Rowan v. Sharps' Rifle Manufacturing Co.

29 Conn. 282

• Court: Supreme Court of Connecticut
• Decided: September 15, 1860
• Status: Published

Opinion

Ellsworth, J.

The facts in this case are exceedingly numerous and complicated, and give rise to several interesting questions of law, which have been discussed with learning and ability.

In view of the character and pecuniary importance of the cause, we have kept it under consideration for several weeks, but we find, after a careful examination of it, and a full consultation, that our views are essentially, if not entirely harmonious. If they differ at all, the disagreement is not such as to affect the result, as we had severally arrived at the same conclusion.

The petitioner, Henry S. Rowan, who represents the British government, seeksffo redeem certain mortgaged premises described in his petition. His title is derived from a mortgage given by Robbins & Lawrence to the Robbins & Lawrence company, a Vermont corporation, dated December 9th, 1854. This mortgage was given to secure a note of $75,000, given by Robbins & Lawrence for an indebtedness to the corporation, which note, with the mortgage, has been assigned for value by the corporation to Fox, Henderson & Oo., and by them to the petitioner.

The premises are sought to be redeemed from the respondents as being mere prior mortgagees; and the questions made by the petitioner are, substantially, what is the property mortgaged, and what is the prior incumbrance of the respondents which must be paid off by the petitioner, if he redeems, or first satisfied from the mortgage fund.

The respondents make here a preliminary question, whether the petitioner has any right whatever to redeem. They deny that he has any right of redemption whatever. They say that they were the owners of the property in fee, by virtue of the contract of January 9th, 1852, and the deed of the real estate given them soon after, and that the petitioner can not redeem the property out of their hands. They say further, that if the respondents are indebted to Robbins & Lawrence in consequence of their purchase of the armory property under the contract, yet that the mortgage does not purport to assign to the mortgagees the debt due to Robbins & Lawrence, which is not even alluded to in the mortgage, but only the specific property itself. The petitioner on the contrary insists that, if the property is to be regarded as having been conditionally sold to the respondents, yet, as his mortgage was taken before the respondents elected to become the absolute owners of it, and while Robbins & Lawrence had an interest in it, he can in equity treat the debt, after the respondents have taken the property, as he could have treated the property itself if they had elected not to take it, and can call on the respondents to pay him any balance which they owe to Robbins & Lawrence, for the property which they have so taken, beyond the amount of their prior lien.

We have not thought it important to examine this question with particular care, because, even if the petitioner’s claim is correct, he has not shown that there is a balance due from the respondents, to be paid to any one.

In our view the petitioner is clothed only with the rights of an assignee of Robbins & Lawrence, and can stand only in their place as to the debt in controversy. The Robbins & Lawrence Company, by their mortgage of the 9th of December, 1854, obviously took only what Robbins & Lawrence could convey to them as their own. The public records showed that the title to the real estate had never been vested in them, nor does it appear that they had, at any time, even an equity in the real estate, except in an event which has never yet happened. The premises were fully vested in the respondents. They are found by the committee to have been owners in fee from the time of the original purchase, and to have taken the title directly from the persons of whom the land was purchased, and soon after the execution of the contract of January 9th, 1852, and it did not appear from the public records that there was any condition whatever attaching to their title, or any equity whatever in favor of Robbins & Lawrence. Nor was there, in fact, any equity in their favor, except what may be gathered from the contract of January 9,1852. We must therefore examine that contract, (and perhaps the later contracts of November 9th, and December 11th, 1855, in determining the final rights of the parties,) to see what was the equity in Robbins & Lawrence which they mortgaged to the Robbins & Lawrence Company, and which, by successive assignments of the mortgage, has come into the hands of the present petitioner. That is the only equity which we can consider in this cause, either as to the property in its original form, or as to the fund which is supposed to stand in its place. The questions then are, what is the amount of that fund ?— and to what liens or deductions is it subject, upon a final settlement between the respondents and Robbins & Lawrence. We shall therefore treat this bill as if brought by Robbins & Lawrence to obtain a legal title to the real estate from the respondents, considering them as trustees of the property, or to obtain an account of the money, regarding it as a fund.

