| N.J. | Mar 15, 1881
Lead Opinion
I agree with the vice-chancellor in his settlement of the disputed facts in .'.his case, but it seems to me that an error has crept into the, decree with respect to the marshaling of the encumbrances. 1 These liens are of this character: the mortgage first in date is held by the appellant, Hoag; then comes a mortgage held by Frederick Fisher, one of the defendants, and lastly is the judgment of the defendant Sayre. This first mortgage was not recorded in the proper county, and therefore is subordinate to the judgment, but it is paramount to the second mortgage, which was taken with knowledge of the existence of this first lien. In this state of things, the decree places the judgment and the first mortgage, by way of preference, before the second mortgage. This, as it seems to me, is unjust and inadmissible.
Upon what possible principle is the result in this case to be justified ? Fisher, when he took his mortgage, knew that there was an antecedent mortgage on the same property, securing the sum of $2,150, with interest. He had his own mortgage duly recorded, so that it became incontestably the second legal lien; in this position of affairs this judgment is entered, and he at once finds himself, without any fault on his part, degraded from the position of a second encumbrancer to that of a third encum-brancer, and instead of the mortgaged property being subject to a claim prior to his own of but $2,150, it is subject to paramount claims which amount to the sum of $5,150. If such a principle be correct, it does not appear that any person, under any circumstances, can take a second or other subordinate mortgage upon property, without putting his interests in the utmost jeopardy. Under the prevalence of such a rule of law, a subsequent encum-brancer would be obliged to see that the status of the primary encumbrance was, in all respects, unexceptionable, under penalty, if a flaw should be undetected, of having his lien superseded by every judgment that might be entered at a later date. Such a rule would be as inexpedient as it would be unjust.
The doctrine thus propounded is but the development of the principle maintained and acted on in Clement v. Kaighn, 2 McCart 48. In that case there was a judgment without an execution ; then a mortgage, and then judgments on which executions had been taken out. These latter judgments were entitled to precedence over the first, but were subordinate to the mortgage. Chancellor Green decided that the first judgment on the mort
In my opinion, the decree in this case should be modified so as to direct the payment of these encumbrances in this order, viz.: first, the judgment of Sayre to the amount secured by the first mortgage; second, the payment of the residue of such judgment and the second mortgage, pari passu, as they were concurrent liens, being entered on the same day; third, the payment of the first mortgage.
Dissenting Opinion
dissenting.
I agree with the conclusions which the vice-chancellor has reached upon the facts.
But I dissent from the legal rule by which he fixes the order of priority, for I do not think it necessary to advance the complainant Sayre to the front against everybody, in order to give him the full benefit of his superiority to Hoag. '
Nor do I assent to the rule laid down in the opinion just read, since I see no reason for regarding the complainant as substituted in the stead and rights of Hoag as against Fisher, merely because Hoag failed to comply with the registry laws. The effect of non-compliance with those laws is declared by themselves to-be, not that the rights of him in default shall be transferred to the subsequent encumbrancers, but that his claim shall be void as to them.
Therefore, if there be three encumbrancers, A, B and C, in the order of time, and A’s lien be prior to B’s, and B’s to C’s, but, for A’s omission to properly register his lien, it is void as to C’s, then the fund should be disposed of as follows:
1. Deduct from the whole fund the amount of B’s lien, and apply the balance to pay C. This gives C just what he would have if A had no existence.
2. Deduct from the whole fund the amount of A’s lien, and
3. The balance remaining after these payments are made to B and C is to be applied to A’s lieu.
To illustrate : Suppose the fund to be $5,000; A’s lien to be $3,000; B’s lien to be $4,000, and C’s lien to be $2,000. Then, C receives $5,000, less $4,000=$1,000; B receives $5,000, less $3,000=$2,000; A receives $5,000, less ($l,000-j-$2,000),=: $2,000.
Or suppose the fund to be $5,000, and each of these encumbrances to be $5,000 ; then it will appear that A, the first in time, will take it all; since, except for the registry laws, he would clearly be entitled to it, and the registry laws simply prevent his taking anything by which C’s security may be lessened. But C’s security was nothing at the beginning, for B’s prior lien covered the whole fund; and C, therefore, has no right by which A’s claim can be impaired.
Where B’s and C’s claims are concurrent. in time and lien, but A is prior to B, and void as to C (as in the present case), the distribution should be as follows:
1. Divide the whole fund in the proportion of B’s and C’s
claims, and give to C his proportion. Thus is A ignored in fixing C’s rights. *
2. Deduct from the whole fund the amount of A’s lien, and apply the balance to B’s claim.
3. The balance remaining after both payments goes to A.
By applying these rules to the case before us, it will be seen that, in my judgment, Fisher alone is injured by the decree below ; but as he is not a party to this appeal, the decree cannot be changed here for his sake, and therefore, I think, should be affirmed.