Edwards v. Sanders

| S.C. | Oct 14, 1875

The opinion of the Court was delivered by

Moses, C. J.

We shall first dispose of the questions which are raised in regard to the mortgages of personal property. It is urged that they are not within the meaning and intent of Section 26 of the Act of 1789, (5 Stat., 116,) which prescribes the order in which “the debts due by any testator or intestate shall be paid by executors or administrators,” because the term mortgage, in our statutes, always applies to conveyances of land by way of security, and never to an instrument conveying chattels for a like purpose. If the proposition is not sustained by the fact, on which alone it rests for support, it is not necessary to do more than to show that at the passage of the Act it was applied as well to mortgages of personal as of real estate. As long ago as 1698, mortgages of negroes and other chattels were recognized, and a rule prescribed as to their priority, where more than one of the same property was given. — 2 Stat., 137.

Again, in 1745, (3 Stat., 664; 1759, 4 ib., 89, and 1785, 7 ib., 234,) provisions are made for their security as existing valid liens, operating to as full an extent, on the property which they cover, as those of real estate. Indeed, on the very day of the ratification of the Act which prescribed the order in which payment of the debts of a decedent was to be made, the Legislature, in an Act providing for the transmission of an abstract of all judgments to the Clerk of the Court at Charleston, declared “that no judgment not so entered in the books of the said Clerk shall affect any property, real or personal, as to purchasers or mortgagees.” — Stat., 256. It would thus seem that the term was applied without distinction as to the character of the security. Indeed, the-expression “chattel mortgage” has never been used in this State, and is not to be found in any of its statutes. Even in the General Statutes, although the heading under Chapter- 120 is of “chattel mortgages and liens,” the very first provision refers to the recording of “a mortgage or other instrument in the nature of a mortgage of personal property.” Even in England it is also applied to the pledge which is made of personal property for the security of a debt by loan or otherwise. Mr. Coote, in his work on mortgages, devotes a chapter to “ mortgages of chattels personal,” and the right of such a mortgagee to foreclose is recognized in Kemp vs. Westbrook, Betts’ Suppt. to Vesey, 141; in Dyson vs. Moris, 1 Hare, 422; Slade vs. Riggs, 3 Hare, 35. Regarding them as mortgages within the designation of the Act of 1789, we fail to discover any rule or principle by which they are to be excluded from the rank to which, by its express terms, they are entitled.

It is not without some diffidence that we enter on the consideration of this point in the case, as the judgment of the Court below in relation to it was in conformity to the decision in Young vs. Kinard, 2 Rich. Eq., 258. The deference which we have been accustomed to accord to the decided cases in our own Courts, we must admit, has here lost-some of its force, not only by reason of the full and convincing argument of Chancellor Johnston in the Circuit decree, but by the language of the Appeal Court in reversing it. That Court thus expressed itself: “It feels much difficulty in giving construction to the Act of 1789, recited in the decree, and is not prepared to say that, if the question were entirely open to them, the construction adopted by the Chancellor is not a fair deduction from its phraseology. But it is deemed expedient to defer to the case of Tunno vs. Happoldt, cited in the decree, as an exposition of the Court of law, leaving to that Court, or to a future occasion, the consideration of the suggestion made in this case.” Notwithstanding this, it is with deference we venture to say that the question raised and decided in Tunno vs. Happoldt, (2 McC., 188,) was not identical with that made in the case in which it was accepted and followed as a guide for its ruling. The point which the Court there seems to have considered was whether the mortgage deed could change the character of the note which it was given to secure, and elevate it from the class of simple contracts, to which it belonged, to the higher grade of a specialty. Concede, as we must, that it could not, still that did not decide the point made by the appeal. The note could have no preference over other simple contracts, and the rank which should be accorded to the mortgage, in the order of priority in the payment of the debts by the administrator, remained undetermined. The Act of 1789 does not interfere with liens as they existed at the death of the debtor. Whatever rights they confer are still secured to the holder, and the property, if if exists, remains subject to their satisfaction. The order of payment which it declares has no application to liens which could be enforced against the property on which they attached. As to those, the concluding words of the Section clearly show that they are to prevail as they existed at the death of the debtor. The order of priority was only to be observed in the application of such general assets in the hands of the executor or administrator as were not bound by any specific lien. — Rutledge vs. Rutledge, 1 McC. Ch., 471; Keckley vs. Keckley, 2 Hill Ch., 257; Haynsworth vs. Frierson, 11 Rich., 476. It is then not the lien which the Act deals with but the character of the debt, and it is that which is to determine its rank in the order of payment. It prescribes the order in which “ the debts due by any testator or intestate shall be paid by executors or administrators.” It embraces “mortgages” in the classification; they are to take precedence of “ bonds or other obligations.” In the Circuit opinion in Young vs. Kinard, Chancellor Johnston said : “ If it be a mortgage, it suits the description of the Act, and is entitled to what the Act gives it, and that is a rank above not only simple contracts but bonds and all other specialties.” “The assets of a deceased debtor are distributable among his creditors with reference to the rank of their demands at the time of his death.” — Tucker vs. Andy, (7 Rich. Eq., 281,) affirming what is said in Morton & Courtenay vs. Caldwell, 3 Strob. Eq., 164, and Ex parte Ware, 5 Rich., 473.

