45 Ky. 6 | Ky. Ct. App. | 1845
delivered the opinion of the Court.
These bills, now consolidated, were filed separatelj Tharp and Burke, setting up demands against the estate of Feltz, amounting in the aggregate, to $4.000, besides interest. Cotton, who administered on the estate of Feltz at Natchez, where he died, and Chenowith, who administered on his estate at Louisville, where he had resided until his visit to the South, were, together with the unknown heirs of Feltz made defendats. The bills charge, in effect, that Feltz had by two deeds, fraudulently mortgaged his real estate in Louisville to Cotton, for the purpose of hindering and defrauding his creditors; that he had sold out his interest in a store and tobacco factory, for $4,000 or $5,000, and taken the notes payable to Cotton; that the notes have been paid to or remain in the hands of Cotton; and that with these and other means in their hands, Cotton and Chenowith refuse to pay, &c. and are combining to defraud the creditors
The answer of Chenowith shows that assets came to his hands, to a small amount only, not more than sufficient to pay expenses and satisfy a note on Feltz for $140, which he exhibits, and for which he has aright to retain the funds in his hands.
Cotton denies the fraud, &c. and states that the consideration of the first mortgage, which is dated 15th of August, 1835, and secures an alledged debt of $3,145, was money loaned by him to Feltz in 1832, at New Orleans, for which he took no note, and of which there was no witness, but which being loaned on two oi three occasions, within a few days, he entered in a small memorandum book, which has been since destroyed.
The second mortgage, dated 27th of November, 1839, recites, that “whereas, the parties have this day settled and adjusted all matters of account between themselves, the said Feltz is indebted to the said Cotton in the sum of sixteen hundred dollars,” and that sum is secured by the mortgage. In reference to the consideration of this mortgage, and the note for $4,000, Cotton states, that on or about the 25th of November, 1839, Feltz was indebted to him over and above the first mortgage, the sum of $6,578, for money loaned principally at Natchez, for which he had no writing and no witness, but had made memorandums in a book since destroyed, and Feltz holding an interest in a grocery and tobacco factory with Wm. H. Norton, it was agreed that Norton should purchase it for $4,000, and give his note therefor, payable to Cotton, for so much of said $6,578; that Feltz should secure $1,600, the other part of said sum, by mortgage (on a lot not included in the first mortgage,) and should give his own note for the residue, $978 ; that accordingly the
There is no proof of the value of the property first mortgaged, except the admission of Cotton, above stated, and no proof whatever, of the value of the property last mortgaged. There is no proof sustaing the statements of the answer with respect to the indebtedness of Feltz, except that which is furnished by the mortgages and note exhibited, and by the fact that Norton’s notes given for the property of Feltz, were, by arrangement between them, made payable to Cotton, and were afterwards in his possession.
Norton, whose deposition was taken in each of these cases, and also in the mortgage suits, appears to have had no knowledge of the transactions between Feltz and Cotton, except that they were adjusting their accounts a few days before he executed his note, and that by agreement, and at the request of Feltz, his notes were made payable to Cotton. He says Feltz told him that this was on account of other transactions than those for which the first mortgage was given, and after repeatedly stating in his earlier depositions, that Feltz never told him why his note w7as to be payable to Cotton, he says in his last deposition, that Feltz told him it was on account of what he owed Cotton over and above what was secured by the mortgages. But as even this statement does not prove an acknowledgment of indebtedness to the amount of $4,000, or any other particular sum over and above the mortgages, and as the acknowledgment implied in it might be satisfied by referring to the $978 note as the sum due above the mortgages, we conclude that there is no proof whatever of the alledged indebtedness, except the mortgages and the note for $978, and the fact that Norton’s notes were made payable to Cotton, and after-wards came to his hands. On the other hand, there is the certain fact that these notes were given for the property of Feltz, and that consequently they should be regarded in behalf of his creditors, at least as held for his benefit, unless it appears that Cotton himself had an equitable claim to them,
It it said indeed, that the complainants have made him their witness, and that his statement should be credited until disproved. But they charge him in effect with having this note of Norton, and failing to credit it or its proceeds upon the mortgage debts, and he answers that Feltz was indebted to him in the full amount of the note, be sides those mortgage debts. Is not this matter of avoidance, and must he not prove it? And if it be conceded that the mere fact of his having in possession Norton’s note, made payable to him by ihe direction of Feliz, affords some ground for inferring that it was so made payable on account of a debt of the same or greater amount due from Feltz to him, is not this inference satisfied by the mortgage debts and the note for $978? And in the absence of all proof of any other debt, does it not properly point and apply to these debts? Then again, the mortgage of the 27th of November, 1839, recites that on a settlement of all matters of account between these parties, made on that day, Feltz is indebted to Cotton $1,600. If this solemn statement does not prove that nothing more than $1,600 remained due on the first mortgage, and the note of $978, executed two days before, it certainly furnishes evidence of a very high character, to prove that there was not then due any further debt resting in mere assumpsit or simple contract. And although the explanation given by the answer might possibly be true, and if true, might avoid this conclusion, yet this explanatory statement is not itself established by proof, and it is not probable that it would be recited in a mortgage which was to go to record, that on a settlement of accounts, $1,600 were found due, when $4,000 more remained due on assumpsit, between the same parties, even though there were a verbal understanding that the debtor would sell his interest in a partnership grocery and factory, and take the note payable to the creditor. At the date of the mortgage loo, Norton was unwilling to give $4,000 for this interest, though Feltz wished him to do so ; but he says it was understood that his note for whatever amount, should be made payable to Cotton. And the
But further, it now appears, that at the date of the second mortgage, and of Norton’s note, Feltz owed the two debts now set up, and he may have owed more besides his debt to Cotton. And the evidence in the case of Tharp, renders it quite probable that he might have vvished to avoid the payment of the debt therein set up. Be this as it may, being about to leave the State, his interest in the grocery and factory would be subject to attachment and sale in Louisville, in bis absence, or if he sold and took the notes payable to himself, they might be attached either here or where he was going. And these considerations might have furnished a motive for taking the notes payable to Cotton, his intimate and confidential friend, either in addition to or independent of the object of paying or securing so much of the debt to him.
