125 Mich. 311 | Mich. | 1900
This bill was filed to enforce an equity in a real-estate mortgage security given by a principal debtor to his accommodation maker on certain notes. It appears that on February 4, 1896, William B. Knickerbocker was engaged in the milling business at Albion, under the name of the Albion Milling Company. He was indebted to the complainant in the sum of $5,000, for which he gave a note, with his father, Charles R. Knickerbocker, as accommodation maker. About April 21st, William B. became financially embarrassed, and gave his father a mortgage for $31,500, pajmble six months thereafter, with the following statement in the mortgage:
“It is hereby expressly understood and agreed that this mortgage is given to the said party of the second part to indemnify and secure him against all notes and obligations made by said William B. Knickerbocker, and indorsed by said party of the second part, or signed by him, as accommodation maker or otherwise, for and with the • said William B. Knickerbocker, such notes and obligations amounting to said sum of $31,500.”
This mortgage covered the real estate owned and occupied by the mortgagor, consisting principally of his mill and premises appurtenant thereto. Two other mortgages, to secure other creditors, were given contemporaneously with this instrument, as second and third mortgages, but they need not be considered in this case. The complainant brought suit on this $5,000 note against William B. and Charles R. Knickerbocker, and obtained judgment. Execution on this judgment was issued, and returned un
The bill was filed to have set aside the assignment of such mortgage; to have it declared void; to have defendants required to surrender such assignment to be canceled; and to have determined the amounts of all bona fide notes or obligations signed by-Charles R. Knickerbocker, as accommodation maker or otherwise, for William B. Knickerbocker, and owned and held by the First National Bank of Albion, the Jackson City Bank, and Jennie P. Goodwin, administratrix. The bill asks that a receiver be appointed to take charge of the property, to sell the same, and pay over the proceeds of such sale to complainant and to defendants holding bona fide notes or obligations at the date of said mortgage, signed by Charles R. Knickerbocker as accommodation maker for William B. Knickerbocker, in such amount or proportion as may be determined to be just and equitable under the provisions of said mortgage. It is alleged in the bill that both Charles R. and William B. Knickerbocker were insolvent at the time of the giving of the mortgage and at the time of the assignment of it before referred to. The court below granted a decree in accordance with the prayer of the bill. The defendants have appealed.
The defendants say that, when the mortgage in question was given, it was ascertained by the creditors that the milling business would be greatly damaged by the cessation of business, and that the value of the property covered by the mortgage would be largely depreciated thereby; that complainant was asked to join with the others in a proposed reorganization of the milling com
We may dispose of this last proposition first. We think the record shows conclusively that he, as well as William B. Knickerbocker, is insolvent. An execution was issued against them both, was returned unsatisfied as to both, and Charles R. Knickerbocker himself testified: “When I was sued with my son on the $5,000 note, I was
Some further statement of facts becomes necessary. It appears that the indorsement by Charles R. Knickerbocker as accommodation maker upon notes amounts to more than the $31,500 stated in the mortgage. He had indorsed other notes for William B., the total of said indorsements being $48,500. It is claimed by the defendants that, if this $31,500 mortgage can be regarded as an indemnity to secure creditors, it cannot be limited to the three creditors making claims under it, to wit, the complainant for $5,000, the Jackson City Bank for $8,000, and the First National Bank of Albion, which makes the total of $31,500, but that all creditors who hold notes signed by Charles R. Knickerbocker, as accommodation maker for William B. Knickerbocker, must be regarded as included within the mortgage. On the other hand, it is contended by counsel for complainant that the' three creditors alone must be subrogated to Charles R. Knickerbocker’s rights under the mortgage, as their claims aggregate just the $31,500 mentioned in it. Complainant also introduced testimony which it is claimed shows the fact that it was the intention of William B. Knickerbocker to secure only these three claims by the mortgage given. Warren S. Kessler, who was called as a witness, testified that he was asked to sign the third mortgage as trustee and as a witness to the second one; that he was present when all three were executed, and that at the time of such execution William B. Knickerbocker stated to him that he was in trouble, and had to give mortgages; that he gave the first, to the amount of $31,500, to his father to indemnify him against indorsements he had made for him as follows: To the First National Bank of Albion, $18,500; to the Albion State Bank, $5,000; and to the Jackson City Bank, $8,000. Wilbur P. Robertson, the bookkeeper for William B. Knickerbocker, mortgagee in the second mortgage, and a witness to the present mortgage, testified that at the time of the execution of the mortgages, in the
“ I cannot say whether he said this just at the time the mortgage was signed or not. There were present Mrs. Knickerbocker, Mr. Weeks, Mr. Kessler, and myself. It was between 10 and 12 o’clock at night, at Mr. Knickerbocker’s residence. * * * I think Mr. Knickerbocker made the statement to me that those were the beneficiaries as he intended. * * * I do not think he made any statement that that was all the paper his father was on. * * * I did not understand that William B. wanted to secure his father for every bit of liability, but was to secure him against these three specific items.”
