Loomer v. Wheelwright

3 Sand. Ch. 135 | New York Court of Chancery | 1845

The Assistant Vice-Chancellor.

The bill seeks to set aside as fraudulent, a decree of this court obtained by Mr. Wheelwright against the infant who is now complainant, in February, 1842; by which the lands remaining subject to the mortgage in question, were ordered to be sold, and the equity of redemption of the infant was foreclosed.

That an original bill will lie for this purpose, is too well settled to need a reference to authority.

But it is objected by the defendant, that this bill, if it were all true, does not present a case of fraud in obtaining the decree; and that the matters averred as furnishing proof of fraud, are merely errors of law, for which relief can be obtained by a bill of review only.

If this objection be well taken, it is fatal to the suit. I will therefore examine it in the first instance. So far as it bears upon the point, the case made by the bill is this :

Otis Loomer mortgaged his own lands to Mr. Wheelwright, for his own debt. For a further security, he procured his wife to join him in mortgaging, for the same debt, her lands which she had by inheritance. The present complainant is the sole heir of Mrs. Loomer. On the 1st of February, 1840, Otis Loomer sold and conveyed to Mr. Wheelwright, the equity of redemption in his own lands mortgaged, for a price exceeding the balance due to Mr. W., for which both mortgages stood as a security. By this means the principal debtor paid the debt with the fund which was primarily liable; and thereby the lands descended to Charles W. Loomer, which were in the place of a surety for that debt, were discharged. That the conveyance to Mr. W. operated as an absolute merger of his mortgage, and in this mode also effected a discharge of the surety. Nevertheless, Mr. W., in November, 1841, filed a bill in this court to foreclose his mortgage on young Loomer’s lands, claiming that more than $7000 was due to him, and taking no notice of the other mortgage, or of his dealings with Otis Loomer’s lands in February, 1840. That his suit went through the usual course of proceeding in foreclosures, where infants are parties defendant. , No special defence was made by the guardian ad litem, and a decree was pronounced on the usual formal proofs, on the assumption still maintained by Mr. Wheelwright, that the whole amount claimed by him was due, and a lien on the infant’s lands. The guardian ad litem, stated nothing of the defence of payment or merger. The decree was enrolled, and all the lots subject to the mortgage, (save one on which Mr. De Peyster held a junior mortgage,) were sold by a master. Mr. W. became the purchaser of two of the lo’ts, and he owns them still. Three other lots were sold to strangers, and the net proceeds were paid to Wheelwright. The facts in regard to the sale made to him by Otis Loomer in February, 1840, came out in January, 1843, in the subsequent contest between W. and De Peyster, relative to the Sixth Avenue lot. The bill charges that the obtaining the>decree of foreclosure by Wheelwright, against the infant Loomer, was fraudulent, and deprived the infant of his estate in the lands therein mentioned.

The question is, whether this statement overcomes the bar made by the decree itself, and authorizes this court to look behind it and set it aside.

I do not find that any of the authorities referred to, come up to the point. The treatises say, “it is said that where an improper decree has heen made against an infant without actual fraud, it ought to be impeached by original bill.” But I find no adjudication that it may be impeached on the sole ground of its impropriety.

A decree for foreclosure and sale, in this state, forms an exception to the general rule that where the infant’s inheritance is to be affected by a decree, it must give him a day in court to show cause against its provisions after he becomes of full age. (Mills v. Dennis, 3 J. C. R. 368; Harris v. Youman, 1 Hoff. Ch. R. 178; Wright v. Miller, 1 Sand. Ch. R. 103, 120.)

The decree for a sale, binds the infant, as it does all other parties defendant. Therefore the reported cases, in which infants have been permitted to put in a new answer, and to make a defence, on attaining their majority, do not aid us in this respect.,

The omission to give the infant a day to show cause, &c., where by the practice it should be given in a decree, is ground of error on which he may impeach it; but this is distinct from fraud.

Mr. Daniell, in his excellent work on the practice, says that an infant defendant is as much bound by a decree in equity, as a person, of full age. And he will not be permitted to dispute an absolute decree made against him, unless,upon the same grounds as an adult might have disputed it; such as fraud, collusion or error. (1 Daniell’s Ch. Pr. 221, 222.)

