Case ID: ohio_17/html/0371-01.html
Source: Caselaw Access Project
Author: {"author": "Read, J. Avert, J. Birchard, C. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Richard Spader and others vs. Davis B. Lawler.
    A mortgage with a clause to Becure future advances, will be postponed to a second mortgage, placed upon record prior to the making of the future advances, to the extent of such advances.
    This is a Bill of Review reserved in Hamilton County.
    The Bill is filed to reverse a decree of the Supreme Court of Hamilton County, rendered at the April Term, 1844.
    The facts as set forth in the Bill of Review are as follows :
    On the 25th January, 1831, Joseph Bonsai mortgaged to Matthew B. Lawler certain premises in Cincinnati, and the same day the mortgage was recorded, and afterwards transferred to Matthew L. Harbeson.
    On the 6th January, 1832, Bonsai mortgaged the same premises to Davis B. Lawler, the mortgage being recorded on the 11th of the same month, and afterwards transferred to Long-worth and Blachley.
    On the 25th September, 1832, Bonsai again mortgaged the same premises to Davis B. Lawler, and on the 11th October following, the mortgage was recorded.
    
      On the 8th October, 1836, Bonsai mortgaged the sameprem*ses to ^ complainants, and the mortgage was recorded on the day; and again on the 24th of July, 1838, he made another mortgage to them on the same premises, which was recorded on the 8th October following.
    Longworth and Blachley commenced the original proceedings to foreclose on the mortgage assigned to them — Harbeson, Lawler and complainants, set up their mortgages by way of answer and cross-bill.
    Lawler admits the whole amount secured originally by his mortgage, with interest, has been paid, but says, on the 14th of September, 1841, Bonsai became further indebted to him by a note then made at ninety-five days after date, for the sum of................................. $228
    On the 28th, same month, the further note for........ 440
    On the 22d October, same year, the further note for... 340
    Total, without interest,.............$1,008
    The mortgage contains, in addition to the ordinary defeasance, this clause: " And any other sum, or sums of money, which the said Bonsai may be owing, or indebted in, to the said Lawler, his heirs and assigns.”
    The Superior Court of Cincinnati refused to declare this $1,008 a lien on the premises anterior to complainant’s mortgage — from which Lawler appealed.
    The premises were sold by order of said Court, and produced the sum of............................... $18,222 00
    Which by the Supreme Court was appropriated as follows:
    To Taxes,............................ $ 508 96
    To Costs,.............................. 216 83
    To M. Harbeson, the eldest mortgagee,..... 4,497 27
    To Longworth and Blachley, the second lien, 1,676 34
    To Davis B. Lawler, the third lien,......... 1,389 00
    To the Complainants, the fourth lien,....... 7,961 60
    $18,222 00
    
      The mortgagor died pending the proceedings, hopelessly in- In Bank. solvent, and the Court found due the complainants on their De%f„erm' mortgages the sum of...................... $13,943 10
    From which deduct......i.............. 7,971 60
    Leaves a balance of................... $ 5,981 50
    