We would remark, however, that in considering the question with regard to the relative rights of the parties throughout the case, the personal property covered by the mortgage of Robbins & Lawrence to the respondents, and by the later mortgage to the Robbins & Lawrence Company, now held by the petitioner, may, with the exception of certain machinery and stock subsequently purchased and described in both mortgages as after acquired property, and of which we shall speak more particularly hereafter, be wholly laid out of the case. The whole of the personal property, not including the stock, is found to amount to only $59,174, while the mortgage debt of the respondents is much larger. It is obvious that they may equitably first apply the whole of this fund to their mortgage debt, leaving the real estate alone to be the subject of controversy. The petitioner can not complain that the property mortgaged to the respondents, and which was mortgaged to him expressly subject to that mortgage, should be applied to the payment of the respondents’ mortgage debt; while, as we shall endeavor to show, the respondents have a claim on the real estate, founded upon the contract of January 9,1852, and the legal title vested in them under the provisions of that contract, which is not only superior to the title of the petitioner, but is independent of, and superior to, the title conveyed by their own mortgage of September 1853. Considering then the real estate as really alone in controversy here, (except the stock, which, stands on peculiar ground and will be considered by itself hereafter,) we return to the course of argument which we were pursuing.

By the contract of the 9th of January, 1852, the respondents are not obliged to release the property of which they took the legal title until the contract was fully performed by Robbins & Lawrence. This event has never happened. Of the twenty thousand rifles which they were to manufacture and deliver under that contract, they are deficient in the number delivered to the extent of three thousand and eighty. They were also deficient, at the time of their failure, in the number of arms to be delivered under the contract of November 9, 1855, having delivered but two thousand nine hundred of the six thousand five hundred which they contracted to deliver. And by the contract of December 11, 1855, known as the extension contract, the respondents are not required to elect whether to take the property or to release it, not only until the contracts of January 9, 1852 and November 9,1855 are performed, but until “ all indebtedness ” of Robbins & Lawrence to them is paid; and this event has not taken place.

But not to dwell on these partial failures, there are yet other and more important defaults and omissions on the part of Robbins & Lawrence, which stand in the way of their right to a release of the property, or to the payment of any part of the fund in the hands of the respondents. In no just sense have Robbins & Lawrence bought land for an armory, as stipulated, for the respondents; or erected buildings and supplied them with machinery and tools adequate to the manufacture of ten thousand rifles annually; or purchased stock and manufactured twenty thousand rifles, which they were to do by the first day of January, 1855; but, on the contrary, they became embarrassed at an early period of the business, and at last failed and abandoned both their contracts. Under their embarrassments, being unable to go on, they had called upon the respondents, “ urgently’'’ as is found, to render them assistance, to enable them to perform their first contract, and afterwards that of November 9, 1855. And the respondents did assist them, by advancing money towards the purchase of the land and the erection of the buildings, and the equipping of the armory with machinery and tools, as well as for procuring stock, materials and work, and other things requisite for the performance of the contracts. The amount so advanced, in addition to the advances secured by the mortgage of September 22, 1853, is found to be $75,772.40; all of which, we think, is an equitable, if not a legal lien on the property, as to Robbins & Lawrence and those who represent them, and ought to be repaid to the respondents before they are deprived of the property, or of the fund which is substituted for it. Indeed, the course pursued by the parties was little else than the respondents paying for all the property, real and personal, as well as for the arms, in advance. We regard them as having taken the legal title to the property, that it might not, under any circumstances, become embarrassed or involved with any mortgage to other parties, either in form or in effect. We may well assume that they insisted upon the absolute title at the outset for this very purpose, and that, having such a title, they were willing to advance their money in the manner in which they did, towards building up and equipping what was really their armory, and for the manufacture of the arms for themselves; holding in one hand, to a great extent, what they paid out with the other. Whatever was advanced that was not directly for the armory and its equipments, was advanced to promote and secure, equally directly, the performance of the contracts of January 1852 and November 1855 ; the latter of which, as well as the extension contract of December 11th, 1855, though entered into after the date of the petitioner’s mortgage, were yet, if the fact be of any importance, entered into before the respondents had knowledge of that mortgage. In our judgment the respondents had a clear right to charge upon the property these advancements towards the completion of their contracts and the perfecting of their title; at all events, the advancements were an equitable offset against any claim of Robbins & Lawrence for the value of the property, as if the respondents had been factorized as the debtors of Robbins & Lawrence, in which case this equity would be very clear. So, we are confident, the parties themselves understood it at the time, and nothing, was further from their thoughts than that these large sums were being advanced without security, or that the respondents had not a perfect security in the absolute legal title which they held to the armory. Eor what other purpose, we may well ask, did the respondents take and hold such a title ? We repeat, that they believed themselves to be already the purchasers of the armory, and that they were to remain so unless they changed their minds and elected to release it; and in that case, Robbins & Lawrence were, by their contract of December 11th, 1855, to first pay all their indebtedness to them. This is the equitable view of the matter certainly, and no court under such circumstances would decree that the respondents should surrender their title to Robbins & Lawrence, or their assignees, until such indebtedness was paid.

