Edwards v. Sanders

Edwards v. Sanders, 6 S.C. 316 (1875)

Court: Supreme Court of South Carolina · State Highest Courts
Decided: October 14, 1875
Judges: Moses, Willard, Wright
Citations: 6 S.C. 3161875 S.C. LEXIS 52

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Headnotes

The term “mortgages” in Section 26 of the Act of 1789, prescribing the order in which debts of a decedent are to be paid, embraces mortgages of chattels as well as mortgages of real estate. Under Section 26 of the Act of 3789, prescribing the order in which debts of a decedent are to be paid, mortgages, whether of chattels or real estate, rank in the third class, and are entitled to payment out of the general estate in preference to specialty and simple contract debes. A purchase of the mortgaged premises, by the mortgagee or his assignee, under a decree for foreclosure, does not extinguish the mortgage debt for any unsatisfied balance that may remain; and where the purchase is made after the death of the mortgagor, the unsatisfied balance retains its rank as a mortgage debt, with right to priority of payment out of the general estate over specialty and simple contract debts.

Summary

Before TOWNSEND, J., at Darlington, December, 1873. This was a bill in equity, filed in January, 1869, by B. W. Edwards, administrator de bonis non of Julius A. Dargan, deceased, (who died intestate in March, 1861,) against H. E. P. Sanders and others, creditors of the intestate. The object of the bill was to call in creditors to establish their demands, enjoin them from suing at law and to wind up the estate. A Referee was appointed to call in creditors, take testimony and report upon the claims presented. The Referee submitted his report, bearing date November 19, 1873, in which he set forth and classified the claims that had been presented and proved, those of the first class, entitled to priority of payment over specialty and simple contract debts, being stated under the caption “Judgments and Mortgages.” In this class were included, amongst others, three claims as follows: †3. A claim for $4,821.57, due upon a bond and mortgage of real estate given by the intestate to T. C. Evans, Commissioner in Equity; †4. A claim for $2,133.71, due upon a bond and mortgage of slaves given by the intestate to T. C. Evans, Commissioner in Equity ;• and, †5. A claim for $929.41, due upon a bond and mortgage of a slave, also given by the intestate to T. C. Evans, Commissioner in Equity. The bonds and mortgages all bore date February 1,1858. The rest of the facts bearing upon the questions raised by the appeal are stated in the opinion of the Circuit Court. L. C. McCall and T. A. Woods, creditors of the intestate, excepted to the report as follows: 1. Because the Referee has erred in classing as mortgage debts the claims of Thomas C. Evans, as Commissioner in Equity, amounting on the 1st day of June, 1873, the one to $2,133.71, and the other to $929.41, the same being bonds secured by mortgages of slaves, which had matured while the said slaves were property ; and the property mortgaged having been exhausted, the debts secured thereby no longer exist as mortgage debts, but must stand as specialty debts merely. **&*;{<>{ Can the same be said of the mortgagee of a chattel mortgage ? In North vs. Drayton (Har. Eq.,'34,) the Court held that the bond of the intestate “ must be satisfied out of the mortgaged negroes.” Satisfied out of the chattel upon which the lien existed. So we say in this case. But inasmuch as the chattel is destroyed, the creditor has no specific lien and must take his place among the creditors according to the character of the demand for the security of which the chattels were pledged. — T-unno vs. Happoldt, 2 MeC., 188 ; affirmed in equity in Kinard vs. Young, 2 Rich. Eq., 258. It will not do to say that anything in the form of a mortgage must necessarily occupy the position assigned to mortgages in the Act of 1789. In Commissioners of Accounts vs. Greenwood,1 DeS. Eq., 451, decided in 1795, our Courts held that: “The State has no prerogative to be paid out of the effects of the debtor in preference to any' of the citizens who have judgments, mortgages or other liens;” and, further, that the “Act is merely directorial to executors and administrators and does not alter the law in relation to the rights of the State and other creditors of the deceased.” This is precisely what we contend for here. If “bills of sale of slaves by way of mortgage” did not, anterior to the passage of the Act of 1789, rank with mortgages and judgments, they cannot do so now by virtue of that Act, for it did “not alter the law;” but, in the language of the Court in McIntosh vs. Wright, “ it seems to have enacted the common law.” In reference to the paper, No. †3, which once was a