      Th. J. Strait, for Complainants in Review.
    The error complained of is, that the Court declared the notes given by Bonsai to Lawler after September, 184P, to be better liens on the premises, or the funds produced by the sale thereof, than complainants’ mortgages, made and recorded from three to five years previous. The decree should have allowed Lawler $236 only, and not $1,389.
    The notes do not refer to the mortgage, nor is it pretended that they are renewals, but for advances made at the date of the notes. It is probable they were given for extra interest, as Lawler could hardly have advanced money on so precarious a surety. This, however, is not shown by the record.
    The complainants contend, 1st: That the clause in the mortgage extends only to an indebtedness existing at the time the same was made and recorded, and not to subsequent advances. That such was the intention of the parties, and is the true meaning of the language used.
    The clause cannot be construed to secure subsequent loans, unless it be done by giving to the language more than ordinary power and force. '
    2d. That the Registry act of the 1st June, 1831, somewhat alters the old law of mortgages, by declaring them to take effect from recording.
    If a mortgage has no validity until recorded, and then only from the date of the record, it follows that no greater amount can be secured by the same, than is contained in the defeasance at the date of the record; and though it may provide for future advances, the Registry law is not thereby effected, for such advances must be recorded, or noted on the record of the mort&a&e’ an^ ta^e e^ect only from the date of such record.
    advances cannot have a retrospective operation. Mortgages to third persons of record when they are made, must have the preference, because as to them the subsequent mortgage is the oldest record. Every new loan is a new mortgage, because the latter is only a mere surety and incident to the debt; and the surety can have no existence without the principal. The debt is the principal, and the mortgage the surety ; and a nullity without the debt. It only remains operative while the debt exists, and ends with satisfaction. The mortgage commences with the debt, and can have no effect previous. It ends with the same, and is without effect afterwards.
    A subsequent advancement, as to this, is the creation and beginning of the debt; and though for other purposes the mortgage may exist previous, yet for the purpose of securing the debt, it commences with it, and cannot affect the mortgages of third persons, recorded in the meantime. A different construction of the Registry law would not only be extremely dangerous, but contravene its very provisions, and measureably thwart the object in view in making it. See 11 Ohio Rep. p. 341; 13 do, p. 156; 16 do, p. 537. In the latter case the Court say, “ Mortgages are sureties, to protect either equitable or legal rights. ' They are neither the legal right or the equity, but an incident that attaches to some substantial right or equity. Destroy the debt or right to which the mortgage attaches, and it dies, and without some right to which it can attach, it could never exist. It is in its nature an incident.” If this be true, the mortgage, as to the subsequent advancement, is a nullity until the advance is made; and that being after the recording of the complainants’ mortgages, clearly establishes their priority, and consequently the error in the decree.
    3d. It is insisted that the law of mortgages, as recognized by the Courts of Ohio previous to the act of 1st June, 1831, would not have justified this decree. The strongest case bearing on the point in question, is to be found in 7 Ohio Rep. part first, p. 225, where a'mortgage was made to secure future indorsements, and a judgment lien set up as preferable. The indorsement in that case was made, however, before the ment lien took effect; but subsequent thereto the note matured, was carried into judgment, and another note made and indorsed to raise money to pay the judgment. This subsequent indorsement to pay the first, was in effect a renewal of the note. Besides, the general lien of a judgment does not occupy the same position in equity as a specific lien. Such general lien is a mere legal right, carrying with it no equity. If it does not attach as a legal lien, it does not attach at all. A mere equitable lien, without notice, provided it be elder and specific, is preferable to it.
    The doctrine that junior legal rights prevail over elder equities, can avail nothing in support of this decree, inasmuch as the legal estate had passed from Bonsai to Harbeson,by a mortgage older than Lawler’s. That nothing but the equity of -redemption remained for the operation of either Lawler’s or complainants’ mortgages. Both of these mortgages attached to a mere equity; Lawler’s the eldest for the original debt, but junior as to the subsequent advances, and the complainants’ junior as to the original debt, but elder as to the subsequent advances.
    Many cases are cited by defendant’s counsel, but not one of which comes up to this case. Some peculiar feature is found in each upon which the case turns. What is considered and treated as the subsequent advancement, is either a mere renewal or in some way connected with, or clearly traceable to the original debt. And though mortgages containing clauses providing for subsequent advances are recognized as valid, (and they undoubtedly are so, as between mortgagor and mortgagee,) yet none of the cases go so far as to declare a debt of this kind, standing alone, and in no way connected with' the original debt, a preferable lien to a mortgage recorded before the same was created.
    Notice, in fact, or otherwise, does not operate to change the rights or positions of the parties; for the subsequent mortgage, though operating upon the equity of redemption only, is never-a leSal instrument — is recorded, and takes effect as The lien created by it is a legal, not an equitable lien. The prior mortgagee is as much bound to take notice of it, as any other legal deed. This doctrine of notice, in fact, influenced more or less the opinions delivered in the cases referred to; but the Registry Laws of Ohio dispense with every thing on that subject, by declaring that the deed shall not take effect, or have any validity as a deed, until recorded.
    