This view would seem to be correct on the further ground, which was urged by the respondents’ counsel, and in support of which numerous authorities were read, that whatever the respondents were compelled by their position to do, or in fairness might do, to assist Robbins & Lawrence in the performance of their contracts, by advancing money to prevent the damages which would result from the non-performance, may be an equitable charge upon the property or the fund, especially if the advancements were made at the request of Robbins & Lawrence. A case so circumstanced belongs to the class of cases in which a trustee or mortgagee who has advanced money to protect the property from injury or loss, is held to have a good charge upon the property for the money so advanced. The authorities say that such payments are expenses incurred in faith of the security, with a view to make the interest of the other party more beneficial to him; and it is even said that the necessity for these expenditures may be so palpable, that an omission to make them may subject the trustee or mortgagee for neglect of duty. It appears to us to be equitable, as a general rule, that where the expenses have been incurred in good faith, and were designed and have a tendency to diminish the incumbrance, or otherwise to benefit the security, they should be held to be a good charge upon the property. Colyer v. Clay, 7 Beav., 188. Burridge v. Row, 1 Younge & Coll., 583. Shaw v. Simpson, id., 732. Ex parte Hodgson, 1 Glyn. & Jam., 13. Ex parte Linden, 1 Mont., D. & DeG., 428. Ludlow v. Grayall, 11 Price, 58. West v. Reid, 2 Hare, 249.

It is a general doctrine of equity, familiar to us all, that a petitioner asking for equity must first do equity; and so far has this doctrine been carried, that, in England certainly, it is well established that a mortgagor who seeks to redeem the property from the mortgagee, may be required to pay, not only the mortgage debt, but debts secured by other mortgages, if they have become due. In the case of Phelps v. Ellsworth, 3 Day, 397, the old Court of Errors applied the rule to the case of a mortgagee seeking a foreclosure, and obliged the mortgagor to pay a debt secured on other lands, as a condition of redemption. The general doctrine is sustained by all the authorities. 1 Story Eq. Jur., § 64. Walling v. Aiken, 1 McMullen Eq., 2, 14. 1 Mad. Cha., 424. 2 Cruise Dig., tit. 15, Cha. 3, § 35. 1 Lead. Cases in Eq., 429, et seq. Mergrave v. LeHooke, 2 Vern. 207. Pope v. Onslow, id., 286. Reason v. Sacheverell, 1 Vern., 41. Jones v. Smith, 2 Ves. Jr., 372. American decisions, both of our own and our sister states, sustain the general principle laid down in the case of Phelps v. Ellsworth. Scripture v. Johnson, 3 Conn., 211. Chamberlin v. Thompson, 10 id., 251. Lampson v. Sutherland, 13 Verm., 309. Budgden v. Carhartt, 1 Hopk. Cha., 234. Townsend v. Empire Stone Dressing Co., 6 Duer, 208.

If this equitable doctrine is to be applied to this case, as we think it must, at least in its spirit, it puts an end to all claim of Robbins & Lawrence and their assignees to the property in question, or the pecuniary fund which represents it, until they pay to the respondents, or allow them out of the fund, in addition to their mortgage debt, this sum of $75,772.40.

But it is said that these moneys were not advanced, certainly not all of them, before the mortgage under which the petitioner claims was executed. That mortgage was executed on the 9th day of December, 1854, and was immediately after recorded. But it is found that the respondents had no actual knowledge of this mortgage until December 11th, 1855, and no notice of it except what the law would infer from its being recorded. We think the law would not infer notice from the record, and that they were not obliged to take notice of the record. They had themselves the entire title, and so the records declared to the whole world. Having bought the property fairly, although with the right to give it up if they pleased and on certain conditions, no one had a right to complain of the state of their title or of their transactions with regard to the property, if all was fair on their part, as the fact is proved to have been. Certainly the respondents were under no obligation to know that others were meddling with their property, or to inquire after any such fact, knowing, as they did, that their right was perfect in itself, and must take precedence of all other rights, which might be acquired by other parties, if any such could be supposed. They had, we repeat, a right to remain silent and inactive. The rule of law certainly is that a purchaser is not bound to take notice of a deed which is subsequent to his own, unless he seeks to obtain some new and further interest than his deed already gives him.

