Case ID: ohio-st_26/html/0491-01.html
Source: Caselaw Access Project
Author: {"author": "\n      Gilmore, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Henry A. Towne et al. v. Samuel Wolfe.
    "Where a trustee holding the legal title for tenants in common of lands purchased, mortgaged the lands to secure their separate notes given for their respective shares of the purchase money, the notes being of even date and each having three years to run, with interest payable annually, the condition of the mortgage being that the makers respectively should' pay their respective notes and interest; on foreclosure and sale of the mortgaged premises before the maturity of tbe notes, for unpaid installments of interest on one of them, after paying the installments due and ■■.osts, the amount remaining for distribution was insufficient to pay the' notes. He Id, that in equity the balance for distribution should he applied pro rata as payment upon the notes, notwithstanding the makers' of one of them had, subsequent to its execution, become insolvent; and that the mortgagee had no right to direct the application otherwise.
    
      Motion for leave to file petition in error to reverse the judgments of the District Court and Court of Common Pleas of Lawrence county.
    Henry A. Towne, Samuel McConnell, Thomas J. Backus, and James Winkler purchased from Samuel Wolfe' a tract of land for $2,500, for which sum they gave their notes in the manner set forth in the conditions of the mortgage hereinafter stated.
    Wolfe conveyed the land to “ Henry A. Towne in trust ■•for himself, one-sixth part; McConnell, one-sixth part; Backus, five-twelfth parts, and Winkler, three-twelfth parts.” Thereupon Towne, as trustee, executed a mort•gage to Wolfe on the same lands, the interest of each of ■ the parties therein being stated, to secure the payment of the notes given for the purchase-rhoney. The condition in . the mortgage is as follows: “ That if the said Henry A. ‘Towne and Samuel McConnell shall cause to be paid their promissory note of even date herewith in favor of said - Samuel Wolfe for $833.34 in three years after date, with seven per cent, interest, payable annually; and if Thomas J. Backus and James Winkler shall cause to be paid their promissory note of even date herewith for $1,666.66 in three years after date, with seven per cent, interest, payable annually, then these presents shall be void.” The notes were dated June 5, 1873.
    Towne and McConnell promptly paid the annual installments of interest on their note. Backus and Winkler, .having become insolvent, failed to pay the first and second installments of interest on their note as.they respectively fell due; and Wolfe commenced an action in Lawrence Common Pleas Court making all the purchasers parties defendant, to recover the interest due on the nete of Backus and Winkler, and for a foreclosure of the mortgage. A default decree was taken, finding the interest due to be $195, and ordering a sale of the entire premises. Wolfe became the purchaser, and the sale was confirmed. .After paying costs, taxes, and the amount for which tha decree was taken, there remained $1,206 for distribution. Wolfe moved the court to order this sum to be applied as a payment on the note of Backus and Winkler. Towne ■ and McConnell did not object to a distribution, but moved the court to distribute the amount pro rata upon the two-notes secured by the mortgage.
    The court overruled the motion of Towne and McConnell, and granted that of Wolfe, and ordered the amount remaining for distribution to be applied as a payment upon the note of Backus and Winkler. To this order of the-court Towne and McConnell excepted. On error, the District Court affirmed the order of the Court of Common Pleas. This is a motion for leave to file a petition in error-to reverse the judgment of the District Court, and to reverse and modify the final order of distribution in the Court of Common Pleas.
    
      N. S. Neal, for plaintiff in error,
    claimed that the proceeds of sale of the real estate, after payment of costs, should have been applied pro rata to the payment of both • notes, instead of being applied to the payment of the note of Backus & Winkler, and relied on Ex’rs of Swartz v. heist, 13 Ohio St. 419 ; Beresford v. Ward, 1 Disney, 169 Stamford Bank v. Benedict, 15 Conn. 437.
    
      Searl Never, for defendant in error,
    insisted that Wolfe had the right to apply the whole of the proceeds of the sale, after the cost was paid, to the payment of the Backus & Winkler note, because the mortgage is given to secure the payment of both notes; and it not being specified in the mortgage that the proceeds in case of sale shall be ratably applied, the mortgagee has the right to say which note he will have it secure first; and because the mortgage was given for the security of the mortgagee, and not for the accommodation of the mortgagors, that all the rights- and interest that Towne & McConnell have in the proceeds of the sale of the land are subsequent and subordinate to the right of Wolfe to have his entire purchase-money paid».
   Gilmore, J.

In determining the rights of these parties, equity will look to the substance and not to the mere form of the transactions between them. The fact that the lands were conveyed by Wolfe to Towne in trust, and that the trustee executed the mortgage to secure the notes in this case, are matters of form only.

In equity, the deed of conveyance from Wolfe to Towne in trust for himself, McConnell, Backus, and Winkler, which specified the undivided interest which each took, constituted the trustee and cestui que trust tenants in common in the lands conveyed. The undivided interests of Towne and McConnell together was one-third, and they gave their joint note to Wolfe for one-third of the purchase-money. The undivided interests of Backus and Winkler was two-thirds, and they, in the same manner, gave their joint note for a corresponding amount of the purchase-money.

