Kinney v. M'Cullough

1 Sand. Ch. 370 | New York Court of Chancery | 1844

The Assistant Vice-Chancellor.

When Halsey and M'Cullough dissolved their co-partnership, on the 31st of May, 1838, M'Cullough took all the assets of the firm, and agreed to pay all the co-partnership debts. The debt to Philippon, for which he held their unrecorded mortgage, was one of the debts which M'Cullough thus assumed to pay. From thenceforth, Halsey became the surety of M'Cullough in reference to that mortgage.

On the same 31st of May, Halsey purchased of M'Cullough his undivided half of the Front-street stores, for a full price ; and M'Cullough conveyed the stores to Halsey, with covenants of quiet enjoyment, and warranty, and against all incumbrances, excepting the mortgages to Wood and to Field, subject to which the conveyance was made.

At this stage of the transaction, by force of the agreement on the dissolution of the co-partnership, and without reference to the covenants in the deed to Halsey, M'Cuilough was the principal debtor to Philippon, the lands mortgaged were in the place of a surety for his debt, and Halsey, in respect of his personal liability to Philippon, was also a surety for M‘Cullough. It is objected, that this agreement is a variation of the terms of the conveyance to Halsey, or rather an addition to those terms, and void because by parol. To this it may be answered, that it does not as yet appear to have been by parol. But I apprehend that if it did so appear, the objection would be untenable. The equity in question, is no part of the contract of sale which is evidenced by the conveyance. It arises from another and distinct contract, that for the dissolution of the co-partnership; made on the same day, but not necessarily connected, or shown to be connected, with the sale of the real estate. If M'CuUough had not sold to Halsey, this equity would have been equally operative as to Halsey’s undivided half of the premises. On M'Cullough’s conveying his half to Halsey, (supposing it to have followed the dissolution,) M'CuUough being liable as principal in respect of the assets of the firm, his half in Halsey’s hands became a surety for the debt. If the conveyance preceded the dissolution, the same consequence ensued when the agreement for the latter was consummated. The whole operation, as between the immediate parties to it, was to transfer the principal liability from Halsey and the land, to M'CuUough personally ; not altering or diminishing the rights of the creditor. This was entirely competent by parol, and the consideration stated was sufficient.

While the relative position of Halsey and M'CuUough and the two stores, was such as I have stated it, Halsey obtained the loans from the complainant, on his mortgages to him and to his client, Flake. The complainant, believing H.’s representation to be true, that the lots were free from incumbrances, except the two first mortgages, (to Wood and to Field,) made the loans without searching the record of mortgages. It afterwards turned out that Philippon’s mortgage was recorded in February, 1839.

Here it is urged by the defendant, that this court will not relieve the complainant, because of his indolence and folly, and his careless indifference in omitting to search the records. The consequences of such neglect are already sufficiently penal, in most cases ; but I believe it is not yet decided that a man may not place confidence in his neighbor’s honesty and truth, without forfeiting rights which he would otherwise acquire in the subject matter. And I cannot hold that the complainant, by taking Halsey’s word in reference to incumbrances, and thereupon making a loan which a search would have broken off, is to lose the benefit of such equities as Halsey had in the premises mortgaged.

The mortgages to Flake and the complainant, transmitted to them the conditional title, both legal and equitable, to the stores in Front-street. They became mortgagees of the equity which the owner of the stores had in respect thereof, to compel McCullough to pay off Philippon’s mortgage. In this view, it is wholly immaterial whether the complainant knew of that mortgage or not. If he had known of its existence and circumstances, and of the dissolution agreement between the two mortgagors, his rights would have been the same as against M'Cullough.

The cases of Varick v. Briggs, (6 Paige’s R. 323, 331,) and Kellogg v. Wood, (4 ibid. 578,) are sufficient authorities to show that the equity in these premises to require M'Cullough to discharge the debt to Philippon was vested in the complainant and Flake by way of mortgage, on the execution of the mortgages to them by Halsey.

See also Jumel v. Jumel, (7 Paige’s R. 591;) Heyer v. Heyer, (ibid. 465,) and Palmer v. Foote, (ibid. 437.) The two former recognize the principle, and apply it to the converse of the case before me; the primary liability there being imposed upon the land, and the relation of the obligor to the debt having been changed from that of principal, to that of surety in respect of the land.

By the foreclosure and sale in March, 1841, the complainant under his own and Flake’s mortgages, became seised absolutely of the two stores, and of all of Halsey’s rights and interests therein. As the owner of the premises, he became entitled to all the benefit of the equity which Halsey had as such owner, to require M'CulIough to discharge the mortgage to Philippon.

Although this equity is not a covenant running with the land, yet it attached itself to the land, and passed with the title, to the complainant. Kellogg v. Wood, (4 Paige’s R. 578. 615. 618.)

