Nelson & Hatch v. Dunn , 15 Ala. 501 ( 1849 )

CHILTON, J.

Before proceeding to notice the main points so elaborately discussed at the bar, we will briefly dispose of some objections made to the frame of the cross bill, and questions of practice, as to the dissolution of injunctions by the chancellor in vacation.

1. We need not examine the question, whether the defendants to the original bill acquired such an interest in the decree appointing a trustee, and ordering a reference to the matters of account to the register, as would prevent the complainant in that bill from dismissing it. The record shows, that although Dunn has instructed his counsel to dismiss it, the bill was pending when the motion was made to dissolve the injunction in this case, and we will so regard it, for the purposes of this trial.

2. We do not agree with the counsel for the plaintiffs in error, that the chancellor in vacation has no power to dissolve an injunction, except upon the denials of the defendants’ answer.

The statute (Digest, 358, § 82,) requires that the answer must be filed, before the chancellor in vacation can dissolve, but after it is filed, the chancellor should look to the whole case made by the pleadings, and if the bill contain no equity, dissolve the injunction, although the answer admits its allegations.

3. The defendants’ counsel insists that the injunction was properly dissolved, as the paper purporting to be a cross bill, contains no prayer that it be allowed as such, and heard with the original bill.

The authorities on which he relies, (7 Ala. 233, and 1 Paige, 226,) show, that the court may refuse to treat the pleading as a cross bill, in the absence of such prayer. But this is an objection to mere matter of form, which is clearly amendable, and which the chancellor should not regard, upon an application to dissolve the injunction in vacation. The frame of the bill gives indubitable proof of its character, and as the chancellor in vacation had no power to allow the amendment, he should have considered it as amended. It would seem, that cross bills are treated with greater indulgence than original bills. In Severn v. Fletcher, 5 Sim. 457, an amendment was allowed, changing the character of a cross bill for discovery only, to one for relief.

4. The counsel for the appellees further insist, that there is no equity in the cross bill, so as to authorize an injunction, or to afford ground for relief. That the defences set up are of a legal character, and are concluded by the judgments at law: or if not of that character, theyafe wanting in equity —hence, for this reason, the injunction was properly dissolved.

A cross bill is a mode of defence, to which a defendant resorts when he seeks some discovery, or asks relief touching the subject matter of the original bill. It is treated as an auxiliary suit, forming, with the original bill, but one cause or suit. 7 Johns. Ch. Rep. 252; Story’s Eq. Pl. § 399; Dan. Ch. 1742. It is true, the allegations of the cross bill must relate to the subject matter in controversy in the original bill; but the rule does not, as is supposed by the counsel, restrict its office so as to confine it to the issues in the original cause.

Thus, a cross bill has been allowed to answer the purpose of a plea puis darrein continuance at the common law. Mitford’s Eq. Pl. 82; Story’s Eq. Pl. § 393; Dan. Ch. Pr. 1743.

So also, for obtaining an equitable set-off, (4 Met. Rep. 104;) and to rescind a contract, where the original bill sought to enforce a lien for the purchase money. Wickliffe v. Clay, 1 Dana, 589. Or to establish and confirm a conveyance, where the original bill sought to set it aside. 11 Wheat. Rep. 446; Dan. Ch. Prac. 1744.

These authorities may suffice to show, that Nelson and Hatch may well set up the defences they attempt to make, so far as the frame of the bill is concerned. That some of their counter claims, or deductions, are cognizable at law,, can make no difference. They are connected with the matter of the original bill. Hume v. Long, 6 Monr. Rep. 119; Clay v. Wickliffe, 1 Dana’s Rep. 589.

The complainant in the cross bill, as against the complainant in the original bill, is not bound to show any ground of equity to support the jurisdiction of the court. 4 Met. Rep. 104; Dan. Ch. Prac. 1747; Story’s Eq. Pl. § 399.

5. As to the conclusive character of the judgment at law, against Nelson and Hatch, the general rule undoubtedly is, that if a party has a right either to defend at law, or proceed in a court of equity, and he elects to make his defence in the law court and fails, he is concluded by the judgment of that court, unless he can show that he is entitled to overhaul the judgment in equity upon some special ground, such as fraud or accident, unmixed with his negligence, by which a valid defence was rendered unavailing. Our own reports abound with authorities upon this point. This rule deprives Nelson and Hatch of the benefit of all such legal defences as they set up upon the trial at law upon their.notes. We need not designate particularly the items of their defence which come within the influence of the rule, as the view we take of the case upon another point renders it unnecessary. It is however, proper here to remark, that the loss they sustain by reason of the failure of title to a portion of the land, which they state at the sum of $6,589 08, and the liens which they were compelled to discharge, and for which payments they have a right to resort to the covenants in Henderson’s deed, ■say $2,172 33, as also the amount due Nelson out of the notes assigned to Dunn, stated at $10,667 38, are all equitable defences, and could not have been allowed at law. Dunn v. White et al. 1 Ala. Rep. 645; 8 ib. 793. So that an insufficient effort to plead them at law, cannot debar, the defendants of relief in chancery.

