Case ID: ohio-st_4/html/45, 46-01.html
Source: Caselaw Access Project
Author: {"author": "\n      Ranney, J.,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Joseph Bloom and others v. Samuel Noggle and others.
    N. being largely indebted, and in an amount beyond the value of all Ms property, made an agreement in writing with four of his creditors, by wMch he bound himself to execute a mortgage to one of them, who agreed to sign notes as surety to the others, upon certain real estate for the security of all the claims; and, at the same time, delivered to the agent of the creditors certain title papers to the property agreed to be mortgaged. N., afterward refusing to perform the agreement, made a general assignment of his property for the benefit of all his creditors. Upon a bill filed to compel the execution of the mortgage, and to set aside the assignment, or give these creditors a parmount lien upon the property: Held—
    1. That the agreement created no lien upon the land in favor of the complainants, as against other creditors, deriving an interest under the assignment.
    2. Upon general equity principles, unaffected by statutory provisions, an agreement in writing, for a mortgage, is a valid contract, fixing a specific lien upon the property; and will be specifically enforced by a court of chancery against the party, and all subsequent purchasers from Mm with notice, as well as against any general assignment, either voluntary or by operation of law, for the benefit of his creditors.
    3. As between the parties to such a contract, the agreement is valid and effectual in tMs state, and a specific performance may be enforced.
    
      4. But no effect whatever can be given to it, consistently with section 7 of the act of June 1,1831, to provide for the proof, acknowledgment, and recording of deeds, etc., as against third persons who have subsequently acquired the' legal title to, or a lion at law upon, the property to which it relates.
    
      6. By the positive provisions of that section, as construed by the declaratory *act of March 16, 1838, and repeated decisions of this court, as against such third persons, mortgages have no effect, either at law or in equity, until delivered to the recorder of the proper county for record.
    6. The legal rights of such persons can not be displaced at the instance of the holder of a prior unrecorded mortgage, or contract for a mortgage, although acquired with notice of such mortgage, or of the existence of such contract; the object of the law being to avoid all the vexed questions of notice, actual or constructive, in determining priorities of lien.
    
      7. A creditor of an insolvent debtor, or one having assumed liabilities for him as surety, may lawfully take from him a mortgage to secure such debt, or save harmless from such liability; and, as the reward of such diligence, will be protected in the priority thus obtained.
    8. But if he attempts to extend the lien beyond the necessity of his own indemnity, and secure the debt of any other creditor, the mortgage is, in substance and legal effect, an assignment within the provisions of the act of 1838, relating to assignments by insolvent debtors; and the mortgagee, being a trustee for such other creditor, under that act, becomes a trustee for all the creditors of the mortgagor.
    9. This act can not be evaded by assuming a liability as surety forthe insolvent debtor, as a part of the transaction by which the mortgage is taken. If, in this case, therefore, the mortgage had been executed, or should be now decreed, the security would inure to the benefit of all the creditors of the mortgagor.
    In chancery, reserved in the district court in Darke county.
    The facts of this case, so far as it is necessary to state them, are as follows:
    Noggle was indebted to complainants, February 22, 1849, as follows:
    “To Stewart & Galligher.................................$1,690 00
    J. & J. Slevin.......................................... 648 14
    Joseph Bloom......................................... 278 28
    Hiram Bloom......................................... 390 42
    $3,006 94”
    C. C. Waldo was indebted to Noggle in $1,131 — of which $200 *were payable on demand, $465.50 in twelve months, and $465.50 in sixteen months, without interest. No notes were executed for this indebtedness. Noggle was at the time mentioned heavily embarrassed by indebtedness to other persons as well as the complainants. On the day first mentioned, a memorandum of agreement was made and signed as follows:
    “ This memorandum witnesseth, that, whereas, Samuel Noggle is indebted to Joseph Bloom, Stewart & Galligher, J. & J. Slevin, and Hiram Bloom, and said Samuel Noggle proposes to give said creditors security, if they give him time, or to such as may give time; it is therefore understood and agreed as follows: that said Samuel Noggle shall pay Stewart & Galligher one note due on C. C. Waldo for $200, one note on same in sixteen months for $465.50, subject to discount of interest due, and balance of their claim, not exceeding nine hundred and fifty dollars ($950), the precise amount not known now, but includes the claim due on the 1st of March by J. Bloom and G. Noggle’s note, in three installments, payable in nine, fifteen, and twenty-one months, with interest; and said Noggle shall pay said J. & J. Slevin a note on said C. C. Waldo, due in twelve months, calling for $465.50, subject to discount until due, and balance of their claim, not exceeding two hundred and seventy-five dollars, but precise amount not known, to be paid to said Bloom and G. Noggle’s note in fifteen months, with interest, $225. And said Noggle to pay said Joseph Bloom his claim, not exceeding three hundred dollars, within fifteen - months, with interest. And said Noggle to paid said Hiram Bloom his claim, not exceeding four hundred and fifty dollars ($450), by said Joseph Bloom and G. Noggle’s notes, in three installments, payable in nine, fifteen, and twenty-one months with interest; and the said Joseph Bloom agrees that if said creditors, all, or so many as do accept said proposition, to give his notes accordingly with said George Noggle, or on his refusal, then his own note; provided, that said Samuel Noggle shall execute a good and sufficient mortgage to said Bloom on said Noggle’s farm in Darke county, where he lives, with his wife’s release of dower, to cover and secure the full payment of all such sums as said Bloom becomes responsible for, and also Bloom’s own claims; and the same to be fixed and arranged as soon as said Stewart & Galligher have been written to and given their assent; and Hiram Bell, as agent for all the parties, to hold Noggle’s title-deeds until the same is fully arranged.
    “Samuel Noggle,
    “Joseph Bloom,
    “ T. W. Bristol,
    
