Tenney v. State Bank of Wisconsin

Chattel Mortgage — Earnings of mortgaged, vessel while in possession of mortgagor— While in possession of mortgagee — Mortgagee liable to.aeeouni — Damages for conversion — Jurisdiction of eguity— Waives' of objection. 1. Where a vessel, mortgaged to secure a debt, remains in the mortgagor’s posses, sion, the mortgagee has no lien upon her earnings, and cannot compel a specific appronriation of them to the payment of the debt. 2. Where A. takes a bill of sale of a vessel from B., and executes to B. an agreement to reconvey on payment of a debt due from the latter — whether it is competent, in an action between the parties for an accounting &c., to show a contemporaneous oral agreement by which the vessel was to be employed, and her earnings applied to the discharge of B’s debt, is not here decided. 3. under such bill of sale and written defeasance (in the absence of any further valid agreement), A. is entitled to the immediate possession of the vessel and her subsequent earuings. 4. While in possession under such agreement, A. is bound to employ the vessel so as to earn as much as can reasonably be earned by her for the benefit of B.; and to account to B. for such earnings on a final settlement. 5. Whether, under such agreement, it is lawful for A. to sell the vessel for the purpose of making the debt, after waiting for a reasonable time, the earnings being insufficient, and B. refusing to pay, is not here decided. 6. If, however, A. ’s agreement deprives him of all right to sell, yet, if he sells, that is merely a conversion, and he is merely liable in damages as for a con- — version. 7. The rule of damages in such a case is, the value of B.’s interest in the vessel at the time of such sale, with interest. 8. In an action for equitable relief, an objection to the jurisdiction of the court on the ground that the plaintiff has an adequate remedy at law, must be taken by answer, or it is waived; except incases of such purely legal character that a court of equity cannot afford relief. 9. In this case A. held the vessel under a trust to reconvey it to B. upon fulfilment of the condition named in the defeasance, and the action (in which equitable relief was claimed) was based on an alleged violation of his trust in selling the vessel; and objection to the jurisdiction not having been taken by answer, the court may, without the aid of a jury, give compensation in damages, a specific p erformauce being impossible; or it may make up an issue as to the damages, and send it to a jury.

APPEAL from tbe Circuit Court for Milwaukee County. Action upon an alleged equitable mortgage of tbe schooner L. J. Earwell by Isaac T. Branch to John Q-. Inbusch, president of tbe Male Bank of Wisconsin, given to secure an indebtedness of said Branch to tbe bank Tbe plaintiff, as assignee of Branch, seeks to have an account taken of such indebtedness, and of tbe earnings, costs and expenses of tbe vessel, and that after deducting tbe amount of said indebtedness from tbe net earnings of tbe vessel, Inbusch be adjudged to pay tbe balance to tbe plaintiff and convey tbe vessel to him; or that be be adjudged to pay her value and said balance; or that upon payment by plaintiff of the amount, if any, found to be still due from Branch to tbe bank, be be allowed to redeem said vessel, and tbe same be conveyed to him. Tbe case made in tbe complaint is in substance as follows: On and before tbe 8th of September, 1857, said Branch was sole owner of said schooner and her equipment, which was enrolled and licensed for and engaged in tbe coasting trade on tbe lakes, and was of tbe value of $16,000, but subject to a mortgage lien for about $9,500. On tbe same day Branch was indebted to tbe Male Bank, mostly on three notes, in tbe sum of $6,200; and at tbe request of said Inbusch, to secure said indebtedness, entered into an agreement whereby be was to turn over to said Inbusch for tbe bank about $940 worth of wheat and flour, and deliver to him as collateral security a note against one Eastman for about $1,100, and as further security be was to convey said schooner and deliver possession of her to Inbusch, who was to bold tbe title and possession as such security, until said debt, with interest at twelve per cent., should be paid ; and Inbusch was to employ tbe vessel in her business of commerce and navigation, and receive her net freights and earnings, and apply tbe same on said indebtedness; and upon fall payment thereof be was to reconvey tbe vessel &c. to Branch. In pursuance of this agreement, tbe flour and Eastman’s note were turned over to Inbusch, and a bill of sale of said schooner executed and delivered to Mm; and contemporaneously therewith, Inbicsch executed and delivered to Branch a defeasance