Clark v. Smith , 1 N.J. Eq. 121 ( 1830 )

The Chancellor.

The first matter for inquiry is, whether the petitioner can make lawful claim to any part of this surplus money, by virtue of the releases, or assignments, (as they have been called,) from Tilley and the Deforests.

On this part of the case, I am perfectly satisfied with the master’s report.

If Haight Can claim under these assignments, it must be on the ground, that they vested in him all the rights and interest of these judgment and mortgage creditors ; that the debts themselves, or the right to receive them, were transferred to him. Is this so? Let us look at the instrument, which has been called the assignment of the Tilley mortgage. It states that Tilley had a mortgage on the mills and property in question, given by Smith* for about, one thousand five hundred and sixty-one dollars ; that there were prior incumbrances on the property, to the amount of about nine thousand one hundred and forty dollars, which had been purchased by llaight; that as the premises were not consx dered worth any more than those prior incumbrances, and therefore furnished no security to Tilley, for the amount so due to him as aforesaid ; and as the said W. Haight wished to take possession of, and improve the said property, and to extinguish all in-cumbrances upon the same ; therefore, to enable the said W. Haight to extinguish the outstanding incumbrances, he released, (for the sum of one hundred dollars.) “ all the right, title and in- “ terest, which he, the said Jonah Tilley had, in and to the said “ cotton mill, machinery and premises, by virtue of said mortgage.”

I see nothing in this instrument, that looks like a transfer of the debt to Haight. Tilley released his mortgage interest, and nothing more; it was to enable Haight to extinguish the incum-brance on the property he wras about to own ; it was considered that the property, with the load of incumbrances on it prior to the Tilley mortgage, furnished no kind of security to Tilley for his debt; and therefore, he gave it up for the sum of one hundred dollars, as mentioned in the instrument ; the debt, then, which was the principal, remained in Tilley, and the mortgage, which was the security for the debt, was given up to Haight for hia benefit.

What rights then, had Haight, under the mortgage thus released to him ? Could he hold it on the property ; and if the property brought at sheriff’s sale more than enough to satisfy the prior incumbrances, could he take the surplus and appropriate it to the mortgage, and thereby extinguish so much of the debt itself in the hands of Tilley? Surely not. Tilley never parted with his debt; the giving up of the mortgage did not operate to extinguish the debt, or to impair the claim against the other property of Saaith,' or against litó person ⅜ he had no other right, under the assignment, as I conceive, than the right of exonerating the property from the operation of the mortgage; the mortgage was separated from the debt, and vested no interest whatever in Haight. Chancellor Kent, in his commentaries, says, The assignment of the interest of the mortgagee in the land, without the assignment of the debt, is considered to be without meaning or use. This is the language of the courts of law, as well as of the courts of equity, and the common sense of the parties. The spirit of the mortgage contract, and the reason and policy of the thing, are with the doctrine.” 4 Kent, 186. Could Haight have maintained an action of ejectment., in a court of common law, on this mortgage, without the bond ? Could he, without it, have obtained a foreclosure and sale in this court ? Could he have transferred the mortgage, in any way, so as to create an interest in the purchaser? If he could, he might, by some of these means, have satisfied the debt, and cut oil the holder of the bond. This cannot be ; nor was such the intention of the parties. The object of both, as manifested by the instrument, was to exonerate the property from the lien of the mortgage; and this was effectually done, or the power to do it was effectually given.

The claim under the judgment, in favor of the Deforests, stands upon the same footing. After reciting that the prior incumbran-ces on the property exceeded in amount the value of the property, and formed, therefore, no security for their judgment, they, for the sum of thirty-three dollars and seventy-five cents, and for the purpose of enabling Haight to extinguish the outstanding incumbrances, “ release to the said Warren Haight, all the right, “ title and interest, which they have in said cotton mills, ma- “ chinery and premises, by virtue of said judgment.” The judgment remains, and it remains the property of the Deforests : but this estate is to be no longer subject to its lien. The agreement was not that so much of the property bound by the judgment, should pass to Haight, and that the money raised by the sale, after satisfying prior incumbrances, should go to Haight, but that the property should no longer be subject to the lien of the judgment.

I am clearly of opinion, therefore, that the petitioner has no just or equitable claim to any part of this surplus money, either iu virtue of the mortgage of Tilloy, or the judgment of the Deforests.

It is asked, to whom is the surplus money to go ? If not to Haighl, then certain!y not to Tilley, or tire Deforests ; their right under the mortgage and judgment are gone ; they have given them up, and agreed to look elsewhere for their money. It follows, as a matter of course, that it must be paid to the assignee of Smith, the original debtor ; no other person can claim it.