      “For Stewart & Galligher, if they affirm.
    
    
      “ Daniel Law,
    
      “February 22,1849. For J. & J. Slevin, if by them approved.”
    
    *“ So far as I am concerned in the above agreement, I assent ana agree to the same. “ O. C. Waldo.”
    About the 14th of February, 1849, Noggle had made a deed of the same land to Young, his son-in-law, for a nominal consideration of $3,600, none of which was paid, and Young had executed a mortgage (but, the bill avers, no notes) to Noggle,-for annual installments of $200 each. The deed and mortgage last mentioned had been filed for record by Noggle, and by Noggle’s order wore lifted from the recorder by H. Bell, who continued to hold them when the bill was filed, for the benefit of the creditors, it being agreed that the Young mortgage should be held for the benefit of these creditors, until the above arrangement should be perfected, Noggle representing that Young was willing to reconvey to him or to complainants. The arrangement between Noggle and complainants was to be completed as soon as Stewart & Galligher and tie Slevins should assent to tie acts of their agents, but tie failure of either of these creditors to ratify was not to affect tie others.
    On tie 23d of February, tie agents of Stewart & Galligher and J. & J. Slevin informed Noggle that they were ready to complete tie arrangement. On tie 26th and 27th of February, Noggle was notified of tie readiness of complainants to perfect tie arrangement, and specific performance was tendered by them, but Noggle refused on his part. Early in tie morning of February 26th, Young was notified of tie transfer of tie mortgage and deed and of tie above arrangement; he assented, and was willing to reconvey.
    February 27th, Noggle assigned all his effects, real and personal, to Collins and Frizell for the benefit of all his creditors. Tie bill charges this assignment to be fraudulent.
    Tie prayer of tie bill is, that Waldo be decreed to pay his notes to complainants, according to tie agreement; that Noggle be decreed to execute a mortgage, or tie claims be made a lien on tie land; or, if specific performance be impossible, that Young be decreed to pay his mortgage to complainants.
    *It appears from tie answer, that tie Young deed and mortgage are treated by tie parties to them as canceled; that there were notes taken from Young by Noggle for the purchase money, and that these were afterward delivered up to Young, ‘‘ and tie deed and mortgage both canceled.” Noggle admits his refusal to execute the agreement for a mortgage; says that at tie time he signed the writing he was pressed by tie importunities of complainant’s agents to sign it; but that, upon reflection, he determined not to secure those particular creditors to the injury of other creditors who have claims on him equally just.
    There are charges of actual fraud on both sides; and some testimony is taken on that subject; but the decision of tie court is such as to render unnecessary a full statement of that part of tie case.
    
