Opinion
06-28-1897
HAMILL v. INVENTORS' MANUF'G CO. et al.
C. L. Cole, for the motion. Allen B. Endicott, opposed.
Bill by C. Frank Hamill against the inventors' Manufacturing Company and others. Complainant moves to strike out so much of the answer as reserves exceptions, and denies combinations and confederacy, against the provisions of rule 214; also to strike out the entire answer, and for a decree that the mortgage of complainant is a prior lien to that of defendant Blake. Denied.
The bill is filed by Hamill to foreclose a mortgage made to him on March 14, 1894, by the inventors' Manufacturing Company, the then owners of the mortgaged premises. The bill then sets out that the premises were formerly owned by Jesse Lake and Daniel L. Risley, and that they, while such owners, on April 16, 1883, gave a mortgage thereon to Sommers, Robinson, and Frambes, to secure the sum of $325; that afterwards, on September 13, 1888, Messrs. Lake and Risley sold the mortgaged premises to the inventors' Manufacturing Company, by a deed containing a covenant of general warranty; that on April 1, 1892, Sommers, Robinson, and Frambes assigned the abovementioned mortgage to Lake, one of the former owners, who had joined with Risley in selling the mortgaged premises to the inventors' Manufacturing Company. On March 14, 1894, the inventors' Manufacturing Company executed a mortgage to the complainant, which mortgage is being foreclosed by the present suit. On August 17, 1895, Mr. Lake, the then holder of the firstmentioned mortgage, assigned the same to Mr. Blake. The bill claims that the mortgage of complainant made on March 14, 1894, is superior in rank to the previously executed mortgage for $325, executed on April 16. 1883. The theory upon which this claim rests is that Lake had given a general warranty deed to the inventors' Manufacturing Company; that he afterwards bought this mortgage, which was an incumbrance upon the premises when he gave his deed; that, by force of his covenant, he would have been estopped from enforcing the mortgage against the grantee under that deed; and that he is now estopped from setting it up as an incumbrance against the second mortgagee, who holds in privity with the original grantee. The answer to the bill, while admitting the order of the creation of the incumbrances, and the execution of the deed and assignments, as stated in the bill, sets up that the mortgage by Risley and Lake to Sommers, Robinson, and Frambes was a purchase-money mortgage, and was on record when Hamill made his loan to the inventors' Manufacturing Company, and took his mortgage. It further asserts that the property was conveyed by Risley and Lake to the inventors' Manufacturing Company, subject to the Robinson mortgage, and that, although the mortgage was not mentioned in the deed, it was expressly understood by and between the grantors and grantees that the property wassold subject to the said mortgage, and that the purchase money agreed upon between the parlies thereto was with that understanding.
C. L. Cole, for the motion. Allen B. Endicott, opposed.
REED, V. C. (after stating the facts). The first objection taken to the answer must prevail, as this part of the pleading is prohibited by rule 214. The general motion to strike out the entire answer, as containing no defense to the facts set up in the bill, raises a question of importance. The ground upon which the mortgage by Lake to Blake (which will hereafter be called the "Blake mortgage") is sought to be subordinated to the mortgage made to Hamill by the inventors' Manufacturing Company (which mortgage will be called the "Hamill mortgage"), as has been already stated, is that, this mortgage having come to the hands of Lake, who had warranted to his grantee, the inventors' Manufacturing Company, the title of the mortgaged premises, the court will, for the purpose of preventing circuity of action, refuse to Lake the right to sell the property to pay this mortgage, when it appears that the inventors' Manufacturing Company can turn around and recover the amount of the mortgage by an action upon Lake's covenant of warranty. It is insisted that the assignee of Lake and the mortgagee of the inventors' Manufacturing Company stand in the same position as the original parties. The eases cited in support of the first contention are Van Riper v. Williams, 2 N.J.Eq. 407, Bank v. Pinner, 25 N.J.Eq. 495, and Stiger v. Bacon, 29 N.J.Eq. 442, to which may be added the cases of Woodruff v. Depue, 14 N.J.Eq. 168, White v. Stretch, 22 N.J.Eq. 76, and Dayton v. Dusenbury, 25 N.J.Eq. 110. In each of these cases a purchase-money mortgagee was foreclosing his mortgage, and he had conveyed the mortgaged premises with covenants against incumbrances, while a previous incumbrance remained upon the property. It was held that, in a suit to foreclose his mortgage, he must liquidate the previous incumbrance, or that there should be deducted from the amount due him a sum equal to the amount of the existing incumbrance.
