Case Name: The Ohio Life Insurance and Trust Company v. Henry L. Reeder et al.
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1849-12
Citations: 18 Ohio 35
Docket Number: 
Parties: The Ohio Life Insurance and Trust Company v. Henry L. Reeder et al.
Judges: 
Reporter: Cases decided in the supreme court of ohio : upon the circuit at the special sessions in Columbus
Volume: 18
Pages: 35–48

Head Matter:
The Ohio Life Insurance and Trust Company v. Henry L. Reeder et al.
Where a debtor mortgages property to bis indorser to indemnify him against liability on his indorsement, the creditor cannot in chancery be substituted to the rights of the surety, in a case where no judgment has been rendered against either principal or surety, and where there is no allegation in the bill that either is insolvent, or that the debt cannot be collected by judgment and execution at law.
Che creditor can only be substituted to the rights of the surety, and the surety is not damnified till judgment has been rendered against him.
This is a bill in chancery, reserved in Hamilton county, and is submitted upon demurrer.
The bill, in substance, alleges that Henry L. Reeder, on the 7th of January, 1845, made to Nathaniel Reeder a mortgage, conveying certain real estate, conditioned for the payment of $3,800 due said Nathaniel; and likewise to secure and save said Nathaniel harmless against certain indorsements that he had made for him, to the several banks of Cincinnati, amongst which were three notes payable at the Ohio Life Insurance and Trust Company. The bill further sets forth that on the 2d day of January, 1846, Henry L. Reeder made to Nathaniel Reeder another mortgage on other real estate, conditioned to protect and save said Nathaniel harmless as his indorser on a number of other notes, all of which are mentioned in the mortgage.
It is also stated in the bill, that the Ohio Life. Insurance and Trust Company are the holders of two of these notes indorsed by Nathaniel; one for $500, dated Feb. 11th, 1845, and pay able in ninety days, and another for $750, payable in sixty days. That the first of these notes is covered by both of the mortgages, and the second one by the last mortgage.
The bill also sets forth, that both these notes 'were regularly protested for non-payment; that due notice was given to Nar thaniel Reeder, the indorser ; and that Henry and Nathanie« Reeder neglect and refuse to make payment.
The prayer of the bill is, that the mortgaged premises may be sold, and the proceeds applied to the payment of complain ant’s debt.
V. Worthington, for complainant.
The point in this case arises upon the following state of facts: Henry L. Reeder gave a mortgage to his brother Nathaniel to secure him against certain indorsements. The complainants holding two of the notes named in the mortgage, file' their bill to subject the mortgage property to pay the debts, against which the indorser is secured. The defendant Reeder demurs, thereby admitting the whole bill, but denying the legal consequences claimed.
We had supposed such a mortgage inured in equity to the benefit of the holders of the debts, against which the indorser was thereby secured; and' that they or any of them could directly invoke the aid of the Chancellor to apply the property pledged to discharge the debt, and thereby relieve the indorser. But in this we may be mistaken, and must refer to the books.
In 1 Equity Cases 93 (R.), concerning co-obligors and sureties, sec. 5, the law is thus laid down: “ A bond-creditor shall^ in this court, have the benefit of all counter-bonds or collateral securities given by the principal to the surety; as if A. owe3 B. money, and he and C. are bound for it, and A. gives C. a mortgage or bond to indemnify him, B. shall have the benefit of it to recover his debt. Maure v. Harrison, Mich. 1692.”
In Bacon’s Abridgt. 700, the law is thus given in like terms : “ In equity, a bond-creditor shall have the benefit of all counter-bonds or collateral securities given by the principal to the surety, as if A. owes B. money, and he and C. are bound for it, and A. gives C. a mortgage or bond, to indemnify him, B. shall have the benefit of it to recover his debt. Maure v. Harrison, Abr. Eq. 93.
In 1 Story’s Equity 481, sec. 502, the commentator, after stating the rights of the surety to collaterals given to the creditor, says: “ On the other hand, if a surety has a counter-bond of security from the principal, the creditors will be entitled to the benefit of it; and may in equity reach such security to satisfy his debt.” So, also, in sec. 638, he says: “ And on the other hand, if a principal has given any securities to his surety, the creditor is entitled to all the benefit of such securities in the hands of the surety, to be applied to the payment of his debt.”
In 19 Ves. Rep. 345, it was settled, that securities held by a banker against his acceptances, were available to the bill holders, not directly, but through the equity of the acceptor, or the assignee under a commission of bankruptcy against him, to have them applied in discharge of the acceptances.
