Savings Bank v. Creswell/Opinion of the Court

Samuel P. Brown, being seised in fee of a large number of lots constituting the subdivision of a tract of land into the town of Mount Pleasant, had a judgment rendered against him, March 3, 1870, in favor of one Jolly, for the sum of $4,694.05, in the Supreme Court of the District of Columbia, and the lots being within the District, the judgment became from that day a lien on them. On the twentieth day of June of that year, Mr. Brown borrowed of the Freedman's Savings and Trust Company the sum of $10,000, and executed to Daniel L. Eaton a deed of trust conveying a part of the lots owned by him in Mount Pleasant as security for the repayment of the loan. Under this deed of trust the lots were sold and bought in for the Freedman's Bank, and they have resold several of them and guaranteed the title to the purchasers.

A few months after the execution of the deed of trust above mentioned by Brown, he began to borrow money from the National Savings Bank, the appellant in this case, and gave deeds of trust on other lots in the same subdivision to secure the payment of these loans. In July, 1874, the National Savings Bank, fearing the loss of their security by the judgment against Brown of March 3, 1870, purchased that judgment, and ordered an execution to be issued on it, which was levied on the lots conveyed to Eaton for the benefit of the Freedman's Bank. That bank having passed into the control of Creswell and others, as commissioners appointed to wind up its affairs, they brought the present bill in chancery to release those lots from sale under that execution.

The court granted such relief as is authorized by the principle that where real estate is subjected to a lien in the hands of its owner, and he sells or mortgages separate parcels of that property subsequently to different persons, and at different times, these parcels shall be subjected to payment of the lien in the inverse order of their alienation.

The facts show that the conveyances to secure the savings bank were made subsequently to that made to secure the Freedman's Bank, and if the rule we have mentioned be a sound one, and there be no special reason to exempt this case from its operation, the Freedman's Bank was entitled to have the lots conveyed to the savings bank applied to the extent of their value in payment of the judgment, before their lots could be subjected to that payment.

There are one or two matters relied on by appellant to take this case out of the rule.

1. It is said that appellant had no actual notice of the deed of trust to Eaton when it took its mortgages, and a large part of the argument of counsel is devoted to this subject. But it does not appear that appellant in its answer set up the defence of a bona fide purchaser without notice, nor that any such question was raised in the court below. The main foundation of the suggestion, however, namely, that there is no evidence that the deed to Eaton was recorded, which appeared to be so by the transcript, is removed by the production of the original deed, having on it the certificate of the register of deeds, that it was properly recorded. This removes the foundation of the argument, and it must fail.

Another objection is that the appellant sets out in its answer that other persons had bought lots of Brown, after the rendition of the judgment, and were proper parties to this suit, and that as the complainants failed to bring them before the court, the decree in their favor is erroneous, and must be reversed for that reason.

But while the answer says that, as the appellant is informed and believes, there was a considerable amount of other property than that described in the bill, owned by said Brown, and subject to the lien of the judgment, which was sold and conveyed by him after his conveyance to secure the debt of the appellant, it does not describe the property or name the purchasers or fix the date of their purchases.

As the purchases are said to be subsequent to the creation of appellant's lien, it was the interest of appellant to set out the facts necessary to enable the complainants to bring them before the court. Nothing in the decree as rendered prevents defendant from selling these lots under his execution. The complainants, therefore, were not bound to hunt up the parties and the transactions to which appellant merely alludes in such vague and indefinite terms.

Lastly, the appellant argues that the subjection of the property covered by the lien of the judgment to its satisfaction, in the inverse order of its alienation, is not the prevailing rule in courts of equity, nor the rule of property in the District of Columbia.

Though the attention of counsel was directed during the argument to the production of any authoritative decision of the courts of the District or of Maryland which would be conclusive of the question, none could be found, after several days' opportunity for examination. The decree before us must rest on the general equity doctrine, if it be sustained at all.

The question is also a new one in this court, for Orvis v. Powell (98 U.S. 176) was decided on the ground that the principle having become a rule of property in Illinois, would be followed by us in reference to lands in that State. And Hughes v. Edwards (9 Wheat. 490) does not raise the question before us now, much less decide it. That was merely a question whether improvements constructed on the land after the execution of the mortgage became subject to its operation.

The proposition we are called on to consider is one on which the authorities, though numerous, are by no means in harmony. Mr. Justice Story, in his work on Equity (vol. ii. sect. 1233 b), approves the rule, so far as any of the property subject to the lien remains in the hands of the party against whom the lien was first established, but he says there is great reason to doubt whether it can be applied as between subsequent purchasers from that party, when it has been alienated at different times and to several persons. 'On the contrary,' he says, in such case 'there seems strong ground to contend that the original incumbrance or lien ought to be borne ratably between them, according to the relative value of the estates. And so the doctrine has been asserted in the ancient as well as the modern English cases on the subject.'