I think this case must be governed by the rule as thus laid down. Not that the evidence to support the charge of fraud in obtaining a decree, must be preeisely the same in kind or degree, in the instance of an infant defendant; for each case, whether of an infant or an adult, will turn upon its peculiar circumstances; but the decree must be impeached on the same general principles.

I may state, once for all, that in what I shall have to say of the transaction before me, whether as it is stated in the bill, or as it appears by the evidence, I do not use the term fraud as imputing any intentional wrong or deceit to Mr. Wheelwright. The law in many instances deduces a fraud, from transactions in which the parties had no dishonest purpose; and the fraud alleged here, may well be assigned to that class of constructive frauds.

Without canvassing the debateable ground of fraudulent concealments and suppressions of material facts, I will at once declare my conclusion on the case as made by this bill.

Mr. Wheelwright knew perfectly well, or which is in law equivalent, he was bound to know, that his mortgage was no longer a hen upon the lands of this infant. He might reasonably suppose, as the result proved, that the infant and any guardian ad litem, who might be appointed to appear for him in a suit, would remain ignorant that the mortgage was satisfied. It must be assumed that his bill was filed on this hypothesis, because it cannot be presumed that he filed it with the expectation of having it dismissed upon a defence of payment being set up and established. He filed his bill of foreclosure, alleging that there was more than $7000 remaining due to him on his mortgage, when in truth there was nothing due to him. He carried his case through the court, on this false claim, using its forms of proceeding and its officers to establish against an infant, incapable of protecting himself, a state of facts which would divest the infant of his property, and which he knew was wholly unfounded. He withheld in his bill all information in regard to his dealings with the principal debtor and the primary fund, and set forth nothing which would lead the guardian ad litem, on whom the court relied for the protection of the infant, to inquire into those dealings, or to suppose that there was such a principal debtor or primary fund. He has thus obtained an enrolled decree against this infant, and unjustly possessed himself of the infant’s estate. The question of notice of these facts to the party, in time to make his defence in the former suit, does not arise where such party is an infant.

In the view which I think a court of equity ought to entertain of such a proceeding, this decree was obtained by fraud. I lay great stress upon the fact of the infancy of young Loomer, in weighing these circumstances, because it must be regarded as one of the controlling inducements for filing a bill upon a satisfied mortgage. The case as made by the bill, is between the original parties. No rights of purchasers are called in question ; and without laying down any general rule for like cases, I feel bound to say that this decree was obtained under such circumstances, that it ought not to be permitted to stand.

So far I have gone upon the allegation s made in the bill, without regard to their truth or falsity. I will next look into the case as it is proved.

The complainant’s first position is, that on the execution of the mortgages in 1837, Otis Loomer’s property mortgaged, became the primary fund for the payment of the debt, and his wife’s inheritance became the secondary or auxiliary fund, for that purpose.

I entertain no doubt of the correctness of this point, and must ' hold that Mrs. Loomer in respect of her property mortgaged, became the surety for her husband, and that the creditor knew that she was such surety.

It was urged against this conclusion, that the inference from the facts proved is, that the wife intended to make a gift to her husband, or the money was applied for the benefit of her estate.

I cannot assent to this inference. The proof shows that the debt was the husband’s, and nearly all of it was due from him to the mortgagees, previous to the execution of the mortgages. He mortgaged his own-property in one mortgage, and his wife joined him in another, which conveyed her property. Mr. Wheelwright knew that the debt was the husband’s, that the first mortgage was on his property and the other on his wife’s estate.

I see no reason why a different rule should be applied to the wife’s case, from that which is applied in other instances of principal and surety. If I mortgage my farm to secure my friend’s bond debt, and the creditor knows it is my farm, I become a surety for my friend, and the creditor is bound to respect that re, lationship. The law indulges him in no conjecture that I intend to make a gift to my friend, or that the debt was incurred in some way for the benefit of my property.

Why should such a conjecture or presumption be applied to a wife, in order to disparage her claim as a surety? If there should be any different rule, it ought rather to provide an infer, ence in her favor, than to strain a point against her,

There can be no legal presumption that it is her debt, or was applied for her benefit. She cannot contract a debt; and the presumption on the face of the securities, is therefore directly the reverse as to its being her obligation. And the fact that it is the husband’s debt, certainly precludes any presumption that it was incurred for the benefit of the wife’s estate. The sensible rule, in my view is, that the suretyship is made out by facts like those shown here ; and if in truth the money went to improve the wife’s freehold, or any other circumstance exist, which will defeat her claim to be regarded as a surety, it must be proved by the party alleging such circumstance.