It is said, however, that these assignments were made for the benefit of Haight, and that by this construction, the express intention of the parties will be defeated. If this should be the case, will it result from the coustruction now given, or from the situation in which Mr. Haight stood at the time, and the course he pursued in that situation ? He was a stranger to the original transactions ; he was let in by persons claiming rights, but not by the real owner ; he proceeded to buy up, and extinguish the incumbrances ; treated the property in every respect as his own ; repaired, altered and improved it; and all the while appeared to forget that the person holding the equity of redemption, stood behind him. Mr. Smith, and his rights, appear to have been lost sight of entirely ; he had, at that time, taken the benefit of the insolvent laws ; all his interest, of what kind soever, had been assigned over, and it is not to be wondered at that his right of redemption should have been considered of too little value to be attended to, when we look at the amount of incumbrances ; and when we know, too, that in the state of New-Jersey, assignees of insolvent debtors too often pay little or no attention to the property assigned to them or the rights of those interested.

If these releases do not operate to the benefit of Mr. Haight, it cannot properly be imputed to the construction now put upon them ; he ought to have secured the equity of redemption, and then he would have been perfectly safe.

I proceed, now, to consider the claim set up by the petitioner, to allowance for necessary repairs and improvements, after the property came into his possession. It appears by the evidence taken before the master, that Haight went to a considerable expense in improving and repairing the property, and that he put new machinery in the mill, to enable him to operate with greater benefit. The new machinery could not belong to Smith ; it was expressly excepted at the sale, and cannot enter into this controversy. The single inquiry therefore, is, whether Haight can be allowed for any repairs or improvements, made while he held the property, and before the sale.

He came into possession under the Paterson bank, and others, being mortgage creditors ; he may be considered, therefore, as a mortgagee in possession ; and yet, when it is seen that he came in purely as a volunteer, I am not sure that he ought to be placed in a situation quite so favorable. Whether a mortgagee in possession, shall be allowed, in accounting with the mortgagor, for repairs and permanent improvements, is a point which has frequently been discussed in courts of equity ; as also, how far he shall be allowed for costs and expenses, and generally, for care and trouble in taking charge of the estate.

When a mortgagee in possession, is necessarily put to expense in defending or securing the title of the property, he is entitled to an allowance for the expenditure. In Loman v. Hide, 2 Vern. 185, the second mortgagee brought a bill to redeem the first mortgagee, who had been put to a great charge in foreclosing his mortgage ; and it was decreed that these charges should be allowed him in the account. So in Woolley v. Drag, 2 Anstru. 551, the mortgagee being in possession, had advanced money for fines, on the renewal of leases, under which the premises were held, and they were allowed him. The only question made, was whether he should have full interest on them. And in Godfrey v. Watson, 3 Atk. 518, Lord Hardwicke said, if a mortgagee had expended money in supporting the title of the mortgagor to the estate, where his title had been impeached, it might be added to the debt of the mortgagee. On the same principle, taxes, if paid by the mortgagee, are held to be a proper charge against the estate: 1 Hopk. 283, Faine v. Winans. But a mortgagee cannot charge for trouble and expenses in receiving the rents and profits, although there may be a private agreement for such allowances between the mortgagee and mortgagor : French v. Burr, 2 Atk. 120 ; Godfrey v. Watson, 3 Atk. 518 ; Bonithon v. Hockmore, 1 Vern. 316. So the expense of insurance is one for which no allowance will be made, it being considered as the act of the mortgagee for his own benefit, and for which he has no right to look to the mortgagor for remuneration: 5 Pick., Saunders v. Frost; 3 Pow. on Mortg. 957.