Now, while neither of the mortgages in the present case are purchase-money mortgages, still the principle upon which the court acted in the cases mentioned is thought by counsel to control in the present instance; for the action of the court in those cases was based upon the principle of avoiding circuity of action. The question is whether the application of this principle will reach the result insisted upon by the counsel of Hamill. It is to be observed that it is the Blake mortgage which was the incumbrance upon the property at the time that the covenant of warranty was executed by Risley and Lake, and that neither Lake nor his assignee, Blake, is foreclosing the mortgage, or bringing an action in ejectment to obtain possession of the mortgaged premises. It is to be observed, further, that the covenant in the deed of Lake and Risley to their grantees of the mortgaged premises is a covenant of warranty of title only. Of this covenant there is no breach until there is an actual or constructive eviction. No right to sue for its breach accrued, or would accrue, until Blake or his assignee took steps in respect to this mortgage which would end in the eviction of the owners of the equity of redemption from the mortgaged premises. It is true that, in the cases cited, it does not appear that, at the time the purchase-money mortgage was foreclosed, there was in operation any proceeding to enforce the previous incumbrance. The incumbrances were either prior mortgages, municipal assessments, judgments, or tax liens. But in each of these cases, among the covenants given by the foreclosing mortgagee, was a covenant against incumbrances, which covenant was broken as soon as made; and so the right of action against the mortgagee upon his covenant had accrued at the moment when he began his foreclosure suit. This circumstance is not alluded to as a ground of decision in those cases, nor will it entirely reconcile this line of cases with other cases in this court. I allude to those cases in which it has been held that, in a suit to foreclose a purchase-money mortgage, it cannot be successfully set up that the mortgagee had sold the property with covenants, and that there was an outstanding claim of title, or defect of title, or even an incumbrance. This doctrine was laid down in the leading case of Shannon v. Marselis, 1 N.J.Eq. 413, decided by Chancellor Vroom. In that case there was a covenant of warranty. The chancellor said: "When there is a mere allegation of an outstanding title or incumbrance, the court will not interfere, but leave the party to his remedy on the covenant. But when there is an eviction, or even an ejectment, brought, the court will interfere. In this case the first mortgagee is prosecuting his claim (this was the mortgage which constituted the incumbrance), all the parties are here, and justice can be done." The doctrine laid down in this case was followed in the case of Van Waggoner v McEwen, 2 N.J.Eq. 412, in respect to an alleged outstanding claim to part of the premises, where there had been no eviction and no action was pending. The same doctrine was also held in Long's Adm'r v. Long, 14 N.J.Eq. 462, and in Hile v. Davison, 20 N.J.Eq. 228. In Jaques v. Esler, 4 N.J.Eq. 461, the deed contained covenants of warranty and seisin, and the foreclosure of a purchase-money mortgage was stayed until the determination of an ejectment suit which had been already brought by one claiming a paramount title. So the rule is entirely established that the allegation of an outstanding title is no defense in a suit to foreclose a purchase-money mortgage, unless there is an eviction or an action to evict actually pending. And this doctrine has been applied to theexistence of an incumbrance, even when there was a covenant against incumbrances. In Glenn v. Whipple, 12 N.J.Eq. 50, where there was a covenant against incumbrances, a claim of dower in the mortgaged premises was held to be no defense in a suit to foreclose. In the present case, as already remarked, the mortgage which is being foreclosed is not the mortgage which, if enforced, would cause a breach of the covenant of warranty. Blake, the assignee of the lastmentioned mortgage, is quiescent. He has neither brought an action of ejectment nor a suit to foreclose. In this condition of affairs, no action would lie against Risley and Lake, by their grantees, the inventors' Manufacturing Company, for breach of the covenant of warranty. It would seem, therefore, that the doctrine upon which the first group of cases was decided will not support the present insistence, that in this suit to foreclose the last mortgage the first or Blake mortgage should be subordinated to the Hamill mortgage.
But it remains to consider whether the result sought does not follow from another view of the posture of affairs presented by the pleadings, in view of another rule, which had its origin in the desire of courts of equity to prevent circuity of action. The query suggested is whether, when the interest of the mortgagees in the Blake mortgage fell into the hands of Lake (a joint covenantor with Risley in the grant to the inventors' Manufacturing Company), the mortgagee's interest did not pass to the inventors' Manufacturing Company, under the rule that if a man grant land with warranty, and afterwards acquires a title, this after-acquired title inures to the benefit of the grantee. Gough v. Bell, 21 N.J.Law, 157; Moore v. Rake, 26 N.J.Law, 574; Brundred v. Walker, 12 N.J.Eq. 140; Vreeland v. Blauvelt, 23 N.J.Eq. 483; Matthiessen & Wiechers Sugar-Refining Co. v. Mayor, etc., 26 N.J.Eq. 247. Under the doctrine of estoppel, which precludes the grantor or his privies from asserting an after-acquired title against a grantor and his privies, it would seem that Lake was estopped from foreclosing his equity of redemption in the land which he had conveyed to the inventors' Manufacturing Company. It is true that a mortgagee's interest is of an anomalous character. By itself it cannot be conveyed, and a deed made by Lake to the inventors' Manfuacturing Company of his interest as mortgagee would have passed nothing. Devlin v. Collier, 53 N.J.Law, 422, 22 Atl. 201. Nevertheless, I think that his acquired lien, accruing by his purchase of the mortgage, coalesced with the equity of redemption; and