State Savings Bank v. Harbin

18 S.C. 425 | S.C. | 1883

Lead Opinion

The opinion of the court was delivered by

Mr. Justice McIver.

The facts of this case are so fully and clearly stated by the Circuit judge, that it seems unnecessary to repeat them here.

It is conceded that the question raised by this appeal is novel in this State, and that the authorities elsewhere are conflicting. It is necessary, therefore, to consider the general principles applicable, and from them to deduce the proper conclusion. There is no dispute as to the general rule, that where there are two creditors of a common debtor, one of whom has a claim or lien upon two funds, and the other upon only one of these funds, that the latter has an equity to require the former first to exhaust the fund upon which he has no claim or lien. The only qualification of this rule, laid down in the elementary writers, is that it will not apply where the creditor having the lien upon the two-funds will be injured or delayed by its application. 1 8tory Eg. Jur., § 633 et seg.. This rule is for the benefit of the creditor only, and cannot be invoked in behalf of the debtor unless some peculiar equity springs up from other circumstances, as, for example, where the debtor occupies the position of a surety.

I am unable to perceive any reason why this well settled and universally acknowledged rule should not be applied to the present case. There is no suggestion that its application would tend to injure or delay the creditors having liens on the two funds. All the parties are before the court, and the only objection proceeds from the common debtor, who does not occupy the position of a surety, and I do not see any equity on his part to interpose an objection to the application of the rule. His right of homestead is not an estate, but is a mere right to have a certain portion of his property “exempt from attachment, levy or sale, on any mesne or final process -issued from any court.”

If he has voluntarily stripped himself of this protection which the law has thrown around him, by twice mortgaging the land, out of which he would otherwise have been entitled to claim a homestead, he cannot complain at a result brought about by his own act, and he certainly has no such equity as would protect him from the operation of the rule above stated. The only creditor who would be likely to suffer under a different conclusion, is one who seems to have extended credit to the appellant before there were any liens upon any of his property, and it would seem to be manifestly inequitable that this creditor should suffer from an indulgence extended to the appellant, perhaps, in reliance upon a well settled and universally acknowledged rule.

All the authorities seem to concede the proposition that, as between the debtor and his mortgagee, the former has no equity to require the latter first to exhaust the other property embraced in the mortgage before he can go upon that out of which homestead is claimed, and, as Mr. Thompson, in his work on homesteads, section 657, well remarks: “ If this is a sound rule where the only parties affected by it are the mortgagor and mortgagee, it becomes more imperative where to deny it would prejudice the rights of third parties, such as judgment creditors of the mortgagor.” It would, indeed, be a strange perversion to deny the equity claimed by the debtor in a case where its application would injure no one, and yet allow it in cases where innocent third persons would be the sufferers.

The analogy drawn from the case of a devise of lands.to charitable uses, does not seem to me to be complete. Creditors stand upon much higher ground than devisees or legatees, and the reason given by Lord Hardwicke, in Mogg v. Hodges, 2 Ves. 53, for not applying the rule in a case of a devise to charitable uses i?, “ that a court of equity is not warranted in setting up ■a rule of equity contrary to the common rules of the court, merely to support a bequest which is contrary to law.” In the case now under consideration, it is not proposed to set up the rule of equity as to a creditor having a lien upon two funds for the purpose of securing the payment of an illegal debt, or “ to support a bequest which is contrary to law,” but simply to provide for the payment of a just debt, subject to no legal exception whatsoever, not out of property exempt by law, but out of property liable for its payment, by throwing another debt upon the homestead property, which the debtor has voluntarily subjected to its payment by giving a mortgage on it.

The judgment of this court is that the judgment of the Circuit Court be affirmed,

Mr. Chief Justice Simpson concurred.

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Dissenting Opinion

Mr. Justice Fraser,

dissenting. I am unable to concur in the judgment of the majority of the court in this case. The single question presented by this appeal is whether Maret and Mahaffey, executors, judgment creditors .of Morgan Harbin, have the right to compel the mortgagees, Arrington and Coleman & Co., who have prior 'mortgages of the Home tract of land, the homestead of Morgan Harbin, as well as of the Bolt tract of land, to sell the homestead and apply the proceeds to their mortgage debts, so as to leave the Bolt tract for the payment of their judgment. It is not a question here whether these mortgagees have a right, as between themselves and the mortgagor, to demand that the homestead shall be sold before the surplus land, but it-is whether the mortgagees, against their will, can be compelled, at the suit of the judgment creditor and for his benefit, to sell the land in that order.