But if some of the advancements were made after the 11th day of December, 1855, when the respondents received actual notice of the mortgage under which the petitioner claims, we do not see that it would make any difference, nor that it would alter the case if all the advancements were made after that date. We regard all these advances as authorized by the contract of January 9, 1852, or by that of December 11, 1855, extending the lien upon the property to the contract of November 9, 1855, and to all the indebtedness of Robbins & Lawrence. So far as the first of these contracts is concerned, the respondents might continue to make all necessary advances to prevent the failure of Robbins & Lawrence to perform the contract and the damage to the whole property from such failure, even after actual notice of the petitioner’s mortgage. This necessarily results from the principles which we have already discussed. We are much inclined to think this contract alone sufficient to authorize all the advances. But as to the contract of December 11, 1855, it is found that Fox, Henderson & Co. when they took their assignment of the mortgage knew of that contract, as well as of all the other contracts between the parties, and also of the advances which the respondents had been and were making to Robbins & Lawrence, and we are inclined to think that they, as well as the Robbins & Lawrence Company, the original mortgagees, who with Robbins & Lawrence and Fox, Henderson & Co. solicited from the respondents the arrangement under which a part of the property was released so that it might be mortgaged to Fox, Henderson & Co., may be regarded as having, in that negotiation and transaction, assented to the extension of the lien of the respondents over the property retained by them, by the contract of that date. But however this may be they certainly acted with full notice. The very arms which Robbins & Lawrence were to manufacture for the respondents, under the contract of November 9, 1855, were to go to the British government, and Fox, Henderson & Co. were under no misapprehension as to the past and continued necessity under which Robbins & Lawrence labored, of advances from the respondents to enable them to perform their contracts. They were acquainted with the situation of things at the time, and no deception of any kind was practiced upon them. In the circumstances they can not complain if the respondents insist upon their rights under the contract of December 1855, while, independently of that contract, the respondents have an equitable lien on the property for all advances, whenever made, that were necessary to secure the performance of the contract of January 9,1852, and for all advances to assist Robbins & Lawrence to perform the contract of November 9, 1855, or for any other purpose whatever, which were made before they received actual notice of the petitioner’s mortgage, on the 11th day of December, 1855.

It is very manifest that the respondents had already become deeply committed in behalf of Robbins & Lawrence, and were obliged to go forward or take the ruinous consequences. Further advancements were necessary to enable them to complete their contracts and to prevent a failure that would be disastrous, not merely to Robbins & Lawrence and themselves, but to the whole property. The necessity was still further increased by the large contract into which the respondents had entered with the British government for the manufacture of rifles, and for their ability to perform which they were dependent upon the manufacture by Robbins & Lawrence. They could not stop the works without an injury to all parties and interests that would be essentially irreparable. Under these circumstances it is clear that, if the respondents are to be treated as merely prior incumbrancers, they must be regarded as having the continued right to make these advances even after notice of the petitioner’s mortgage, and that, we think, under their original contract and within the fair scope and effect of their original incumbrance. It was held by this court that a prior mortgagee might make such advances on the security of the property, in the kindred case of Crane v. Deming, 7 Conn., 388, which is a case of advancements made after subsequent mortgages had been made and put upon record. If, as we are inclined to think, the original contract and the legal title held by the respondents were sufficient to authorize all the advances made by them, the contract of December 11th, 1855 might be laid entirely out of the case, and we should thus avoid any question as to the effect of the knowledge of that contract upon the Robbins & Lawrence Company and upon Fox, Henderson & Co., and all question as to the effect upon the respondents of their knowledge, acquired at the same time with that transaction, of the mortgage under which the petitioner now claims.

Applying then these principles, and stating the account between the respondents and Robbins & Lawrence or the property, at what result do we arrive ? Allowing the respondents to be properly charged with the value of the whole armory property, including the stock, of which we will speak presently, they are accountable for a fund, amounting as found by the committee to ... $147,241.32

Erom this it is agreed that the mortgage debt of the respondents is to be taken, amounting to, . $71,610.30

Add to this the advancements in question, - . . 75,772.40 $147,382.70

Thus it appears that nothing is due from the respondents to Robbins & Lawrence, and therefore, upon the principles which we have laid down, nothing to the petitioner ; and this, if we are correct in our views, makes an end of the case, without the necessity of examining several other questions which were considered as involved in the case and discussed on the argu ment. One of these, with regard to the stock and other personal property purchased after the execution of both mortgages, we have before suggested that we should consider, and a decision of it is perhaps to some extent involved in our general conclusion, while there are one or two other points on which, as they were elaborately argued, and have been considered by us, though not so fully as if we had found it necessary to a disposal of the case, we think it proper to express our views.

