveyance, has only a chattel interest, and the mortgage is only a security. Until foreclosed, or possession taken under it, the mortgage remains a chose in action; and, the mortgagor is the legal owner, as to all the world; 4 John. R. 43; 2Bur. R. 978; 1 H. BTk. 117, and Note «.; 1 East. R. 294; 6 John. R. 294; 2 O. R. 223. A mortgagor in possession has an interest which is bound by a judgment.

The counsel for the United States’ Bank, urge further, that at the date of the mortgage from Joseph to Abraham Ruffner, and also, when the Miami Exporting Company recovered their judgment, Joseph Ruffner had only an equity in these lots, which was not the subject of execution, because the legal title was in Betsey Drake when Joseph Ruffner executed the mortgage. When the complainants recovered their judgments against him, he was in possession of the lots, claiming title under Betsey Drake, by virtue of a deed purporting to have been executed by her, in July, 1816, through the agency of an attorney in fact. The Bank of the United States, claiming to hold under Ruffner the same title, finding a supposed defect in the power of attorney, under which the conveyance from Betsey Drake to Ruffner was executed, procured her to confirm the title to itself. The title is now set up as a distinct and independent one, disconnected from Ruffner’s title, under which the Bank holds. The Bank, by means of the conveyance from Ruffner, procured the release from Betsey Drake, and now claim that the title so acquired, shall be held independent, exclude all reference to the Ruffner mortgage or deed, and in that way discharge their lots from the lien of the judgment and levy of the complainants. The case of Jackman v. Hallock et al. 1 O. R. 314, is cited, as sustaining this position. That case decided, that a judgment at law was not per se a lien upon a mere equity. A trustee cannot'enter into a contract on the subject of his trust for his own advantage; 1 John. Ch. 26; ñ John. Ch. 514; 7 John. Ch. 189. It is too clear to admit of controversy, that the deed from Betsey Drake to the Bank of the United States, was obtained only as a confirmation of the title derived from Ruffner; 1 John. Ch. 27; 5 John. Ch. 497; 7 John. Ch. 174. The consideration of this conveyance passed from Ruffner to Drake, not from the Bank, and the conveyance from Drake must be held as an incident to the title acquired from Ruffner, though the actual expense of procuring this confirmation may be charged upon the mortgaged premises, as other prior encumbrances might be.

It is further claimed for the bank, that as the deed from Joseph to Abraham Ruffner, of January, 1822, was absolute on its face, and of anterior date to the judgment under which the complainants claim, the lots in dispute were by the conveyance placed beyond the lien of the judgment; that the condition which constituted the mortgage existed only in parol, and established only an equitable mortgage, to which the judgment did not attach as a lien. It is now the .acknowledged doctrine, that parol evidence is admissible against the face of a deed to show that a mortgage only was intended. 1 John. Ch. 594; 4 John Ch. 167; 7 John Ch. 40; 2 Atk. R. 99, 258; 3 Atk. R. 389; Powell on Mort. 65; 1 Day R. 139; 2 O. R. 185; 6 John. Ch. 417; 15 John. R. 515. And whether a conveyance be a mortgage or'not is determined by its object. If given as a security, it is a mortgage, whatever may be its form. This is so whether the condition of defeasance form a part of the deed, is evidenced by other writing, or exists only in parol. The fact of its being given as security, determines its character, not the evidence by which the fact is established. ‘A trust tacitly created,’ this court said in Starr v. Starr, 1 O. R. 321,‘is more difficult to reach than one that is expressed, but when it is ascertained, the same consequence is attached to it.’ If this conveyance was a mortgage at its inception, no subsequent agreement can change its character as to intervening interests. 7 John. Ch. 40, 174; 2 Gowen R. 332; 1 John. Ch. 27; 5 John. Ch. 497; 1 Pet. R. 373. A conveyance once established as a mortgage always remains so, except where it would operate fraudulently so to hold it, as against subsequent purchasers of the mortgagor without notice. But notice of a trust; whether secret or expressed, makes the assignee . of it himself a trustee. 1 John. Ch. 566; 4 John. Ch. 136.