The mortgage executed by the trustee to secure these notes was, in effect, the same as if the legal title had been taken and held by the purchasers as tenants in common, and they had joined in a mortgage to secure the notes thus executed, and this would have been primarily a pledging of the undivided interests of the joint makers of the notes respectively as security for their payment, and secondarily as an entire security for the payment of both notes.

It is manifest that the mortgagee and makers of the notes all understood and intended that this should be the effect of the transaction ; and it was neither contemplated nor intended that the makers of one of the notes should, by the execution of the mortgage, be rendered personally liable as surety for the makers of the other.

There were no issues in the case authorizing or requiring the court to decide upon the ultimate liabilities of the makers of the notes to the payee. The equitable right of the mortgagors and mortgagee under the mortgage were alone before the court. The fact that Backus and Winkler, the makers of one of the notes, were at the time in..solvent, did not, therefore, affect these equitable rights. The note to recover the interest of which suit was brought, not having matured, the payee was not in a situation to assert rights under it. The mortgagee had been paid all that was actually due to him at the time, and there remained a balance arising from the sale of the mortgaged premises for distribution. Here the only question in the case arises : Did the Court of Common Pleas err in overruling the motion of Towne and McConnell, and granting that of "Wolfe, and in ordering the whole of the balance remaining for. distribution to be applied as a payment on the note of Backus and Winkler?

To sustain these rulings of the court, it must be made to appear, either, 1. That, under the mortgage, "Wolfe had a right to direct the application of the money to be distributed ; or, 2. That the amount for distribution being insufficient to pay both notes, equity required the whole balance to be applied to the note of which the makers were insolvent.

As to the first: Counsel for Wolfe claim that he has a right to apply the whole sum to the payment of the Backus and Winkler note, “ because the mortgage is given to secure the payment of both notes; and, it not being specified in the mortgage that the proceeds, in case of sale, shall be ratably applied, the mortgagee has the right to say which note he will have it secure first.” The reason here given, as a predicate for the right, is insufficient. It is true that the mortgage was secondarily security for both notes; and it may be conceded, that, if the notes had been due, the payee could have proceeded at law, and collected the amount thereof from the makers of the solvent note, without resorting to the mortgage, because the note is an independent contract. Or the makers of one of the notes might voluntarily have paid it, which would have been performing an independent contract by which he had bound himself; and, in either event, the mortgage would have remained as a security for the full payment of the other note. All these supposed results might have been worked out through, and in pursuance of, the contracts by which the parties had bound themselves. But, as has been said, the rights of parties, as they arise under the mortgage, alone are before us. We do not understand that, the absence of stipulations in the mortgage as to how the-proceeds were to be applied, gave the mortgagee a right to direct the application. On the contrary, if it was in his mind at the time, he should have had the stipulation giving such right inserted; and, in its absence, the chancellor will, direct the application in accordance with the equitable-rights of the parties in such ease. The contingency of a sale of the premises under the mortgage was probably not in the minds of the parties at the time of its execution, and hence there is no stipulation therein on the subject of distribution. The notes were not due, and he had no right to demand payment of them at the time; but, inasmuch as the mortgagors were consenting to a distribution, all that Wolfccould ask was that equity and justice should be done; and, clearly, he had no right to direct the distribution without reference to the equitable rights of all the mortgagors.

. 2. Did the fact that the makers of one of the notes, not yet due, was insolvent affect the equitable rights of the-parties under the mortgage ? We think not.

We have already seen that, to the extent of their respective interests in the land, the mortgage primarily and equally bound the mortgagors for the payment of their respective-notes.

The lands having been owned as tenants in common by the mortgagors, when they were sold under the mortgage, the fund arising'from the sale took the place of the lands, and in the same proportions that they were owners of the laud subject to the mortgage, they were in equity owners of the fund, subject to the mortgagee’s lien upon it for the payment of their respective notes; and in reference to the fund yet remaining for distribution, the mortgagors, to the ■extent of their respective interests therein, stand upon a perfect equality by the terms of the mortgage, which is the-only evidence there is of the intention of the parties to it.

The notes secured by the mortgage are of the same date, and are to mature at the same time. “Equity delights in equality';” and as the fund arising from the sale under the mortgage is insufficient to pay both notes secured by it, the amount remaining for distribution must be applied pro rata upon both notes.

In ordering the whole amount to be applied to the payment of one of the notes, the .Court of Common Pleas erred; and the District Court erred in affirming the order.

The judgment of the District Court and final order of the Court of Common Pleas are reversed; and the cause is-remanded to the Court of Common Pleas with instructions-to distribute the fund pro rata upon both notes.

Judgment accordingly.

•Welch, O.J., White, Rex, and McIlvaine, JJ., concurred.