And first, as to the personal property brought into the armory after the execution of the mortgages, and taken by the respondents in their final purchase of the entire property. This property consists mainly of the stock, valued at ¡$41,-478.21. If covered at all by the mortgages, it is by force of the following clause, which is substantially the same in both:— “ And all the machinery, tools, stock manufactured and in process of manufacture, fuel and personal estate, in said factory buildings, or which may be therein during the continuance of this mortgage.” We have, in stating the account, made the respondents chargeable with the value of the whole property taken by them, including the property now in question. It was taken by them and used for their own benefit with the rest of the property, and they are clearly liable to account for it. But we all think that the petitioner is entitled to have this sum applied to enlarge the general fund in his favor. There is, in any view, a debt for that amount, for so much property delivered to and received by the respondents, with the other property specifically described in the mortgage; and whether the respondents did or did not acquire a title thereto by their mortgage, we need not decide. We all agree that the stock did not pass in presentí, as it was not then in esse, but we think it was sufficiently described in the mortgage, so that when afterwards purchased and placed in the building, and actually delivered to and accepted by tbe respondents, there was then a sufficient meeting of the minds of the parties to pass a title as if under the mortgage, according to the decision of this court in the case of Calkins v. Lockwood, 17 Conn., 154. We do not see however that this can affect the result, since no interest passed in this stock by the provisions of the petitioner’s mortgage. That mortgage embraced it only as property to be acquired in future, and as no title passed in presentí and the petitioner never took actual possession so as to give effect to the mortgage, he does not stand in relation to it as a second mortgagee, but has merely an equitable right that the respondents, as first mortgagees, having turned the stock into money, should apply it in payment of their mortgage debt. If this were all, such an application would accrue to the benefit of the petitioner, by releasing some portion of the mortgaged property covered by his mortgage, which he could then apply to his mortgage debt. But the respondents stand, by virtue of their contract of January 9, 1852, and of their advances made under it and not covered by their mortgage, in as equitable a position, in relation to this stock, as the petitioner himself does. Indeed, as this stock was purchased with the very money which the respondents advanced to aid Robbins & Lawrence, and was placed on the premises of which they held the legal title, they had, independent of the mortgage, at least an equitable lien upon it for the money advanced for its purchase, and they may well be regarded as having taken possession of it both under this lien and under their mortgage. However this may be, we regard them as liable to account for it and to apply it in reduction of their claim, and as we regard their whole claim as taking precedence of the petitioner’s, they are thus applying it for the benefit of the petitioner.

The respondents claimed upon the argument, that, if there was any balance in their hands to which the petitioner was entitled, they had a right to set-off against the claim, a large claim which they had against the British government, for whose benefit confessedly the petitioner was suing, consisting in part of the sum of if25,950, besides some interest upon it, found to have been “ retained ” by the British government to satisfy a penalty of $5 for each rifle undelivered by the respondents within a certain time, within which by their contract with the British government the respondents were to deliver them, but which were afterwards delivered, and in part of the sum of $2,570.18 for the value of property destroyed or injured by the agents of the British government in inspecting the rifles manufactured under the contract — besides a further sum for loss sustained from delay in the payment for the guns, caused by the delay of the delivery. As before suggested, we need not decide this question, but we can see no good reason why the respondents should not be allowed the amount retained by the British government as a forfeiture, since it is found by the committee that the delay arose entirely from the interference of the agents of the British government, in changing the orders from time to time with regard to the form of the arms and the work upon them, while in the progress of manufacture. We think it is inequitable for the British government to withhold this sum. We regard the claim as essentially founded on contract, and since the British government is here asking for equity, and seeking to draw money out of the hands of the respondents, we think that this claim, however it may be with regard to the others, may properly be set-off against its demand.

And we think that this may be done, although the British government, as a foreign sovereignty, may not be liable to be sued in our courts, as we are inclined to think that it is not, since it is here asking for the interposition of the court, and has voluntarily come under our jurisdiction.

For these reasons we advise the dismissal of the bill.

In this opinion the other judges concurred.

Advice that bill be dismissed.