When the mortgage to Wood was subsequently foreclosed, the title of all the other parties, in the premises included in that mortgage, was cut off. Philippon claimed and received the surplus, by virtue of his mortgage, which the master decided to be a lien prior to the complainant’s mortgage.

As between the complainant and M‘Cullough, the latter was bound to pay Philippon’s mortgage, and that mortgage having been permitted by M'Cullough to interpose and take the surplus which otherwise would have been paid to the complainant; the transaction is the same as if the complainant having mortgaged his land for M‘Cullough’s debt, had been compelled to pay off the mortgage. He has in effect paid this surplus money as the surety of M'Cullough, and he is entitled to recover it back.

This right is a mere equity, and there is no force in the objection that the complainant has a remedy at law.

It is made a point by the defendant, that the master erred in awarding the surplus to Philippon, and that the complainant should have excepted to his report, instead of filing this bill.

This objection comes with an ill grace from the defendant, who appeared with Philippon and urged his priority before the master. That very circumstance would warrant the complainant in assuming that MCulIough had absolved Philippon from his agreement not to record the mortgage, and in connection with the allegation that he fraudulently procured Philippon to record it, is sufficient to authorize the court to infer that the agreement if ever valid, had become inoperative from some cause, before the mortgage was recorded. Certainly, there is not enough disclosed in this bill, to enable me to decide that the master erred in regard to the validity of Philippon’s claim.

There is another claim of the complainants, which arises upon the covenants of quiet enjoyment and of warranty in M'Cullough’s deed to Halsey, and which goes to the undivided half of the surplus money. These covenants run with the laud, and were vested in the complainant with the equity of redemption. They are legal covenants, and the objection was strenuously pressed, that the remedy upon them must be at law.

This would have been the case unquestionably, if Philippon’s mortgage had been foreclosed while the complainant remained in possession, and the complainant had been ousted thereby. But no such eviction has occurred. The complainant was turned out by a title paramount to both, but which left to him a surplus in money, not a portion of the land. He has been evicted from that surplus, by Philippon’s mortgage. This is not such a legal eviction as will sustain an action at law upon the covenants in the conveyance to Halsey.

In Waldron v. M'Carty, (3 Johns. R. 471,) the grantee suffered a foreclosure on a prior mortgage' against which his covenant of warranty extended, to proceed to a master’s sale, and became the purchaser. He then brought covenant on the warranty, and the court held on demurrer that it would not lie, because there had been no actual ouster by paramount title. Spencer, J., in delivering the opinion of the court, says, “ we do not find one case where an action of covenant has been brought on a covenant for quiet enjoyment, in which it is not expressly alleged, that there was an entry and expulsion from the possession or some actual disturbance in the possession.”

In Vanderkarr v. Vanderkarr, (11 Johns. 122,) on a covenant of warranty, the declaration alleged as a breach, that the grantor was not seised, &c., and that there was no such land as that conveyed. The court held it insufficient, and decided that in order to maintain the action, the plaintiff must show a lawful eviction. And see 7 Johns. R. 258, Kent v. Welch.

Under these authorities, a count on the covenants in M'Cullough’s deed, setting forth all the material facts stated in this bill in that behalf, would be had on general demurrer.

The circumstances amount to an eviction in equity, but they do not constitute such a disturbance in, or expulsion from, the possession of the land itself, as is indispensable to maintain an action at law on the covenants in question.

I concur most heartily in the suggestions of the learned counsel for the defendant, in relation to the impolicy and evil consequences of an undue assumption of jurisdiction by this court. A sufficient portion of the accumulation of business here, devolves upon this branch of the court, to make it reasonably watchful against any doubtful exercise of equity jurisdiction. But the case before me, is in my judgment a perfectly plain case for equitable relief: one where .there is not merely an inadequate remedy at law. There appears to be no remedy at law for the complainant.

A further objection was taken at the hearing that Halsey should have been made a party to the suit. He would have been a proper party, without doubt. But I am not satisfied that he is a necessary party. The complainant as the owner of the lands, became a surety for McCullough in respect of Philippon’s debt, by force of the original assumption of that debt by M'Cullough on the dissolution of the co-partnership. I do not see how that relation of surety in respect of the land, and the equitable right to cast the debt upon M/Oullough personally, can be affected by subsequent offsets against Halsey, or any subsequent transactions unconnected with this affair.

In the case of Kellogg v. Wood, before cited, neither the representatives of Lard, to whom the bond was given, nor any subsequent intermediate owner of the equity there enforced, were made parties to the suit.

The answer may disclose a case which will require Halsey to be brought into the suit; and the complainant may amend now and make him a party if he is so advised.

The demurrer must be overruled with costs, and the defendant is to answer in the usual time.