      Bell & Lyman, for complainants, made tie following points:
    1. Tie agreement for a mortgage between Noggle and complainants, creates as between tfhem, a mortgage or lien in equity, good against subsequent assignees for tie benefit of all tie creditors. Sir Simeon Stewart’s case, reported in Burn v. Burn, 3 Ves. Jr. 573 (also referred to in 2 Sch. & Lef. 381); in tie matter of Howe, 1 Paige, 125 (referring to Burg & Burg v. Francis, 1 Eq. Cas. Abr. 320) ; Delaire v. Keenan, 3 Dess. 74; Finch v. Earl of Winchelsea —; Foster v. Foust, 2 Serg. & Raw. 11; Hurst v. Hurst, 2 Wash. Ch. C. 69 ; Sugd. Vend. 336; 2 Cruise Dig. 64, tit. Estate by Stat. Mer.
    2. The deposit with H. Bell, of Noggle’s title deeds, would and did of itself, independent of any further agreement, create a lien on Noggle’s land to the extent for which they were deposited. 2 Story’s Eq. Juris., secs. 1020, 1021; Cross’ Law of Lien, 109, 112, 26, 113, 115, 117, 118; Coate on Mortgages, Law Lib., vol. 16, 84, 87; Walker’s Amer. Law, 315; Johnson v. Parkhurst, 4 Wend. 369.
    *3. The right of the creditor to take security for his debt from a debtor in failing circumstances, is too well established in Ohio to be controverted. Doremus et al. v. O’Harra et al., 1 Ohio St. 45; Atkinson v. Tomlinson, Ib. 237.
    4. The assignees of an insolvent debtor take his estate subject to all the equity chargeable on it in the hands of the debtor. (See citations under No. 1 of these points.) White v. Denman, 1 Ohio St. 110.
    
      W. Collins, for defendants.
    1. There is no absolute contract, but merely a proposition, suspended for the assent of complainants. When Noggle reflected on the unjust results, he declined, and so notified the other party.
    2. If the agreement, such as it is, had been executed, at least in relation to the farm, the complainants would, under our statute, be in equity trustees for the benefit of all the creditors.
    3. A decree for specific performance will not be granted, unless the contract be fair, just, and equitable in all its circumstances, and will work no injustice to any one. To decree specific performance in this case would work manifest injustice to many other creditors.
    To these points were cited: 5 Ohio, 179; 4 Johns. Ch. 528; 12 Ohio, 335; 13 lb. 40; 2 Story’s Eq. Juris., secs. 750, 769; Holcomb’s Eq. 124; 10 Ohio, 233; Livingston’s Monthly Law Mag., vol. 1, No. 2, p. 116.
    The other points of counsel refer to the questions of actual fraud.
   Ranney, J.,

delivered the opinion of the court.

This bill is prosecuted to enforce the specific execution of an agreement made by the defendant, Noggle, with the complainants, by which he undertook to execute and deliver to the complainant, Joseph Bloom, a mortgage upon certain real estate in *Darke county, to secure the payment of certain debts then due and owing by him to them. As a part of the same agreement, upon the execution and delivery of this mortgage, Bloom bound himself to sign as surety with Noggle, or if the latter refused, to execute his own notes to the other complainants for the amount of their claims respectively, and to hold the mortgaged property for his indemnity.

In the decision of the case we make no question that this' agreement was fully perfected and entered into without fraud or oppression ; and that the title afterward conveyed to the assignees for the benefit of all Noggle’s creditors, was received by them with full notice of its existence.

On the other hand, it can not be doubted that Noggle, at the time he made the agreement, was in a state of absolute insolvency, nor that it was made with a view of preferring the complainants to his other creditors. The questions arising are: can the legal title to the property be taken from the general assignees, by decreeing a specific execution of this agreement ? and if a court of equity has this power, can it secure to the complainants the paramount lien they claim ?

If the case could be decided upon general principles, the right of the complainants to the relief they seek would seem to us as clear as it now seems clear that it can not be given consistently with statutory provisions bearing upon the questions stated.

Upon general equity principles, unaffected by statutory provisions, an agreement in writing for a mortgage, is a valid contract, fixing a specific lien upon the property agreed to be mortgaged, and will be specifically enforced by a court of chancery, against the party and all subsequent purchasers from him with notice, as well as against any general assignment, either voluntary or by operation of law, for the benefit of his creditors. These principles may be regarded as well settled, and the jurisdiction of courts of equity in such cases has been exercised, without question, from a very early period, as is abundantly shown by *the cases cited in argument. It rests upon the same foundation and has all the reasons for its support, that exist in favor of a like interference upon contracts for.. the execution and delivery of absolute deeds.

