GORDON v. HOBART et al., 10 F. Cas. 787

STORY, Circuit Justice. The first point naturally suggested for consideration in the case, is, whether the question of the supposed waste was properly entertained, or could be entertained, by the master, even with the consent of the parties. I am clearly of opinion, that it was not properly cognizable by the master, nor, indeed, in the cause.

In the first place, there is no charge in the bill of any waste, and, consequently, no answer to it; and, therefore, the matter was in no’ sense in issue between the parties; and the court have no authority, by consent, to entertain questions, which are not properly brought before it for consideration by any fit judicial proceedings. In the next place, the reference to the master conferred no authority upon him to institute any such inquiry, even if the matter had been charged in the bill; and, consequently, he had no authority to act in the premises, or to make any report thereon.

The consent of the parties could not confer upon him any authority to examine into matters dehors his commission; and the whole proceedings, as to the waste, were, therefore, irregular, and coram non judice. If the matter had been properly before the court, and a more enlarged authority in the master was required, it should have been sought by a proper application to the court in the first instance.

In the next place, it is perfectly clear, that, as the original plaintiff, Jesse Gordon, sought relief as assignee of the mortgagor (John Gordon), no waste, which took place antecedently to the assignment to him, could properly, under any circumstances, be inquired into, in any suit brought by him. That waste, if there was any, was no wrong done to him; and the mortgagee (Hobart) was not accountable therefor to him. Now, it is apparent from the evidence in the cause, that the asserted waste in a great measure took place before the assignment to • Jesse Gordon.

For these reasons, all allowances on account of waste must be struck out of the report. Let us, then, proceed to the consideration of the exceptions taken by the plaintiff to the master’s report. They are two.

(1) The allowance of the interest to the mortgagee upon the $3,000 mortgage.

(2) The appropriation of the money received by the mortgagee upon the two notes of Pierce, one for $500 and one for $400; and upon the note of J. & N. Warren for $876. My opinion is, that the master has properly made the allowance of the interest. The argument against It mainly rests on this ground: that interest is not stipulated for in the contract, and, therefore, until a demand was made of the principal, and a default of payment thereof, no interest could accrue due. But the argument is not sustained by the facts or by the structure of the bill.

The latter insists, that the original contract was upon an usurious consideration, and that thereby an interest of nine per cent, was intended to be reserved; and that the lease to the mortgagor at the stipulated rent of $270 per an-num, was but a collusive arrangement to accomplish the purpose.

Now, if this be correct, then it establishes beyond controversy, that the $3,000 was originally agreed to be a loan on interest, and, therefore, the plaintiff, who seeks relief against that usury, is entitled to it only upon doing equity; in other words, the only relief, to which the original mortgagor would have been entitled under such circumstances, would be to have the rate of interest cut down to the legal rate of six per cent., which is precisely what the master has allowed. The plaintiff, as assignee, is certainly not entitled to be placed in a better situation that tbe original mortgagor.

If he is entitled, as assignee, to any relief against the usury (a point, upon which I give no opinion,) it must be upon his placing the mortgagee in precisely the same predicament, as to interest, as if he were the original mortgagor. The question of usury is now waived by the plaintiffs; but that does not, in the slightest manner, vary the rights of the parties, as to lawful interest. But it is plain, that the original parties did contemplate the payment of interest upon the loan ab origine.

I agree with the master in thinking, that the lease was but a mode of securing an illegal interest, that of nine per cent.; and that the lease and the mortgage are to be treated not only as contemporaneous acts, but as a part of one and the same transaction. As long as the lease continued and the rent was paid, it was an usurious interest, which this court would not sanction.

But when that ceased, and the mortgagee took possession, it was manifest, that interest, according to the original contract, was to be allowed; and the most that can be said, is, that the interest in equity ought to be cut down to the legal interest during the whole period, which has been actually done by the master.

Besides; if it .were material (which, in the view, which I take of the case, it is not), the entry of the mortgagee into possession must be deemed an entry after a demand of the payment of the principal, and a default on the part of the mortgagor, with a view, perhaps, to a foreclosure; but, if not, at all events to secure his interest and other rights under the loan.

There is also the positive evidence of Jonathan Tucker, stated and credited by the master, that the mortgagee, in the spring of 1818 or 1819, went to the mortgagor and demanded the payment of money from him; and this may well enough be deemed to be a demand of the mortgage debt, then due, if it were necessary to sustain the claim of interest I place no stress upon it, because the other circumstances are sufficient, in my judgment, to establish the claim.