in the following form: “ I do hereby stipulate and agree to reconvey to Isaac T. Branch, of Milwaukee, the schooner L. J. Earwell (if the same shall be in existence), on receiving the sum of sixty-two hundred dollars, with interest thereon at twelve per cent, per annum from this date, until paid, together with costs and expenses.” Thereupon Inbusch immediately took control of the vessel and employed her in navigation. Subsequently said wheat and flour were sold, and said Eastman’s note collected, by the bank, and the proceeds applied upon Branch’s indebtedness, wMch on the 1st of March, 1858, was reduced to about $4,500, with interest. The net earnings of said schooner during the year 1857, after said 8th of September, and during each subsequent year, to 1861, inclusive, are stated, the aggregate being $25,750, leaving a balance of about $18,000 due Branch at the end of the year 1861; and said schooner is still in existence, and worth about $12,000. On the 8th of April, 1862, Branch sold and assigned to the plaintiff “ his right and interest in and to said agreements, vessel and her earnings, and Ms claim and demand against the defendants, and each of them, thereforand the plaintiff thereupon notified the defendant's of said assignment, and demanded of them an accounting and a reconveyance of the vessel, wMch they refused. The plaintiff therefore demands the judgment above stated. The answer deMes that said schooner was, on the 8th of September, 1857, of greater value than $4,000 ; admits that she was then subject to a mortgage lien for $9,500, but avers that the defendants were not aware until the commencement of the action that she was encumbered by said mortgage more than $4,500; denies that there was any oral agreement between the defendants, or either of them, and Branch, other than that expressed in the bill of sale and defeasance set out in the complaint ; denies that either of the defendants ever took possession or control of said schooner, or was to or did employ her in business or receive her net earnings to be applied in payment of Branch’s indebtedness to the bank; avers that Branch remained in possession and control of the vessel after the making of said bill of sale, the same as before, and received her freights and earnings ; that soon after, defendant Inbusch, to prevent the vessel from being libelled and sold in admiralty, was obliged to pay certain claims, amounting to over $500; that' on the 2d of February, 1858, said vessel was not worth more than $4,000; that on that day one Jones, the owner of said mortgage thereon, informed the defendants that he was about to foreclose the same, unless Inbusch would convey the vessel to him, proposing in that case to pay defendants the amount which it would cost to get title' ’by foreclosure ; that Branch consented to such conveyance; that defendants, knowing that the vessel was not worth the amount due on said mortgage, accepted the offer, and executed a bill of sale of the vessel to Jones, and in consideration thereof received from him $149.25, which was thereupon credited to Branch on his account. It is further alleged that Branch still owes the bank on said indebtedness $7,374 ; that about 12th March, 1860, being totally insolvent and unable to pay his indebtedness, he applied to the defendants to remit four-fifths of the same on his agreeing to pay the remaining one-fifth in installments, at eighteen months and two and three years, respectively, from that time; that thereupon an accounting was had between Branch and the bank, and the former was found indebted to the latter in the sum of $5,945, and the bank executed to Branch, at Ms request, “ an agreement in the nature of a composition deed,” whereby it agreed to take of Mm, and he agreed to pay, twenty per cent, of the last named sum in installments as above stated ; but that he has never in fact paid any part of said twenty per cent. The defendants therefore insist that neither of them is liable to account or to reconvey said schooner, as prayed in the complaint. The defendant John G-. Inbusch haying deceased during the pendancy of the action, his administrators were made defendants. On the trial, Mr. Hibbard, a commission merchant, as a witness for the plaintiff, and against the objection of the defendants, testified that at Branch’s request he went with him to the State Banh. “ Mr. Branch proposed to turn over to the bank, or to Mr. Inbusch for the bank, what wheat he had in store, and about two hundred barrels of flour, and give him a mortgage on the schooner L. J. Harwell for the security of his debt. * * Mr. Inbusch consented to this arrangement, stipulating that Branch should give him a bill of sale of the vessel in jelace of a mortgage, and that when Mr. Branch had paid him the