The proof satisfies us, that when the judgment was recovered by the complainants, Abraham Ruffner held the six lots in question only as mortgagee of Joseph Ruffner. The event which constituted the condition upon which the conveyance to him was to become absolute, had not then happened; and Joseph Ruffner then held possession of the mortgaged premises, and continued in possession at the time of the levy and sale to the complainants. Joseph Ruffner consequently had an interest in the six lots subject to the lien of the judgment. 7 John. Ch. 206; 11 John. R. 534; 18 John. R. 97. This court in Lessee of Ely v. McGuire, 2 O. R. 223, expressly decided that mortgaged premises might be sold on execution against the mortgagor, and that a mortgage older than the judgment could not be set up to defeat the purchaser at sheriff’s sale. See also 4 John. Ch. 40; 6 John. Ch. 290. The complainants then by their purchase under the judgment, acquired all the interest that Joseph Ruffner, the mortgagor, then had in the lots. As purchasers at sheriff’s sale, they succeeded to his interest in the premises, and thenceforth occupied the same relation to the mortgagee and the mortgaged premises, as Joseph Ruffner, the mortgagor, before occupied. The subsequent conveyance by Abraham Ruffner the mortgage^ to the Bank of the United States, merely placed the Bank in his shoes as mortgagee. Such a conveyance could have no effect to transfer to the Bank any other interest than Abraham Ruffner at the time of its execution, had to convey.

Did' the Bank purchase of Abraham Ruffner without knowing the extent of his interest? or under circumstances inducing the belief that it was deceived and put off its guard as to that interest so as to make it a fraud upon its rights, to hold the conveyance to it a mere transfer of Abraham’s interest? or did it take the premises in ignorance of the claim of the complainants? The purchase by the complainants was at a judicial sale; all proceedings relating to which were public, and preserved as a part of the records of the county. Is it not reasonable to suppose the agent of the Bank was acquainted with such public transactions? and is it unusual for courts to charge parties with constructive notice? Constructive notice, when established, is equally operative with actual notice. When the Bank took the conveyance from Abraham Ruffner, had it no notice of the extent of his interest in the property? No purchase was made of Abraham by the Bank; whatever bargain there was, was made with Joseph Ruffner, who held the possession while the apparent legal title w7as in Abraham. The Bank took a conveyance to itself from Abraham, but paid nothing to Abraham as the consideration of his conveyance. The deed covered property they estimated as worth $28,000; yet nothing was paid by the Bank or Joseph to procure it, except only that Abraham was exonerated from liability as endorser upon some of Joseph’s paper, then held by the Bank, for a sum less than $9,000. These circumstances seem to us sufficient to awaken suspicion and put the Bank on inquiry; and if it was so, the law infers notice. A purchaser under such circumstance cannot be held to be one for a bona fide consideration, without notice, whose interest is to be protected. 3 O. R. 541; 2 Paige's Ch. R. 205.

It is urged that the answer of the Bank, denying notice, cannot be overcome by circumstances. The general rule is, that where any material allegation of the bill is positively denied, on oath, in the answer, more is required than the evidence of one witness to do away the effect of the answer. But the answer of the Bank is not within this rule — it is not on oath. The reason of the rule is, that the oath of one witness against the answer, only balances oath against oath, and more is required to incline the scale. When the answer is not on oath as in this case, the reason of the rule fails. There is no balancing oath against oath. A different rule prevails where the answer is without oath, or is that of a corporation, as is suggested by the Supreme Court of the United States in the Union Bank of Georgetown v. Geary, 5 Pet. R. 112. We think this suggestion indicates the general rule of practice, and therefore hold that an answer without oath, is a mere denial of the allegation in the bill analogous to the general issue at law; which requires of the complainant only common proof of the allegations denied. If we held the deed from Abraham to the Bank absolute, discharged of the trust, that would operate to the prejudice instead of the benefit of the Bank. It is a conceded fact in the case, that, as between the Bank and Abraham Ruffner, no consideration passed, and that the deed was voluntary. Such a deed would be void against creditors, and the complainants are creditors. If made upon full or partial consideration, however, with intent to defeat, prejudice, delay, or hinder creditors, it would still be void, under our statute of frauds, as against creditors. 1 O. R. 326; 1 John. Ch. 481. But if actual fraud is not made out, and the conveyance was only given under such circumstances of suspicion, as to induce the belief that all was not right, this court has power to make the conveyance subservient to equity, and hold it good as a security to the grantee for the consideration really paid, and, subject to that incumbrance, to hold the estate amenable to creditors. 1 John. Ch- 481; 4 John. R. 536, 598, 9; 2 Sell, and Lef. 492; 2 Vesey,jr. 516.

