Ingalls and Stockman against Morgan, Executrix, &c.

Ingalls and Stockman against Morgan, Executrix, &c. Where the agent of the judgment creditor was present at a sale, by the debtor to a third party, of certain lands on which the judgment was a lien, drew the conveyance, and was informed of the terms of the sale; and the debtor soon after delivered to such agent, as security for the judgment debt, the notes given in payment for the land conveyed, it was Held, that although there was no evidence that the judgment creditor had actual knowledge of these facts, yet she was chargeable with notice of them by reason of the notice to her agent. Held!, also, that the receipt of these notes by the agent of the creditor, with knowledge of their consideration, although it did not affect her lien upon the lot as security for the judgment in case it should not be otherwise satisfied, imposed on her, in equity, a duty to apply the proceeds of the notes in reduction of the judgment. Where a creditor has a lien upon two funds for the security of his debt, and another party has an interest in one only of the funds, without any right to resort to the other, equity will compel the creditor to satisfy his debt, if possible, out of the fund in which he alone has an‘interest. Held, therefore, that after such notice to the judgment creditor, she was bound in equity to retain all other property which had been delivered to her as security for the judgment, and apply its proceeds in satisfaction of the judgment, before resorting to the lands which had been so sold and paid for. That the judgment creditor having surrendered to her debtor, with knowledge of the above facts, certain choses in action placed in her hands as security for the judgment debt, sufficient to have satisfied the debt, the purchasers of the land were entitled to have their land discharged from the lien of the judgment. The creditor was therefore perpetually enjoined against selling such lands on her judgment. The bill in this cause was filed in the late court of chancery, and its general object was to enjoin the defendant from enforcing a judgment of the supreme court in her favor against one Austin Cross, as it respects two lots of land owned by the complainants, upon which it was a lien at law, and which she was about to sell on execution. The pleadings and proofs present a case substantially as follows: On the 20th day of November, 1836, Cross confessed a judgment by bond and warrant of attorney in favor of the defendant, for $20,000 of debt, besides costs. The bond was conditioned to pay $4713.98, with interest, “ and also all and every sum of money which the said Austin Cross may hereafter owe the said Nancy Morgan, for cash lent, or other responsibilities incurred by her, or for advances made.” Simultaneously with the execution of the bond and warrant, Cross and the defendant entered into an agreement in writing, by which the latter agreed to advance to Cross, from time to time as she should find it convenient, such further sum as, with the $4713.98, would make the whole debt $10,000, and they mutually agreed that the judgment should stand as collateral security for that sum and the interest; and Cross agreed, “ in order more effectually to secure the payment,” “ to turn out to said Nancy Morgan, executrix as aforesaid, good notes and bonds and mortgages, and guaranty to her the payment of the same, to the amount of ten thousand dollars, and to keep that amount in her hands at all times as collateral security for the payment of the sum of money aforesaid, with the interest thereon.” At the time of executing the bond and mortgage, or within a few days thereafter, Cross turned out and delivered to the defendant’s attorney and agent nineteen notes and bonds and mortgages against other parties, the amount payable upon which, exclusive of interest, was $6022.08; and at different times after-wards, in that and in the two following years, he also transferred to her and delivered to her said agent and attorney about fifty other similar securities, the principal moneys secured by which amounted to $9260.22. These several transfers were made in order to comply with the agreement above mentioned, and the respective amounts were to be collected and applied on the judgment. The defendant made further advances to Cross, pursuant to the arrangement, to the amount of $3447.58, of which $2716.28 was advanced before Cross conveyed the lots about which the controversy arises, and the remainder afterwards. The bond and warrant and agreement were drawn by E. W. Anns, an attorney and counselor at law, of Aurora, Cayuga county, who also entered up the judgment. He likewise received the securities referred to and made the collections; and he made the advances to Cross, and acted as the agent of Mrs. Morgan, the creditor, in the various transactions with Cross respecting the lending, securing and collecting the money, and had at all times the possession of the papers relating to it. On the 15th day of March, 1837, Cross sold and conveyed with warranty the two lots in controversy, which are situated at Seneca Falls, in Seneca county, to the complainant Ingalls, and Abner N. Beardsley, for $1800, and received from the purchasers their promissory notes for the purchase money, two of which were for $500 each, and the other for $800. The conveyance was drawn by Arms at his office in Aurora, and he also, a few days before, drew an executory agreement for the sale, and signed it as a subscribing witness. The three notes of Ingalls and Beardsley, given for the purchase money, were among those transferred to the defendant to apply on the judgment, as before mentioned. They were transferred either at the time the conveyance to