The instruments in question here were executed by the intestate in his lifetime, and were valid and effective at his death. By the Act they are entitled to share in the distribution of the assets in the hands of his administrator or the Court according to the rank which, by its provision, is accorded to them.

With the doubts expressed by the Court as to its judgment in Young vs. Kinard, we do not feel ourselves constrained to follow it as authority by which we must be controlled. It is with respect that we differ, and can well interpose for our justification, if necessary, its own misgivings as to its construction of the statute.

The remaining question to be considered is whether the mortgage debt of Dargan to the Commissioner, assigned to Edwards, has not been satisfied by his purchase of the land under the proceeding for the foreclosure of the mortgage, and cannot, therefore, as the respondents contend, take rank as such under the said Act of 1789. It is true that McCown, under the sale of Dargan’s interest in the land, which was still subject to the mortgage of the Commissioner, acquired by his purchase only the right and title which Dargau held therein, and this was nothing more than the right to redeem. He thus held what in the Court of Equity is considered to be the real and beneficial interest, tantamount to the fee at law.— Williams vs. Beard, 1 S. C., 324. Where the mortgagee acquires this right through a Sheriff’s sale, by a purchase under a judgment junior to the mortgage, the debt which it was to secure is extinguished; — the like result follows where the mortgagor releases to the mortgagee the equity of redemption. — Mounce vs. McLure, 2 McC., 423; Schnell vs. Schroder, 2 Bail. Eq., 334; McLure, Brawley & Co. vs. Wheeler, 6 Rich. Eq., 345; Allen vs. Richardson, 9 Rich. Eq., 56. The same doctrine was announced in James vs. Johnson & Morey.— 6 John. Ch., 416. All the right reserved by the mortgagor is transferred to the mortgagee, who then holds in the premises the interest both of the creditor and debtor, and there is nothing left on which the lien of the mortgage can operate. Where the sale is under a junior judgment, a third party purchasing must not only pay the bid which he has made for the only interest which the Sheriff can sell, but, to enjoy an unencumbered estate in the land, he must satisfy the mortgage, which still retains its lien. If the mortgagee purchases, to whom is such payment to be made? Not only is the lien destroyed, but the debt also. In McLure, Brawley & Co. vs. Wheeler, Chancellor Dunkin said: “As has been intimated, it makes no difference whether the mortgagee is the purchaser at Sheriff’s sale or a stranger. Purchasing the equity of redemption, a stranger would take the land subject to the obligation to discharge the encumbrance.” If the mortgagee buys, the encumbrance is necessarily discharged by the operation of his own act.

The Circuit decree, applying these principles, while it holds not only that the lien of the mortgage but the mortgage debt also is destroyed by the purchase of Edwards at the sale for foreclosure, still gives effect to the bond, for the security of which the mortgage was executed. Following the authorities on which it relied for its conclusions, it would seem that the extinguishment of the bond also would have been an unavoidable consequence.

The question here is not, however, to be decided by the principles which prevail where the equity of redemption is lost to the mortgagor by its transfer to the mortgagee. Edwards, the assignee of the mortgage, holds through his purchase at a judicial sale for foreclosure, and all his rights and interests under his purchases depend upon the effect of such a proceeding. A foreclosure of a mortgage by judicial process in South Carolina differs in its results from that which prevails in England.

There, on default of payment of the debt at the time fixed by the Court, an absolute foreclosure is decreed. Action on the bond may be brought at law at the same time the bill for foreclosure is filed in equity, or it may follow. In this State, the proceeding is for the enforcement of the security for the debt. So far from the purchase or transfer through the sale of the equity of redemption, its effect is to bar and defeat it.

The interest of both mortgagor and mortgagee is sold. The title, freed and discharged of the encumbrance imposed by the equity of redemption, vests in the purchaser, the usual order, which was made, directing a sale, acting on the property.

It was competent for the plaintiff (and such is now the prevailing practice) to take a money decree, by force of which an execution could issue against the property of the mortgagor for any unpaid balance after the application of the proceeds of the sale.

If, under the prayer of the bill, a money decree cannot be given, the creditor, after a sale, may proceed at law upon the bond for any balance remaining due.— Gray, Commissioner, vs. Toomer, executrix, 5 Rich., 261; or, where the bill is not only for foreclosure but also for the payment of the debt, or includes a prayer for general relief, the plaintiff, after foreclosure, may apply to the Court where the bill is filed for further decree for the money still due on the debt. The sale under an-order for mere foreclosure does not extinguish the debt and leave the mortgagor without remedy for the unpaid balance, and such appears to be the view of Chancellor Wardlaw, from his language in pronouncing the opinion of the Court in Allen vs. Richardson, 9 Rich. Eq., 56.

We have already expressed our views in regard to the rank to which a debt secured by a mortgage of personal property is entitled under the Act of 1789 in the appropriation of the assets of a deceased dpbtor. In our conception, there is no difference where the mortgage is of real estate. In South Carolina, the whole estate is chargeable with the payment of debts. “ By law, the lands of o.ne deceased are assets to -pay debts.” They are expressly made so by 5 George, II, C. 7, and in this respect put on the same footing with real property. The Act of 1789 uses the comprehensive term “ mortgages,” assigns them to one rank, and in its application we do not see how any distinction can be made, whether they are of land or personal chattels.

The motion is granted, the judgment of the Circuit Court reversed, and the case remanded for further proceedings in conformity to the opinion of this Court.

Wright, A. J., and Willard, A. J., concurred.