Donald & Co. v. Hewitt , 33 Ala. 534 ( 1859 )

WALKED, J.—

The complainants in the original bill, Schnetz & Hewitt, and Thomas Moore, one of the respondents, at Louisville in the State of Kentucky, made a written contract under seal, whereby the former agreed to make an engine, and put it on board of a certain boat; and the latter agreed to pay therefor $3,400 during the progress of the work, and, besides, to give three “ notes or acceptances ” for equal amounts, making together the sum of $8,400. The writing concludes with a stipulation, that for the better security of the payment “ of the said notes,” Sehnetz & Hewitt were to retain a special lien on said boat and engine until “the notes” were paid. Moore paid $3,400 during the progress of the work, and accepted six bills of exchange, for amounts together exceeding $3,400. The boat having been brought to Montgomery in this State, was attached and libeled by creditors of Moore & Jackman, the owners of the boat. The bill asserts for the complainants a prior lien upon the boat, and is designed to enforce that lien.

1. An attempt is made to sustain the complainants’claim to a prior lien under a statute of the State of Kentucky, where the contract was made, and the indebtedness to complainants was incurred. By that statute, steamboats, built, repaired and equipped in the State, are made liable for all debts contracted by the master, owner, or consignee thereof, on account of work, supplies, or materials, furnished towards the building, repairing, fitting, furnishing or equipping such steamboats, their engines, &e.; and a preference over all other debts, except for the wages of the officers and crew, is given. By the same statute it is provided, that the “lien given by the act” is invalid against a purchaser without notice, unless suit be commenced within twelve months; but that a notice of the lien, endorsed upon, or attached to the enrollment of the vessel, shall operate as actual notice. The preference given by the Kentucky statute cannot operate to defeat liens acquired by virtue of attachments and libels in this State before it was set up. This priority, or lien given by the Kentucky statute, is not a matter of contract. “It is extrinsic, and is rather a matter of personal privilege,” given by the lex loci contractus.—Harrison v. Sterry, 5 Cranch, 298, 299. The just “comity,” which is recognized in the law, requires that a contract should be expounded, and its obligations ascertained, according to the law of the country where it is made. But this principle does not extend to a recognition of liens, given by the foreign law, when it would operate prejudicially to the rights of others in the country where such lien is asserted. The liens given by the statute in one country, upon moveables, have no superiority to liens subsequently acquired in another country, to which those moveables are carried. In support of this proposition, we cite authorities which sustain it: Story’s Conflict of Laws, §§ 323, 324, 325, 325 a, 325 b, 325 c; Lee v. Creditors, 2 Louisiana Ann. 599 ; Noble v. Steamboat St. Anthony, 12 Mis. 262; Harrison v. Sterry, supra; Goodsill v. Brig St. Louis, 16 Ohio, 178 ; Smith v. Union Bank, 5 Peters, 518; McMahan v. Green, 12 Ala. 71; Merrick & Fenno v. Avery, Wayne & Co., 14 Ark. 370.

A different rule may apply, in reference to maritime liens, existing by virtue of the general maritime law. There are, doubtless, reasons why such liens should have their superiority recognized, which do not apply to domestic liens. The law which gives them existence, is common to most, if not all commercial countries; and the necessities of maritime commerce seem necessarily to require a precedence for its liens.—Story’s Con. of Laws, § 402. A sound public policy does not require, that liens, such as those springing up under the Kentucky statute, upon boats navigating our inland rivers, should have conceded to them a priority over other liens, which may be acquired in other States to which they may be carried. Steamboats might be covered up, if such priority was allowed, by antecedent liens, of which there was no notice; and great injustice might be done to those who trusted the boat, upon the assumption of its liability ; and there would be great room for collusive arrangements, to shelter the boat, by virtue of such liens, from just debts.

2. It is contended that the complainants have no lien by virtue of their contract. It is argued, that the parties, in providing that Schnetz '& Hewitt should retain a special lien, contemplated no other than the statutory lien. If this be so, the parties have done a vain and useless thing, iii bringingthe subject of a lien into their contract. The language employed is appropriate to create alien, and to provide for its continuance. If the parties intended that the lien so held should exist by virtue of the statute of Kentucky, and not of the contract, they have not said so; nor have they said that which authorizes us to infer it.