      Walker Kebler, for Defendant.
    The mortgage to Lawler of the 25th September, 1832, secured him for future advances to Bonsai, and although the $ 1008 was advanced to Bonsai after the recording of themortgages to Spader, yet Lawler, by virtue of the clause in his mortgage, to secure future advances, had a lien upon the rhortgaged premises for the amount of the $1008, and interest, as well as for the money advanced at the execution of the mortgage. At all events he is entitled to all advances made under that mortgage, until the receipt of actual notice of subsequent liens.
    What is considered as sufficient to put a person on inquiry is considered as conveying notice; and in this case the debt secured by the mortgage was described in the condition of the deed with sufficient certainty to enable subsequent creditors to ascertain by inquiry aliunde the extent of the incumbrances.
    From various authorities to which we might refer, we subjoin quotations from the most important.
    1 Powell on Mortgages, 544 (Ed. by Coventry page 533.) “ Also if a clause be contained in the first mortgage deed, making it a security for farther sums borrowed, subsequent loans will have relation to, and be taken as a part of the original transaction; and they must be paid before a second mortgage intervening, although the first mortgagee had notice of it at the time of advancing more money, if the second mortgagee had notice of the clause in the first mortgage.”
    4 Kent’s Com. 175. “ So a mortgage or judgment may be taken and held as a security for future advances to the extent of it, when this is a constituent part of the original agreement; and the future advances will be covered by the lien, in preference to the claim under a junior intervening incumbrance, with notice of the agreement.”
    In the present case, the only notice, on either side was that resulting from the recording of the mortgages. Of the clause in Lawler’s mortgage securing future advances, the subsequent mortgagees had notice by the 'record, and so are within the above principle laid down by Powell and Kent, and abundantly supported by adjudged cases.
    In Adams v. Wheeler,. 10 Pick. 199, a mortgage of personalty to secure future indebtedness was held good against creditors, it being a bona fide transaction. The Court say, (page 203) “It was an honest transaction, for valuable consideration ; the conveyance is sufficient in substance; it purports to cover future liabilities; they were in fact incurred, and the property was delivered, before the taking by the defendant.”
    The same doctrine is held in regard to a mortgage of realty, . in Commercial Bank v. Cunningham, 24 Pick. 270. The Court say, (page 274) “ We think it clear that a mortgage made bona fide for the purpose of securing future debts, expected to be contracted in the course of dealings between the parties, is a good and valid security. And so are the authorities.”
    In Hendricks v. Robinson, 2 Johns. Chy.,Rep. 283, the same doctrine was held in regard to a mortgage for chattels. The Chancellor said, (page 307) “ This is not a new doctrine. It depends upon the circumstances of the case, how far a subject pledged for a debt, may be considered as, a security for further loans. This is the amount "of the language of the Master of the Rolls in Jones v. Smith, 2 Ves. jr. 372; and in Demainburg v. Metcalf, 2 Vernon, 698, this extension of the security was admitted.” The same doctrine is held in Brinkerhoff v. Turning, 4 Johns. Chy. Rep. 73 ; and in James v. Morey, 2 Cowen, 246, the Court say, (page 292) “ A mortgage made to secure against future as well as present responsibilities is undoubtedly good.”
    In U. S. v. Hooe, 3 Cranch, 73, the same doctrine was held in regard to a mortgage of realty. Here the mortgage was made “ to save Hooe harmless on account of his having become the security of Fitzgerald to the United States, and on account of notes to be indorsed by Hooe for the accommodation of Fitzgerald.” And the Court say, per Marshall, C. J. “that the property stood bound for future advances, is in itself unexceptionable. It may, indeed, be converted to improper purposes, but it is not positively inadmissible. It is frequent for a person who expects to become more considerably indebted, to mortgage property to his creditor, as a security for debts to be contracted.” And this doctrine was reiterated in Shirras v. Cary, 7 Cranch, 34, and afterwards in Conard v. the Atlantic Insurance Co. 1 Peters, 386.
    Not to tire the Court with further quotations, we cite in Pennsylvania, 5 Binney, 589; 1 Watts, 135 ; 6 Watts, 57; and in Connecticut, 7 Conn. 387 ; 8 Conn. 219; 9 Conn. 286.
    With this array of authorities, and a former decision of this Court upon the precise point, we suppose the result cannot be doubtful.
   Read, J.

Under the doctrine of mortgages,, in Ohio, which makes the recording a part of the execution, the question may well arise whether a clause in a mortgage securing future advances is of any effect whatever. There is no such thing with us as an equitable mortgage. It must be a legal statutory mortgage or it is nothing. Where the doctrine controlling mortgages proceeds upon the principle that it is contrary to good faith to take a subsequent lien, with the knowledge of a prior equitable incumbrance, and that equity will therefore protect the latter, it is perfectly consistent to hold that a clause in a moitgage to secure future advances is valid. But this whole doctrine proceeds upon the ground of notice. B.ut in our State it matters not whether the subsequent mortgagee have notice not, provided he can have his mortgage first recorded. Of what does a mortgage with a clause for future advances advise a subsequent mortagee ? It does not advise him that any such advance has been made. True, it advises him that advances were contemplated upon the faith of the mortgage. It may be said this is sufficient to put him upon inquiry,. and enable him to ascertain the amount actually secured or advanced ■ at the time. But the old doctrine of mortgages went so far as to hold that subsequent loans shall have relation back to the original transaction, .and that a second intervening mortgage shall be postponed, although the first mortgagee had notice of it af the time of advancing more money, if the second mortagee had notice of the clause in the first mortgage to secure further advances.