Aside from what I conceive to be the true rule of law, the facts in this case do not bring it within Mr. Justice Nelson’s observations in Gahn v. Niemcewicz, (11 Wend. 312, 323.) The defendant sets up nothing of the kind in his answer; there is no proof of any necessity for borrowing to support the wife or to pay assessments, and the giving of two mortgages and the pre-existence of nearly the whole debt, clearly distinguished this suit from the one upon which Judge Nelson was commenting. The point before me was not decided in Gahn v. Niemcewicz.

Upon the death of Mrs. Loomer, her son succeeded to her rights and became the surety of his father in respect of the property mortgaged by her, The estate of Loomer as tenant by the curtesy, was a primary fund for the payment of the debt. But he had no estate by the curtesy in the lots which in the partition were allotted for the share of Mrs. Loomer, subject to her mother’s dower right.

I now come to the conveyance by Otis Loomer, of the Pearl and Cedar street property, in February, 1840. The complainant claims that it must be regarded as a merger of the principal and primary security, or as a payment; and in either view, it extinguishes the mortgage on his property.

In his answer to the cross bill filed by De Peyster, Wheelwright avows, that the mortgage on the Pearl and Cedar street lots was merged by the conveyance to him of the equity of redemption. His counsel objects to the proceedings in De Peyster’s suit, that they cannot be used by one not a party to that suit, to affect the rights of Mr, Wheelwright in another controversy. This is no doubt true in a qualified sense, but the statements of W. in his answer'in that suit, may be used as evidence of facts alleged by him : and it is in that view sufficient for the complainant’s argument in this suit.

Then as to the alleged merger. The deeds were absolute and unqualified, from the mortgagor to the mortgagee. Every intendment upon the deeds is against any idea of keeping the principal mortgage to Wheelwright on foot. All the lands in that mortgage are conveyed in fee simple. The expression in the deeds that they are conveyed subject to the Astor and Salles mortgages, excludes the existence of a design that they were to be subject to any other. In equity, merger depends very much upon intention. Where there is no direct proof of the intention, it may be derived from various circumstances, and one of those is the interest of the party to merge his security, or to keep it alive. But that is only one circumstance, and it may be repelled by others. The party may intend to merge, upon a mistaken view of his interest. He may judge erroneously when he knows all the facts ; and he may err exceedingly in regard to the law” as applicable to what he is doing. But I am not aware of any principle upon which he can be saved from the consequences of a merger, where his intent is clear, although by a mistake of the law, he supposes he will obtain advantages, which the law correctly applied, entirely cuts off.

I have no doubt but that this is precisely such a case; and that Mr. Wheelwright, although he intended to merge and put an end to the mortgage on the lots in Pearl and Cedar streets; equally intended to enforce the mortgage debt upon the lands embraced in the other mortgage, and supposed that the law would bear him out in that proceeding.

The instrument upon which he now" relies to rebut the merger, leaves no room for doubt, that both he and Loomer then intended to extinguish the mortgage on the lots conveyed. It contemplates no further recourse to it, or any event upon which it may be brought to bear. It declares an absolute purchase at $116,350, and provides for applying any surplus beyond that, gained by W, in the purchase, to Loomer’s debt, which as I before remarked, W, intended to hold against the other lands.

The allegation in his answer to the bill of De Peyster, is legit-, imate evidence of his intention to merge the mortgage, although not conclusive upon him in this suit as matter of law.

The instrument which Mr. Wheelwright executed to Loomer, cannot overcome the effect of the conveyances. * It was not designed to make them a new mortgage. That would have been a very idle proceeding. I speak of it as if it had been cotemporary with the conveyances. But it was not executed until after the deeds were delivered, and the character of the transaction in respect of the rights of the surety, irrevocably fixed.

The existence of the alleged subsequent liens, does not impair the evidence of intention. For the principal lien, that to W. T. Whittemore, Mr. W. provided out of the purchase money, and the others, if as it is said, they were unknown to him, could not have influenced his objects or designs in the purchase.

