Assigned Estate of Graff, Bennett & Co.

OPINION,

Mu. Justice Mitchell :

The group of creditors, called for convenience the syndicate, bought in the property for $25,050, subject to mortgages representing real debts of $403,000 and $65,000, respectively. By this purchase they agreed, in effect, to pay $493,050 for the property, and if the sale had been for cash, that sum would have come to the assignee, out of which the present appellants would have taken the amounts of their mortgages, and the other creditors would have had the $25,050 and the subsequent fund of $185,464.50 for payment of their claims. But the mortgagees, appellants, still holding their mortgages on the land, come in now as claimants on the mortgage bonds, and diminish these funds to the extent of the dividends on their claims. These dividends, therefore, take away so much of the fund available to creditors, and at the same time, if left to their legal operation as payments on the bonds, reduce the mortgages pro tanto, and thereby relieve the syndicate at the expense of the general creditors. This is a result which equity will never permit. The appellants have two sources from which to secure payment; and, under the circumstances of this case, unquestionably the land is primarily liable. The rule that equity may require the creditor with two funds to resort first to that which the other creditors cannot reach is too familiar to need citation of authority, and it is especially applicable to the marshaliñg of assets and the distribution of a fund in court. The appellants might, therefore, hare been compelled to proceed upon their mortgages before coming upon this fund; but the court below, instead of pursuing that course, which might have involved much hardship aud possible risk of loss, allowed the dividends upon the bonds, but attached a condition that the mortgagees should assign for the use of the other creditors the like sums of their respective mortgages, to be postponed however, in the hands of the as-signee, to the balances of the mortgages retained by the mortgagees. From this decree the mortgagees have appealed.

The relief afforded, to wit, the subrogation of the general creditors to the mortgage securities, to the extent that their own fund has been diminished by the payments on the bonds, is clearly within the power and duty of a court of equity; and the only question that arises is upon the form in which the result has been reached.

If the bonds, by reason of judgment and levy, or for any other reason, had had precedence, and the fund had been sufficient to pay them in full, no doubt could have arisen as to the duty of the court to subrogate the other creditors to the remedy under the mortgages, and the only difference here is that the bonds and the debts they secure are not paid in full. This difference, however, has been uniformly treated in our cases as material. Subrogation never takes place to the prejudice of any other right. The appellants cannot be deprived of any part of their security, or have its precedence and effectiveness impaired in any way. However small the real debt to which the mortgage may be reduced, they are not only entitled to the whole land for its security and ultimate payment, but also to the sole and unimpeded possession, direction, and control of the mortgage, and of all actions, remedies, or arrangements that they may desire to take thereon. For this reason it was said in the earliest important case on the subject, Kyner v. Kyner, 6 W. 221, that substitution cannot be made as long as the debt remains unsatisfied, though in part only; because, until the creditor “ shall be wholly satisfied, there ought and can be no interference with his rights or his securities, which might even by bare possibility prejudice or embarrass him in any way in the collection of the residue of his claim;” and KENNEDY, J., adds: “Now, it is obvious that such interference cannot be avoided or guarded against with certainty, except it be by the court’s refusing to substitute upon any terms whatever, as long as any part of the elder creditor’s claim remains unpaid.” The rule thus laid down has been followed in a long line of cases, in the latest of which, Forest Oil Co.’s App., 118 Pa. 188, the present Chief Justice says: “ Until the creditor has been fully paid, substitution or subrogation cannot take place on any terms whatever.”

Speaking for myself only, I am disposed to think that the difficulties in the way of a partial and postponed subrogation to the remedies of a partly satisfied creditor are not insuperable, and that the court in Kyner v. Kyner gave up too easily. The case ought to be extreme to justify a court of equity in sitting down and confessing itself powerless to do, in the m.ost direct and effectual way, what its own admitted principles and the demands of justice clearly require. And an express subrogation, by decree explicitly fixing the rights of all parties while the matter is still sub judice, has some advantages which ought not to be lightly thrown away. But equity practice was less familiar to our predecessors when Kyner v. Kyner was decided than it is to us fifty years later; and the rule, in the form that that case left it, is now too firmly fixed to be disturbed, especially in view of the equally well established practice of reaching the same result by less direct, but yet sufficiently effective, methods. It was said by Chief Justice GlBSON, in Fleming v. Beaver, 2 R. 128, that actual payment discharges a judgment at law, but not in equity if justice requires it to be kept alive, and, in such case, that an actual assignment is not necessary. This principle has been applied so often that I need only refer to a few of the more prominent cases: Lathrop’s App., 1 Pa. 512, where the later English cases to the contrary are considered; Gossin v. Brown, 11 Pa. 531; Cottrell’s App., 23 Pa. 295 ; Milligan’s App., 104 Pa. 503. Under these precedents, the creditors whose fund is now diminished can hereafter at the proper time assert their claims to hold the land which is primarily chargeable, for the full satisfaction of the mortgages, and this is their proper remedy, according to the established practice.

So much of the decree as attaches a condition to the payment of the dividends to the appellants is reversed, and unconditional payment awarded.