But the doctrine of mortgages has come to be placed upon something like a rational foundation, as a mere security, and with us, that as among creditors, all have equal equities to be paid or secured. Equity will not aid one in preference to another, and to prevent this the statute was passed which converts a ■ mortgage into a mere legal security. Hence under our statute, as a mortgage is a mere legal instrument, and has no vitality or existence until it is placed upon record as notice to all the world, from which time it is effective against all prior as well as subsequent creditors, it would seem nothing more than reasonable that it should advise the public of the only really material thing for them to know — what is the amount it actually secures. What would be the legal nature of a mortgage placed upon record to secure all moneys hereafter to be advanced ? It would not be a mortgage because it would have nothing to secure. If nothing was ever advanced, no one would pretend that it was a mortgage. A mortgage is a security for the payment of money. If there was no money due there could be nothing to secure, and consequently no mortgage. If it be called a mortgage, what sort of a mortgage — a sleeping mort8aSe — a contingent mortgage, or a mortgage in abeyance— is, something which in legal contemplation or expectation might by the happening of some future event become a mortgage. But what difference does it make by having a present named sum secured, if it can grow, increase or enlarge to any extent under the clause of future advances ? Such a mortgage might well be denominated a mortgage in esse — without the possibility of issue extinct — as no man can tell what progeny of numerous debts it might subsequently gather under its motherly folds. The truth is, I hold the mortgage should specify an existing debt which it is designed to secure, and that once executed by the parties, that they cannot by a clause of continuando, make it into a new mortgage every time a new debt may be subsequently contracted between them. If parties are compelled to make a new mortgage every time they contract a new debt, there can be no conflict, and no door opened for doubt or fraud. This I believe to be the necessary result of our doctrine of mortgages, although I am not permitted to declare it to be the law, and it is not necessary in this case. But it is perfectly clear, and the unanimous opinion of the Court, that when there is a mortgage executed prior to the subsequent advances under the clause, to secure future advances, that the second mortagee shall take precedence as to such subsequent advances. The second mortgage is notice to the first mortgagee, and if he advances he does so at his peril.

We all agree that the clause for future advances, if allowed any legal effect whatever, should be narrowly guarded and restricted. Such clause can only be tolerated in any sense upon the ground that it advises subsequent mortgagees or purchasers that future advances were contemplated, and enables him by inquiry to ascertain the extent of the incumbrance.

In the case under consideration, years after Spader’s mortgages were recorded, Lawler makes advances. Under such circumstances, the law is perfectly clear, that such advances must be postponed to the prior mortgages.

We therefore overrule the demurrer to the bill and reyerse the decree to the extent of error claimed.

Avert, J.

dissenting. I dissent from the opinion just declared by a majority of the Court. It reverses a judgment of the Supreme Court upon the circuit, rendered in 1844, which was decided, as I believe, in conformity with long established principles, and ought to be sustained.

The mortgage before that Court, and which is now before us in the present bill of review, had been given to secure certain specified notes, and contained a provision, following after the description of the notes, in thesé words: “ and in case any of the above described notes should be renewed, then such renewed notes respectively, and any other sum or sums of money, which the said Bonsai may be owing or indebted, unto the said Bonsai.” The mortgage deed was not to become void, but to remain in full force until payment should be made of the sums of money therein specified. The Court upon the circuit construed the words employed in this provision, to embrace future advances, and I do not see how any other construction can fairly be given to them. -

By the very terms of the mortgage, the payment is to be future, of all the several amounts secured; the deed is to be void only upon the condition that the notes of Bonsai therein described, the notes to be renewed, and any other sums which said Bonsai may.be owing, shall thereafter be paid. That the words admit of the interpretation here contended for, I do not expect to hear denied, and that such is not the more natural interpretation of the language, cannot, I think, be claimed. “ Sums of money that may be owing,” would seem to look to the future, and unless restrained by some word as now owing, or by something else in the deed to show that a present debt only was contemplated, would apply to a future indebtedness.

The Court on the circuit decided also that a mortgage given to secure future advances is a valid mortgage, and sufficient to protect such advances. In this it will be hard to prove that they are not sustained by the authorities, both American and English. The principle is sound whether applied to advances or future liabilities under a bond of indemnity. The cases cited are ample and full to the. point.