It also objected to the merger, that the interest of Spofford and Tileston in the mortgage, was still outstanding, and prevented any merger of the legal and equitable estates. There are two answers to this objection. First, it is shown that the arrangement by which Spofford and Tileston were fully paid, was made in 1839, and was merely awaiting the order of this court for its consummation. So that Mr. W. acted, as he well might, upon the assumption that their interest had ceased, and when the conveyance was finally made to them, its equitable effect was the same as if it had been made when agreed upon in 1839. And second, the interest of S. and T. was wholly distinct from that'of Mr. W.; as distinct as if it had been in a separate mortgage. Therefore Mr. W. might so act, as to merge the mortgage as it respected his own interest, without any reference to that of the other mortgagees; and when the latter were at length paid, the security would then be finally extinguished as to all the mortgagees.

My conclusion therefore is, that by accepting the conveyance in fee of the principal fund mortgaged to him, Mr. W. discharged the lands of the surety from his mortgage debt.

There is another view of this transaction which is equally fatal to Mi"- W.’s claim against the estate of the infant. He purchased the equity of redemption of the principal debtor,' and thereby precluded himself from enforcing the mortgage against the primary fund. The least that can result to him is, that he must account as between himself and the surety, for the value of the equity of redemption, and he has fixed that value by the price which he paid for it. ■ 1 know it was urged that this price was merely nominal, and the lands were not worth the prior incumbrances. But the deeds, and the memorandum of the application of the purchase money which Mr. W. made at the time, show beyond peradventure, that the price agreed upon was $8350, over and above the mortgages to Astor, and the executors of Salles ; and that this surplus was actually appropriated and paid as between the immediate parties. Such also is the positive declaration of the agreement which Mr. W. gave to Loomer after the sale ; and the profits which he thereby proposed to apply to the debt of Loomer, were to be computed on the cost of $116,350 paid for the Pearl and Cedar street lots.

From this price, $8350, exclusive of the large mortgages, Mr. W. is entitled to deduct the taxes then in arrear. He is not to deduct the arrears of interest on those mortgages ; for the deeds are subject to the amount due on the mortgages, both principal and interest; and the memorandum before mentioned shows that this was the intention.

After deducting the taxes, $514 45, there remains $7835 55, which Mr. W. must account for before calling on the surety ¡ and this is confessedly more than was then due to him on the mortgage in question.

It follows that this mortgage was extinguished, so far as Mr. Wheelwright’s interest was concerned, in February, 1840, as a lien upon the lands of the infant. It is however claimed in his behalf, that he has a lien by virtue of the mortgage, for the $675 which he advanced to Spofford and Tileston on their finally releasing their portion of the mortgage ; on the ground that it was originally given to secure future advances. The complainant’s counsel contends that it never was good for future advances, because it does not in terms provide for them.

I will not enter into that discussion, but will assume that the mortgage was valid for that purpose. It was not valid to Mr. W. for that or any other purpose, against this infant, after February, 1840. It was merged, extinguished, gone.

It was not insisted that the advance was any more a'lien in favor of Mr. W., because it was made to his co-mortgagees. Nevertheless, I was at first inclined to think that Mr. W. might avail himself of it, not as an advance on his own mortgage, but by way of subrogation to the lien of Spofford and Tileston. But upon consideration, I cannot give to it that advantage. It was paid to S. and T., distinctly and avowedly for the purpose of discharging their lien; and there was no mistake or misapprehension as to a single fact by any of the parties. The only error was one of law, which was Mr. W.’s idea that his own lien was still in full force. I must therefore give to the transaction the direction that the parties then gave to it, and deem Spofford and Tileston’s mortgage interest fully discharged. (See Banta v. Garmo, 1 Sand. Ch. R. 383.) There is no mode by which the payment of the $675 can be continued as a lien against the complainant’s lands.

The complainant has therefore established the case made by his bill, and the decree which the defendant' obtained in his foreclosure suit, must be set aside so far as it respects his rights and claims under the sanie.

There are a few other matters which require attention before disposing of the subject.

One of these is the claim made by the complainant for $500, paid to Mr. Wheelwright by Charles R. Whittemore. ■ This affair is left in great obscurity by the testimony. So far as I can discover, the money was paid to Mr. Wheelwright, not because the infant was entitled to receive it from C. R. W., but because C. R. W. could not otherwise obtain a release from the mortgage in question-. If there had been no mortgage, no money would have been paid by C. R. W.; and as between him and the infant the latter was bound to pay the mortgage, so as to entitle C. R. W. to a return of the money. It appears to be a matter between C. R. W. and Mr. Wheelwright, in which the infant, in this suit at least, has no concern. "How his title in the lot came to be conveyed to C. R. W. is not shown, and I can found no judgment upon that transaction.

