Truscott v. King (6 N.Y. 147, 1851)

Jewett, J.

(after stating the facts.) — I cannot doubt, that the judgment, in its inception, was a valid security upon the mortgaged premises, to the extent of $20,000, with the costs of entering it, whether a debt in whole, or only in part, then existed, to that amount, or not, if it was agreed at the time, between the parties, that it should be given as an indemnity against advances or responsibilities to be thereafter made or incurred by Williams & Co. for Brown & Starkweather, to that amount, and such advances were afterwards made, or responsibilities incurred. The principle is well established, that a mortgage or judgment may be taken and held as a security for future advances and responsibilities, to the extent of it, when that forms a part of the original agreement between the parties; and the future advances will be covered by the mortgage or judgment, in preference to the claim under a junior intervening incumbrance, with notice of the agreement. The principle is, that subsequent advances cannot be tacked to a prior security, to the prejudice of a bond fide junior incumbrancer; but a mortgage or judgment are always good to secure future loans, when there is an intervening equity.

Thus, in Gordon v. Graham (7 Vin. Abr. 52, E., pl. 3), cited in Powell on Mortgages (ed. 1807) 544, where A. mortgaged his estate to B., for a term of years, to secure a sum of money already lent to A., and also all other sums as should thereafter be lent or advanced to him, A. made a second mortgage, to 0., for a certain sum, with notice of the first mortgage, and then the first mortgagee, having notice of the second mortgage, lent a further sum. Lord Cowper decreed, that the second mortgagee should not redeem the first mortgage, without paying as well the money lent after, as that lent before, the second mortgage was made; for, he added, it was the folly of the second ^mortgagee, with notice, to take such secu- * 158 i •, J nty.

In Livingston v. McInlay (16 Johns. 165), a judgment had been entered upon a bond for $4000, conditioned to pay $2000, the defendant being at the time indebted to the plaintiffs in only the sum of $1118 for money lent, but it was agreed, at the time, that further advances should be made to the defendant by the plaintiffs, and the plaintiffs gave the defendant a memorandum in writing, that no execution should issue for more than was actually due. The plaintiffs afterwards lent the defendant the further sum of $350, and thereafter issued an execution upon the judgment, with directions to levy $1653.91. A subsequent judgment-creditor of the defendant issued his execution for $289.53, and the sheriff having levied on the first execution $1322.49, and having paid over to the plaintiffs therein $966.17, held the residue, to be paid to either of the parties who should be held entitled to receive it. A motion was then made in behalf of the plaintiffs in the second execution, that the sum of $350 should be deducted from the amount directed to be collected on the first-mentioned execution. It was contended, that a judgment of the court could never be used by the plaintiff to collect any debt or demand arising subsequently, and which was not in-, eluded in the judgment, at the time it was rendered. But the court observed, that it was part of the original agreement, at the time judgment was entered, that it should be a security, for future advances, beyond the amount then actually due to the plaintiffs; and held, that there was no objection to that, any more than to a mortgage being held as security for future advances; so far, at least, as the amount of the condition of the bond. That if the amount of the advances, or responsibilities, exceeded the condition of the bond, it would present a different question.

In Brinkerhoff v. Marvin (5 Johns. Ch. 320), the chancellor held, that a judgment or other security might be taken and held for future responsibilities, to the extent of it. And so, in Jan es v. Johnson (6 Johns. 417), the chancellar said, that in many cases, a subject.- pledged for a * 159 1 be considered as a security *for fur- -* ther loans 'and that he saw no possible objection to it, if no intervening right exists, to prevent the justness of the application of the rule.

In the case of the' United States v. Hooe (3 Cranch. 73), Marshall, C. J., says: - “ That the property stood bound for future advances, is, in itself, unexceptionable; it may, indeed, be converted to improper purposes; but it is not positively inadmissible. It is frequent, for a per- • son, who expects to become more considerably indebted, to mortgage property to :his creditors, as a security for debts to be contracted, as ■ well as for that which is , already due.” In that' case, the. facts, so far as respects this question, were shortly these; Fitzgerald, being appointed collector, Hooe executed a bond, with him as his surety, to the United States, and being desirous to procure Hooe to indorse his notes at a future day, to. enable him to- raise money upon- them at a bank, conveyed a part of his real estate to trustees, in ■ trust, to indemnify Hooe on account of his having become his surety to the United States, and on' account of notes tc be indorsed by him for the accommodation- of Fitzgerald, at such bank.