mortgage, our position is: That if the debt secured by the mortgage has not been paid, the lien of the mortgage has certainly been destroyed. The mortgaged premises are now the property of the owner by assignment of the mortgage. “ If a mortgagee who has received equitable satisfaction of his mortgage afterwards attempts to set it up as a subsisting lien upon the premises, satisfaction of the mortgage may be decreed so that it may be cancelled on the record of the mortgage.” — Kellogg vs. Wood, 4 Paige, 578. “ The act of taking possession of mortgaged premises by a mortgagee, under a decree of foreclosure, is, by operation of law, an extinguishment of the mortgage debt.” — Derby Banks vs. Landon, 3 Conn., 62. “ A decree of foreclosure, without any subsequent act in pais, is an appropriation of the pledge and an extinguishment of the mortgage debt.” — Swift vs. Edson, 5 Conn., 531; 7 Bac. Abr. Tit. Mortgage E., 88. We submit that in case of insolvent estates, as this, “the Courts will not apply the personal to relieve the real estate.” — 2 Was. on Real Property, *566; Gibson vs. Crehore, 3 Pick., 475; but that after lien creditors have exhausted their specific liens, their positions in the rank of creditors will be according to the character of their security. — Kinard vs. Young, 2 Rich. Eq., 247. “ In the sense of Courts of equity, the marshaling of assets is such an arrangement of the different funds under administration as shall enable all the parties having equities thereon to receive their due proportions, notwithstanding any intervening interests, liens or other claims of particular persons to prior satisfaction out of a portion of these funds.” — 1 Story Eq., § 558. “ The rule of Courts of. equity in marshaling assets in the course of administration is, that every claimant upon the assets of a deceased person shall be satisfied, as far as such assets can, by any arrangement consistent with the nature of their respective claims, be applied to satisfaction thereof.” — 1 Story, Eq., § 561. The questions in this case are whether debts of the intestate which had been secured by bond and mortgage, where the mortgages had lost their lien on the property mortgaged, either by the destruction of the property mortgaged or by a sale under foreclosure, can be established as mortgage debts against the estate of the intestate or must they be placed in the rank of specialty debts. Our first proposition is that in the administration of the assets of an insolvent estate debts secured by mortgages are not entitled to priority, except in so far as they are liens on any particular part of the estate, and that after the lien is exhausted or lost the grade of the demand must be determined by the nature of the instrument which the mortgage was given to secure. — Kinard vs. Young, 2 Rich. Eq., 247; Tennant vs. Stoney, 1 Rich. Eq., 261; Tunno vs. Happoldt, 2 MeC., 188; Manigault vs. Deas, Bail. Eq., 287, *292; Act of 1789, § 26, 5 Stat., 111. As to the effect which a purchase by a mortgagee of the property mortgaged, the rule is thus stated in 2 Story Eq. Jur., § 1035, b: “An extinguishment of the debt will also ordinarily take place when the mortgagee becomes also absolute owner of the equity of redemption, for then the equitable estate becomes merged in the legal.” This rule is thus stated on the authority of the following cases: James vs. Marcy, 2 Cowen, 246; Jackson vs. DeWitt, 6 Cowen, 310; Pelletrave vs. Jackson, 11 Wend., 110; Wade vs. Howard, 6 Pick., 492; St. Pauls vs. Viscount Dudley & Ward, 15 Yes., 173; Forbes vs. Moffat, 18 Yes., 390; Gardner vs. Astor, 3 Johns. Ch., 53. While this rule is stated by Story as subject to a qualification, yet it seems to have been adopted in this State without any qualification. —Ex Parte City Sheriff, 1 McC., 399; Schnell vs. Schroder, Bail. Eq., 338; McLure & Brawley vs. Wheeler, 6 Rich. Eq., 343; Allen vs. Richardson, 9 Rich. Eq., 53; see also James vs. Johnson, 6 John. Ch., 423. The rule established by the case of Morton & Courtney vs. Caldwell, 3 Strob. Eq., 161, and recognized in Wilson vs. McConnell, 9 Rich. Eq., 500, is simply this: the creditor of an insolvent has the right to have a certain proportion of the assets applied to the payment of his debt, which proportion is to be ascertained by inquiring how much was due and what was the amount of the assets at the time of the death. It is not merely a right to have a certain portion of his debt paid. But this right of the creditor to a certain portion of the assets becomes divested so soon as his debt is paid or is otherwise extinguished. So here we say that the holder of the mortgage had at the death of the intestate a right to have the assets applied to it as a mortgage, but so soon as the mortgage was extinguished such right was divested.