Ingalls and Beardsley was made, or within two or three days after that time, and Arms knew when he received them that they were given for the price of the lots. One of the notes for $500 was payable ninety days from date, the other on the first day of October following, and the remaining note, for $800, on the 1st day of October, 1888. The complainant Stockman is the owner of an undivided half of the lot, under a conveyance from Beardsley. The evidence is contradictory as to what took place at the time Cross conveyed to Ingalls and Beardsley. Cross and Beardsley swore that Arms was asked if the lots were incumbered, and that he answered they were not. Arms denies, according to his recollection and belief, that he said any such thing; but he swears posi tively that he did not mention the existence of the judg ment; and the evidence shows that the purchase was made in the belief, by the purchasers, that Cross had an unincumbered title. If the securities which were transferred had been collected and applied on the judgment, it would have been satisfied without a resort to the plaintiffs’ lots, but a large portion of them were redelivered by Arms to Cross. Of the first amount of $6029.08, of notes and mortgages, a part amounting to $3196.25 were so redelivered at different times after the conveyance to Ingalls and Beardsley; and of those subsequently transferred, the amount of $2290.42 was also given up to Cross after he had conveyed the lots. Other portions of the securities had been redelivered before the conveyance of the lots, and as to others of them, it could not be ascertained whether they were given back before or after that conveyance. Those which remained in the hands of Arms were collected in part, and applied on the judgment, and some of them proved worthless. Among those given up to Cross were the two notes for $500 each, made by Ingalls and Beardsley on the purchase of the lots, which were redelivered within a fortnight after the conveyance and subsequently paid by the makers. The note for $800 was among those retained, and it was paid and applied. In the early part of the year 1837, Cross, who had been carrying on the business of manufacturing-leather, saddlery, and shoes, at Aurora, became embarrassed in his circumstances, and his paper to a large amount was protested at a bank, and in September of that year he assigned the greater part of his stock of leather, &c., to the Bank of Auburn. In December, 1839, the personal estate of Cross was sold on an execution on this judgment, for a small sum, and subsequently his real estate, other than these lots, was sold and applied thereon. The sale of the personal property was charged to be fraudulent and collusive, and it was claimed by the complainants that had it been conducted fairly, the amount then claimed to be due would have been realized. The evidence on the point was conflicting, and it is not necessaiy to state it. In October, 1846, the defendant procured an execution to be issued on the judgment to the sheriff of Seneca county, claiming that there was due on it the sum of $4569.28; and the complainants’ lots were advertised to be sold in November following, which was prevented by the preliminary injunction. The cause was heard on pleadings and proofs, at a general term held in Monroe county, in December, 1851 (before Welles, T. A. Johnson and S'elden, Justices), when a decree was made declaring that the judgment was not a lien upon the complainants’ lots, and the defendant was perpetually enjoined against proceeding to sell them thereon, and decreed to pay the complainants’ costs. The opinion was given by Mr. Justice Johnson, and proceeds upon the ground that the defendant had no right, as against the owners of the lots, to relinquish the two notes for $500, given upon the sale to Ingalls and Beardsley; that they ought to be considered as applied on the judgment; and that thus the whole value of the lots having been devoted to the discharge of the lien, it could not be considered as equitably on foot as against that property. (See 12 Barb., 578.) The defendant appealed to this court. S. Blatchford for the appellant. David Wright for the respondents. [MAJORITY — Denio, J.,] Denio, J., delivered the opinion of the court. I concur in that part of the opinion delivered in the supreme court, which declares that the defendant had no right, as against the complainants, to relinquish her title to the two notes of Ingalls and Beardsley for $500 each, and that the amount of those notes ought to be considered as applied towards the satisfaction of the judgment against Cross. But if these notes were credited, in addition to all the other payments, there would still be a balance due upon the judgment, upon which the complainants’ lots might be sold if there were nothing else in the case. I am not aware of any principle which will compel a judgment creditor to relinquish his lien upon an item of real estate of the debtor, because he has sold it and paid the creditor the purchase money on account of- the judgment debt, even with knowledge, on his part, of the source from which the money was obtained. In the absence of an agreement to discharge the land conveyed in consideration of the payment, I suppose the lien would remain both in equity and at law. The transfer of the notes can scarcely be more effectual than the payment of the whole purchase price in money would have been. The defendant was bound to receive them under her agreement, as she or any other judgment creditor would have been obliged to receive the money if offered; but such payment would not of itself operate as a discharge of the lien of the judgment as to any property to which it attached. It is therefore necessary to consider