Eugene P. Robertson testified that William B. stated to him that the mortgage was given to secure these three claims. The witness was president of the complainant bank. No testimony was given contradicting this testimony, and William B. Knickerbocker was not called as a witness to dispute any of the statements. We think it establishes beyond controversy that it was the intent of the mortgagor to secure the payment of these three notes and no others.
Defendant Goodwin’s counsel contend that it is evident the maker of the mortgage had no idea of directly securing creditors, but only to secure his father; that nothing upon its face indicates these creditors as beneficiaries; and that it cannot be made to operate in their favor, except through the court in the exercise of its equity powers, and under circumstances that will wrong no one and work no injustice. It is admitted by counsel for the Knickerbockers, the Jackson City Bank, and defendant Potter that the general doctrine gives to the principal creditor the right of subrogation, in case of the insolvency of his surety and debtor, to any securities which may be held by the surety, but he denies that the rule is applicable to this case. He invokes thé doctrine that where a mortgage is
The mortgage in question purports to secure the mort
We think it is the settled rule that, when collateral security is given or assigned for the better protection or payment of the debt, it shall be made effectual for that purpose; and to make it thus effectual a court of chancery will lend its aid, where it is made apparent, either by the instrument itself or by the parol testimony in the case, that it was the intent of the principal debtor to secure the debt by the security given to the surety, and the creditor in such case will be subrogated to the rights of the surety
“As a general rule, where a surety, or a person standing in the situation of a surety, for the payment of a debt, receives a security for his indemnity and to discharge such indebtedness, the principal creditor is in equity entitled to the full benefit of that security; and it makes mo difference that such principal creditor did not act upon the credit of such security in the first instance, or even know of its existence. The authorities place the principle upon the ground that, as the security is a trust created for the better securing of the debt, it attaches to it, and hence it is that it may be made available by the creditor, although unknown to him.”
This is supported by a great number of authorities. The rule is laid down in Coleb. Coll. Sec. § 217, that:
“Where the surety himself has received such securities from the principal debtor on account of the obligation assumed, equity creates a quasi trust in relation thereto, in favor of the creditor and of co-sureties, until the debt be discharged. The surety has no right to discharge or defeat such trust.”
It is said in 1 Jones, Mortg. (4th Ed.) § 883a:
“This right exists although the mortgage was given to the surety by the debtor after both had become bound to the creditor, and although there had been no previous agreement that indemnity should be given, and although the mortgage was executed without the knowledge of the creditor.”
In Union Nat. Bank v. Rich, 106 Mich. 319 (64 N. W. 339), the same rule is stated.
The facts show conclusively that the Knickerbockers were insolvent at the time of the giving of the mortgage and at the time that Charles R. Knickerbocker made the assignment to Potter. It is also shown that Potter knew of the claim made by complainant to be subrogated to the rights of Charles R. Knickerbocker under -the mortgage before he took the assignment for the benefit of the other defendants. Under such circumstances, neither
The court was not in error in the decree made. That decree must be affirmed, with costs to the complainant.