The application of the doctrine of marshaling assets forms one of the most useful, and at the same time most delicate, branches of equity jurisdiction. It depends on this principle :■ 4< That a person having two funds to satisfy his demands, he shall not, by his election, disappoint a party who has only one fund. If, therefore, a person having a claim upon two funds chooses to resort to the only fund upon which the other has a claim, that other person shall stand in his place for so much against the fund to which otherwise he could not have access.” 2 Lead. Cas. Eq., H. & W., Pt. I., p. 151; Aldrich v. Cooper, 8 Ves. 382. The doctrine is not confined to claims of creditors, and it is no peculiar equity to which they are entitled. It extends to the widow’s paraphernalia (Id., p. 156), to purchasers (Id., p. 171), to legatees and devisees (Id., p. 180), and sureties who are no more than debtors as between themselves and those to whom they are bound as such, will be subrogated to all the rights of the creditor on payment of the debt. Id. 166.

In cases of devises of land to charitable uses, Lord Hardwicke, in Mogg v. Hodges, 2 Ves. 53, says: “ That a court is not warranted in setting up a rule of equity, contrary to the common rules of the court, merely to support a bequest which is contrary to law,” and he refused to throw the payment of debts and ordinary legacies on the real estate, so as to leave the pure personalty for the charity. Id. 157, 191, 192; 2 Story Eq. Jur., § 1180. In the note at pages 191 and 192, in Leading Cases in Equity, it is said to be “ well settled that where a devise of lands to charitable uses is prohibited by law, equity will not sustain a bequest to a charity by marshaling the assets, so as to throw the burden of the testator’s debts on the land, for this would be contrary to the spirit of the legal prohibition.”

Article I., section 20, of the constitution of this State, provides that “ a reasonable amount of property, as a homestead, shall be exempted from seizure and sale for the payment of any debts or liabilities.” Article II., section 32, defines the homestead, and provides that “ it shall be the duty of the General Assembly, at its first session, to enforce the provisions of this section by suitable legislation.” In pursuance of this injunction, an act was passed at the first session, and from time to time it was amended. The act of 1873, § 5 (15 Stat. 371): “No waiver .of the right of homestead, however solemnly executed, shall be binding upon the head of the family, or in case of his or her death, his or her heirs, so as to defeat the homestead herein provided for.” By section 10 of the same act, it was made a misdemeanor in any officer to sell any property in violation of said act, and article II., section 32, of the constitution.

Thus stood the law at the time the liens in this case were acquired. The creditor or other claimant having only one fund is simply subrogated to the rights of a creditor who has two funds, as to the fund to which he is allowed to resort for payment. When, as in this case, the judgment creditor is put by the court in the place of the mortgagee as to the homestead, it is clearly against the spirit of the constitution and the statutes in reference to the homestead, that he shall be allowed to subject the homestead to his claim. The mortgagee certainly had a right to mortgage, and even convey in fee-simple, to whom he pleased, his homestead. But in this case he may well say, I have made no such agreement and I have not even waived my right to the homestead in favor of the judgment creditor.

If the Court of Equity will refuse to marshal assets so as to' make a charity indirectly a charge on real estate by throwing creditors on the land and leaving the personalty for the charity, because it would be against the policy of the law, the same reason .should induce this court, it seems to me, to refuse to marshal the funds in this case so as to make a judgment indirectly chargeable on the homestead, when such homestead is not only exempt by law, but the head of the family is not allowed to waive the right thereto, and the officer forbidden, under heavy penalties, to sell the same.

If the principle on which the judgment of the Circuit Court rests is properly applicable to such cases, then there can be no case in which a homestead could not be sold to pay all outstanding debts, as soon as the head of the family who happens to own other property, ventures to mortgage the homestead and other property, to secure any one of them, or to raise money to meet the exigencies of the family.

It is a new question in this State, and in other States where a homestead law has been longer in existence, the decisions-are conflicting. In Searle v. Chapman, 121 Mass. 19, the mortgagee brought his action against the mortgagor for foreclosure, and the mortgagor set up a claim as 'against the mortgagee to compel him to séll the surplus first, so as to save the homestead. In this case there was a release by the husband and wife of all claim of homestead and dower. The court refused to sustain the defense. In Massachusetts, “as between mortgagor and mortgagee, the mortgage is to be regarded as a conveyance in fee,” which “gives the mortgagee a remedy in the form of a legal action.” Shaw, C. J., in Ewer v. Hobbs, 5 Metc. 1-3, and Howard v. Robinson, 5 Cush. 119-123. It is true that in Massachusetts as to all other parties, as in this State, a mortgage is a mere security for the payment of money, but this difference of view as to the nature of a mortgage, ought to induce this court to hesitate to adopt the conclusions in that case, and to regard it as not sufficient authority for the inference for which it is quoted at the bar as authority in this case — that a judgment creditor has the right to compel the mortgagee to sell the homestead before the surplus. In Searle v. Chapman, the court simply declined to interfere with the rights of the mortgagee.

