Opinion
06-22-1900
CORPORATION FOR RELIEF OF POOR CHILDREN OF NEW BRUNSWICK v. EDEN et al.
John S. Voorhees, for complainant. Freeman Woodbridge, for demurrants.
Suit by the Corporation for the Relief of Poor Children of New Brunswick against John L. Eden, executor of Catherine J. Vunk, and others, to subject money to payment of a deficiency judgment after sale of mortgaged premises. On demurrer to complaint. Overruled.
John S. Voorhees, for complainant. Freeman Woodbridge, for demurrants.
EMERY, V. C.Complainant is a mortgagee whose foreclosure of its mortgage resulted in a deficiency of over $1,100, and the bill is filed to apply towards payment of the deficiency a sum of money deposited by the mortgagee in her lifetime with, the defendant savings institution, and now claimed by the defendant executor as part of the mortgagee's personal estate. The main question in the case is whether complainant has a lien upon or right to follow this fund for the payment of its mortgage, arising out of the following facts set out in the bill: The mortgage was given by one Vunk and his wife, Catherine, to complainant to secure $2,000 upon a farm in Middlesex containing about 75 acres, part of which was timber land adjacent to the tracks of the Raritan River Railroad. In 1892, and while the mortgage was still outstanding, the timber upon the mortgaged premises was destroyed by fire, negligently communicated to the tract by the railroad company, greatly depreciating (as the bill alleges) complainant's security. Suit was brought by Vunk and his wife, the owners and mortgagors, against the railroad company to recover damages, in which suit final judgment for $482.96 damages (besides costs) was recovered on March 26, 1894, and on June 29, 1894, the railroad company paid the money to Vunk and his wife in satisfaction of the judgment. On June 29, 1894, $300 of the money so received was deposited with the defendant savings institution, in the name of the wife, and $295.89 of the money remained there at her death in March, 1899. Her husband had predeceased her on February 21, 1899. Complainant filed its foreclosure bill on August 4, 1899, obtaining final decree on October 20, 1899, and at the sale on foreclosure in January, 1900 (confirmed by the court), complainant purchased the premises for $1,200, leaving a deficiency of over $1,100. The question is whether the complainant has a right in equity now to follow the funds received by the owner from the wrongdoer for the damages to the mortgaged property, it appearing that the security was impaired by the wrong done. As to the respective rights of the owner, mortgagee, and wrongdoer in courts of law, in cases of this character, the rule in this state is now settled. In the latest case (Telephone Co. v. Elvins [Err. & App.; June, 1899J 43 Atl. 903), it was held that the owner, in a court of law, if he sued before the mortgagee sued, was entitled to recover from the wrongdoer the entire amount of damage done to property, without abatement or allowance by reason of an existing mortgage on the premises upon which a deficiency arose on a sale subsequent to the trespass and pending the owner's suit. And it was also held that the owner's recovery of the entire damage constituted a legal bar to the recovery of damages by the mortgagee, following in this respect the rule laid down by the same court in Luse v. Jones (Err. & App.; 1877) 39 N. J. Law, 707. The right of the mortgagee also to sue the wrongdoer in a court of law for the injury to his security, which has been declared in Turrell v. Jackson (Sup.; 1877) 39 N. J. Law, 329, was also affirmed; but the rule stated in Luse v. Jones, supra, that in case of trespass to chattels a mortgagee could recover from a stranger wrongdoer the entire amount of the injury to the property, even if it exceeded the injury to his lien, seems to have been qualified (as to injuries to real estate, at least) by the statement (see 43 Atl. 903) that the mortgagee's recovery was limited to the amount of the injury to his lien, and that the owner had still a right to recover for the injury to the property over and above the mortgagee's injury. Under the rule as stated in Luse v.Jones, supra, as to the recovery by the mortgagee of the full amount of injury, the rights of the owner to the excess in the mortgagee's hands had been protected by holding that as to this amount recovered beyond his claim the lien creditor held as trustee for the general owner. Sedg. Meas. Dam. 482. Under the decision in the Elvins Case, as to the right of the owner to sue for and recover the entire amount of injury, and, by obtaining judgment in a prior suit, to exclude the mortgagee from any recovery, the question now raised is whether the mortgagee's right to share in the fund recovered in such cases is merely a right to apply to the court of law to exercise its equitable powers in the suit brought by the owner, and before the money is paid over, for the purpose of securing prior payment to the mortgagee out of the moneys recovered, or whether this right to apply to the court of law to exercise equitable powers is based on an equitable right to follow and apply the fund, which arises out of the facts in the case affecting the respective rights of mortgagor and mortgagee to the fund which is recovered in the court of law, and which may be enforced, not only by the court of law in the case at law while pending, but may also, as an equitable right to the fund, be enforced by a court of equity against the owner, after the control of the court of law over the fund and the proceedings has ended, by the actual payment of the whole fund recovered to the mortgagor. In my judgment, the latter view is the correct one, and the application of equitable principles in the suit at law is to be considered as in fact based on an equity which exists and arises by reason of the facts which make the owner trustee for the mortgagee, either wholly or in part, of the damages recovered, and on the right of a court of law, so long as the action or Judgment is still under its control, to enforce this equity. Unless the mortgagor is in fact such trustee as to the fund recovered, the remedy at law of the mortgagee against the owner, to recover the amount he was entitled to, would necessarily be in another suit, and there would be no lien upon or right to control the Judgment of the owner to secure payment to the mortgagee out of the special fund. The control of the judgment obtained by the mortgagor for the purpose of securing the right of the mortgagee to a portion of it is in fact the working out in favor of the mortgagee of an equitable trust in the fund, and, as between mortgagor and mortgagee, their respective rights to the fund, which is the result of an action brought by the mortgagor alone, are based upon the fact that the fund is the compensation provided by law for the impairment or injury of the property, in which both have an interest, the one as owner, the other as a lienholder, and as between the two the right of the lien-holder is the superior, and that of the owner the subordinate, right. The circumstance that this fund, by way of compensation, is provided by the method of an action at law, by either or both, against the person respon sible at law for the impairment, is an incident merely to the right itself, and gives the court of law, in which court alone the action for compensation can be brought, the power during the action to control and enforce the equitable rights in the fund, which is the result of an action in which both are interested, so long as the action or the fund is in that court. But these equitable rights in the fund exist whether or not application is made in the suit at law, and. if not there applied, the jurisdiction of a court of equity to enforce them remains. Where compensation is provided for a lawful deprivation of the property subject to a mortgage, the equitable right of the mortgagee to follow the funds is recognized (Bright v. Platt [Err. & App.; 1880] 32 N. J. Eq. 362); and I see no reason for holding that equitable rights of the same character in favor of the mortgagee do not arise in reference to the fund, which, although it is an action for a wrongful act, is still the compensation provided by law for an injury to the security and property. I conclude, therefore, that the complainant has an equitable right to follow this fund, which represents the compensation received for the destruction of the property covered by its mortgage. Complainant's delay in following the fund, being until after proceedings in foreclosure had established a deficiency, is not of itself sufficient to bar its right to relief. The demurrer is therefore overruled, with costs.