
    Ebenezer B. Woodruff vs. Elisha Depue, Jacob Morris, and others.
    On a bill filed to foreclose a mortgage, given by the defendant, E. D., to one R., to secure the payment of part of the purchase money of land conveyed to E. D. by R. by deed with covenants of general warranty and against encumbrances, it appeared that there was a subsisting mortgage on the premises at the time of the conveyance which the vendor had failed to discharge, although there was a distinct understanding that the amount of the encumbrance should be paid by the vendor out of the • first payment made by the mortgagor or deducted from the mortgage debt.
    The complainant holds the mortgage by assignment from R., made while the defendant, E. D., continued to own the mortgaged premises, which have been since conveyed by deed, with covenants of warranty, to M„ one of the defendants, who claims that the amount of the subsisting encumbrance, which is still unpaid, should be deducted from'complainant’s mortgage, it was held—
    That M., the owner of the equity of redemption, is entitled to the protection claimed by him, and that the decree of the court will be for the balance due on the complainant’s mortgage, after deducting the amount of the subsisting encumbrance.
    The general rule is, that the assignee of a mortgage takes it subject to all defences which exist against it in the hands of the mortgagee, but not to a latent equity residing in a third person against the mortgagee.
    The case of Shannon v. Marselis (Saxton 413) cited, and its authority recognized.
    The original mortgagee, R., is not a necessary party to this suit, because although the assignment from him to the complainant shows that the mortgage was originally assigned as a collateral security for certain purposes, and the balance, if any, was to be paid to R., yet it does not appear that there was any surplus after the immediate object of the assignment had been accomplished. It cannot be assumed, on the pleadings and evidence in the case, that E. has any interest in the mortgage debt.
    If there appears to be such a surplus, and the complainant desires that E. should be concluded by the decree, he should be made a party. On a bill for foreclosure, all the persons interested in the mortgage money should be before the court. All the beneficiaries should be made parties as well as the trustee.
    It is not competent for the complainant, who has omitted to make E. a party to present that fact as an objection to the equitable protection asked for by the defendant, M.
    Complainant is entitled to interest on his debt and to his costs of foreclosure, although it appears that before the bill was filed the defendant, M., offered to pay him the amount to which, by tire decree of the court, he is entitled, such offer not amounting to a legal tender ; and it also appearing that the complaiant, in declining to receive the amount offered, acted in good faith under the advice of counsel. He had no right, to adjust the equities between the parties in interest, nor was he bound to take the hazard of so doing, but was entitled to ask a decree of the court to settle the conflicting claims and protect his own rights. Unless there be a legal tender of the sum due interest does not stop.
    The pleadings and evidence in this case establish the following facts: On the 15th of January, 1819, Joshua Depue executed to Richard A. Ryerson a bond and mortgage to secure $1000, a part of the purchase money for the mortgaged premises, which were conveyed on the same day by Ryerson to Depue, by a deed with full covenants of warranty and against encumbrances. At the time of the conveyance the premises were encumbered by a mortgage for $700, which had been previously given by Ryerson to Elizabeth (or Betty) Brooks and others.
    At the time of the conveyance it was verbally agreed between Ryerson and Depue that the mortgage to Mrs. Brooks should be paid by Ryerson, and that no part of it should come upon Depue or his land.
    Ryerson, being unprepared to pay the Brooks mortgage immediately, and asking further time, Depue insisted upon taking a written stipulation from Ryerson, with security, which would bind him to pay the mortgage and make Depue safe if he failed to do so.
    