they became merged by reason of the covenant of warranty, and thus conferred a complete title upon the inventors' Manufacturing Company. The rule that a covenant of warranty ipso facto passes an after-acquired title of the grantor to the grantee originally arose from the doctrine already mentioned, viz. the avoidance of circuity of actions. Moore v. Rake, supra. And in this instance the inchoate counter rights of the covenantee to sue the covenantor upon his warranty of title, and of the covenantor to foreclose the mortgage upon the property of the covenantee, affords a conspicuous instance for the application of the rule. If this view is correct, then, the covenant of warranty being one which ran with the lands, the right to sue for any subsequent breach went to the second mortgagee; or, what amounts to the same thing, the after-acquired title of the inventors' Manufacturing Company was included in the second mortgage executed by it. The only doubt regarding the correctness of the last statement arises from the peculiar character of the mortgagee's interest, already mentioned, which obtains to its full extent in this state. It is here held not to be an estate at all, and that the mortgagee gets no title, except such as may be accorded to him for the purpose of collecting the debt for which the mortgage stands as security. For this purpose, he can gain possession of the mortgaged premises, after the maturity of the debt, by an action of ejectment; but, for all other purposes, the legal title is in the mortgagor. Now, in England, where the legal estate passes to the mortgagee, all covenants which run with the land go to the mortgagee. The mortgagor is stripped of all right to sue upon any covenant of his grantor. Inasmuch as the position of the mortgagor and mortgagee is here entirely reversed, it would seem that the right to sue here was reserved entirely to the mortgagor. But the true doctrine is probably that both are entitled to sue so far as such suit may be necessary to protect their respective rights. This was the rule laid down by Chief Justice Shaw in White v. Whitney, 3 Mete. (Mass.) 83; and, although the interest of the mortgagee in Massachusetts is more analogous to his interest under the law of England than to his interest under ours, yet the reasoning of Chief Justice Shaw in that case would seem to be entirely applicable to the respective interests of mortgagor and mortgagee here. This rule seems to have the approval of a number of adjudications in this country, collected in the notes to the Spencer Case, 1 Smith, Lead. Cas. marg. p. 160. It would also seem that Blake, the assignee of the mortgage, must stand in the shoes of his assignor. He took the mortgage subject to all equities between the mortgagor and his privies and the mortgagee and his grantees. Nor do I think that it matters that the mortgage became the property of one only of the two grantors to the inventors' Manufacturing Company. The two grantors were joint covenantors, and were liable to be sued jointly for the entire damages for the breach of the joint covenant. On principle, then, if the title or interest came to either, it would pass to their grantee.
But, assuming all this to be correct, the question presented is not yet decided. A further question remains whether the answer does not contain a statement which, if true,is a complete avoidance of the estoppel springing out of the covenant. This statement is that, when the property was conveyed by Risley and Lake to the inventors' Manufacturing Company, it was expressly understood that it was sold subject to the Blake mortgage, and the consideration was agreed upon with that understanding. It was held in the case of Pitman v. Conner, 27 Ind. 337, that a covenant of warranty was not broken by the existence of an incumbrance which the grantee agreed to pay as part of the consideration for the property. The doctrine so announced seems to violate the rule that a deed cannot be varied by parol; for it is difficult to see how, in the face of a covenant of warranty to title, the grantee can be evicted by the enforcement of a previously existing incumbrance, merely because he verbally agreed that this should not be covered by the warranty. But the provability of a similar parol agreement was recognized by the court of errors in this state in the case of Bolles v. Beach, 22 N.J.Law, 680. In that case a deed was given with full covenants, and there was at the time a mortgage upon the property for $1,000. The grantor, who was the obligor upon the bond for the security of which the mortgage was given, was compelled to pay the amount of the bond and mortgage. He afterwards brought suit against the grantee for the recovery of the sum which he had paid, and it was held that he was entitled to prove an agreement by the grantee, made at the time of the sale, that the grantee would discharge the $1,000 upon the premises; the grantee retaining so much of the consideration money as was necessary for that purpose. The court evaded the estoppel arising from the covenants, upon the ground that the agreement was merely collateral to the deed. In Wilson v. King, 23 N.J.Eq. 150, it was held in this court that a parol undertaking of a grantee to pay a mortgage upon the premises conveyed would be enforced against him, although his deed contained full covenants.
Now, if the grantor, by virtue of such an agreement, retains a right to recover what he has paid to discharge a previously existing incumbrance, and if the incumbrance can be enforced against the grantee, then a court of equity would certainly refuse to recognize a right in the covenantee to sue upon the covenant of warranty, when it appeared that the breach of such covenant sprang entirely from an incumbrance which the plaintiff had bound himself, by a provable and proved agreement, to pay off; and this whether such agreement is to be regarded as collateral to the deed itself or not. The covenant, so stripped of its vigor in this respect, could not be efficient to pass to the grantee and covenantee any interest in the incumbrance, although it subsequently became the property of the covenantor. In my judgment, if the statement in the answer is true, the Blake mortgage retains its priority. The motion to strike out the answer is refused.