Wilson v. Eigenbrodt

I Mitchell,^*

mortgage was executed to secure two notes maturing at different dates. The mortgagee assigned the note maturing last to defendant, and afterwards assigned the mortgage and the note maturing first to one Loyhed, who assigned to plaintiff. The mort.gage contained no stipulation as to giving either note priority or precedence in the order of payment out of the security. ' The proceeds of the mortgaged property being insufficient to pay both notes in full, the question which arises in this case is, in what order should these proceeds be applied ?

j All the authorities agree that the order in which several notes or instalments, secured by one mortgage, shall be paid out of the pro-ceecls of the security, is entirely a matter of contract; that the parties, at the time of the execution of the mortgage, may contract for any order of payment they see fit; and that the mortgagee, when he assigns the notes, may by contract fix any order of payment as between himself and his assignee, or between his several assignees, that they may agree upon; but as to what order the law should adopt as the implied agreement of the parties, where their contract is silent upon the subject, there is much conflict of authority. One line of decisions holds that where several notes maturing at different dates and secured by one mortgage are assigned to different persons at different times, they must, in the absence of anything in the contract showing an intention to adopt a different order, be paid in the order in which they were assigned, the first assignee in point of time being entitled to a priority. The cases adopting this rule usually place it upon the ground that, in the act of assigning a note secured by a mortgage, there is an implied agreement on the part of the assignor that his assignee shall have the benefit of the security to the extent necessary to pay the note assigned, and therefore that the assignment of the note operates as an assignment of the security pro tanto, and not merely pro rata. But, inasmuch as the mortgage stands equally as security for all the notes, we fail to see how the mere act of assigning one of'them can raise any presumption that the parties intended that it should operate as an assignment of any more than its pro rata proportion of the security.

Another line of cases holds that the notes are entitled to priority of payment in the order in which they matureThe argument usually advanced in support of this rule is that the different instalments are to be regarded as so many successire mortgages, each having priority according to the time of maturity. This seems to us a gross misapplication of the maxim that “he who is first in time has the better right.” The different instalments are not secured by different mortgages of different dates, but by one mortgage executed equally for the benefit of all the instalments. The date of the lien is the date of the mortgage, and not the date of the maturity of the debt. If the doctrine of the cases referred to be correct, then, on the same principle, it seems to us it would follow that if separate mortgages were executed contemporaneously to different persons, to secure different debts maturing at different dates, the mortgagee whose debt first matured would be entitled to precedence. Sometimes the law of the remedy is invoked as an argument in favor of this rule, the suggestion being that a right of action to foreclose first arises on the instalment first maturing, and therefore it takes precedence. We fail to see any force in this suggestion; for the rights of the parties under the lien of the mortgage date from the date of the mortgage, and not from the time the cause of action accrues under it. It is true that when the first instalment becomes due the other instalments are solvendum in futuro, but they are also debitum in prcesenti. f

In the present case we are referred to Gen. St. 1878, c. 81, § 4, as decisive in favor of the priority of the note first maturing, because it provides that, in case of foreclosure for an instalment, the proceeds of the sale, after satisfying the instalment due, shall be applied towards the payment of the residue of the sum secured and not yet due. We do not think this statute affects the question now under consideration. It is but declaratory of the equity rule in case of foreclosure by suit, and applies it to statutory foreclosures under a power of sale. It settles the order of the application of the proceeds of the sale as between the parties td the mortgage, but does hot assume to determine or alter the rights of the different holders of the mortgage debt as between themselves. Whether, as suggested, any difficulty might arise in such a case under our redemption statute, it is not necessary now to consider. If there should, it would not be the first one that has arisen underwit.

f The other and third class of decisions holds that, in the absence of anything showing an intention that a different order should be followed, all the notes or instalments secured by one mortgage should be paid pro rata out of the proceeds of the security, without regard to the dates of their assignment, or the times of their maturity. We adopt this rule as being not only the more equitable, but also as sound in principle, because in accordance with the implied intention of the parties as inferable from the nature of the contract. The mortgage is as much security for one note as another. There is no priority of lien in favor of one as against another, for the mortgage is one; and the mortgage being a mere incident to the debt, an assignment of a part of a debt carries with it a pro rata proportion of the security. The different holders of the mortgage debt, therefore, stand cequali jure, and consequently are entitled to participate pari passu in the fund derived from the security. Among the great number of cases on this question that might be referred to, see Donley v. Hays, 17 Serg. & R. 400; Hancock’s Appeal, 34 Pa. St. 155; Keyes v. Wood, 21 Vt. 331; Belding v. Manly, Id. 550.

From what has been said it follows that the assignment of one note to defendant operated as an assignment to him of a pro rata share of the mortgage, of which he could not be subsequently divested by the attempt of his assignor to transfer the whole mortgage to plaintiffs assignor, Loyhed, unless the latter and his assignee are protected as innocent purchasers for value under the recording acts. But they do not stand in any such position.. The mortgage itself was notice to them of the existence of the other note, and they were bound to inquire and ascertain its condition. If they bought without inquiry, or accepted the statement of the mortgagee without requiring him to produce the other note, they did so at their peril. Moore v. Ware, 38 Me. 496; Phelan v. Olney, 6 Cal. 478; Keyes v. Wood, supra; Roberts v. Halstead, 9 Pa. St. 32.

Judgment affirmed.

* B^rry, J., being disqualified because of affinity to one of the parties, took no part in this case.