Syllabus and headnotes are prepared by the reporter or publisher, not the court, and are not part of the opinion.

Opinion of the Court — Moses

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The opinion of the Court was delivered by Moses, C. J.

We shall first dispose of the questions which are raised in regard to the mortgages of personal property. It is urged that they are not within the meaning and intent of Section 26 of the Act of 1789, (5 Stat., 116,) which prescribes the order in which “the debts due by any testator or intestate shall be paid by executors or administrators,” because the term mortgage, in our statutes, always applies to conveyances of land by way of security, and never to an instrument conveying chattels for a like purpose. If the proposition is not sustained by the fact, on which alone it rests for support, it is not necessary to do more than to show that at the passage of the Act it was applied as well to mortgages of personal as of real estate. As long ago as 1698, mortgages of negroes and other chattels were recognized, and a rule prescribed as to their priority, where more than one of the same property was given. — 2 Stat., 137.

Again, in 1745, (3 Stat., 664; 1759, 4 ib., 89, and 1785, 7 ib., 234,) provisions are made for their security as existing valid liens, operating to as full an extent, on the property which they cover, as *332 those of real estate. Indeed, on the very day of the ratification of the Act which prescribed the order in which payment of the debts of a decedent was to be made, the Legislature, in an Act providing for the transmission of an abstract of all judgments to the Clerk of the Court at Charleston, declared “that no judgment not so entered in the books of the said Clerk shall affect any property, real or personal, as to purchasers or mortgagees.” — Stat., 256. It would thus seem that the term was applied without distinction as to the character of the security. Indeed, the-expression “chattel mortgage” has never been used in this State, and is not to be found in any of its statutes. Even in the General Statutes, although the heading under Chapter- 120 is of “chattel mortgages and liens,” the very first provision refers to the recording of “a mortgage or other instrument in the nature of a mortgage of personal property.” Even in England it is also applied to the pledge which is made of personal property for the security of a debt by loan or otherwise. Mr. Coote, in his work on mortgages, devotes a chapter to “ mortgages of chattels personal,” and the right of such a mortgagee to foreclose is recognized in Kemp vs. Westbrook, Betts’ Suppt. to Vesey, 141; in Dyson vs. Moris, 1 Hare, 422; Slade vs. Riggs, 3 Hare, 35. Regarding them as mortgages within the designation of the Act of 1789, we fail to discover any rule or principle by which they are to be excluded from the rank to which, by its express terms, they are entitled.

