Hibbard, Spencer, Bartlett & Co. v. Cribb

80 Wis. 398 | Wis. | 1891

Lead Opinion

The following opinions were filed September 29, 1891:

LyoN, J.

The case is this: J. & R. Hagenah, an insolvent firm, executed to Morse, Winchester, and Keith,, owners of the Citizens’ Bank, a mortgage on personal property to secure $3,500, and the mortgagees took immediate possession of the property thereunder. Afterwards the insolvent firm executed another mortgage on the same property to Hibbard, Spencer, Bartlett da Go., the plaintiff herein, for $9,181, and such mortgagee also took possession of the property under its mortgage, jointly with the first mortgagees. Thereafter these defendants, who were creditors of the insolvent firm, brought suits against it on their respective demands, and instituted garnishee proceedings against the owners of the Citizens’ Bank. They afterwards recovered judgments on their respective demands against the insolvent firm. One of those creditors also instituted garnishee proceedings against the plaintiff. The result of the garnishee actions was to establish the validity of the first mortgage to the amount of $1,300, and of the second mortgage for its full amount. Of the amount which the first mortgage was given to secure, $2,200 was for the individual debt of a partner in the insolvent firm, and to that extent the mortgage was held invalid as against the creditors of the firm. The property is now represented by the money obtained for it on the sale thereof, and its value is fixed by the sale at $3,900. The question to be determined is whether the $2,200 should be applied in payment of the judgments of the creditors of the insolvent firm, as the circuit court held it should be applied, or in part payment of the debt secured by the second mortgage.

There seems to be a conflict of authority on the question whether, had the first mortgage been declared void for fraud of the mortgagor, the second mortgagee of the same property took any title thereto under his mortgage beyond the mere equity of redemption remaining in the mortgagor, which in this case was an interest to the extent of $400 only. Some courts have held that, because the first mortgage is válid against the mortgagor (although void as to his creditors for fraud), he could not convey to the second mortgagee any interest in the property covered by the first mortgage, and hence that such interest did not pass to the second mortgagee, but was applicable to the payment of the judgments against the mortgagor.

Other courts have held that the second mortgagee may contest the validity of the prior mortgage, and, if the same is defeated for fraud therein, he may hold the property under his mortgage as against creditors of the mortgagor. The effect of 'the latter class of cases seems to be that the second mortgagee takes something more than the mere equity of redemption remaining in the mortgagor after the execution of the first mortgage. They seem to hold that he also takes the whole interest in the property, to the extent of his mortgage, if the first mortgage is held invalid for fraud. The authorities on these conflicting propositions are quite numerous. Eor the convenience of the bar, reference to them will be preserved in the statement of the arguments when the case is reported.

But we have here no such question. Both mortgages were attacked by creditors of the insolvent firm, by appropriate process, and both have been adjudged valid. To such adjudication all persons having an interest in the matter were parties, and are bound thereby. True, the result of the litigation was to reduce the amount of the first mortgage lien, as to creditors of the mortgagor, $2,200, but that did not destroy the validity of the mortgage. Every dollar of the $1,300 for which it was held a valid security remained a lien upon each article of mortgaged property. We are not aware of any rule- of law which will permit a creditor with process to interpose between two valid mortgages prior in right to his claim, and carve out an interest in the mortgaged property superior to that of the second mortgagee. Both mortgages being valid, the reasonable rule seems to be that the second mortgagee takes all the interest in the property remaining after the first mortgage is satisfied, and that subsequent attaching or garnishing creditors of the mortgagor must be postponed until both mortgages are satisfied. It was on this theory that the creditors attacked and sought to impeach the validity of both mortgages, thus recognizing the fact that, if held valid, they would absorb all the mortgaged property. They were held valid securities for an amount aggregating nearly three times the value of such property. It was but an incident to the main purpose of the litigation that the amount which the first mortgage was given to secure was reduced.

Were the property of sufficient value to warrant the redemption of the two mortgages, the judgment creditors would obtain tbe benefit of their litigation by being able to redeem them with less money than would otherwise have been required. It is their misfortune that they have failed to reduce the mortgage indebtedness below the value of the mortgaged property, thereby leaving a balance to be applied on their judgments. But this circumstance cannot impair the right of the plaintiff to have its mortgage satisfied out of the proceeds of the mortgaged property next after the first mortgage is paid.

Our conclusion is that the circuit court erred in awarding the $2,200 to the judgment creditors, and that the same should have been adjudged to the plaintiff, to be applied on its mortgage.

By the Court.— The judgment of the circuit court is reversed, and the cause will be remanded with directions to render judgment for the plaintiff in accordance with this opinion.

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Dissenting Opinion

WiNsnow, J.

I dissent from the decision of the majority of the court in this case because it seems to me that such decision is a • radical departure from well-established legal principles.

The first mortgage was for $3,500, which was made up of two separate valid claims, viz., .a firm debt of $1,300, and a debt of one of the partners individually of $2,200. The mortgage has been held void as to the $2,200 claim at the suit of attacking firm creditors. Plaintiff has never attacked the first mortgage, but has always claimed under its second mortgage.

Now it is manifest that the first mortgage was only void as to creditors of the firm who attacked ;it by legal proceedings. It was perfectly valid as between the parties. It transferred the title to the goods; consequently the mortgagor retained no title adverse to the first mortgage, nor could be grant that wbicb he did not have. Eetaining no title, he c'ould convey no title; hence the appellant, under his grant, got no title save the bare equity of redemption after the §3,500 was paid. He is not a Iona fide purchaser for value; he is not an attacking creditor; he is simply the mortgagee of an equity of redemption, which equity, as to him, is subject to the payment of $3,500. In my judgment, the firm creditors who have attacked the first mortgage, and as to whom only a part of it is void, should be adjudged entitled to the funds in court arising from the sale of the mortgaged property up to $3,500, after which the appellant’s right would attach. I have not attempted to cite authorities in this opinion; they will be found in the briefs of counsel, and I believe they fully sustain the positions here taken.

OetoN, J., took no part.

A motion for a rehearing was denied November 17,1891.