In 9 Paige Rep. 435, the Chancellor says: “ It is well settled, however, that where a surety, or person standing in the situation of a surety, for the payment of a debt, receives a security for his indemnity, the principal creditor is, in equity, entitled to the full benefit of that security. And it makes no difference that such principal creditor did not act upon the credit of such security in the first instance, or even knew of its existence. Thus, in Maure v. Harrison (1 Eq. Ca. Abr. 93), it was held that in equity, a bond-creditor was entitled to the benefit of all counter-bonds or collateral securities given by the principal debtor to his surety. And that the holder of a bond was, therefore, entitled to the benefit of a bond and mortgage given by the principal debtor to his surety in the bond, for the indemnity of such surety. So in the case of Ex parte Perfect, (Mont. Bank Rep. 25) the vice Chancellor of England decided that the indorser of a bill of exchange had an equitable claim to property deposited with the drawee, as security against the payment of the bills accepted by him. The same principle was acted upon by the Supreme Court of this state in the case of the Bank of Auburn v. Troop, (18 John. Rep. 505,) upon an application to the equitable powers of that court. (See, also, Parsons v. Buddock, 2 Verm. Rep. 608; Waring and others, Ex parte, 19 Ves. 345; Ex parte Par, Buck’s Bank. Ca. 191; Ex parte Prescott and others, 3 Deac. and Chitty’s Rep. 218.”)
In 9 Paige Ch. Rep. 452, the Chancellor says: “ Eor it is a well settled principle of this court, that the creditor is entitled to the benefit of all the collateral obligations for the payment of the debt, which any person standing in the situation of a surety for others, has received for his indemnity, and to discharge him from such payment.”
In 11 Conn. Rep. 119, the judge says: “It was holden, more than a century ago (1692), in the case of Maurey. Har~ rison, 1 Eq. Cas. Abr. 93, that a bond-creditor shall have the benefit of all counter-bonds or collateral securities given by the debtor to the surety. And this principle has ever since been recognized as elementary in courts of equity. The cases on this subject are all collected and well considered by Bissel, J., in the case of Homer v. Savings Bank, 7 Conn. Rep. 478 — and they entirely establish the general doctrine for which the plaintiffs contend ; and their authority this court recognizes.”
In 15 Conn. Rep. 383, the judge says: “ If the fund or pledge be m the hands of the surety for his indemnity, the creditor may, if he has no other remedy, compel its. application to the payment of the debt.”
It is supposed by counsel, that the complainants should have first put their notes in judgment, and then, as intimated by the judge in deciding the case in 15 Ohio Rep. 263, they “ might, in equity, subject the property mortgaged by the principal debtor’ to the security, as indemnity, to be sold for the satisfaction of such judgment.” With due deference, I do not perceive the force of the judicial intimation. Our courts of record in Ohio, have jurisdiction in all cases properly cognizable by a court of chancery, in which plain, adequate and complete remedy cannot be had at law. ' If, then, the powers we invoke be cognizable by a court of chancery, and not exercised by a court of law, except in the assumption and application of chancery principles to special cases, as in 18 John. Rep. 505, we affirm the complainants are entitled to the relief sought, without a judgment, as the power we invoke, does not make its exertion depend upon a judgment upon the part of a creditor. ,
It is truc, a judgment creditor may file a bill to remove incumbrances or obstacles out of his way, or he may file a bill to charge equities; but such a right in either case, calls in other powers than the one now under consideration.
We claim broadly, that a mortgage given by a debtor to indemnify his surety inures directly to secure the creditor, and it is not in the power of the surety to discharge the mortgage, if the creditor be not paid; and such being the case, the creditor can file his bill directly to have the property mortgaged subjected to the satisfaction of his debt, because he has no plain, idequate and complete remedy at law to reach the mortgage premises. Were the complainants’ notes alone protected by the mortgage, then they might, as in a mortgage direct to them selves to secure a note, get along at law, as a sale at law on a judgment upon the notes protected, would extinguish the mortgage ; but as there are other creditors equally protected by the mortgage, the legal remedy on the notes fails, and there is no adequate relief but in chancery.
0. M. Spencer, George JE. Pugh, and S. M. Part, for defendants.
1. Whilst we do not controvert the proposition that a surety against whom judgment has been rendered, may, in all cases, file his bill to subject the security pledged to him for satisfaction of the judgment, and without paying the debt himself, we insist that the right of the creditor to be substituted for the surety is not of the same unlimited character.
.The distinction between cases where the creditor can be substituted, and where he cannot, is this: When the security is given with the intention that it shall be applied for the payment of the debt and in exemption of the surety, he (the surety) is a mere trustee for the creditor, and substitution may be decreed; but where the security is to indemnify the surety only, against payment of the debt, it is personal to the surety, and there can be no substitution.