And so, it was held, in Shirras v. Caig (7 Cranch 34), that a mortgage should stand to secure the real equitable claims of the mortgagees, whether they existed- at the date of the mortgage, or arose afterwards, and before notice of the defendant’s equity. The bill, in that case, was brought to foreclose a mortgage of a lot, houses and wharf in Savannah, called Gardiner’s wharf, which were in the possession of- the defendants; the mortgage bore date the first day of December 1801, and the mortgagor had title to an undivided half part of the premises ; subsequently, each of the defendants became vested of an undivided third part of the premises. The defendants resisted the claim • to foreclose, on various grounds. The mortgage.purported, on its. face, to secure a debt of thirty thousand pounds sterling, due to all of the mortgagees, but it was really intended, to secure different sums, due at the time to particular mortgagees, and advances afterwards to be made, .and liabilities to be incurred, to *an uncertain amount. Marshall, „ ^ C. J., said, it was true,,that the real transaction *- did not appear on.the face of the mortgage; and that it was not to be denied, that a deed, which -misrepresents the transaction it recites, and the consideration on which it is executed, is liable to suspicion; that it must sustain a rigorous examination; that it was always advisable, fairly and plainly to= state the truth. But if, upon investigation, the real transaction should appear to be fair, though somewhat variant frqm -that which is. described, it would seem to. be unjust and unprecedented, to deprive, the person, claiming under the deed, of his real equitable rights, unless it be in favor of a person who has been, in fact, injured and deceived by the misrepresentation.' And it was held, that the complainants had a just title, under their mortgage, to subject one moiety of the premises described in the mortgage,-of-.which the mortgagor, at the time of executing if,, was seised, to the payment of the debts remaining-'due :.to them, which were. either due at the date of the. mortgage, or were afterwards contracted on the faith, of. it, either by advances actually made, or. liabilities incurred, prior to the receipt of actual notice of the subsequent title of the defendants.

Judge. Story -in Conard v. Atlantic Insurance Co. (1 Peters 386, at p. 447), observed, that mortgages might as well be given to.secure future, advances and contingent debts, as those which already exist, and are certain and due. And again, in Leeds v. Cameron (3 Sumner 488), the same learned judge remarked, that nothing could be more clear,, both upon principle and authority, than that, at the common law, a mortgage bond fide made, may be for future advances, and liabilities for the mortgagor by the mortgagee, as well as for present debts and liabilities. And to the same effect, are the following cases: Hubbard v. Savage, 8 Conn. 215; Walker v. Snediker, 1 Hoffman Ch. 145; Commercial Bank v. Cunningham, 24 Pick. 270; Monell v. Smith, 5 Cow. 441; Lyle v. Ducomb, 5 Binney 585; 4 Kent’s Com. 175; Lansing v. Woodworth, 1 Sandf. Ch. 43; Barry v. Merchants’ Exchange Co., 1 Id. 314.

* 1611 or(ler to secure good faith, and preJ vent error and imposition in dealing, it is necessary, that the agreement, as contained in the record of the lien, whether by mortgage or judgment, should give all the requisite information as to the extent and certainty of the contract, so that a junior creditor may, by inspection of the record, and by common prudence and ordinary diligence, ascertain the extent of the incumbrance. (St. Andrew’s Church v. Tompkins, 7 Johns. Ch. 14; Pettibone v. Griswold, 4 Conn. 158; Stoughton v. Pasco, 5 Id. 442; Shepard v. Shepard, 6 Id. 37; Hubbard v. Savage, supra; Garber v. Henry, 6 Watts 57; Walker v. Snediker, supra; Hart v. Chalker, 14 Conn. 77.)

In the case of the Bank of Utica v. Finch (3 Barb. Ch. 293), it was held, that where a bond and mortgage were given to secure a particular debt mentioned therein, the mortgagee could not, as against subsequent purchasers or incumbrancers, hold it as a lien for an entirely distinct and different debt, upon paroi proof, that it was •intended to cover that debt also. But that a mortgage or a judgment might be given to secure future advances and responsibilities, or as a general security for balances which might be due, from time to time, from the mortgagor or judgment-debtor. That such security might be taken, in either form, for a specific sum of money, large enough to cover the amount of the floating debt intended to be secured thereby, and such future advances and responsibilities will be protected by such security, to the extent of the sum mentioned therein, in preference to any claim under a junior incumbrance, with notice, although such security, on its face, does not specify that future advances or responsibilities to be made or incurred are provided for such sum. Parol evidence is admissible, to show the purpose and intent for which such security was executed, and it does not conflict with the principle, that such evidence cannot be admitted to contradict the written instrument. But neither a mortgage nor judgment can be rendered available, to secure the party taking them, for future advances or responsibilities, by any subsequent paroi agreement, *in ;¡. preference to the lien of a junior incumbrancer. *- (Walker v. Snediker, supra; Ex parte Hooper, 19 Vesey 447 ; 4 Kent’s Com. 176.)