The case, then, is simply this: Joseph Ruffner was indebted to the Bank, and to secure the payment of the debt gave a mortgage on the land in Butler and twenty-two lots in Cincinnati. Abraham Ruffner was security upon a part of his brother’s debt, and Joseph, in order to indemnify him against loss, two days after his mortgage to the Bank mortgaged to Abraham the same property together with seven other lots and also another piece of ground in the same city. After these mortgages he continued in the possession, and had control of all the property included in both mortgages. While so in possession, and before’the Bank had taken any measures to enforce payment of its debt by resort to the mortgage, security, or otherwise, the complainant recovered judgment against Joseph, levied execution on the six of the lots mortgaged to Abraham, and purchased them in at sheriff’s sale. More than two years subsequent to this, the Bank, with full knowledge of all the facts, took a conveyance of the property from Abraham, and now claims to overreach the purchase of the complainants, and hold them discharged of their interest. When the complainants purchased, the Bank held a large amount of other property to secure its debt, but held no claim on the six lots purchased by the complainants. Joseph’s interest in these lots was that of a mortgagor in possession. It was a legal interest subject to sale on execution. The purchase by the complainants was lawful, and operated to transfer to them all Joseph’s interest in the lots. Joseph was the real owner of the lots, subject to the incumbrance of the mortgage to Abraham. That incumbrance was limited to the making good the deficiency, if any, due the Bank, after the property conveyed to it was exhausted. This court would have compelled the Bank on Abraham’s application, first to appropriate the property it held as direct security, before it resorted to him. The Bank had no right to resort to the six lots in dispute; they were not included in its mortgage. Its remedy was against Abraham as security; and he, if injured, had a right to obtain indemnity from the lots. While so situated, the right of the complainants attached to the lots, and superseded that of Joseph Ruffner. The Bank of the United States stepped in and took the fee of the lots knowing their situation, and must hold subject to the claims of the complainants. As to them, the Bank took the place which Abraham Ruffner occupied when he conveyed. It is a well-established rule in equity, and obviously a just one, that where one creditor has a lien on two funds, and another creditor has a posterior lien on one of the same funds, the creditor secured by the two funds must first resort to the fund which is not bound to the other creditor, in order that the other creditor may receive the benefit of his single security, so far as he can be allowed to do so without injustice. This rule holds, though part of the funds included in the first security may be in dispute or lie in another state. Iiopk. Ch. 460; 4 John. Ch. 123; 19 John. R. 486; 2 Aik. R. 446; 1 H. Blk. 150. Nothing is urged to convince us that the application of this rule to the present case will work any injustice, either to the Bank of the United States or to any one else. The complainants, as creditors of Joseph Ruffner, have obtained a legal lien on the six lots in question, subject to the prior lien of Abraham, as security for Joseph to the Bank of the United States. For the same debt the Bank of the United States has a lien on other property upon which the complainants have no lien, and it now holds Abraham’s lien on these lots also. Why should she not exhaust the fund exclusively held by her first, that if any thing be left it may go to the complainants. That course can do no injustice. If she must be paid, she ought to he satisfied with simple payment. While if the other course is adopted the complainants are remediless, as Joseph Ruffner is insolvent.