We give effect to the words of the contract, and allow a motive to the parties in the use of them, when we understand them as creating a lien ; one to exist by virtue of, and to have effect determinable by, the contract. We adopt that view of the question, and thus avoid the necessity of considering what would be the rights of the parties, if there were no other lien than that given by the statute of Kentucky.

3. It is contended for appellants, that the well-ascertained technical meaning of the word lien, is a right to retain possession of property until a demand is satisfied; and that it must be so understood, where it occurs in the written contract above-named. It is true that common-law liens—for example, liens of carriers, inn-keepers, factors, and artificers—are mere rights to retain until the specific debt is satisfied, and cannot continue without possession. But, whatever may be the import of the word, when applied to that class of cases, or whatever may have been its original meaning, it has acquired, in our law, a much more extended signification. It is used to designate all the various charges of debts upon land or personalty, which are created by statute, or recognized in chancery and maritime law, although neither connected with, nor dependent upon possession.—Willard’s Equity Jur. 123. ■ Thus, we have the lien of a judgment; the lieu of tin execution; the lien of a partner; the lien of a legal or equitable mortgage; the lien of a vendor, and various other charges which are denominated liens; and in courts of equity, the term lien is used to denote a charge or incumbrance on a thing, where there is neither jus in re, nor jus ad rem, nor possession of the thing.—Peck v. Jenness, 7 Howard’s Rep. 612, 619; The Brig Nestor, 1 Story, 73.

The term lien, having so comprehensive a signification, includes an equitable mortgage; and no perversion of its meaning will be involved in construing the written contract of the parties as an equitable mortgage.

[4.] The parties unquestionably had a right by contract to create a charge upon the boat, which would exist independent of the possession of the thing charged. The inquiry, unembarrassed by the technical meaning imputed to the word lien, is whether they have done so.

A lien merely co-existent with the possession of the boat, could not have been contemplated. The boat was not built by Schnetz & Iiewitt. It does not seem to have been designed that it should ever go into their possession. The payments were to be made in four, six, and eight months. The contract provides, that the lien was to continue until the debts were paid. It wmuld be a most unreasonable inference, that Schnetz & Hewitt were to retain the boat for eight months. That a steamboat should for eight months lie up, depreciating from natural decay, yielding no return for the heavy outlay in its construction, and probably requiring some expensé to take care of it, would have been a most unreasonable exaction for Schnetz & Hewitt to make, or for Moore to grant. The loss from the delay would have been totally disproportioned to the interest upon the amount, or the value of the forbearance to collect it. f These considerations prove, with satisfactory certainty, the intention to create a lien for the security of the debt, which would exist without possession by the creditor. Such a lien has every characteristic of an equitable mortgage, and may properly be so denominated. Every agreement for a lien or charge in rem constitutes a trust, and is accordingly governed by the general doctrine of trusts. Such a lien or eharge*is called an equitable mortgage, because courts of chancery, regarding them as trusts to be enforced, attach to them the incidents of a mortgage. Thus, an agreement that bills should be paid out of the proceeds of certain property has been held to create an equitable mortgage.—Miller on Equitable Mortgages, 3. An agreement, “ pledging and hypothecating” property for the payment of certain bills, was enforced as an equitable mortgage. Fletcher v. Morey, 2 Story, 555. A coutractthat a party “ should have and maintain a lien ” on chattels was characterized as “in the nature of an equitable mortgage,” and as such enforced.—Dunning v. Stearns, 9 Barb. Sup. Ct. Rep. 630. And an unsealed instrument of writing, pledging the real and personal estate of a railroad company for the faithful performance of a contract, was held by this court to be an equitable mortgage.—M. & C. P. R. R. Co. v. Talman, 15 Ala. 473; see, also, Whitworth v. Gaugain, 3 Hare, 415; Campbell v. Worthington, 6 Verm, 448 ; Bank of Kentucky v. Vance, 4 Littell, 168 ; Marshall v. Lewis, 4 Littell, 140; In re Howe, 1 Paige, 125 ; Abbot v. Godfrey, 1 Man. (Mich.) 178; Coster v. Bank of Georgia, 24 Ala. 37; Kelly v. Payne, 18 Ala. 371.