This distinction has been recognized in Kansas. In the case of Chapman v. Lester, 12 Kan. 592, it was held, “ that when a person mortgages his homestead, together with other realty, there is .no such implied obligation on the mortgagee first to exhaust his remedy on the realty other than the homestead, .as will, prevent him from releasing such other realty other than the homestead, and still retaining his lien on the homestead.” And in a later ease of Colly v. Crocker, 17 Kan. 527, it was held that the grant of a specific lien upon the homestead to secure a specific debt, does not amount to such a waiver of the homestead right, that an unsecured creditor can procure it to be sold in a proceeding for the marshaling of assets. In this case of Colly v. Orooher, a husband and wife mortgaged the homestead and other real estate to A. B. obtained a judgment upon the other property excepting the homestead, and then the husband sold a piece of property covered by the judgment and mortgage lien to C. The court held that the unsecured creditor had no such superior equity over the occupants of the homestead and the purchaser C., that he could compel a marshaling of the assets on the death of the husband.

In Illinois it was held, in Brown v. Cozard, 68 Ill. 180, that “ -when a mortgagee, not by his own voluntary action and for his own benefit, but at the instance and for the benefit of a judgment creditor for the purpose of having his judgment satisfied, is compelled to resort first, for the satisfaction of his mortgage, to the tract subject to the homestead exemption, as respects the judgment, the mortgagor would then seem to have just cause for complaint that his homestead had been taken away from him in a mode not contemplated by the statute, - and whereto he had never given his consent.”

In Minnesota, in McArthur v. Martin, 23 Minn. 80, it was said that “ homestead exemptions are favored by the courts, and as the application of the rule contended for in reference to the marshaling of assets, would be but an indirect method of subjecting the homestead to the payment of debts, a court of equity would not permit it to be applied in favor of judgment creditors in this case.”

In Alabama, in Ray v. Adams, 45 Ala. 168, it was held that “the right of the debtor to his exemption, though inferior to that of his mortgagees, was superior to that of his judgment creditors. The prior mortgage did not enlarge his rights.” In Bay v. Adams, there had been a sale under the judgment, and the debtor having been put to his election, had chosen what was set off as a homestead, and the balance of the real estate was sold. Upon a cross-bill by the judgment creditor and purchaser to compel the mortgagee first to exhaust the homestead, for their benefit, the court refused to give the relief sought.

A contrary doctrine was distinctly laid down in White v. Bolleys, 20 Wis. 530, in which the court applied the general rule of equity that where one person has only one fund to which he can resort, and another person has two funds, the latter will be compelled to resort to that fund which will leave the means of payment for the person who has only one fund out of which he can be paid. Subsequently to the rendering of this decree a statute was, passed in Wisconsin, “the object of which was to repeal the rule laid down in White v. Polleys and other cases.” Thomp. Homest. and Exempt., § 660. The cases on this subject will be found well collected in the valuable book last quoted.

The weight of authority, I think, is against the ruling of the Circuit judge, and leans to the opinion that while a mortgagee may have the right to select to sell the homestead first, and the surplus afterwards, if necessary, or vice versa, as to him may seem best, other creditors have no right to compel their choice one way or the other. I have already shown that the Court of Equity has never, as in the case of charities, applied the doctrine of marshaling, so as to bring about indirectly a payment out of a fund which cannot, by law, be made out of it directly.on account of some positive prohibition.

The provisions in the constitution of 1868 in favor of the homestead, reserved it from attachment, levy or sale under mesne and final process to the head of the family, and the acts of the General Assembly in pursuance of the constitution to enforce the same are remedial in their nature, intended to establish a great public policy, and in doubtful cases it is the duty of the court in every fair and legitimate way to extend the remedy. In this State a mortgage is nothing more than a security for the payment of money, and cannot be extended beyond the contract of the parties. It is no part of the contract in an ordinary mortgage that the property shall be liable to the claims of creditors not contemplated in its terms, and it is difficult to see how any rule of equity for marshaling assets can be allowed to work a benefit in favor of creditors which the head of the family cannot create, by “any waiver, however solemn.” It is not necessary to say judgment creditors, because all creditors can put their claims into judgments, and if judgment creditors have any rights, then all creditors may sooner or later obtain them.

The judgment creditor, under the constitution and the acts of the General Assembly, has no right to sell the homestead under his judgment in the usual way, and is even forbidden to do so under heavy penalties against the officer executing the process, and the court, I think, has no right to extend the terms of the mortgage, so as to enable creditors not contemplated in it to obtain indirectly an advantage which they could not do directly, because of a positive prohibition of the statute.

Judgment affirmed.