As between the parties to such a contract, the agreement is valid and effectual’ in this, state, and we see no reason to doubt that a specific performance may be enforced by our courts of chancery, in the same manner and to the same extent, that such relief has been given in England, and other states of the Union.

But while these principles and remedies have their full application and effect, as between the parties to such a contract, we are clear in the opinion that no effect whatever can be given to it consistently with section 7 of the act of .June 1, 1831 (Swan’s Rev. Stat. 310), to provide for the proof, acknowledgment, and recording deeds, etc., as against third persons who have subsequently acquired the legal title to, or a lien at law upon, the property to which it relates.

By the positive provisions of that section, as construed by the declatory act ¡of March 16,1838 (Swan’s Rev. Stat. 311), and repeated decisions of this court, as against such third persons, mortgages have no effect either at law or in equity until delivered to the recorder of the proper county for record.

By the first-named section it is provided that mortgages “ shall take effect from the time- when the same are recordedand by the last, after reciting that doubts had arisen whether “ deeds of mortgage take effect from the time the same are delivered to the recorder of the proper county for record, or from the time the same are actually copied into the book of records,” it is declared “ that mortgage deeds do and shall take effect and have preference from the time the same are delivered to the recorder of the proper county, to be by him entered on record.”

In the numerous cases that have arisen since the passage of these statutes, almost every variety of unrecorded instrument, operating by way of mortgage upon real estate, has been passed *upon ; but in no single instance have the subsequently acquired legal rights of third persons been displaced by such instruments, whether such rights existed by deed, mortgage, judgment lien, or levy upon the property.

In Stansell v. Roberts, 13 Ohio, 148, the question arose between a prior unrecorded and subsequent recorded mortgage, the second mortgagee having notice of the first mortgage, and the lien of the latter was preferred. It is admitted that a different result would have ensued upon g-eneral chancery principles, by the application of the doctrine of earlier equities; but the court considered the case settled by the statute, and as the legislature had declared the effect of notice in the section relating to absolute deeds, and had omitted any such declaration in that relating to mortgages, they thought “the expression of the consequences of notice in one class of deeds, and the omission of it as to the other, a plain indication that the legislature did not mean to give the protection arising from it, except to the class of deeds to which it is expressly attached.”

In each of the cases of Mayhan v. Coombs, 14 Ohio, 428; Jackson v. Luce, Ib. 514; White v. Denman, 16 Ohio, 59; S. C., in review, 1 Ohio St. 110, and Holliday v. The Franklin Bank of Columbus, 16 Ohio, 533, the contest arose between an unrecorded mortgage, or one defectively executed, so as not to be entitled to record, and a subsequent judgment lien; and in each of them the lien of the judgment was preferred. While in the case of Fosdick v. Barr, 3 Ohio St. 471, the same preference .was given to a levy upon execution issued upon a judgment rendered in another county, and having no lien upon the property.

Mo one of these cases was decided in ignorance of the general principles to which we have alluded, and in every one of them a different conclusipn would have been arrived at, if these principles could have furnished the rules of adjudication. But it was perfectly competent for the legislature to change or modify these *rules, and when it had. done so, no discretion was loft to the judicial tribunals to depart from the express commands of the legislative body. Those commands the courts have regarded as explicit; the statute expressly declaring, that mortgages do and shall take effect and have preference, “ from the time the same ar.e delivered to the recorder of the proper county, to be by him entered on record.” To give them any effect before, as against the persons intended to be protected by this statute, would be to repeal it. It was not made for the mortgagor, and therefore, as to him, the record of the mortgage was wholly unnecessary; but it was designed to protect third persons who might acquire legal interests in, or liens upon, the property. As to them, the record was made conclusive; and they are only bound to regard such mortgage, liens as the record discloses at the time their rights accrue. The principle deducible from all the cases is, that the legal rights of such persons can not be displaced, at the instance of the holder of a prior unrecorded mortgage, or contract for a mortgage, although acquired with notice of such mortgage, or of the existence of such contract; the object of the law being to avoid all the vexed questions of notice, actual or constructive, in determining priorities of lien. So far as may be necessary to their protection, such a thing as an equitable mortgage is wholly unknown.

Until entered for record, they have no effect either at law or in equity against third persons; and until they take effect as legal instruments, they are entirely inoperative to prevent others from acquiring uncontrollable legal interests in the property. The lien they give is governed by the statute, and only attaches when the statute has been complied with. The record gives them vitality, and the record alone can be appealed to to determine when they have taken effect.