Let it be remembered that in either case, the surety himself may come before the chancellor, and have the security applied to payment of the debt. But the creditor can only be substituted for the surety in those cases where the surety is a mere trustee.
Green v. Dodge, 6 Ohio Rep. 80, is meagre upon this point, ■but it appears plainly to have been a case where the security was intended “to be applied to the extinguishment” of the ■debt. The reporter’s marginal note is this: “ When a security (surety) receives from the principal debtor demands, for the purpose of discharging the debt by their transfer to the credit- or, or by payment of the money collected, he holds the claims, or their proceeds, as trustee of the creditor.”- The very distinction for which we contend seems to have been in the mind of the court.
Kramer v. The Bank of Steubenville, 15 Ohio Rep. 253, and McConnell v. Scott, 15 Ohio Rep. 401, were cases where the court acted at the instance of the surety himself.
This mortgage was evidently executed merely to save N. .Reeder harmless — not to provide a fund for the benefit of the creditor — and therefore no one besides N. Reeder is entitled to use it. Suppose that a third person had given a mortgage to secure N. Reeder upon these indorsements (some person who was willing to stand between the indorser and the maker), would it be pretended, for a moment, that the creditor could be substituted to such a mortgage ?
The condition of this mortgage is to secure N. Reeder upon other indorsements than those which the Trust Company holds. And being merely for his personal security, it will not be denied, we apprehend, that he may of his own will release the mortgage altogether. A fortiori, he has the right to manage it himself — to control the security pledged to him in such way as will afford indemnity upon all the indorsements — and to object to any substitution and management of the Trust Company, or of any other single creditor. This right he would have in any event, whether a trustee or not, and yet this bill proposes to disregard it.
But his right becomes clear in a case like this, where the whole object of the mortgage is to protect him, and not to benefit the Trust Company or any creditor. If this bill be maintained, however, the very instrument made to secure him becomes the means of doing him injury — of putting his security out of his own hands into the hands of others — whilst the Trust Company, which H. L. Reeder did not care to protect, has every thing its own way, manages the security without reference to the wishes of him to whom it was originally given, and is preferred to the very man whom II. L. Reeder intended to protect.
2. Our next proposition is, that, without fixing first the liability of the surety, the creditor cannot be substituted to the mortgage.
The mere fact that the notes have not been paid, and that N. Reeder had notice of non-payment, does not violate the condition of the mortgage: he may have been released expressly, or by the creditor’s giving time to the principal, or by the credit- or’s refusal to sue the principal after notice. Nothing short of a judgment can fix his liability, and sometimes not even that. In Kramer v. The Bank of Steubenville, the judgment was spoken of as the very thing requisite. Per Judge Hitchcock : “ In consequence of the rendition of the judgment against him (the surety) he was so far damnified that he might, with propriety, have the property mortgaged to him, sold to satisfy that judgment.” 15 Ohio Rep. 268.
Now, Nathaniel Reeder has never been damnified, according to the case made in this bill, and non constat he ever will be. The Trust Company can only claim through him, and, at present he has no claim at all — the condition of the mortgage not having been broken.
3. The prime object of this mortgage is to secure N. Reeder’s own claim, and therefore he has a right to resist the sale of the premises. Even if the Trust Company could have substitution, it would, as .to N. Reeder’s own claim, be the second mortgage. All that the creditor can possibly do in this case, is to sell H. L. Reeder’s possessory interest and equity of redemption — and that, we submit, is a remedy equally applicable at law. To be sure the creditor can redeem the mortgage, but that is not prayed in this bill.
Nathaniel Reeder (being, as to his own debt, the first mortgagee) has an estate in the land which cannot be extinguished, without his consent, otherwise than by payment of the money thereby secured. All the right of H. L. Reeder is a right to redeem the mortgage, and no second or third mortgagee can possibly have a greater right than has H. L. Reeder himself.
This principle may be deduced from all the authorities. Cruise, defining the right of subsequent incumbrancers, says that they may redeem the mortgage by a bill; 2 Cru. Dig. 126. And Judge Story, speaking of “ the right of redemption,” says that “ such persons have a clear right to disengage the property from all incumbrances, in order to make their own claims beneficial or available.” 2 Story’s Eq. 340. Whilst the Trust Company can redeem N. Reeder’s mortgage, it cannot sell him out. It will not be pretended that H. L. Reeder could file a bill to sell the premises, and pay off the mortgage. McDonough v. Thur bridge, 2 Ball & Beatty 555, decides expressly that he cannot, and, indeed, to say that he can would be monstrous. Yet the Trust Company, be it remembered, can have no more rights against N. Reeder than the mortgageor has.