whether any of the other facts alleged and proved entitle the complainants to the decree which has been rendered. I am of opinion that after the defendant was aware that Cross had sold and conveyed the lots for a valuable consideration, and that the purchase money had been paid, she could not, without violating the equitable rights of the purchasers, return to Cross any security which he had furnished to her for the payment of her debt. The giving of negotiable notes, and the transfer of them to the defendant, was, as between the parties to this suit, equivalent to actual payment for the land; and the notes having been in fact paid before the present controversy arose, the case is precisely the same as though the purchasers had paid cash for the lots at the- time of the purchase. It is a material inquiry whether the defendant had actual or constructive notice of the sale of the lots before the securities were given up to Cross. There is no evidence that she had personally any knowledge on the subject;' but her agent was perfectly aware of the whole transaction, and he acquired that knowledge in the course of his employment for her. When he received the notes for $1800, made by Ingalls and Beardsley, which were delivered to him as her agent, he knew that they were given for the purchase price of the two lots of land which they had bought of Cross; and he knew, moreover, that these lots were subject to the- lien of the defendant’s judgment, and that the purchase was made and the notes were given in the confidence on the part of the purchasers that Cross had an unincumbered title. This notice -is legally imputable to the defendant. Where an agent comes to the knowledge of a fact while he is concerned for the principal, this operates as constructive notice to the principal himself; for, upon general principles of policy, it must be taken for granted that the principal knows whatever the agent knows. (Story on Agency, & 140; Fitzherbert v. Mather, 1 Term R., 12; Jeffrey v. Bigelow, 13 Wend., 518; The Bank of the U. S. v. Davis, 2 Hill, 461; Fulton Bank v. The N. Y. and Sharon Canal Co., 4 Paige, 137; Norris v. Le Neve, 3 Atk., 26; Brotherton v. Hatt, 2 Vern., 574; Jennings v. Moore, id., 609; Downes v. Power, 2 Ball & B., 491; Paley on Agency, Law Lib. Ed., 262, 263, and note 1.) The defendant therefore must be considered to have known of the circumstances attending the conveyance to Ingalls and Beardsley about the time it took place. She then had in her hands a considerable amount of collateral securities, which had been transferred to her by Cross, and she continued to receive other similar securities in that and the two following years. A part of the first parcel of notes and bonds had been given up to Cross before he had conveyed the lots. As to these the complainants have no right to complain, for, as between the parties to the judgment, the lien would not be affected by the transfer and giving back of securities. They would not operate as payment until money was actually received upon them. But she continued, after the conveyance by Cross, and with legal notice of that conveyance and of the rights of the purchasers under it, to retransfer to him the securities which he had turned out to her to secure the payment of the judgment. I collect from the schedules annexed to the answer, that notes, and bonds and mortgages were thus given up to Cross, after his conveyance and after notice thereof to the defendant, to the amount of $5486.67, without reckoning interest which had accrued on the demands. If these had been collected by the defendant, instead of being returned to Cross, they would, with the admitted payments, have largely overpaid the judgment, and nothing would have been due when the defendant attempted to sell the complainants’ lots on execution. The question therefore arises, whether this could be done and the lien still retained upon those lots, without a violation of the complainants’ equitable rights. We are of opinion that it could not. The facts present a case where the creditor has a lien upon two funds for the security of his debt, and another party has an interest in one only of these funds, without any right to resort to the other. In such a case, equity will compel the creditor to take his satisfaction out of the fund upon which he alone has an interest, so that both parties may, if possible, escape without injury. (Wright v. Nutt, 1 H. Bl., 136; Cheesebrough v. Millard, 1 John. Ch. R., 409; Stevens v. Cooper, id., 425; Hayes v. Ward, 4 id., 123; Evertson v. Booth, 19 John., 486; The York and Jersey Steamboat Ferry Co. v. The Associates of the Jersey Co., Hopk., 460; James v. Hubbard, 1 Paige, 235.) The riile in equity requiring parcels of land incumbered by a judgment or mortgage to be subjected in the inverse order of their alienation by the debtor, is a branch of this rule. ( Clowes v. Dickenson, 5 John Ch. R., 235; Gouverneur v. Lynch, 2 Paige, 300; Stuyvesant v. Hall, 2 Barb. Ch. R., 151.) When one parcel is aliened by the debtor the lien attaches primarily to that which remains in his hands, and so on as each parcel is sold; and if anything remains in the hands of the debtor when the lien comes to be enforced, that is to be first subjected to it. The rule applies equally to any other species of property. Hence it is perfectly clear that if the defendant had sought to sell the complainants’ lots on her execution, at the time when she had these moneyed securities in her hands, a court of equity would have restrained her until she had exhausted her remedy upon them, or had assigned them with the judgment to the complainants on their paying the amount. . Several examples of the application of this rule will be found in the