[5.] The authorities cited upon the brief of the counsel for appellees, show that the equitable mortgage, created by the contract of Moore with Schnetz & Hewitt, overrides the liens of the attaching and libeling creditors. See those cases; also, Willard’s Eq. Jur. 443; 2 Story’s Eq. Jur. 655, § 1228; Jenkins v. Bodley, 1 S. & M.’s Ch. R. 338; Dunlap v. Burnett, 5 S. & M. 702. The charge of an equitable mortgage, like other equities, is maintainable except against innocent purchasers for value without notice. / Perhaps, the creditors who attach and libel the boat, may be deemed purchasers for some purposes. Ohio Life Ins. Co. v. Ledyard, 8 Ala. 866. But, if purchasers, the consideration is the pre-existing indebtedness; and they do not fall within the rule, which protects innocent purchasers for a valuable consideration without notice.—Boyd v. Beck, 29 Ala. 703. If, by contract, the creditors had obtained a lien for the security of their preexisting debts, they would not be entitled to protection as purchasers for value.—Boyd v. Beck, supra; Dickerson v. Tillinghast, 4 Paige, 214; Donaldson v. Bank of Cape Fear, 1 Dev. 103; Powell v. Jeffries, 4 Scam. (Ill.) 387 ; Rowan v. Adams, 1 S. & M. Ch. 45. There is nothing in the nature of the lien given to the creditors in this case, which can make their position more favorable, so far as this question is concerned, than it would' have been had their lien been regularly created by contract.—Carter v. Champion, 8 Conn. 549. The attaching creditor has a right to take what belongs to his debtor. In the absence of fraud, he stands as a volunteer in the place of the debtor.

"Wanzer v. Truely, 17 How. 584; Whitworth v. Gaugain, 3 Hare, 416, 25 En. Oh. R. 416.

[6.] In this State, an unrecorded mortgage is postponed , to the lien of a creditor without notice ; but that results from our registration statutes, which can have no influence upon this case, because the suit was instituted within twelve months after the property was first brought to this State.—Olay’s Digest, 255, § 4. This point is conclusive of the inapplicability of the registration laws of Alabama to the case; and it is, therefore, unnecessary for us to consider whether any of our registration laws embrace an instrument like this, creating an equitable mortgage, or whether a mortgage on a steamboat plying between New Orleans and Montgomery is within the operation of those statutes.—See, however, Foutaine & Dent v. Beers, 19 Ala. 722; McCain v. Wood, 4 Ala. 258; Falkner v. Jones, 12 Ala. 165; Morgan v. Morgan, 3 St. 383 ; Bank of Kentucky v. Vance, 4 Lit., supra.

[7.] The Kentucky registration law, which was pleaded, makes a “deed of mortgage, or deed of trust,” void against creditors and purchasers for valuable consideration without notice, unless deposited for record as therein required. This law has been held in Kentucky not to include an equitable mortgage, which merely gives a charge upon property, without conveying it.—Bank of Kentucky v. Vance, 4 Littell, 174. We follow that decisiou here, because’ we approve the reasoning of it, although it has not been pleaded or given in evidence, and is therefore not binding upon us. As the Kentucky registration statute does not include the instrument which gives to the complainant their lien, it is unnecessary for us to pass upon any other objection to the defense attempted to be based upon the foreign registration laws.

[8.] The non-conformity of the securities given to those contemplated in the contract, and the blending in the same securities of an additional amount of debt, to that for which the contract provided a lien, would not destroy the lien so provided.—Boyd v. Beck, 29 Ala. Rep. 703; Cullum v. Bank, 23 Ala. Rep. 797; Hair v. Grigsby, 18 Ala. Rep. 44.