It is not without some diffidence that we enter on the consideration of this point in the case, as the judgment of the Court below in relation to it was in conformity to the decision in Young vs. Ki nard, 2 Rich. Eq., 258 . The deference which we have been accustomed to accord to the decided cases in our own Courts, we must admit, has here lost-some of its force, not only by reason of the full and convincing argument of Chancellor Johnston in the Circuit decree, but by the language of the Appeal Court in reversing it. That Court thus expressed itself: “It feels much difficulty in giving construction to the Act of 1789, recited in the decree, and is not prepared to say that, if the question were entirely open to them, the construction adopted by the Chancellor is not a fair deduction from its phraseology. But it is deemed expedient to defer to the case of Tunno vs. Happoldt, cited in the decree, as an exposition of the Court of law, leaving to that Court, or to a future occasion, the consideration of the suggestion made in this case.” Notwithstand *333 ing this, it is with deference we venture to say that the question raised and decided in Tunno vs. Happoldt, (2 McC., 188,) was not identical with that made in the case in which it was accepted and followed as a guide for its ruling. The point which the Court there seems to have considered was whether the mortgage deed could change the character of the note which it was given to secure, and elevate it from the class of simple contracts, to which it belonged, to the higher grade of a specialty. Concede, as we must, that it could not, still that did not decide the point made by the appeal. The note could have no preference over other simple contracts, and the rank which should be accorded to the mortgage, in the order of priority in the payment of the debts by the administrator, remained undetermined. The Act of 1789 does not interfere with liens as they existed at the death of the debtor. Whatever rights they confer are still secured to the holder, and the property, if if exists, remains subject to their satisfaction. The order of payment which it declares has no application to liens which could be enforced against the property on which they attached. As to those, the concluding words of the Section clearly show that they are to prevail as they existed at the death of the debtor. The order of priority was only to be observed in the application of such general assets in the hands of the executor or administrator as were not bound by any specific lien. — Rutledge vs. Rutledge, 1 McC. Ch., 471; Keckley vs. Keckley, 2 Hill Ch., 257 ; Haynsworth vs. Frierson, 11 Rich., 476 . It is then not the lien which the Act deals with but the character of the debt, and it is that which is to determine its rank in the order of payment. It prescribes the order in which “ the debts due by any testator or intestate shall be paid by executors or administrators.” It embraces “mortgages” in the classification; they are to take precedence of “ bonds or other obligations.” In the Circuit opinion in Young vs. Kinard, Chancellor Johnston said : “ If it be a mortgage, it suits the description of the Act, and is entitled to what the Act gives it, and that is a rank above not only simple contracts but bonds and all other specialties.” “The assets of a deceased debtor are distributable among his creditors with reference to the rank of their demands at the time of his death.” — Tucker vs. Andy, ( 7 Rich. Eq., 281 ,) affirming what is said in Morton & Courtenay vs. Caldwell, 3 Strob. Eq., 164 , and Ex parte Ware, 5 Rich., 473 .

The instruments in question here were executed by the intestate in his lifetime, and were valid and effective at his death. By the *334 Act they are entitled to share in the distribution of the assets in the hands of his administrator or the Court according to the rank which, by its provision, is accorded to them.

With the doubts expressed by the Court as to its judgment in Young vs. Kinard, we do not feel ourselves constrained to follow it as authority by which we must be controlled. It is with respect that we differ, and can well interpose for our justification, if necessary, its own misgivings as to its construction of the statute.

The remaining question to be considered is whether the mortgage debt of Dargan to the Commissioner, assigned to Edwards, has not been satisfied by his purchase of the land under the proceeding for the foreclosure of the mortgage, and cannot, therefore, as the respondents contend, take rank as such under the said Act of 1789. It is true that McCown, under the sale of Dargan’s interest in the land, which was still subject to the mortgage of the Commissioner, acquired by his purchase only the right and title which Dargau held therein, and this was nothing more than the right to redeem. He thus held what in the Court of Equity is considered to be the real and beneficial interest, tantamount to the fee at law.— Williams vs. Beard, 1 S. C., 324. Where the mortgagee acquires this right through a Sheriff’s sale, by a purchase under a judgment junior to the mortgage, the debt which it was to secure is extinguished; — the like result follows where the mortgagor releases to the mortgagee the equity of redemption. — Mounce vs. McLure, 2 McC., 423; Schnell vs. Schroder, 2 Bail. Eq., 334 ; McLure, Brawley & Co. vs. Wheeler, 6 Rich. Eq., 345 ; Allen vs. Richardson, 9 Rich. Eq., 56 . The same doctrine was announced in James vs. Johnson & Morey.— 6 John. Ch., 416. All the right reserved by the mortgagor is transferred to the mortgagee, who then holds in the premises the interest both of the creditor and debtor, and there is nothing left on which the lien of the mortgage can operate. Where the sale is under a junior judgment, a third party purchasing must not only pay the bid which he has made for the only interest which the Sheriff can sell, but, to enjoy an unencumbered estate in the land, he must satisfy the mortgage, which still retains its lien. If the mortgagee purchases, to whom is such payment to be made? Not only is the lien destroyed, but the debt also. In McLure, Brawley & Co. vs. Wheeler , Chancellor Dunkin said: “As has been intimated, it makes no difference whether the mortgagee is the purchaser at Sheriff’s sale or a stranger. Purchasing the equity of *335 redemption, a stranger would take the land subject to the obligation to discharge the encumbrance.” If the mortgagee buys, the encumbrance is necessarily discharged by the operation of his own act.