cases already referred to. But in this case the defendant, before she attempted to sell the lots, had voluntarily disabled herself from resorting to the securities which Cross had. transferred to her, by giving them up to him; and she had done this with a knowledge of the situation of the complainants, and when she could not but have seen that the consequence of her act would be to cast the lien of her judgment upon the land which the complainants had in good faith purchased and paid for. The result, we think, is, that she has deprived herself of the right to resort to the complainants’ lots. It is analogous to the familiar case where a creditor relinquishes to a principal debtor other direct or collateral securities or remedies which he might have resorted to for the exoneration of the surety. If he does this he deprives himself of the right to resort to him. It subverts the right of subrogation to which the surety would have been entitled upon the payment of the principal debt. Although the complainants do not stand in the precise light of sureties, their condition has many points of similarity; and I do not doubt but that, if they had been compelled to pay this judgment to preserve their estate in these lots, the defendant still retaining the securities which Cross had devoted to the payment of that debt, and no one else having obtained a lien thereon, they would have been entitled to them by way of subrogation. The rule on this subject appears to have been well understood in the civil law. Potjhiek says that “ when a creditor has by his own act incapacitated himself from ceding to the surety his actions, either against the principal debtor or against the other sureties, whether because he has discharged them or because he has by his neglect allowed his demand against them to be dismissed, the surety may obtain a declaration that the demand of the creditor is inadmissible for so much as the surety might have procured by the cession of actions which the creditor has disabled himself from making.” (Treat, on Obl., 280.) In Cheesebrough v. Millard, before referred to, Chancellor Kent admitted the rule as stated in Pothieb to he well settled, and to be applicable to a case like the present, where a party had a subordinate lien upon one of the funds, which was subject to the prior lien of another party; but he was of opinion that it was essential that the party having a claim upon both funds should have been aware of the situation of the other party when he did the act complained of. “ As this rule of substitution,” he says, “ rests on the. basis of mere equity and benevolence, the creditor who’ has thus disabled himself from making it is not to be injured thereby, provided he acted without knowledge of the other’s rights, and with good faith and just intention, which is all that equity in such cases requires.” (1 John. Ch. R., 414.) It is scarcely necessary to mention that a surety, Or. a party standing in the position of a surety, has the same right' of substitution as to collateral securities furnished by the debtor, as in respect to the demand against the debtor himself. (King v. Baldwin, 2 John. Ch. R., 554; Hayes v. Ward, 4 id., 123.) In Stevens v. Cooper (supra) a mortgage had been given upon six lots of land. The mortgagor sold one of them to the complainant, subject to the payment of a proportionate part of the mortgage debt, and afterwards the owner of the mortgage released the remaining lots on receiving other security for their proportion of the mortgage debt, which security turned out to be unavailable. He then filed his bill to foreclose the mortgage against the lot sold to the complainant, for the whole amount of the debt. ' The court held that the complainant’s lot was discharged from that portion of the debt which was equitably chargeable upon the lots released. The same principle was repeated in Hayes v. Ward, already referred to. In James v. Hubbard, before cited, a judgment creditor had released a lot of land, on which the judgment was a lien, to one who had purchased it of the debtor,- and then attempted to sell another parcel which the judgment debtor had aliened at a later period. The court compelled the creditor to deduct from bis judgment an amount equal to the value of the lot released. In Depeyster v. Hildreth (2 Barb. Ch. R., 109) a judgment creditor had taken the debtor’s goods on execution, and in that condition of things another person lent the debtor money on a mortgage of his lands; Afterwards, the judgment creditor, knowing of the existence of the mortgage, withdrew his execution, and the personal property was sold on other exerations. Chancellor Walworth was of opinion that he had by that act forfeited his priority against the land. The doctrine is founded on the most obvious principles of equity, and the present case is a suitable one for its application. As soon as the defendant’s agent became aware that the complainants had advanced their money, or given their negotiable paper, for a portion of the land bound by the judgment, it was his duty and the duty of his principal so to manage the securities in his hands, and those which the debtor afterwards furnished, as to save the complainants from loss if it could be done without hazarding his collection of the judgment. Instead of doing so, she suffered the debtor to take and convert these securities, which were amply sufficient to have paid the judgment, to his own use. After this it would be eminently inequitable and unjust to allow her to sell the complainants’ land. I think, also, that the proper disposition was made of the costs. The decree of the supreme court should be affirmed, but without costs in this court. All the judges concurred. Judgment accordingly.