Upon the whole, for the other reasons already stated, I am of opinion, that the right to lawful interest attached; and the master has, therefore, properly allowed it; and the exception on this point is over-ruled. As to the other exception, there is no doubt, that the money was actually received upon the Pierce notes and the Warren note by the mortgagee. But, how the money received thereon was actually applied, we have no means, after so great a lapse of time, of ascertaining. The money was originally intended to be applied to the discharge of the ?1,C00 mortgage. It was not so applied.

But there were other transactions between the parties of a secret and confidential nature, to which it might have been applied, and. to which, in the opinion of the master, formed after sifting all the circumstances, it was probably applied. There is enough disclosed in the case to show, that there was a designed obscurity and concealment of the parties of the business transactions and arrangements between them.

And there is strong, if not vehement, reason to presume, that the real object was to cover up the property of the mortgagor, so that it should not be reached by his creditors; and, therefore, a cloud was thrown over every transaction, and money, apparently intended for one object, might have been studiously held out as actually applied to another. At least, there is enough in the case to lead one to doubt, whether the money received on those notes' was not actually applied, by the consent both of the mortgagor and mortgagee, to other of their private transactions.

It is sufficient, however, to say, that no appropriation was ever made by either party of the proceeds of either of these notes, to the payment of the 83,000 mortgage. What, under such circumstances, is the rule promulgated by both courts of law and courts of equity? It is, that, where money is paid by, or received for, a debtor, by his creditor, the debtor has a right to make the appropriation to what purpose he pleases. If the debtor makes no appropriation, then the creditor may apply it to the satisfaction of any demand, which he has against his debtor, at his own pleasure.

If neither party make any such application, then, if there are various debts due to the creditor, the court will make the application according to its own view of the law and equity of the case, under all the circumstances. But this right of appropriation is one strictly existing between the original parties; and no third person has any authority to insist upon an appropriation of such money in his own favor, where neither the debtor nor the creditor have made or required any such appropriation.

What claim can an assignee of the mortgagor have, to Insist that money in the hands of the mortgagee, belonging to the mortgagor, shall be applied in discharge of the mortgage, unless such application of it was clearly contemplated by the original parties, and the assignee has made the purchase with the understanding, that the money should pro tanto go to the extinguishment of the mortgage?

The maxim in such a case ought to prevail, “Bes inter alios acta, alteri noeere non debet;” and, I may add, that, in such a case, “nec prodesse potest” It would be inequitable to allow an assignee of the mortgagor to make a profit by an appropriation of the money of the mortgagor in the hands of the mortgagee, which neither of them ever contemplated appropriating to the extinguishment pro tanto of the mortgage.

But it is sufficient to say, that, in the present case, there is no evidence, that the money was not actually appropriated at or after the time, when it was received, by the original parties, to other purposes; and,. considering the great lapse oí time, and the ob. scurities hanging over all the transactions, it would he unsafe for the court not to presume, that the money was applied to other' purposes; especially, as there were no subsequent proceedings between the parties, which could lead the court to any other conclusion.

The master's judgment upon this point seems to me to be entirely correct, and founded upon just reasons. Then, as to the exceptions on the part of the defendants. The first is to the sum allowed for the rents and profits, which, it is asserted, is too large. But the master has. stated all the circumstances, and it seems to me, that they sufficiently establish the propriety of the allowance. The second, respecting the allowance for waste, has been already disposed of. The third is for the non-allowance of the $45, expended for fences by Hobart But that the master has fully explained.

In fixing the occupation rent, the master took into consideration the subject of the fences, and made the rent less by what ought to be allowed the tenant for keeping the fences in proper repair. The like answer may be given to the fourth exception respecting taxes. A suitable deduction was made from the rent by the master, founded upon the supposition, that the tenant paid the taxes. .

The fifth exception is founded upon the notion, that the two mortgages of $1,600 were given for distinct and independent debts; and not for one and the same debt.' But upon the statements made by the master, it seems to me very clear, that they were both given as securities for one and the same debt.

It appears from the statement of the master, that there was a prior unredeemed mortgage on the premises, which were originally mortgaged for the payment of the $1,600; and this fact alone, independent of the other very strong circumstances in the case, would lead one to the conclusion, that the second mortgage was taken to supply the defective security by the first. But, taken in connection with the other circumstances, the conclusion seems almost irresistible, that they were both for one and the same debt The other exceptions require no particular notice.

The seventh is disposed of by the considerations already suggested under the preceding head. The sixth and eighth are too vague and general to be of any validity, and, therefore, must be dismissed from the view of the court Upon the whole, I am of opinion, that the exceptions filed by both parties ought to be overruled; and that the master’s report ought to stand confirmed in all the particulars, excepting the allowance for the supposed waste, which is to be struck out; and, being thus reformed, the report is to stand confirmed accordingly. Decree accordingly.