Youngs v. Trustees for the Support of Public Schools , 31 N.J. Eq. 290 ( 1879 )

The opinion of the court was delivered by

Depue, J.

The complainants’ hill was filed to foreclose a mortgage for $9,000, made by John Anderson, dated August 12th, 1871, and payable one year after date. The mortgagor, on the 26th of August, 1871, conveyed the mortgaged premises to Benjamin Anderson, Jr. On April 1st, 1873, Benjamin Anderson, Jr. conveyed to Hiram Ackerson. On the 9th of February, 1874, Ackerson conveyed to Michael Youngs, the appellant, who, on the 16th of March, 1875, conveyed to Benjamin A. Anderson. Each of the above-mentioned conveyances was made by a deed containing an assumption by the grantee of the mortgage debt, the same having been deducted from the purchase-money. The bill was filed June 1st, 1877 for the foreclosure and sale of the mortgaged premises. It averred the subsequent conveyances of the mortgaged premises, and set out the assumptions by the several grantees of the mortgage debt, and contained a special prayer for deficiency against the defendants, Benjamin Anderson, .Jr., Hiram Ackerson, Michael Youngs and Benjamin A. Anderson, but not against John Anderson. The appellant, Michael Youngs, and the defendants, Hiram Ackerson and Benjamin Anderson, Jr., answered. John Anderson, the mortgagor, and Benjamin A. Anderson, the then owner of the mortgaged premises, did not answer.

Before bill filed, and in anticipation thereof, releases, under seal and for a nominal consideration, were executed by John Anderson to Benjamin Anderson, Jr., by Benjamin Anderson, Jr. to Hiram Ackerson, and by Hiram Ackerson to Michael Youngs, releasing and discharging the said grantees, respectively, from the obligation arising from the assumption of the mortgage debts. The chancellor refused to give effect to the said releases, and made a decree for deficiency against all of the said grantees. From that decree Michael Youngs has appealed.

| In Crowell v. Hospital of St. Barnabas, 12 C. E. Gr. 650, the nature and effect of a stipulation in a deed of conveyance of mortgaged premises, that the grantee should assume and pay the mortgage debt, were adjudged by this court.) It was held that such a stipulation was not a contract with the mortgagee, or for his benefit, but was simply a contract with the grantor, for his indemnity, and that the right of the mortgagee to a decree against the grantee for deficiency, did not result from any fixed or vested right of the mortgagee, arising either from an acceptance by the grantee of a conveyance of the mortgaged premises, or from his obligation to pay the mortgage debt as between him and his grantor, but vested on the doctrine of courts of equity, that a creditor may have the benefit of all collateral obligations which one standing in the situation of a surety for others holds for his indemnity, and may proceed directly against the person ultimately liable, in order to avoid circuity of action. It was also held thai^ where the mortgagee has acquired no independent equity arising from the dealings between him and the subsequent grantee of the mortgaged premises, and stands exclusively on the engagement of the grantee with his grantor to assume and pay the mortgage debt^he cannot have the benefit of that contract if it has, before bill filed, been released and discharged in good faith by those who were the parties to it. /

On a conveyance of mortgaged premises subject to the mortgage, the mortgaged premises become, as between the parties to the conveyance, the primary fund for the payment of the debt, and the grantor, if personally liable for its payment, is considered as a mere surety. Klapworth v. Dressler, 2 Beas. 62; Hoy v. Bramhall, 4 C. E. Gr. 563. If there be added a personal undertaking by the grantee to pay the debt, his undertaking is a contract with the grantor only, for his indemnity. Thereupon the distinction arises between a trust created for the better securing of the debt, and a contract simply to indemnify a surety against his collateral liability. Where a trust is created for better securing the debt, it attaches to the debt, and inures immediately to the benefit of the creditor, and will subsist until the debt be paid. Such a trust, as a general rule, cannot be extinguished or discharged without the concurrence of all parties in interest. But where a collateral obligation is given, or a trust is created, merely for the indemnity of the surety, and for his protection and benefit only, it may be released and discharged by him as the only person interested in it, and Ms release, as a general rule, will operate as a complete extinguishment, unless, in the meantime, some equitable right in it has arisen in favor of third persons. Hosmer v. Savings Bank, 7 Conn. 478; Thrall v. Spencer, 16 Conn. 139; Jones v. Quinnipiac Bank, 29 Conn. 25; Dempsey v. Bush, 18 Ohio St. 37; Trusdell v. Price, 2 Stew. 624; Deering v. Earl of Winchelsea, 1 Lead,. Cas. in Eq. 175, Am. note. [~The complainants have not acquired any equitable right in the contract of assumption made by Youngs, arising from their dealings with him. They did not take the mortgage on the faith of his personal responsibility for the debt. He paid the interest on the mortgage debt as it accrued, and there is no proof that he impaired the value of the mortgaged premises during his ownership. On the contrary, the evidence is, that he made improvements on the property, and that it was in good condition when he parted with the title./=Hor is there any allegation or proof that the complainants, relying on his assumption of the mortgage debt, were induced, by his conduct or procurement, to alter their situation or forego any of their rights under the mortgage