We have said that the subsequent creditor can only redeem the mortgage, but the expression needs to be limited. There is one other remedy — to offer N. Reeder possession of the mortgaged premises, (that he may apply the proceeds thereof to the satisfaction of his debt,) or, if he refuse possession, have a receiver appointed. This matter is discussed by Judge Story (2 Eq. Jurisp. 163), and there it will be noticed how careful chancellors are to protect the first mortgagee.
This is neither a bill to redeem, nor to appoint a receiver. It is a bill for sale, and neither redemption, nor a receiver, can be granted upon it. Story’s Eq. PL 40-43.
In The matter of Bellows and Peck, 7 Law Rep. 129, Judge Story assumes our doctrine to be indisputable. “ We all know,” he says, “ what are the ordinary proceedings in bankruptcy in cases of mortgages. If the mortgagee chooses to come in under the bankruptcy and surrender his mortgage, for the purpose, of a sale of the property, the property is sold, and he will be entitled to prove as a creditor for the surplus due him beyond what the proceeds of the sale will satisfy. If he does not so come in, and the debtor has obtained a lawful discharge and certificate thereof, the mortgagee cannot proceed against him by a personal action for the debt. His sole remedy is to bring his bill for a foreclosure (if the assignee does not bring a bill to redeem) making the proper parties, and he will then be entitled to a foreclosure, unless the money is paid within the time prescribed by the court, by the assignee or other party in interest.”
Mr. Smith (1 CL. Praet. 534-535) states specifically what relief a second mortgagee or incumbrancer has against the first mortgagee. It is a privilege of redeeming the first mortgage within a given time; and, in the event of failing so to redeem, the bill must be dismissed. In case of redemption, however, a sale upon the second mortgage is decreed.
So, in Baird v. Kirtland, 8 Ohio Rep. 24, the court said that incumbrancers and purchasers, could only redeem the first mortgage. “ If Kirtland stands in the situation of a mortgagee, and in equity there is no doubt that he does, and these complainants have a right to redeem, then it is true their remedy is in this court.”
The practice in chancery of selling an estate, subject to a prior lien, is quite familiar. Briggs v. The Planters’ Bank, 1 Freem. Miss. Rep. 585.
Our doctrine is also very clear upon this consideration — that a mortgagee makes subsequent incumbrancers parties to his bill of foreclosure, and for the purpose of cutting off their right to redeem. If they be not made parties, they may afterwards redeem — even against a purchaser. Coote on Mort. 522.
It being certain, therefore, that all the relief this court can give the complainant is a sale of this property, subject to N. Reeder’s mortgage, we insist that there is the same remedy at law- The Trust Company can have judgment against H. L. Reeder upon the notes, and levy (subject to N. Reeder’s mortgage) upon this land.
The mortgageor. is in possession, and his possessory interest may be sold upon execution from a court of law. Ely’s Lessee v. McGuire, 2 Ohio Rep. 223; Lessee of Phelps v. Butler, 2 O. R. 224; Gray v. Tappan, Wright’s Rep. 117; The Bank of Canton v. The Commercial Bank, 10 O. R. 71; Seymour v. King, 11 O. R. 342.
The sale of a possessory interest, upon execution, vests in' the purchaser the whole estate, equitable and legal, of the judgment debtor. Lessee of Jackson v. Williams, 10 O. R. 67. The debtor is estopped to deny that his entire interest passed. Scott v. Douglas, 7 Ohio Rep. (part 1st) 228.
Such has long been the settled law as to every kind of equitable interest when coupled with a. legal estate of any charae ter — possessory or otherwise. And no one pretends, at this day, that an equity of redemption cannot be sold, when coupled •with possession, upon execution at law.
Something upon the fact that the mortgageor’s possessory interest and equity of redemption, when sold upon execution, must be appraised as the unincumbered fee itself. That is unfortunate certainly, but it cannot be shown from the statute, nor from decisions, that the mortgageor’s interest, when sold by a court of chancery, may be appraised at any less. The eighth section of the act of 1838 (Swan’s' Stat. 719) directs that sales made upon decrees of equity, shall conform, in all respects, to sales upon judgments at law. The method of appraisement, therefore, is the same in both courts. Swan’s Stat. 473. The language of every decree of foreclosure and sale is, that the mortgaged premises (if payment of the money be not made) shall be appraised, advertised, and sold by the sheriff, in like manner as lands are usually appraised, advertised, and sold upon judgment and execution at law. The contrary and erroneous opinion arises from the fact that frequently the first mortgage is not set up, or the first mortgagee (equally anxious for his money as the rest) consents to- the sale, and thus the purchaser gets the whole premises. But where premises are sold subject to a mortgage, they must be appraised in chancery as at law. There is no reason, therefore, to seek the interference of equity upon that ground.