[9.] One partner has the right to incumber the entire interest in the personal property of the partnership for the security of its debts. It would, therefore, be no objection to the extension of the complainants’ lien over the entire interest in the boat, that the equitable mortgage was given by Moore alone, if a partnership existed between Moore and Jackman.—Story on Partn. §94; Tapley v. Butterfield, 1 Metcalf, 515; Deckard’s case, 5 Watts, 122; Milton v. Masher, 7 Metc. 244. But it no where appears from the original or amended bills, that Moore and Jack-man were partners, either in the ownership of the boat, or in running it after it was built. The mere fact that Moore owned a certain interest in the boat, and Jackman the remaining interest, does not, of itself, constitute them partners. There may be a joint property in a steamboat, without the existence of a partnership. U nless a partnership existed, or Moore had authority from Jackman to bind his interest, the lien given by the lormer could cover only the interest which he had in the boat. As neither a partnership nor an authority to Moore from Jackman is shown, the operation of complainants’ lien must be confined to Moore’s interest in the boat.

[10.] Our argument thus far shows, as we think, that Schnetz & Hewitt have a lien, by virtue of their contract of July, 1849, which they are entitled to enforce in this suit. But the sum for which a lien is given by that contoactis limited to $8,400. The debt of the complainants is much larger, and is shown by the proof to have become so in consequence of work done in addition to that prescribed by the' con tract. The lien given by the contract cannot be enlarged, so as to secure this addition to the indebtedness, upon the ground that it was verbally agreed, or intended, or understood, when the additional work was done, that it should bg so enlarged; or upon the ground that the additional indebtedness was contracted on the faith of the lien ; for there is no averment in the original or amended bills of such facts. In the entire omission of any such averments, this case differs from Fletcher v. Morey, 2 Story, 555.

[11.] After the bills of exchange were given to secure the debt due Schnetz & Iiewitt, Moore caused an endorsement upon the enrollment of the boat by the surveyor and inspector of the port of Louisville to be made, as follows : “ Messrs. Schnetz & Hewitt hold a lien on said boat, to secure the payment of six drafts,” &c., “and this endorsement to be continued on all enrollments issued for the boat, until all the above drafts are fully paid, and Schnetz & Hewitt are fully satisfied.” The amended bill alleges, that Moore, by that memorandum, “acknowledged, admittéd, declared, and gave a'' lien ; ” and the original bill says, that he thereby “ acknowledged and recognized the lien.” '---

The majority of the court regard the declaration made by Moore to the surveyor and inspector of customs, and endorsed by his directions upon the enrollment of the vessel, upon the averments of the bill above stated, as a declaration of a trust in favor of Schnetz & Hewitt, for the entire amount of debt secured by the drafts described in the endorsement upon the enrollment, which trust, they think, is valid in equity, and being sustained by proof, must be upheld in this case. Taking all the circumstances alleged in the bill together, my opinion is, that the endorsement upon the enrollment was simply made by Moore's direction for the purpose of giving notice of the pre-existing statutory lien, and was not designed to evidence the declaration of any new trust. The authoriities referred to on the brief of counsel, show that such a declaration of trust, as my brethren suppose was made, will be sustained in equity.

[12.] The complainants in the cross bill are entitled to no relief. The language endorsed upon the enrollment, in favor of the complainants in the cross bill, which touches the subject of lien, is as follows: “ The above obligation being given for materials and workmanship on the boat building, the mortgage or lien to continue on the boat papers, as security,” &c. If these words were regarded as giving a lien, it would be a lien “ on the boat papers,” which would be absurd. What is said about continuing the lien on the boat-papers, means nothing moi’e than that the fact of the existence of the lien, given by the statute to the boat-builder, should remain evidenced by n,n endorsement on the papers of the boat. Its object was merely to give notice that a lien existed, by preserving a statement of that fact upon the papers of the boat.

The decree of the court below is reversed, and the cause remanded, that a decree may be rendered consistent with the foregoing opinion. The appellant must pay the costs of this court.