Our statute relating to deeds, (Swan’s, 265,) does not change the original form of the mortgage. It speaks of it as it does of the deed, neither attempting to limit or enlarge, or in any way to define the meaning of either teiyn. And there is nothing peculiar in our business or circumstances, which should lead the Court to deny the validity in this State, of a mortgage deed to protect future advances or liabilities.

But I do not understand the majority of the Court to deny that such a mortgage, is binding between the parties to the instrument, and proper as between them, to become the foundation for proceedings in Chancery and for a decree of foreclosure or sale.

But why restrict this* mortgage tp its effect upon the parties alone, when that must deprive it of nearly all its practical value ? If mortgages are to continue in general use, as one of the forms of security, they must be of force against those who have knowledge of their existence, as well as against the parties executing them.

It seems I think to be feared that giving full force to such a mortgage, will in some way affect the construction heretofore given to the Registry act. If such an instrument as I have been considering is a mortgage, and valid as such between the parties, then when it is placed upon the record, it is a valid mortgage recorded; and constructive notice, not to be gainsayed, is thereby given to all, of the existence of such incumbrance. The terms of the mortgage make the land liable as between the parties. The only object of recording, is to give notice of this fact to others. Uncertainty as to'the amount actually covered by the mortgage, at any given time, can be no sufficient reason for refusing to support such a mortgage, because the same objection will lie against all other mortgages. The record very seldom furnishes any evidence of the true amount of the debt. Let the person then who wishes to loan money, or secure other liabilities on the mortgaged premises, take measures to ascertain, as in other cases, the extent of the incumbrance at the time he makes his loan.

The decisión to be pronounced in this case, may perhaps go so far as to protect all advances made after the execution and up to the time when the second mortgage is recorded. If so, it will be because the record of this first mortgage is constructive notice to all persons, of such subsequent advances. In that case, to do equal justice to these two < mortgagees, the subsequent ought to give actual notice to' the' prior mortgagee, and put him upon his guard against incurring liabilities for the mortgagor, as he had been formerly doing with safety. Unless this be done the second mortgagee should record and hold his mortgage subject to all advances made by the first, till he" gets actual knowledge of the second incumbrance. The second mortgagee, if he acts with the common prudence, will, unless he trusts to the honesty of the mortgagor, cause the record to be examined, and then, besides constructive notice, he will obtain actual knowledge of the incumbrance. To enable him to break off the agreement, upon which the parties to the first had been before acting in good faith, it is not too much to-require him to give information to the person who, otherwise by continuing to repose upon the agreement, might suffer a loss. The record points out the first mortgagee, but he has no means of knowing' who is about taking a second incumbrance, that is to supercede his. He may indeed- go to the recorder’s office to transact the business with his debtor, make-the advance there, and preserve evidence of the exact time when the advance is made, and thus avoid the effect of a subsequent mortgage.

If the difference between the majority of the Court and myself shall be reduced to this, to wit, whether actual notice is to be required from either encumbrancer, the question becomes one of less interest than I at first supposed. But if so, what necessity is there, or principle, that requires the first mortgage, which once had been valid, and notice to all the world, to be destr0yed by the mere recording of a subsequent mortgage ? If there not any difference of moment, there is, then, the less reason for reversing the decree rendered by the Supreme Court some four or five years ago, which settled the rights of these parties, as it seems to me, correctly. How far that decree may have operated as a precedent for similar decrees since rendered, or how far business men may have regulated their conduct by it, I do not know. But this individual case, itself, will cause a considerable sui^ to change hands; and I can see no sufficient reason for disturbing the old relations of the parties, or for establishing the principle settled by this decision.

Birchard, C. J.

In this case, I hold that the placing upon record of Spader’s mortgage, was notice to Lawler; and that the advance of a thousand and eight .dollars, by him, made some five years afterwards, upon his elder mortgage, is to be -Taken as an advance made with notice of Spader’s lien. Beyond this, the case requires no opinion, and I give none. My conclusion on this point, which is decisive of the case, is drawn from the statute, (Swan, 266,) which declares that all mortgages shall be recorded in the office, of the county recorder, and shall take effect from the time when the same are recorded. Spader’s mortgage took effect in 1836, and its effect was to hold and bind the precise interest which Bonsai then had in the . premises. So far as Lawler’s mortgage was concerned, the estate was at' that time bound only for the balance then due to him. As to his future and subsequent advances, he ought, in equity and law, to be considered as acquiring a subsequent interest, which in one sense relates back to the date of his mortgage, but yet has no such relation back as will defeat the intermediately acquired rights of Spader. There is no reason why the record should not be notice to him, as well as to every other man.

Hitchcock, J„ concurred in the above.