As it respects improvements, there appears to be some contrariety of decisions; but I have no hesitation in saying, that when a mortgagee in possession, undertakes, without the consent and approbation of the mortgagor, to make improvements on the property, though they may be of a beneficial and permanent character, he does it at his peril, and has no right to look for an allowance at the hands of the mortgagor. This is the sound doctrine of this court, and it is founded on principles of equity and good conscience. It would be unjust that a mortgagee, or a voluntary purchaser under him, getting possession of the mortgaged premises, should be at liberty to improve it as he thought most beneficial to himself, and thereby, perhaps, deprive the mortgagor of the power of redeeming. The improvements may be beneficial in themselves, but if the mortgagor does not choose to have them, the mortgagee has no right to impose them upon him. In Bostock v. Blakeney, 2 Bro. C. C. 656, there was a trust fund created by will, to be laid out in the purchase of lands. The estate was purchased, and part of the trust money was laid out in building a house, and making improvements. Lord Thurlow held, that it was a misapplication of the fund, and refused to allow it, although the estate itself would be benefitted. The current of English authorities is in accordance with this one ; the only variation is, where lasting improvements have, in one or two instances, been erroneously, or by a latitude of construction, placed under the head of repairs: Swan v. Swan, 8 Price, 518; and the late case of Marshall v. Case, Mich. 1824, cited in 3 Powell, 957. Even in those cases, the ordinary rule is admitted, that money laid out in improving premises, does not create a lien. The same safe rule has been adopted in our own courts. In Russel v. Blake, 2 Pick. 505, it is expressly decided that a mortgagee cannot claim allowance for improvements made on the mortgaged premises, but only for keeping them in repair; and in Cable v. Moore, 1 Johns. Ch. Rep. 387, and 1 Johns. Ch. Rep. 27, Green v. Winter, the chancellor says, such an allowance cannot be made consistently with established principles. There certainly can be no hardship in this rule. A mortgagee is no more bound to improve the estate, than the mortgagor is. If the mortgagor make improvements on the premises, after giving the mortgage, the whole of them shall go to satisfy the mortgage if it be necessary. He cannot say to the mortgagee, these improvements were not embraced originally under your lien, and therefore you are not to have the benefit of them. And so if the improvements are made by the mortgagee, they are voluntarily made, and he cannot turn round afterwards and claim allowance for them. They will enure to the benefit of the estate, and if he should suffer a loss, the maxim will well apply, “ volenti non jit injuria.”

The principal difficulty arises on the subject of repairs. It is well settled, that a mortgagee in possession is not bound to expend money on the mortgaged premises, any further than to keep them in necessary repair: Godfrey v. Watkins, 3 Atk. 518 ; Russell v. Smithies, 1 Anst. 96; and for such expenditures, when incurred, he will receive allowance: Moore v. Cable, 1 Johns. C. R. 385. Even this has been looked on with great jealousy, and I think with some reason. And in the case of Trimleston v. Hamill, 1 Ball & Beat. 385, the court held that even in the case of repairs absolutely necessary, it was incumbent on the mortgagee to apprise the mortgagor, as soon as possible, of the extraordinary expenditure. I see no use in such notice, after the expenditure is made. If the court had gone on the broad principle that no repairs should be made, without the previous consent of the mortgagor, I should have considered it a safe rule. I do not see that this case has been followed ; and finding the law settled that an allowance is to be made for repairs, it remains to inquire what are the repairs for which the party may claim compensation. The language of the books is, “necessary repairs and this language has been construed strictly. In Saunders v. Frost, already cited, it was sought to charge as repairs, the expenses of making an aqueduct; but it not appearing, that without the aqueduct the mortgaged premises would not have been supplied with water, the charge was disallowed. In Moore v. Cable, 1 Johns. C. R. 387, before cited, the clearing of wild land was not considered a necessary reparation ; and Ld. Manners, in the case from Ball & Beatty, above referred to, puts such allowance on the ground of absolute necessity for the protection of the estate.

I am satisfied to keep within the strict rule. It appears by the testimony, that the mill and machinery was in rather better order when Haight took possession of it, than when Smith left it. It had received some repairs. If the mill could have been used with the machinery as it was when Haight voluntarily took possession of it; if the repairs made, were for the purpose of increasing its speed, or enabling it to do a greater amount of work than it had formerly done, when its machinery was in order, so as to enhance the benefit of the possession, then no allowance is to be made for the repairs. If any expense was incurred in preparing the mill to receive the new machinery, which was not sold, and which was exclusively for the benefit of Haight, such expense cannot be allowed. The charge for painting is not considered a proper charge. Mr. Rogers, one of the witnesses, says the mill could have been worked with the old machinery without repairs, but not to so good an advantage. At the same time, he says, the machinery was pretty much run down, and wanted repairing. Again, he says, the improvements put by Haight upon the water wheel, the gearing for the water wheel, and the bridge over the race, were indispensable. If they were really indispensable to keep the mill in operation, they ought to be allowed. It is manifest, that as soon as Haight got possession, and had got in the incum-brances, as he supposed, he went to work on the property. His object was to improve it for his own benefit; and in some matters, it may be difficult to distinguish between neeessary repairs, and highly beneficial improvements ; but it may be done. I am induced to think, from the evidence, that some repairs have been made that call for an allowance. I cannot undertake to say there are none. I shall therefore refer it back to the master to take an account of such repairs, if any, and of the proper allowance to be made therefor.

As to the claim for the judgment and execution of the Paterson bank, there seems to be no difficulty. They bound the property before the sale, and must be satisfied. Whether the agreement between the bank and Haight operated as an assignment, or not, can make no difference. The whole matter of appropriation was considered as open, and if the money is paid to the bank, they must, under their arrangement, receive it for the benefit of Haight.

All further directions are reserved.