debt he would reconvey the vessel to Mm, and that he [Branch] could have the management of the vessel the same as though he had given him a mortgage; that he would assist him from time to time with money to enable him to get out of Ms debts. * * ” Question: “ Who was to have the earnings of the Far-well until she was reconveyed?” Answer: “I think I answered the question when I said that Branch was to have the control of the vessel under the bill of sale. I don’t know that anything more was said” “ Mr. Inbusch cautioned Mr. Branch that he must not run the vessel in debt. * * Branch had told him that there was a mortgage already on the vessel, to J ones; and Inbusch said he did not want a second mortgage. He told us distinctly that Branch could manage the vessel the same as though he had given Mm a mortgage instead of a bill of sale — Branch being opposed to giving Mm a bill of sale, because he wanted the vessel to furnish Mm business. * * My understanding of the arrangement was, that when Branch should have paid the Slate Banh what he owed it, by the sale of his wheat and flour, and the earnings of the vessel, Inbusch would reconvey her to Branch.” The evidence on the other questions of fact at issue between the parties was very voluminous, and will not be stated here. The plaintiff’s evidence tended to prove, among other things, that the vessel, at the time of the sale by Inbusch to Jones, was worth about $12,000; and that said sale was made without the knowledge or consent of Branch. It also tended to sustain the allegations of the complaint as to the value of her subsequent earnings. The defendant’s evidence tended to show that the value of the vessel at the time of the sale to Jones, was about $7000 or $8000; and that neither Inbusch or the bank was ever in actual possession and control of the vessel; that the same remained under the control of Branch until taken possession of by Jones, after the sale to him by Inbusch; but that In-busch procured the vessel to be enrolled, as owner thereof, and gave the bond required by the act of Congress, preparatory to her being employed in navigation in 1858. There was also evidence that several hundred dollars of the net earnings of the vessel, during the latter part of 1857, subsequently to the execution of the bill of sale to Inbusch, were applied by Branch to the part payment of a prior mortgage upon the vessel. The circuit court found that the complaint was improved in its entire scope and meaning, and rendered judgment of dismissal, from which the plaintiff appealed. stated that the court below announced orally, as the reason for dismissing the complaint, that jffaintiff’s remedy was at law and not in equity; and they argued that the dismissal was erroneous. (1.) When a party has a remedy at law, but proceeds in equity, it is error to dismiss his bill absolutely. Hawkins v. Lowry, 6 J. J. Marsh., 55. (2.) The defendants could not at the hearing insist that the plaintiff had an adequate remedy at law, not having taken the objection by answer. Leroy v. Platt, 4 Paige, 77; Bradley v. Boot, 5 id., 632 ; Att’y Gen’l v. Purmort, icL, 620 ; Wolcott v. Sullivan, 6 id., 117 ; Gable v. Miller, 10 id., 627 ; Gable v. Martin, 1 How. (Miss.), 558; Clark v. Flint, 22 Pick, 231; Stockton v. Williams, Walker Ch., 120. 2. We may show by parol the contemporaneous agreement that the vessel was to be employed in Per business of commerce and navigation, and that her earnings were to be applied to the discharge of the debt due the State Bank. Hacine County Bank v. Keep, 13 Wis., 209; Miller v. Fiohihorn, 31 Pa. St., 252 ; Beitenhaugh v. Lud-wick, id., 131: Mobile Marine Dock Co. v. McMillan, 31 Ala., 711; Wentworth v. Buliler, 3 E. D. Smith, 305. 3. Erom the bill of sale, defeasance, and character of the property, independent of any agreement, there was an implied obligation in law to employ the mortgaged property at a profit. Edwards on Bailments, 241; Story on Bailments, 343. Equity looks upon that as done, which ought to have been done. 1 Story’s Eq. Jur., § 64; Sedgw. on Dam. (ed. of 1858), 507 (481). See also Bank ads. Hatton, 1 Uott & McC., 221. 4. The plaintiff is entitled to the equitable relief prayed for in his complaint, and to the remedies of a court of equity. Hall & Bawson v. Delaplaine, 5 Wis.,*206,217 ; Ortonv. Knab, 3 id., 576. Where a court of equity has jurisdiction to decree a specific performance of a contract in part, it will award damages for the breach of so much as cannot be specifically performed, and not turn the party to his remedy at law. Chinn v. Heale, 1 Munf., 63 ; McBaven v. Forbes, 6 How. (Miss.), 569. Since the adoption of the code, there is in this state no court of law distinct from a court of equity. Hall & Bawson v. Delaplaine, supra; Van Santvoord’s Eq. Pr., sec. Ill, p. 15. A bill in equity to redeem will not generally lie in behalf of a ¡oledgor or his representatives, as his remedy, upon a tender, is at law. But if any special ground is shown, as if an account or discovery is wanted, or there has been an assignment of the pledge, a bill will lie. 2 Story’s Eq. Jur., § 1032 ; Story on Bailments, § 350, and cases in note 4; Upham v. BrooJes, 2 Story’s G. O. R., 623. 