Again, Feltz was a gambler or sportsman, just going to the south, waiting only to raise a little money to fit him out and take him there, which he obtained by renting to Norton, for one year, the premises occupied by the grocery and factory, being the same included in the first mortgage, and getting in advance $250, directing him to pay the residue, $50, to Cotton, and to rent from him in future. Feltz then being in effect without money, would
It is not necessary to decide for what specific purpose the note was made payable to Cotton. It is for him to show that it was so drawn in acknowledgment and payment of a debt in addition to the sums evidenced by the previous securities. He relies upon inference merely, to prove this, and we think the circumstances authorize several other inferences, which in the absence of all other evidence of such additional indebtedness, are more probable than that on which he relies. We conclude, therefore, that there is no sufficient evidence of Cotton’s right to have the $4,000 and its interest, due from Norton, except in discharge of his demands on the two mortgages and the note for $978.
It is contended on the part of the complainants, that the recital of the last mortgage must be taken as showing that nothing more was then due but the $1,600 thereby secured, and that the subsequent payments being credited would extinguish that sum. But we think the safest construction of the recital, is that the settlement related only to matters of account, and did not embrace demands secured by deed of mortgage. If the parties intended to state that the first mortgage debt was reduced to $1,600, and that there was no other debt between them, then as this balance may be assumed to have been amply secured by the first mortgage, there would seem to have been no sufficient motive for the second, which would at most, operate only as additional security. This being unneces
Assuming then that the two mortgages and the note for $978, evidenced real demands against Feltz, arid that Norton’s notes for $4,000 and its interest, were made payable to Cotton, not in discharge of an additional debt, but as a means of paying so much of these debts without resorting to the realty, or as a resource on which Feltz might draw while in the South, or for some other purpose, it follows that whatever payments may have been made by Norton, on account of principal or -interterest, should be applied to one of the real debts of Feltz to Cotton. If the whole has been 'paid, or if any remaining balance has been rendered unavailable and been ° ~ . ]ost by the failure oí Ootton to use reasonable diligence in its collection, then the whole should be so credited, otherwise the representatives of Cotton should have the option of surrendering the note, which may by assignment under the order of the Chancellor or by other appropriate proceeding, be subjected to the demand of the complainant.
In regard to the manner of applying the credits — the rents received by Cotton from the mortgaged premises, should be applied as credits on the respective debts secured by the premises from which the rents accrued. This is substantially the case of a mortgagee in possession, and it is not at his option to appropriate the rents to the payment of debts not secured by the mortgage, as Cotton claimed and was permitted to do by the decree. But whatever he has realised, or might by proper dili gence have realized from the assetts acknowledged in his answers to have been received by him as administrator of Feltz, should, in this contest, be charged against him as diminishing his right to apply so much of the Norton debt to the note for $978. To the residue of that note after being thus diminished, so much of the Norton debt should be applied as a credit, and so much of the remnant of the Norton debt as on the principles already stated, may be chargeable to him, should be applied as a
Some question has been made as to the jurisdiction of a Court of Equity to enforce Tharp’s demand, which is evidenced by the acceptance of a bill by Feltz, and is not reduced to judgment. But as the mortgaged estate could only be reached by suit against the heirs of Feltz, who being unknown, are only sueable in Chancery; as the personal estate in the hands of the domestic administrator is utterly insolvent, being for the purposes of this demand, nothing; as the condition and beneficial ownership of the Norton note required a discovery, and the notes were held by Cotton in trust, and may have come to his hands as the foreign administrator, and as although we have sustained the two mortgages against the charge of fraud in their origin, the circumstances affecting the last are not free from doubt, and both have been fraudulently kept up at their full amount, and were sought to be enforced without the appropriate credits, we think the bill of Tharp was properly entertained, although he had not obtained a fruitless judgment. The case is brought within the spirit, if not within the letter of the act of 1838.
The decree of the Chancellor is erroneous in allowing Cotton to credit the rents received from the mortgaged premises upon the note for $978, and also in allowing to him the Norton debt, without any credit therefor upon his other claims; and for these errors the decree is reversed and the cause remanded, with directions to ascertain the amount which, according to the principles above indicated, is chargeable to Cotton or his representatives, on account of rents, and of the Norton debt, and for further proceedings and decree conformable with this opinion.