The red oungs by Ackerson, his grantor, was executed and delivered before bill filed. When these proceedings were commenced, there was no subsisting right of Ackerson to be indemnified by Youngs against his liability for the mortgage debt, to which the complainants could be subrogated as the representatives of Ackerson. The contract to that effect had been- released and discharged by those who were parties to it. That discharge must be equally efficacious to extinguish the complainants’ equitable right of subrogation, unless its legal effect can be overcome on some known legal or equitable ground for invalidating, as to third persons, a contract which is valid as between the parties to it. The complainants (respondents) contend that this release originated in a fraudulent intent, and was executed for a fraudulent purpose. If they succeed in holding that part of the decree appealed from, it must be upon this ground.

The release was executed after the appellant was notified by the attorney-general that the mortgage was in his hands for collection. It was given for a nominal consideration, and was one of the three releases executed with a view to discharge the three grantees of the mortgaged premises from personal liability for the mortgage debt. (The appellant admits that his object in procuring the release was to get clear of personal liability for a deficiency, and to throw it on the present owner of the property. But these facts, standing alone, do not make out a case of fraud.J, The contract of the appellant was with Ackerson, and whether the latter retained or surrendered his contract of indemnity was a matter for his consideration only, and third persons, though they might, as to him, occupy the relation of creditors, cannot complain of the exercise of his volition on the subject (unless the transaction was illegal) as being in fraud of creditors. Hosmer v. Savings Bank, 7 Conn. 478 ; Lewis v. De Forest, 20 Conn. 440; Jones v. Quinnipiac Bank, 29 Conn. 25.

flf a mortgagor or a subsequent grantee of mortgaged premises has taken from his grantee a covenant for the payment of the mortgage debt, and has become insolvent, his release and discharge of such a right of indemnity, without consideration, to the prejudice of the mortgage creditor, would plainly be in violation of the statute of frauds, and void as being in fraud of creditors^ A party who has incurred responsibility for the payment of a mortgage debt,1 either as a mortgagor or by a subsequent assumption of liability, and has conveyed the mortgaged premises, taking a Qovenant from his grantee fir ------------" Jl--------A-----to divest himself, by a voluntary release, of the covenant of | indemnity against his liability for the mortgage debt, to the | prejudice of the mortgage creditor, than he would have to jj surrender, without consideration, a covenant against encum- | brances or a promissory note, or to give up property or debt, would have no more rights of any other description which might be made availKable, in satisfaction of debts. '¡"Bat this disability of one to do with his own as he pleases, arises only on the happening ,of_ insolvency, and when creditors are thereby hindered or deprived of the mga-ns of* collecting their demands. /

■ In the present case, it appears that John Anderson, the mortgagor, at the time of making his release to Benjamin Anderson, Jr., his grantee, was, and still is, a man of no property, and irresponsible for his debts. For this reason the decree very properly denied effect to his release. But, with respect to the financial ability of Benjamin Anderson, Jr. and Hiram Ackerson, under whose release the appellant derived his discharge, there is no evidence, except that Ackerson owns a farm, and did so when his deed of release was executed and delivered. So far as concerns those two relessors, there is no evidence on which to impugn the validity of their releases.- It is true that the release of Ackerson to Youngs was made without any actual consideration. It is also true that a voluntary conveyance by a debtor is void as to existing creditors. But creditors cannot invoke the benefit of the principle unless they are, in fact, hindered or delayed, and the burden of showing such a condition of affairs rests upon the creditor.

It may also be remarked, that the bill of complaint is not framed with -the view of raising the question whether these releases were not void as being in fraud of creditors. The bill alleges merely the subsequent conveyances of the mortgaged premises, and the assumption of the mortgage debt thereupon by each of the successive grantees, and, upon these facts, asks a decree against them for deficiency. The bill presents simply a claim, by the complainants, of a right of subrogation which did not exist unless the releases which operated to extinguish that right could be overthrown for fraud. If the complainants intended to rely on fraud as a ground to avoid the releases, so far as their rights were concerned, the bill should have been so drawn as to'make an issue upon the fraud.

It may also be remarked that, where there are successive grantees of mortgaged premises, each assuming payment of the mortgage debt, the decree for a deficiency should determine and adjudge the order of the liability of the several grantees, especially where matters occurring between the parties may require a marshalling of securities. As a general rule, where there are successive transfers of the mortgaged premises, with an assumption of the mortgage debt, it will, as between the successive grantees, be cast upon them in the inverse order of the conveyances. But where the intermediate grantees have executed releases to each other, the liability of the parties may be in a different order, even where the releases may be impeached for fraud upon creditors. A voluntary conveyance or release, though it be void as to creditors, is valid as between the parties to it.

On the case, as it is presented, the appellant is entitled to have a reversal of the decree so far as it affects him personally. The reversal will be without costs, the complainants being representatives of the state in this litigation.

Decree unanimously reversed.