Court Opinion

ID: 6414167
Source: CourtListenerOpinion
Date Created: 2022-06-25 11:54:54.248237+00
Date Added: 2024-06-11T15:51:28.777483
License: Public Domain

Chapman, J.
The order of the judge of insolvency which the plaintiffs by their bill seek to have annulled was made on the ground that the mortgages are not to be regarded simply as having been made for the benefit of Sylvanus Allen as indorser, but that they constituted him a trustee for such persons as might become holders of the notes, and that this equitably lien, being attached to the mortgaged property in the hands of Sylvanus, remained and bound the property in the hands of the assignee. The cases of Eastman v. Foster, 8 Met. 19, and Rice v. Dewey, 13 Gray, 47, are relied on as authority for this position. The plaintiffs do not deny the doctrine of those cases, and as it was there settled so recently, and discussed so fully, it cannot be considered as open to. discussion here. But the plaintiffs contend that the present case is to be distinguished from them; because in both of those cases the condition of the mortgage was not only that the principal should indemnify the surety, but also that he should pay the debt; whereas, in the present case, it merely stipulates that he shall indemnify the surety, and makes no mention of the payment of the debt. But it is well .settled by the authorities that the creditor has an equitable claim to the security, as well when the mortgage is given for mere indemnity as when the condition is added that the principal shall pay the debt. In Moses v. Murgatroyd, 1 Johns. Ch. 119; Phillips v. Thompson, 2 Johns. Ch. 418; Ten Eyck v. Holmes, 3 Sandf. Ch. 428; Riddle v. Bowman, 7 Fost. (N. H.) 236 ; and Aldrich v. Martin, 4 R. I. 520, the security was giver. *179merely to indemnify the indorser, and yet the creditor was held to be entitled to it. The law is so stated in 1 Eq. Cas. Ab. 93, which is cited in severjal of the American cases. The equitable right of the creditor does not rest upon contract, but he is put upon the same equitable footing with a co-surety. The law has been k ng settled, and the distinction taken in the present case is novel.
Two cases in our own reports are said to give countenance to the distinction. In Agawam, Bank v. Morris, 4 Cush. 99, the question arose whether the bank could prove its debt against the maker of the note in insolvency. It was contended that they had security in their hands, because the president of the bank, who had indorsed the note, had in his hands certain security which he had taken of the maker for his own indemnity. He testified that he held it merely for his own benefit. AH that was decided was, that the bank might prove the debt. The reason given was, that the security was not one of which they could avail themselves, and therefore not one which they were bound to surrender. Why they could not avail themselves of it is a question not discussed in the case. It does not appear that the point raised in the present case was brought to the notice of the court. The other case is Meed v. Nelson, 9 Gray, 55. It arose upon the disallowance of a claim of the holder against the estate of the maker of a note, because an accommodation indorser had a mortgage for his indemnity. But it was held that, as the indorser might never be called upon, the mortgage might never become a charge upon the estate.
In this case the indorser has been called upon, and the holders of the notes seek to enforce payment of their debt against his estate, by calling on his assignee to sell the mortgaged property and apply it on the debt. We must assume, from the facts stated, that the indorser was made liable. It cannot be that if an indorser, who has been made liable by demand and notice, goes into insolvency, the mortgage taken by him for indemnity is thereby released. It ought to be held by his assignee for the benefit of his estate. But it was not taken for the general benefit of all his creditors, and its object was to indemnify his *180estate from the payment of the particular debt. Primarily therefore, it would seem to be the proper course to apply the security to the payment of that debt, and thus leave the other creditors of the indorser in the same condition as if the indorsement had not been made. The proper course, then, would seem to be, that the creditor should first petition, as he has done, to have this security applied towards the payment of his debt, and then make proof of the balance.
But it is objected on the part of the plaintiffs that the defendants have forfeited their right to have this application made foi their especial benefit, because they first proved their debts, and then made use of their position as creditors to vote for the discharge of the debtor, and that they have thereby affected the rights of the plaintiffs injuriously. As the claim of the defendants consists of a mere equitable lien, they contend that it ought to be discharged by any conduct of the defendants which thus injuriously affects the plaintiffs. The court are of opinion that this view of the matter is sound and equitable. The defendants had a right to waive their equitable claim to the mortgages; for the mortgages were not made to them, and they had never assented to them. The other creditors could not therefore object to the proof of their debts. Upon the proof being made, the amount of their claims enabled them to control the choice of an assignee, as well as the discharge of the debtor. It is the latter fact only which is made the subject of complaint in the plaintiffs’ bill, and therefore the effect of the proof upon the choice of the assignee is not to be considered in this case, though it was alluded to in the argument.
But the fact that the defendants thus acquired the power to control the vote of creditors on the question of the debtor’s discharge, and actually exercised that power, and procured the discharge, must be considered as a material interference with the rights of the other creditors. The discharge is doubtless valid, because the defendants had rightfully proved their debts and had a right to vote on the question. After they have done this on the ground that they had no lien upon the mortgages, it Is not equitable to permit them to insist upon the lien, and thus *181obtain a preference over the other creditors. The equitable considerations which favor the equal distribution of assets among creditors ought not to be set aside in such a case. On the contrary, we think the defendants should be bound by the position which they have taken.
But the defendants contend that the acts referred to were done by them in ignorance of the fact that they had a lien. It would be difficult to maintain the position that they had not, at least, constructive notice of the existence of the mortgages, because the mortgages must have been recorded in order to be made available to them ; and the fact that they had not actual knowledge of the existence of the mortgages, or that they did not know what were their legal rights under them, is not material. But whatever their ignorance may have been, if they have ignorantly proceeded in such a manner as to affect the rights of other parties, the injurious consequences of their acts ought to fall upon themselves, and not be thrown upon others.
As the property is not yet distributed, there seems to be no reason why the defendants may not renew the proof of their notes, and share in the distribution of the assets equally with the other creditors. Decree of the court of insolvency reversed.