      Depue was assured by the scrivener who drew the papers, who was also a counsellor at law, that no such writing was necessary ; that he held his security in his own hands,' and could protect himself from loss by withholding payment on his bond and mortgage, to which statement Eyerson assented ; and stated further, that he would apply the first money paid on Depue’s mortgage to the satisfaction of the Brooks, mortgage — upon which Depue no longer insisted upon any further agreement or security.
    Depue paid Eyerson $1000 on the mortgage, and Eyerson afterwards assigned the mortgage to the complainant. Subsequently Depue conveyed the mortgaged premises to "William H. Bell, and he conveyed the same premises to Jacob Morris, one of the defendants ; and at each conveyance the arrangement was handed down, and the land was dealt with as if Byerson’s agreement to pay the Brooks mortgage was to be carried out in good faith. Afier complainant became the holder of the mortgage he also agreed with Depue to-credit on it the amount of the Brooks mortgage.
    After Morris became the owner of the mortgaged premises he called on complainant, or communicated with him with a view to a settlement of the mortgage, and was referred by complainant to his counsel, E. W. Whelpley, Esq. Subsequently Morris called on Mr. Whelpley, and offered to pay him the amount remaining due on complainant’s mortgage, if he would deduct the amount of the Brooks mortgage, which Mr. Whelpley refused to do, alleging, as a reason, that the bond and mortgage had been assigned to complainant by Eyerson, with other securities, as collateral security for advances made to him by complainant, and that the surplus, if any arose, had been further assigned to one William Space ; and that complainant could not consent to accept less than the amount appearing to be due on his bond and mortgage without involving himself in difficulty with Eyerson or Space. Morris refused to pay the whole amount, and thereupon Voodruff, the complainant, filed his bill to foreclose his mortgage, claiming the whole amount (except the $1000)’ which had been paid, and admitting the priority of the Brooks mortgage.
    Mrs. Brooks filed an answer, setting up her mortgage and asserting her priority.
    Jacob Morris answered the bill, setting up the facts above stated, and claiming—
    
      First. That he was entitled to have the amount due on the Brooks mortgage deducted from the amount of the complainant’s mortgage, and that a decree should pass against him only for the balance.
    
      Second. That having always been willing, and having offered to pay such balance before the bill was filed, he should not be charged with costs of the complainant, but should recover costs against the complainant.
    
      Mr. McCarter, for Morris—
    On the first point, cited Shannon v. Marselis et al., Saxton, 413; Van Riper v. Williams et al., 1 Green's Ch. 407; Administrator of Glenn v. Whipple et al., 1 Beasley 51.
    It is no answer to defendant’s claim for deduction that Everson has not been made a party to the suit.
    Complainant was fully advised of Morris’ defence before he filed his bill. It is his neglect that Eyerson is not made a party, and he cannot on that account deprive Morris of his defence.
    As to the question of costs —
    If the court shall decide that defendant, Morris, is entitled to the deduction claimed by his answer, then it will be proper to refuse complainant his costs, and to allow costs in favor of the defendant against him.
    By the statute, costs are in the discretion of the Chancellor.
    The cases which illustrate in what manner that discretion ought to be exercised are numerous. The following principles may be deduced from some of them.
    Costs are not given against a defendant who has offered terms which would have rendered a suit unnecessary. If a plaintiff proceeds with a cause after he has received a complete offer of all that he is entitled to, the court will punish the unnecessary litigation by refusing him the whole costs of the suit, as well those incurred after a tender as before. 3 Daniels’ 1532-3.
    See, also, the same authority, pages 1530 and 1534, for cases in which a mortgagee has been decreed to pay costs.
    "Where a mortgagee sets up an unconscientious defence to a bill to redeem, he is not only refused costs, but must pay costs to the other party. Slee v. Manhattan, Co., 1 Paige 48.
    So if he improperly resists the claim of plaintiff to redeem. Vroom v. Ditmars, 4 Paige 527; Brockway v. Wells, 1 Paige 617; Union Ins. Co. v. Van Rensselaer and others, 4 Paige 85; Van Buren v. Olmsted, 5 Paige 9; Saunders v. Frost, 5 Pick. 271, opinion of Wilde, J., Bake v. Wired, 1 Vesey sen. 160; Beames on Costs in Equity 45 (22 Law Lib.), and the notes and cases there cited.
    When the main controversy in a bill is decided against the complainant, although he succeeds in obtaining a decree, the defendant will be entitled to his costs up to the time of the decision of the main controversy. McConnell v. McConnell, 11 Vermont 290; - v. Tregothick, 2 Ves. & Beam 181; Williams v. Lovell, 4 Ves. jun. 389.
    The same principles have been recognized in this court. Hill v. White et al., Saxton 435.
    Assuming that the decree of the court will be in favor of the deduction claimed by Morris, he is the prevailing party in the only matter in controversy.
    Had Woodruff taken what was offered, and which was ail he was entitled to or can recover, this suit would have been unnecessary.
    The foreclosure of the mortgage was not necessary to enforce any right against Morris.
    If the dealings between Ryerson, Woodruff, and Space required a foreclosure of the mortgage, and a decree of the court to protect complainant against the claim's of Ryerson and Space, Mr. Morris ought not to bear any of the costs in such a suit.
    It is unreasonable in complainant to require Morris to establish his defence in such a manner as to bind Ryerson and Space before he was willing to grant him the relief to which ho was clearly entitled.
    Besides complainant has not made Ryerson or Space parties, and has not filed his bill so as to bind them. He did not come into court to settle any controversy in which they were interested, but claimed the whole amount of Morris without any regard to Ryerson or Space.
    