The record, in this case, shows that the judgment was confessed and entered up to secure Williams a specific sum of money, to wit, $20,000; and from the face of it, the presumption would be, that it was for a present debt due, and to that extent subsequent incumbrancers and purchasers would have notice of this prior incumbrance, by the record. And we have seen, that if the fact was otherwise, that instead of its being for a present indebtedness, some part, or all, was for a future indebtedness, incurred for advances or responsibilities assumed, which were agreed to be made and incurred, at the time, the judgment would be an available security, when made, to the amount so specified, if there should be no intervening equity arising to take preference. But the adjudged cases show, that if the debt amounted to the sum specified in the condition of the bond, at the time of its execution, or advances .were subsequently made, as agreed upon at the time, to that amount, the judgment could not be' available, as a security for any additional indebtedness, for other advances or liabilities, although in the end, by payments made or funds received. by the creditor of .the debtor, the amount of the moneys advanced, from time to time, should be "satisfied," so that the balance did not exceed the sum specified in the security. It could not be regarded as a continuing security, covering the final balance which might be found due to the creditor from the debtor, after charging the original debt and subsequent advances and. responsibilities, and crediting the moneys received from the debtor, from time to time, although such balance should be no larger in amount than the sum specified, in the security, to be secured.

When the creditor has received of the debtor moneys, upon the security taken, equal in amount to the sum specified therein, to be secured, whether given for a present debt .or for future advances, it becomes satisfied and extinguished. I think, the evidence in this case shows that the bond and warrant of attorney, *upon which the judgment was entered up, were -■ given to Williams, to secure to the firm of Williams & Co. the payment of $20,000, by Brown & Stark-weather, on account of responsibilities which had been already or were shortly thereafter to be assumed, and which were so assumed for them, to that amount, by accepting drafts drawn or to be drawn by them, to run from two to four months; and that the evidence war rants the inference, that Williams & Co., for the period of several years thereafter, and down to about the time of the death of Brown, were in the habit of accepting other like drafts, from time to time, for Brown & Stark-weather, and. that they were in the habit, during the same time, generally, of providing Williams & Co. with funds to pay them at maturity; and that whatever balances have been found to be due to Williams & Co. since the giving of the bond and warrant, they have been made up of the difference between the amount of such acceptances made since the bond was given, arid the money so provided for the payment, by Williams & Co., in addition to the acceptances and responsibilities, to secure which the sum specified in the bond was designed.

I also think, that the evidénce shows -at least two periods of time, after the bond was given, when Brown & Starkweather ceased to be the debtors of Williams & Co., upon the bond or judgment, although there may have been no time after the 16th day of October 1837, or even after the giving of the bond, when Brown & Stark-weather were not indebted to Williams & Co. in as large a sum as $20,000, for payments made on acceptances and indorsements of bills of exchange for them. First, the witness Williams testified, that from his recollection of the state of the accounts, which Williams & Co. kept, in which they charged Brown & Starkweather with acceptances, and credited them with moneys received, he had no doubt, but that they received from them between April and October 1835, as much money as the drafts or acceptances then outstanding; which I understand to mean, the time the bond and warrant were given in April. If so, the judgment became satisfied, it having been given to indemnify against acceptances which Williams *& Co. had made, at or before the date of the bond, or which they made shortly there- *- after; it could not serve the purpose of a security for a new indebtedness, in addition to the debt of $20,000 for which it first stood as security. Again, although the witness testified, that on the 16th day of October 1837, Brown & Starkweather were indebted to Williams & Co. in the sum of $20,608, and from that time down, there was, at all times, a greater liability than $20,000, that on the 20th February 1839, the balance was $22,742,26, and at the time the judgment was assigned to the defendant, the amount due them was more than $30,000; yet, he also testified, that since the 16th day of October 1837, Williams & Co. had received on account of Brown & Starkweather, a larger amount of money than was due to them at that date.

The balances of $20,000 and upwards, due to Williams