5. In cases of trusts in relation to particular chattels, a bill in equity will lie to enforce the trusts and compel a transfer of the property. 2 Story’s Eq. Jur., §724; Clark v. Flint, 22 Pick., 231; Wilkins v. Sears, 4 Mon., 344; Field v. Beebee, 3 Bibb, 19 ; Beed v. Lansdale, Hardin, 6; Shannon v. Spears, 2 Marsh., 311; Geisse v. Beale, 3 Wis., 367 ; Barr v. Lapsley, 1 Wheat, 151; Mechanics' Banlc of Alexandria v. Seton, 1 Peters, 805. The bank was in. this case the equitable mortgagee; Inbusch the actual mortgagee, with legal title, and the possession or right of immediate possession, which right Branch himself could not controvert bj parol (Case v. Winship, 4 Blackf., 425 ; 2 Kent, 3d1 ed., 515 et seq. ; Pickard v.- Low, 3 Shep., 48; Colman v. Packard, 15 Mass., 39 ; Whisler v. Poberts, 19 HI, 274); Inbusch was the agent and trustee of the bank; and the bank and Inbusch, in equity, are trustees of Branch’s interest in the property. Story’s Eq. Jur., §1261 et seq.; 2 Maddock’s Oh., 125. 6. The plaintiff is entitled to bring his bill to redeem and for a recon-veyance. 2 Story’s Eq. Jur., §§ 1021,1031-2 ; Kemp v. West-brook, 1 Yesey Sr., 278; Hart v. Ten Dyck, 2 Johns. Oh., 100, 101; Harrison v. Hart, 1 Comyn’s R., 392 ; Story on Bailm., § 287, and cases cited in note 2. 7. The plaintiff is entitled to the earnings of the vessel since the wrongful sale thereof, and to the account and discovery sought. Clark v. Flint, 22 Pick., 231; Bennett v. Butterworth, 12 How., (U. S.), 367, 369 ; Wilkins v. Sears, Shannon v. Spears and Peese v. Lansdale, supra; Gordon v. Lewis, 2 Sumner, 143. If the defendants had employed the vessel themselves, we should clearly have been entitled to a discovery and account of her earnings ; if they had sold and assigned their mortgage interest, the assignee could have held the vessel only till her earnings were sufficient to pay the bank debt, and would have been hable to the plaintiff. By what principle of equity can it be contended that by their own tortious act in conveying the entire vessel to a third party without notice of our equities, they are relieved from accounting to us for her earnings, and from making a reconveyance ? If this be so, the plaintiff is in a worse condition than if the defendants had, without his consent, assigned their interest to an insolvent assignee — in which case they would have been held liable as trustees. 2 Lead. Oas. in Eq., Part 2, pp. 431-2. 8. Independent of the earnings, Branch (and the plaintiff as his assignee) was entitled to an account of the amount due the bank, and to a discovery and account of the costs and expenses provided for in the defeasance, and of the disbursements made on account of the vessel; and to a redemption and reconveyance of the vessel, and the surrender and cancellation of the notes held by the bank. And whether the remedy is sought in equity or at law, upon a wrongful sale of the mortgaged property, no tender is necessary, but the debt will be set off against the damages recovered. Upham v. Brodies, 2 Story’s C. C. R., 623; Edwards on Bailm., 248-9; McLean v. Walker, 10 Johns., 472; Story on Bailm., § 349; Stearns v. Marsh, 4 Denio, 227. made the following among other points : 1. The proof shows either that Inhusch rightfully sold and assigned his interest in the vessel, or that he tortiously sold and converted the vessel. If the last was the case, then at the time of the sale the tort was complete, and the liability of Inhusch was for damages for the tort, and nothing else. If the former was the fact, he was not held liable to any one ; if the latter, the tort was not assignable, so as to give a right of action to the assignee. R. S., ch. 122, sec. 12. 2. Equity does not grant specific performance of a contract for the sale of chattels or personal property, except when it appears from allegations and proof that money will not compensate, as in the case of a family picture. Story’s Eq. Jur., 717 et seq.; Buxton v. Lister, 3 Atk, 384. 3. Courts of chancery sometimes, when the title to part of the property fails, will compensate as to such j>art; but never, under name of jurisdiction to decree specific performance, will they entertain a bill merely for damages. Such cases must be tried by a jury. Story’s Eq. Jur., § 794; Corporation of Ludlow v. Greenhough, lBligh, N. S., 794.