      Mr. Vanatta, for complainant.
    The defendant, Morris, claims to have the amount of the Brooks mortgage deducted from the amount of complainant’s mortgage.
    The evidence and Morris’ answer on this point amount to this, that Depue agreed to rely upon the covenants in his deed from Ryerson to protect him from the payment of the Brooks mortgage.
    Neither Depue or his assigns have ever paid the Brooks mortgage, nor have they, or any of them, been evicted by it. The question then is, can Morris, as assignee of Depue, recoup the Brooks mortgage from the mortgage given by Depue to Ryerson for the purchase money ?
    Depue or his assigns, not having paid off the Brooks mortgage, he or they, in an action at law for breach of the covenant against encumbrances, could only recover nominal damages, Rawle on Covenants for Title 170, 171, 173.
    Here, as the encumbrance was known when the deed was taken, and the covenants in the deed were taken as the guard against the encumbrance, the defendant can only detain so much as he could now recover in damages in an action on this covenant. Ibid. 725, 729.
    There is no proof of Ryerson’s insolvency — that is another objection to the recoupement. Ibid. 685-8.
    Another objection to the recoupement is, that Ryerson is not before the court. Rawle 690; Coster v. Monroe Manufacturing Co., 1 Green's Ch. 475, 477.
    The weight of authorities, as cited and commented upon in Mr. Rawle’s chapter on right to detain purchase money, pages 604 to 732, is less favorable to the defendant’s claim of recoupement than some cases in this state. See Shannon v. Marselis, Saxton 413; Van Riper v. Williams, 1 Green’s Ch. 407; Van Wagoner v. McEwen, Ibid. 412; Jacques v. Esler, 3 Ibid. 462.
    The case of Van Houten v. McCarty, 3 Green’s Ch. 141, is not so strong as the preceding cases.
    Another point made for the defendant, Morris, is, that because he offered to pay the amount due before bill filed, the •complainant ought not to recover costs nor interest since April, 1858.
    This offer to pay is not pleaded as a tender. It was only a conditional proposition to pay; he offered no money. As he made no tender, interest cannot stop. 2 Greenl. Ev., § 601, 602.
    As to costs, they ax’e in the discretion of the court. Nix. Dig. (3d ed.) 106, § 75; 3 Daniels’ Ch. Pr. 1516 (2d English edition).
    
    The general rule is, that the prevailing party is entitled to costs. 3 Daniels 1520.
    The defendant must show sufficient cause to take the case out of the general rule. Ibid.
    
    In case of mortgagees they are allowed their costs, and exempted from expense so long as they act reasonably. Ibid. 1525; Ibid. 1532.
    The complainant’s refusal to accept the sum offex’ed at the time was not only reasonable but necessary.
   The Chancellor.

The mortgage which the complainant seeks to foreclose was given to secure the payment of part of the purchase money of the premises, conveyed at the date of the mortgage by the mortgagee to the mortgagor with covenants of general warranty of title and against encumbrances. There was a subsisting mortgage upon the premises at the time of the conveyance which the vendor has failed to discharge. The owner of the equity of redemption, who holds the premises by deed with covenants of warranty from the mortgagor, asks that the amount of the prior encumbrance be deducted from the amount due the complainant upon his mortgage.