6. It may be conceded, as a general rule, that where two courts have concurrent jurisdiction over the same thing, the one which is first possessed of the cause, has a right to proceed with it, and cannot be prohibited or restrained by any other. 9 Wheat. Rep. 532; 5 Hump. Rep. 50; Pr. in Ch. 547. But the defendants in error can derive no aid from this principle, inasmuch as the original bill proposes to adjust the whole merits of the controversy between the parties. The parties interested are brought before the court by Dunn’s bill, and he proposes to adjust the deductions which Nelson and Hatch are setting up against him at law, and to apportion the same among the several holders of the notes assigned by Henderson, as the court may decide their equities may require.

The defendants submit to the jurisdiction which has thus attached to the subject matter, and averring their readiness and willingness to pay what may be found due to Dunn, after allowing them the abatements claimed, file their cross bill to obtain such allowance. Having obtained jurisdiction upon the application of Dunn, the court of chancery will proceed to do full justice between the parties, and restrain either of them from taking an inequitable advantage in the law court. Certainly Dunn cannot object that the defendants have no business in the chancery court, when they were brought there upon his bill, to which theirs is but a mode of defence.

7. The counsel for Dunn further contends, that the complainants in the cross bill should not be allowed to stop the proceedings at law as to any portion of the claims there sued for, because they do not offer to pay the sum which is confessedly due to Dunn.

The rule certainly is, that he who seeks the aid of a court of equity, must himself do what is equitable, and if he admits an amount due to the defendant, the court of chancery will not become active in his behalf, until he pays, or offers to pay, as the court may direct, the sum thus admitted to be due.

It seems, however, that in a bill for an aeeount, it is not necessary for the plaintiff to offer to pay whatever balance may be found against him. 1 Smith’s Ch. Pr. 8; Dan. Ch. Pr. 442; Colombian Government v. Rothschild, 1 Sim. 94, 105. But if such averment were necessary in the cross bill, which seeks an account of the sums to which the plaintiffs are entitled as abatements upon the notes held by Dunn, we think the allegation, that they are ready and willing to pay whatever sum may be due, after allowing them the abatements to which they may be entitled, is a substantial compliance with the rale, inasmuch as it requires the action of the court to determine what sum is due.

8. Having settled the preliminary questions, we now come to the main matter in controversy, which involves the priority of the liens created by the several assignments of the notes by Henderson, and whether Nelson and Hatch should be allowed to abate the notes in Dunn’s hands, or be turned round to the other notes subsequently assigned, to seek their indemnity.

Before proceeding, however, to inquire as to the respective equities of the parties with respect to the deductions claimed by Nelson and Hatch as connected with, or growing out of the original transaction between them and Hendorson, we should observe, that as to the claims secured by the assignment of the four notes to Dunn, and which were purchased in by Nelson, amounting, with interest, as averred in the cross bill, to $ 10,667 38, we think Nelson and Hatch have the clear right, under the present state of the pleadings, to have the collection of that sum enjoined. Dunn admits that Nelson has bought up the claims, but says he will not be entitled to the full amount of said claims, but only to a pro rata distribution. That the four notes assigned to him when collected, after the expenses incurred are deducted, will not be sufficient to pay all the debts they were intended to secure. The answer of Dunn does not say what the expenses are, or how much the notes will fall short of paying the several demands secured, nor what the amount of Nelson’s pro rata share will be. He however avers, “that this pro rata he has no wish or desire to collect from said Nelson and Hatch.” Now, as Dunn could have made this matter plain — as he is presumed to know the amounts of the ex-! penses which are to be deducted from the proceeds of the four notes, and has failed to furnish any data upon which the court could act understandingly, we feel bound, so far as the injunction is concerned, to assume the amount stated in the cross bill, as the amount to which Nelson is entitled, and as to this sum, the chancellor should have continued the injunction. There is certainly no equity in allowing Dunn to collect funds which, when collected, the court the next moment would order to be refunded, more especially, as Dunn protests that he has neither wish nor desire to collect the same.