The Circuit decree, applying these principles, while it holds not only that the lien of the mortgage but the mortgage debt also is destroyed by the purchase of Edwards at the sale for foreclosure, still gives effect to the bond, for the security of which the mortgage was executed. Following the authorities on which it relied for its conclusions, it would seem that the extinguishment of the bond also would have been an unavoidable consequence.

The question here is not, however, to be decided by the principles which prevail where the equity of redemption is lost to the mortgagor by its transfer to the mortgagee. Edwards, the assignee of the mortgage, holds through his purchase at a judicial sale for foreclosure, and all his rights and interests under his purchases depend upon the effect of such a proceeding. A foreclosure of a mortgage by judicial process in South Carolina differs in its results from that which prevails in England.

There, on default of payment of the debt at the time fixed by the Court, an absolute foreclosure is decreed. Action on the bond may be brought at law at the same time the bill for foreclosure is filed in equity, or it may follow. In this State, the proceeding is for the enforcement of the security for the debt. So far from the purchase or transfer through the sale of the equity of redemption, its effect is to bar and defeat it.

The interest of both mortgagor and mortgagee is sold. The title, freed and discharged of the encumbrance imposed by the equity of redemption, vests in the purchaser, the usual order, which was made, directing a sale, acting on the property.

It was competent for the plaintiff (and such is now the prevailing practice) to take a money decree, by force of which an execution could issue against the property of the mortgagor for any unpaid balance after the application of the proceeds of the sale.

If, under the prayer of the bill, a money decree cannot be given, the creditor, after a sale, may proceed at law upon the bond for any balance remaining due.— Gray, Commissioner, vs. Toomer, executrix, 5 Rich., 261 ; or, where the bill is not only for foreclosure but also for the payment of the debt, or includes a prayer for general relief, the plaintiff, after foreclosure, may apply to the *336 Court where the bill is filed for further decree for the money still due on the debt. The sale under an-order for mere foreclosure does not extinguish the debt and leave the mortgagor without remedy for the unpaid balance, and such appears to be the view of Chancellor Wardlaw, from his language in pronouncing the opinion of the Court in Allen vs. Richardson, 9 Rich. Eq., 56 .

We have already expressed our views in regard to the rank to which a debt secured by a mortgage of personal property is entitled under the Act of 1789 in the appropriation of the assets of a deceased dpbtor. In our conception, there is no difference where the mortgage is of real estate. In South Carolina, the whole estate is chargeable with the payment of debts. “ By law, the lands of o.ne deceased are assets to -pay debts.” They are expressly made so by 5 George, II, C. 7, and in this respect put on the same footing with real property. The Act of 1789 uses the comprehensive term “ mortgages,” assigns them to one rank, and in its application we do not see how any distinction can be made, whether they are of land or personal chattels.

The motion is granted, the judgment of the Circuit Court reversed, and the case remanded for further proceedings in conformity to the opinion of this Court.

Wright, A. J., and Willard, A. J., concurred.

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