The case falls directly within the principle of Shannon v. Marselis (Saxton 413), and must be controlled by it. This case, indeed, is much stronger in favor of the equity of the claim than the reported case. Here there was, at the time of the transaction, a distinct understanding between the parties that the amount of the subsisting encumbrance should be paid out of the first payments made by the mortgagor or deducted from the mortgage debt.

In the case of Shannon v. Marselis, as in this case, the mortgage was in the hands of an assignee. The general rule is, that the assignee of a mortgage takes it subject to all the defences which exist against it in the hands of the mortgagee, but not to a latent equity residing in a third person against the mortgagee. Clute v. Robinson, 2 Johns. R. 612; Murray v. Lylburn, 2 Johns. Ch. R. 441; Livingston v. Dean, Ibid. 479; Shannon v. Marselis, Saxton 414; 1 Hilliard on Mortgages 527 (50 a).

The assignment of the mortgage was made to the complainant while the mortgagor continued to own the equity of redemption. The premises were subsequently conveyed from him by deed with covenants of general warranty, and passed by like title to Morris, the defendant. Morris therefore is entitled to the same equitable relief to which Depue himself would have been entitled had he continued the owner of the premises.

It is objected, on the part of the complainant, that the original mortgagee is not before the court. Upon the case made by the bill, there appears no reason why he should be made a party. He retains no interest in the mortgage debt, and none in the mortgaged premises. On recurring to the assignment of the mortgage to the complainant, which has been made an exhibit in the cause, it appears that the mortgage was assigned to the complainant as collateral security merely, and that the assignee was to account to Ryerson. for the residue, whenever collected. As to such surplus, if there be any, the complainant is the mere trustee of Ryersoh, for whose benefit the mortgage debt is to be recovered. In that event, Ryerson is a necessary party to the bill. On a bill for foreclosure all the persons entitled to the mortgage money should be before the court. All the beneficiaries should be made parties as well as the trustee. Story’s Eq. Pl., § 201; Mitford’s Pl. (ed. 1821) 39, 164.

If in fact there be such surplus in the hands of the complainant, or if upon the recovery of the amount due upon the mortgage now sought to be foreclosed there will be such surplus, and the complainant desires that Ryerson should be concluded by the decree, it is proper that he should be made a party. But no such necessity appears upon the face of the bill nor of the answer ; and although the exhibit shows that the mortgage was originally assigned as a collateral security for certain purposes, and that the surplus, if any, was to be paid to Ryerson, it does not appear that there was any surplus after the immediate object of the assignment had been accomplished. It cannot be assumed, upon the pleadings and evidence in the cause, that Ryerson has any interest whatever in the mortgage debt. No reason is apparent why he should be made a party to enable the court to settle all the equities of the case.

It certainly does not lie in the mouth of the complainant, who has omitted to make Ryerson a party, to present that fact as an objection against the equitable protection asked for by the defendant. As the case stands before the court, there-is no reason why he should be made a party, nor why, because of the omission to make him a party, the relief asked by the defendant should be denied.

The complainant is entitled to his costs of foreclosure. It is apparent, from the evidence, that the complainant, in declining to receive the money proposed to be paid by the defendant, acted in good faith under the advice of his counsel. He was advised that holding the mortgage as collateral security, and bound by his agreement to account to Ryerson for the surplus, he could not safely accept less than the face of the mortgage. It is clear that, standing in the position he did, the complainant had no right to adjust the conflicting claims of interested parties, much less was he bound to take the hazard of so doing. He was entitled to ask a decree of the court to have the conflicting claims adjusted and his own rights protected. The conduct of the complainant under the circumstances was neither unreasonable nor litigious.

Unless there be a legal tender of the sum due interest does not stop. It is admitted that there was no legal tender of the money proposed to be paid. The complainant is entitled to interest.

Cited in Andrews v. Torrey, 1 McCar., 355; Dewitt v. Van Sickle, 2 Stew. 212; White v. Stretch, 7 C. E. Gr., 79; Atwater v. Underhill, 7 C. E. Gr. 606; Ackerson v. Lodi Branch R. R. Co., 1 Stew. 543; Putnam v. Clark, 2 Stew. 415; Stiger v. Bacon, 2 Stew. 445.  