Bx parte Jackson, 5 Ves. 377, (as to sales when the mortgageor is bankrupt,) affords much instruction upon this subject. In England the standing rule is that the assignee may petition the chancellor for a sale of the whole estate ; and if the incumbrancers consent, such a sale may be ordered. If they do not consent, the bankrupt’s equity of redemption alone .is soldi The matter of Bellows and Peck, 7 Law Rep. 27, already cited. In the case of Jackson, just referred to, it was adjudged by the Lord Chancellor, after deliberation and the advice of the attorney general as amicus curiae, that the estate of the second mortgagee even could not be sold, without his consent, upon the assignee’s petition. Et vide, 2 Bla. Com. 487.
If, therefore, this be such a mortgage as does not admit substitution of the- creditor against the will of the surety, or if it be necessary to show that, as against the surety himself, the condition of the mortgage has been broken, or if, so far as regards N. Reeder’s individual claim, the Trust Company be only a subsequent mortgagee, and have therefore a remedy at law, the demurrer must be sustained.

Opinion:
Caldwell, J.
The defendants having met the allegations of the complainant by a demurrer, we are called upon to decide whether the case made in the bill authorizes the action of a court of chancery.
Have the complainants the same right to proceed to foreclose these mortgages that they would have had, had the mortgages been given to secure their debt. Now it will be seen that these mortgages are not given for the purpose of securing the complainant's claim; not for the purpose of raising a fund out of which the debt was to be paid. If so, a court of chancery would hold the mortgagee as trustee of complainants, and would subject the property to the accomplishment of the objects of the trust. The mortgages were given to Nathaniel Reeder for his own personal benefit and security — to save him harmless from his liability as indorser; and can only be resorted to, either by him or the complainants, when it becomes necessary to effect that object — when the contingent necessity contemplated in their creation has arisen.
That there are cases where a court of chancery will give the creditor the benefit of securities, given by the principal to his surety, as indemnity, is well established. Indeed where the liability of the surety has become absolutely fixed, as where judgment has been recovered against him, and his principal has become insolvent, and cases of a similar character, when a resort to his securities becomes absolutely necessary (other resources having failed) to save him harmless from his liability, there appears to be great propriety in a court of chancery permitting the creditor to proceed directly to appropriate such security to the payment of his debt. It prevents circuity of action, the surety is better indemnified, not being disturbed, unless his securities are insufficient; and the creditor has the benefit of having his claim satisfied.
Still we think in all such cases the governing principle on which the court proceeds, is the carrying out the great object in the creation of the indemnity — protection to the surety; the benefit to the creditor following rather as an incident.
Does the bill in this case show any necessity for either the surety or the creditor to resort to these mortgages ? Has the contingency happened on which their conditions were to become forfeited ? No judgment has yet been recovered either against principal or indorser — no suit has yet been brought — there is no allegation in the bill that the principal is not amply able to pay the debt. The indorser remains unharmed from his liability, and there is nothing alleged that shows that he will'not always remain so.
The Ohio Life Insurance and Trust Company seek in this case to be substituted to the rights of Nathaniel Reeder, in a contract made with him personally, for his own benefit; they can only claim such rights as have inured to him; he has not been damnified; the conditions of the mortgages are unbroken as to him; he can yet assert no claim under them; nor could the Trust Company, by being substituted to his rights.
In Homer et al. v. Savings Bank of New Haven, 7 Conn. Rep. 478, after reviewing the cases on this subject, the court distinctly decide, that where the security is given to the surety for his own protection, the creditor can only claim through him, and must be subject to all the equities to which he is subject.
But there is no allegation in the bill that shows that the notes held by the complainant could not be collected by the ordinary proceeding at law. It is true that it is alleged in the bill that complainants have not a remedy at law, and are obliged to resort to a court of chancery, and it is said by counsel in argument that the number of different liens on these mortgaged premises creates that necessity. If the complainants had a claim that would enable them to resort to this property, that would probably be true. But there is no allegation in the bill' that defendants have not sufficient property, subject to levy and sale on execution, to satisfy their claim — that a plain and adequate remedy cannot be had at law.
The substitution of a creditor, to the indemnities of the surety, is a high exercise of chancery powers, and will not be resorted to unless in cases where the ordinary remedies have failed.
The demurrer will be sustained.