The doctrine of earlier equities only applies when the contesting interest is only an equity; but wh en that has been clothed with legal protection, it can not be displaced by anything short of a prior duly recorded instrument.

*1 am quite ready to admit, that the propriety of extending these doctrines, to the protection of subsequent judgment liens, might well have been doubted. Ordinarily such liens only attach to the interests of the debtor in the property; and hence it was urged with much force, that as these unrecorded mortgages and contracts were effectual against the party, they ought to be equally so against the judgment creditor, who took his place and succeeded to his rights. If this were an open question, the argument would be entitled to great weight; and I am not prepared to say that I should not consider it altogether sound. But the opposite course of decision has been too long and uniformly maintained, to be now disturbed, without involving consequences vastly more injurious than can arise from adhering to it.

A question of less doubt might also be made, whether a subsequent mortgagee or purchaser with notice, could take a conveyance of the legal title, without committing a fraud upon the holder of the prior equitable right. But this, too, has been long since settled, upon what was considered a fair construction of the statute. At first view, it seems inequitable to permit this to be done; but it is to be remembered that if notice is permitted to supply the place of the registry, the whole field of constructive notice immediately plies; or if it is made to depend upon actual notice, tbe inquiry is still attended with all the danger and uncertainty incident to parol evidence, when used for the purpose of affecting written instruments, and disturbing titles.

A very limited experience will serve to satisfy any one, that there is no more fruitful source of litigation, and none in which the results are more uncertain and unsatisfactory.

It may, therefore, well be doubted, whether a sound public policy does not require the establishment of a clear and certain standard of decision, incapable of vibration, and free from the evils of litigation, uncertainty, and fraud, by making it all depend upon a simple matter of fact, of easy solution, and allowing every thing to be settled by the priority of the registry. Some of the *most eminent and experienced chancellors have been of this opinion; and the courts of this state have always supposed, that this was the policy intended to be established by the legislature. If they have been mistaken in this, the mistake is now too deeply rooted, to be remedied by the judicial tribunals. Nothing short of a more explicit declaration of the legislative will, and applicable alone to future cases, can remedy the evil, if such it is.

Whether, therefore, we consider the general assignees in this case as purchasers for a valuable consideration, or as holding the legal title in trust for the benefit of all the creditors, it is equally clear that it can not be taken from them by the complainants. A contract for a mortgage can not have greater effect than one defectively executed, or one perfectly executed, but not recorded.

It is unnecessary to consider the effect of depositing the title papers, or whether consistently with our recording acts, such a deposit is sufficient to satisfy the statute of frauds. At most it could operate only as an agreement for a mortgage, and at best could be no bettor than a written contract. 2 Story’s Eq., sections 1020,1021; Johnson v. Parkhurst, 4 Wend. 369.

There is another conclusive view of this case. If the mortgage had been executed according to the agreement, or should be now decreed, we are clear in the opinion that it would inure to the benefit of all the creditors of the mortgagor, under the provisions of the act of March 14, 1838, relating to assignments by insolvent debtors, and that the proceeds of the mortgaged property would be carried precisely where they are now left by the general assignment.

It is very true that it has been fully settled by repeated decisions of this court, that a creditor of an insolvent debtor, or one having assumed liabilities for him as surety, may lawfully take from him a mortgage to secure such debt, or save harmless from such liability; and, as the reward of his diligence, will be protected in the priority thus obtained. Doremus v. O’Hara, 1 Ohio St. 45; Atkinson v. Tomlinson, lb. 237.

*But it is equally well Bettled, that if he attempts to extend the lien beyond the necessity of his own indemnity, and secure the debt of any other creditor, the mortgage is in substance and legal effect an assignment within the provisions of that act; and the mortgagee being a trustee for such other creditor, under the act becomes a trustee for all the creditors of the mortgagor. Our reasons for holding such a mortgage an assignment within the purview of the law, are stated in the case of Harkrader v. Crane, decided at the present term.

This would have been exactly the position of the mortgagee in this case. He not only attempted to secure himself, but several other creditors of the mortgagor; and while it is true that he agreed to become security for their debts, we have no difficulty in saying that this act can not be evaded by assuming a liability as surety for the insolvent debtor, as a part of the transaction by which the mortgage is taken, and a priority be thus secured.

In any view the bill must be dismissed, saving to the complainants such rights as they may have under the general assignment.