The defendant insists that Otis Loomer had an estate by the curtesy in all these lands, upon which the mortgage continued operative, and the foreclosure and sale are valid to that extent.

I have already observed that Loomer had no estate in the lots which were assigned to Mrs. Jane Whittemore for her dower. In the other lots which fell to Charles W. Loomer in the Whittemore partition, Otis Loomer had a life estate. Upon this life interest, Mr. Wheelwright’s mortgage continued to be a lien. There was no merger as to O. Loomer, because he agreed expressly, by accepting the writing dated February 6th, 1840, that the mortgage on these lands should remain in full force. As to him and his estate, it therefore continued valid for the whole amount due to Mr. W. in February, 1840, less that part of the $8350 on the sale of the Pearl and Cedar street lots which was saved from the estimated amount of W. T. Whittemore’s mortgage. And the subsequent payment of $675 to Spofford and Tileston, ought to be compensated to Mr. W. by Loomer in the adjustment of the application of the purchase money of the lots in Pearl and Cedar streets.

But another equity of the infant intervenes, which renders this right of Mr. W. against Loomer, practically of little or no value to the former. As these securities stood in 1839, when Spofford and Tileston agreed to receive the conveyance of two of the infant’s lots, and discharge their lien under the mortgages, the infant had a right to be subrogated to their lien against his father’s lands, to the extent of the value of his interest in those two lots, on their being applied to the payment of his father’s debt. (Eddy v. Traver, 6 Paige, 521.) This right of subrogation extended to his father’s life estate as tenant by the curtesy, as well as to his lots on Pearl and Cedar streets. As between Mr. W. and the infant, the mortgage debt of 'W. was paid off by his purchase in February, 1840; so that he has no right to interpose his debt to the prejudice of the infant’s subrogation for the amount which his property has paid to Spofford and Tileston. For this amount therefore, the infant’s equity under the mortgage in question, must be preferred to Mr. Wheelwright’s claim as between himself and Otis Loomer on the tenancy by the curtesy.

In this connection however, I think that it is but just for the infant to account for the §675, paid by Mr. W. to Spofford and Tileston. Unless that payment had been made, S. and T. would still have held their lien for that sum, with priority over the infant’s claim to be subrogated. And seeking equity, he must here do equity in regard to this direct relief which Mr. W.’s payment has afforded to his property.

The payment made by Mr. W. to Mr. Astor in discharge of the original mortgage on the Christopher street lot, is a proper charge by him against the infant in the account to be taken.

The other transactions between Mr. W. and Otis Loomér, ostensibly for the benefit of the infant, and I doubt not, really intended for his benefit, are not subjects to be brought into this suit.

No one was legally authorized to act in them for the infant, and he is not liable in respect of them. They are entirely foreign to the matters upon which the infant’s rights in this controversy depend ; and other persons must be made parties to any proceeding by Mr. W. founded upon those transactions.

There must be a decree accordingly. Mr. W. must release and convey to the infant the two lots which he purchased at the Master’s sale, and must account for the sums paid by those who bought the other lots sold by the Master under Mr. W.’s decree, with interest thereon. If he so elect, he may have an account taken of the value of Otis Loomer’s life estate in those lots in which he was tenant by the curtesy, estimating those sold to strangers at the prices then obtained, and the Christopher street lot at its present value; and against this valuation of Loomer’s estate in the lands, there must be placed the amount which the infant’s property has paid to Spofford and Tileston, with interest thereon. The $675, paid by W. to the latter, is a proper item on his side of this account.

If the value of Loomer's life estate, and the §675, exceed the amount for which, the infant is entitled to be subrogated under Spofford and Tileston, the excess is to be credited to Mr. W. in the general accounting. t

He is also to account for the rents and profits of the two lots which he. bought at the master’s sale. And he is to be credited in the account for the sum paid to Mr. Astor, with interest on the same.

If the balance be found in favor of Mr. Wheelwright, he will have a lien for the amount on the two lots which he is to convey to the infant. If it be against him, he must pay it into court for the infant’s benefit. And he must bear the costs of this suit,