The older cases cited for this proposition scarcely sustain it. In Sir William Herbert's Case (3 Coke, 11), it was resolved that 'if A. be seised of three acres, and acknowledge a recognizance or statute, and enfeoff B. of one acre, and C. of another acre, and the third descends to his heir, and if execution be sued out against the heir he shall not have contribution against the purchasers, for the heir sits in the seat of his ancestor.' Among them is also Lanoy v. The Duke and Duchess of Athol (2 Atk. 444), in which Lord Hardwicke says: 'Suppose a person who has two real estates, mortgages both to one person, and afterwards only one estate to a second mortgagee, who had no notice of the first; the court, in order to relieve the second mortgagee, have directed the first to take his satisfaction out of that estate only which is not in mortgage to the second mortgagee, if that is sufficient to satisfy the first mortgage, in order to make room for the second mortgagee, even though the estates descended to two different persons.' This seems to be a pretty clear statement of the rule adopted in many of the States of the Union at the present day, though based rather upon the principle applicable to marshalling assets, that he who has a right to resort to two funds, in one of which alone another party has a subsidiary lien, shall be compelled to exhaust the one to which the other cannot resort before coming upon the one in which they both have an interest, than on the ground now relied on in the courts of this country.

That ground is that the first purchaser has a right to suppose that the part of the mortgaged property which he leaves with the mortgagor will in his hands be first subjected to the payment of the mortgage he has made. To this Judge Story assents. But the principle goes further, and holds that when a second purchaser from the mortgagor buys either all or a part of the incumbered property which remains, he cannot place himself in a better position than his grantor, and revive the burden on the first purchaser's land, from which it had been wholly or partially relieved by its primary pressure on the land left by him in the hands of the mortgagor.

No very clear decision of the question seems to have been rendered in the English courts on the subject, though occasionally alluded to, until the case of Averill v. Wade, decided in the Irish Chancery by Lord Chancellor Sugden in 1835, whose great authority in all that concerned titles to real estate will not be disputed. Looking to the question as governed by the doctrine of marshalling assets, he appears to decide against its application in cases like the one now before us, and refers to an opinion of Lord Eldon in 8 Vesey, 382, in which, while this point was not directly in issue, the argument of that eminent chancellor leaned that way.

But while these latter are authorities of great weight, it is to be remembered that they were made long after the time to which this court has looked to the English chancery practice as governing ours, while the case of Sir William Herbert, and Lord Hardwicke's decision, were before; and that the English courts have not considered, as far as we know, the principle on which the rule is based in this country.

That principle was stated by Chancellor Kent, with his usual force and clearness, in 1821, in Clowes v. Dickenson (5 Johns. (N. Y.) Ch. 235), which has become the leading case on the subject in this country.

After referring to the case of Sir William Herbert, he says: 'This case settles the question as between the vendor and purchaser, or the heirs of the vendor and the purchaser; and if there be several purchasers in succession, at different times, I apprehend in that case also there is no equality and no contribution as between these purchasers. Thus, for instance, if there be a judgment against a person owning at the time three acres of land, and he sells one acre to A., the two remaining acres are first chargeable in equity with the payment of the judgment debt, as we have already seen, whether the land be in the hands of the debtor himself or of his heirs. If he sells another acre to B., the remaining acre is then chargeable in the first instance with the debt as against B., as well as against A., and if it should prove insufficient, then the acre sold to B. ought to supply the deficiency in preference to the acre sold to A.; because, when B. purchased, he took his land chargeable with the debt in the hands of the debtor, in preference to the land already sold to A. In this respect we may say of him as it is said of the heir, he sits in the seat of his grantor, and must take it with all its equitable burdens; it cannot be in the power of the debtor, by the act of assigning or selling his remaining land to throw the burden of the judgment or a ratable part of it back upon A.' The doctrine and the reason upon which it is founded cannot be better stated than in this extract from the opinion.

We may, as an additional reason, suggest a principle often called into action in recent times in the courts; namely, that where one of two innocent persons must suffer a loss, it should fall on him who by reasonable diligence or care could have protected himself, rather than on him who could not. In the case supposed, the second purchaser, at the time of his purchase, knowing that the land which he buys is subject to the incumbrance before that already sold, can exact of the vendor security or protection against the incumbrance, which it is out of the power of the first vendor to do at the time his risk is increased by the very act of the second purchaser.

Since the decision in the case of Clowes v. Dickenson, the doctrine there announced has been followed by much the larger number of courts of the different States, though there are a few of very high authority which have held that as between vendees of land subject to a prior incumbrance, equality is justice, and the debt shall bear equally upon all the parcels originally subject to it, in proportion to their values.

The cases are collected in the briefs of counsel on both sides in this case, to which reference is here made as they will be given by the reporter, and in Leading Cases in Equity, vol. ii. part, 1, p. 291, edition of 1877.

We are of opinion that the preponderance of authority as shown by judicial decisions, as well as the weight of sound argument, is in favor of the rule laid down by Chancellor Kent, and the decree in this case is accordingly

Affirmed.