9. What are the equities of the parties with respect to the defences of Nelson and Hatch, growing out of the original transaction, or consisting of sets-off and demands against Henderson, acquired by them since the negotiation for the property, and before notice of the assignment of their notes ?

It has been decided by this court, that the assignment of the notes is pro tanto an assignment of the deed of trust designed for its security,'and that the assignees are entitled to priority of payment out of the trust fund, in the order in which the assignments were made, and not according to the time of the maturity of the notes. Cullum et al. v. Erwin, adm’r, 4 Ala. Rep. 452; see also Hop. Ch. Rep. 569, 575; 2 Story’s Eq. Jurisp. § 1233, p. 600, n. 1, 3d ed.

10. It is furthermore, a well established rule in equity, that if a party has two funds, a person having an interest in one of them only, has q right in equity to compel the former to resort to the other, if it is necessary for the satisfaction of both. Per Ld. Eldon, 8 Ves. jr. 388; 9 ib. 211; 15 ib. 399. »The same rule seems to obtain, at least to a qualified extent, at law. See Nelson and Hatch v. Dunn, 13 Ala. Rep. 259; 12 Wend. Rep. 355; 6 Dana’s Rep. 223; 2 Grattan, 44.

11. From the two foregoing propositions, it results, that if the lien, which the transfer of the four notes to Dunn created upon the trust effects, is prior to that created by the assignment of the four notes to Chalmers, and the notes held by Chalmers are sufficient to cover the demands asserted as abatements by the crdss bill, (and the bill shows that they are ample,) then Nelson and Hatch should be turned round to the notes in Chalmers’s hands for their indemnity. For if they are permitted to extinguish the demands in the hands of Chalmers, with a knowledge of the prior lien of Dunn, reserving their deductions and abatements as defences against Dunn’s claim, they will by their election have destroyed the equitable relation of the holders of these notes, and have effectually defeated the prior lien, while the puisne incumbrancer has obtained full satisfaction. Such doctrine does not accord with the principles of equity.

12. If Dunn has the prior lien upon the trust effects for the amount of the demands assigned by Henderson to him, it is clear that the sale of the trust property, by the makers of the trust deed, (Nelson and Hatch,) in extinguishment of junior liens, cannot defeat his right to satisfaction, especially when the sale was made with a full knowledge of his equity. The trust is still subsisting, and the property still bound. The rule is, that the vendee of the mortgagor must either pay the debt, or surrender the property charged with the lien, to be sold for its satisfaction. Champion v. Brown, 6 Johns. Ch. Rep. 398.

13. It then becomes important to ascertain, which has the prior lien, Dunn or Chalmers; for upon this question depends, as we have attempted to show, the right of Nelson and Hatch to sustain their defences as discounts or sets-off, or equitable abatements upon the notes held by Dunn. There are nine notes outstanding, or were, before the negotiation between Chalmers, and Nelson and Hatch: one of these was assigned by Henderson to McCain, on the 1st September, 1840; four to Dunn, on the 1st of October, 1840; and the remaining four to Chalmers, on the-day of October, after the assignment of the notes to Dunn.

It is, however, insisted, that the transfer to Chalmers has relation back, and should date from a previous transfer of the same notes made in June, 1840, by Henderson, to one R. W. Thomas, to secure the debt due from him to Chalmers, with other demands. However this may be in fact, we cannot come to this conclusion from the record before us, to which our inquiry must be confined. The cross bill, in setting out the answer of Chalmers to the original bill, gives the following account of the transaction: “ That Henderson came to his (Chalmers’s) house in June, 1840, and informed respondent that, by reason of the failure of the firm of Henderson, Garrett & Co., (of which he was a member,) he feared that he' was rendered insolvent. That he had sold his property to-Nelson and Hatch, and had assigned to Richard W. Thomas, of Mississippi, since deceased, notes Nos. 8, 9, 10, 11, in the bill mentioned, to pay respondent the debt due him and other creditors. That this respondent was dissatisfied with said arrangement, and said Thomas subsequently declined acting. That Henderson then went to North Carolina, and on his return in October, said .-he had assigned note No. 3 to one N. L. Williams, and notes Nos. 4, 5, 6 and 7, to said Dunn, to collect, and pay certain creditors. That on receiving said information, he (Chalmers) became alarmed for his debt, and said'Thomas declining to act as trustee, he insisted -upon, aud it was finally agreed that respondent should receive the notes Nos. 8, 9, 10 and 11, to pay his debts, and other debts secured in the assignment to Thomas.” And after stating that Henderson had placed collaterals in the hands of one Martin, to be applied to the same demands to be paid by him, the answer states, “ that in consideration of said debts due respondent, the said Thomas delivered to him the said notes, in the presence of Henderson, on the day and year aforesaid. That he received said notes absolutely as his own, subject to the agreement aforesaid, free from the control of Henderson, and all other persons.” He then goes on to state the cancellation of said four notes, by an arrangement between him and Nelson and Hatch, in the purchase from the latter of the whole of the trust property.