It is said that relief cannot be afforded, because the complainant’s title, if any, is a legal one, and their remedy is one for a court of law. We think otherwise. But to oust this court of jurisdiction, the complainants must not only have relief at law, but they must have that which is plain and adequate. How could a court of law afford relief in this case ? The Bank has the legal title and must recover at law. But the title is of a nature capable of being defeated or modified in equity, where it can be fully examined into, so as to do justice to all persons interested. The practice in courts of law has provided no way to ascertain Joseph Ruffner’s debt to the Bank, or the value of the property taken to secure it; and we are not aware of any mode of proceeding in a court of law, by which you could compel the Bank to dispose of the fund it holds which is not claimed by the complainants, in order to learn whether the lots on which they claim a lien are to be held altogether discharged of the prior incumbrance, or only subject to the deficiency of Joseph Rufiner’s other property. How could a court of law find out the extent of that deficiency?

It is again urged, that the only relief this Court can afford the complainants, is to let them in to redeem; and that even that cannot be afforded in this case, because there is no offer in the bill to pay the balance due, nor any money brought into court. It is true there is no direct offer in the bill to .pay the money due, nor specific prayer to be let in to redeem. There is, however, a prayer for such general relief as shall accord with the justice and equity of the case as it shall appear; and the case comes to hearing on its merits, not on a demurrer. At most, the omission is mere form, and this event is governed by substance, not form; 2 John. Ch. 248. For every purpose of substantial justice the bill is sufficient. The object of the complainants in resorting to this Court is not simply to be let In to redeem. They desire to ascertain the extent of the Bank claim; how far it is made secure by the other property; and whether it is disposed of; and if so, how the proceeds have been applied?

If it shall appear that the other property held by the Bank is sufficient to satisfy its prior liens, there will be no necessity for the complainants to redeem. In that case, the application to redeem, may come from a different quarter; the Bank may possibly claim the privilege of extinguishing the judgment lien of the complainants, that its junior claims may be charged upon the premises. Let the case assume what aspect it may, a chancellor will find no difficulty in settling the terms of a decree, to guard the interests of the Bank as perfectly, without an offer to redeem in the bill, as he could do if such offer was made. If there be any one aspect of the case made, which gives the court jurisdiction, it will hold the case, in order to do complete justice. Under the prayer for general relief, the complainants may have any which is consistent with the case made in the bill; 1 Bibb. R. 472; 2 Atk. R. 3,141. And sometimes, under particular circumstances, if all the parties are before the court, and the fault fully appear, chancery will, in furtherance of justice, grant relief, even more extensive and beneficial to the complainant, than he has sought, or prayed for in his bill; 1 Cox R. 58. It is well settled, that if a mortgagor would foreclose his mortgage, he must make the judgment creditors parties to the proceedings, otherwise. his decree will not conclude them. The assumption for the Bank, claims to impart to their private contract with the Ruffner’s, an effect that would not have attended a judicial decree between the parties upon the subject of it. This assumption cannot be sustained.

It is further contended,, that the complainants Gannot have relief, because they are not judgment creditors of Ruifner. It is said, that the judgment is prima facie satisfied by the sale of the lots, and that the satisfaction must first be vacated at law, by scire facias, or otherwise, before this Court will listen to them as creditors. This point does not strike us as one of much force; and, more especially, when we reflect that the pretended satisfaction of the judgment is only a legal result from a sale which it is said passed nothing to the purchaser, and which this application is intended to make available. It is certainly not a very material matter to oppose to the holder of the fee of the lots, who comes into this Court to remove an incumbrance from his title.

Upon the whole case, we are of opinion the complainants have a right to an account of the claims of the Bank upon Joseph Ruffner when the mortgage to Abraham was executed, and of the value of the mortgaged premises, and has a right to compel the Bank of the United States first to enforce its claims upon the property to which it has an exclusive lien, and that the complainants may hold the lots they purchased at the sheriff’s sale, chargeable only with the balance, if any, which remains due the Bank of the U. States after the proceeds of the property exclusively held by it are first applied, deducting therefrom whatever, sum, if any, has been paid to extinguish prior incumbrances, over and above the rents and profits, and we decree accordingly.

The case was referred to a master to take and state the accounts.