Was the assignment by Henderson to Thomas valid; and if so, what is the effect of the subsequent agreement between the parties? We regret that we are not more fully advised, as to the character of the assignment to Thomas. It is said, it was made to pay Chalmers, and other creditors. Now, whether the other creditors provided for, assented to this provision for their security, or whether the deed was such as to require their assent to render it valid, we are not informed. Certain it is, that Chalmers, upon being informed of the ar rangement between Henderson and Thomas, was dissatisfied.

It is too well settled by this court, to be now the subject of controversy, that a voluntary conveyance to a trustee, by a debtor, for the security of debts, is invalid to pass the title to the trustee, until it is assented to, either expressly or im-i pliedly, by the creditors whose debts are intended to be secured by it. Elmes v. Sutherland, 7 Ala. Rep. 262; Lockhart v. Wyatt, 10 Ala. Rep. 231; Hodge v. Wyatt et al. ib. 271; Pinkard v. Ingersoll et al. 11 ib. 8.

In the assignment made by Henderson to- Thomas, we are not advised that any one of the creditors, except Chalmers, was ever informed of its provisions, and he, as we have seen, expressed his dissatisfaction. Now, as there are no facts set out, from which we can imply the assent of the other creditors from the beneficial nature of the assignment, we must regard it as subject to Henderson’s right of revocation. This right he exercised in the subsequent transfer, or assignment of the notes to Chalmers. This assignment then to Thomas, so far as disclosed by the cross bill, being inoperative, it follows, that Chalmers cannot date his equity from its creation. If, however, we allow that it was valid as to Chalmers, it was very clear it was abandoned, when the par- . ties entered into new and different stipulations, so far as he is concerned.

The terms in which the agreement is couched, in the answer recited in the cross bill, explained by the subsequent act of Chalmers, in making an absolute disposal of the four notes, in the purchase of property for his own benefit, show that he acquired an interest in the notes, very different from that he possessed under the previous assignment to Thomas. We must intend that he acquired, by the new agreement, the absolute right to dispose of them for his own benefit; or, to use his own language, “ he held them free from the control of Henderson, and all other persons.” Such right is utterly inconsistent with the original agreement between Henderson and Thomas, so far as we can gather its provisions from the pleadings.

The office of trustee is one of confidence, and Thomas, the trustee, could not have delegated his trust, unless by express provision in the assignment, he was authorized to do so. A sale by him, or by Chalmers, (if he held these notes in trust,) for his own benefit, would amount to a breach of trust, for which they would have been liable to the cestui que trusts. Hill on Trustees, 175. Such breach of trust on the part of Chalmers we are not allowed to presume, but the contrary. And having this power to dispose of the notes to Nelson and Hatch, which was not conferred by the original assignment to Thomas, we conclude, he derived it by the agreement made in October, 1840, after the assignment to Dunn, and with a knowledge, as he states, of said previous assignment to Dunn. This subsequent agreement vests his interest, and must control his rights. Pinkard v. Ingersoll, 11 Ala. Rep. 8. It results, as a necessary sequence, from what we have said, that the assignment to Dunn, being prior in point of time to that of Chalmers, his equity is to be preferred, and the notes assigned to Chalmers being sufficient to cover the deductions sought to be enforced by Nelson and Hatch, they must seek their indemnity out of those notes. The injunction then was properly dissolved as to all the amount enjoined, except the $10,667 38, being the amount claimed by Nelson out of the proceeds of the four notes held by Dunn, and as to all but this sum, the decree is affirmed ; but for this amount the decree of the chancellor must be reversed, and a decree here Tendered, continuing the injunction as to the suit at law upon the last note, and enjoining so much of the judgment at law rendered upon the note last reduced tp judgment, as, with the amount of the note in suit, will make the sum of $10,667 38. Let the appellees be taxed with the costs in this case.