cutting off the second mortgage, seems to be reasonable ground for holding that the rights of the holder of the latter must be protected.

Thus, in Hilton v. Bissell (1844) 1 Sandf. Ch. (N. Y.) 407, where the mortgagor's grantee (sued by the second mortgagee) purchased the property when the first mortgage was foreclosed, the court said: "When the defendant purchased the equity of redemption from Dougherty [mortgagor], he expressly assumed the payment of the complainant's mortgage, and also prior mortgage to Griffin, and, by the deed which he received, agreed to pay the amount secured by those mortgages which then remained unpaid. Instead of fulfilling this agreement, by his device and contrivance the mortgage to Griffin was foreclosed, the premises sold under it, and the defendant became the purchaser for the amount payable to the first mortgagee under the decree of foreclosure. The object of this contrivance was to enable the defendant to obtain the mortgaged premises free and discharged from the complainant's mortgage. In effect, the defendant used the money which he was bound to apply to the payment and extinguishment of Griffin's mortgage, for the purpose of buying the land under that mortgage. And instead of leaving the premises subject to the complainant's mortgage as the first lien, which would have been the effect of an honest application of his money, the defendant claims that he has so applied it as to cut off entirely the lien of that mortgage. He has satisfied Griffin, but in such a mode that he thereby annihilates the second mortgage. This is substantially the ground assumed by the plea. Looking beyond the forms through which the defendant has effected this arrangement, it is a payment of Griffin's mortgage. He was bound by his covenant to make such payment. It was his duty to discharge that mortgage. This court cannot permit him so to perform that duty as to defeat the whole benefit secured by the covenant to the parties for whose protection it was made. No one can take advantage of his own wrong. And

equity, disregarding the forms of title. which the defendant has managed to acquire, will consider him as the owner of the land subject to the complainant's mortgage, and discharged from the mortgage to Griffin. The decree of foreclosure on the latter would doubtless have been conclusive against the complainant in favor of a bona fide purchaser of the premises under it. But the defendant does not occupy that position, and the court cannot permit him to set up as a bar to the complainant's right, a foreclosure obtained by his own contrivance and breach of covenant. If he did not intend to do injustice, he should have bid enough to have paid both mortgages, or acknowledged his continuing liability on the mortgage in question."

And a grantee who had expressly assumed two existing mortgages, having subsequently bought the property in at a sale under a decree foreclosing the first mortgage in a suit to which the second mortgagee was a party, was held to have contrived and designed with his grantor to buy it discharged of the second mortgage, in Stiger v. Mahone (1874) 24 N. J. Eq. 426, where the court said that such grantee, be ing the owner of the equity of redemption before the sale, stood in no better position afterwards, and that the reIsult of the transaction was to extinguish the first mortgage and make the second one the first lien, "a result not contemplated by the defendants, but the only one consistent with right and with the settled doctrine of equity." And it referred to the second mortgage as having been "equitably reestablished." The court said that the sale was urged on by the purchaser (grantee) when the second mortgagee was not present and did not expect it to take place, and characterized the whole proceeding as plainly indefensi ble.

And in holding in Tompkins v. Halstead (1866) 21 Wis. 118, that a second mortgage might be foreclosed, where the property had been conveyed back to the mortgagor's grantee by one who bid it in for him at the sale by land commissioners under a first mortgage to the state, the court took the

view that the grantee's purpose was merely to cut off the lien of the second mortgage, and said that it was clearly shown that the purchase, being for the benefit of the grantee, who had assumed both mortgages, was subject to the second mortgagee's rights.

Upon the ground of fraud, it was also held in Thompson v. Heywood (1880) 129 Mass. 401, that one who, upon purchasing an equity of redemption, expressly assumed three mortgages, and who subsequently bought in the land at a purported foreclosure sale of the first mortgage, could not, by setting up title through that sale, defeat the lien of a fourth mortgage, which was outstanding before the alleged foreclosure, since it was not conducted in good faith, although it complied literally with the power contained in that mortgage. And the court said that the grantee could not set up his original grantor's purchase of the second and third mortgages, since the effect of such purchase was merely that the prior mortgages were extinguished.

In Shinn v. Shinn (1884) 15 Ill. App. 141, where one cotenant had given a second mortgage to another cotenant, and the property was subsequently sold under foreclosure of the first mortgage given by both cotenants at the time they purchased the property, it was held in effect that the second mortgagee might maintain a bill in equity to subject the property to his mortgage, against the purchasers at the foreclosure of the first mortgage, upon the assumption that that purchase was fraudulent as against him, and made with funds furnished by the mortgagor. The court said: "If these allegations are true, a court of equity has the undoubted right to defeat the intended fraud by treating the holders of the legal title, who are mere volunteers, having paid nothing for it, and those holding under them with notice of complainants' rights, as trustees of the insolvent mortgagor, and subject the title in their hands to the rights of his mortgagee; or, if necessary to protect the rights of the mortgagee against a title bought with the money of the mortgagor and held in trust for 51 A.L.R.-29.

him, we see no reason why the court should not hold the payment of his money for the certificate of purchase as a redemption from the foreclosure sale of the Noyes [original] mortgage."

See also Kennedy v. Borie (1895) 166 Pa. 360, 31 Atl. 98, infra.

III. Estoppel, etc.

In the absence of fraud, however, a few cases like the reported case (MARTIN v. RALEIGH STATE BANK, ante, 442) have taken the view that, under the peculiar circumstances, the mortgagor or grantee is estopped to deny the second mortgagee's rights, and that the former's after-acquired title inures to the benefit of the latter.

Thus, the view that the mortgagor's reacquisition of the property after the foreclosure of the first mortgage inures by estoppel to the benefit of the subsequent mortgagee, where the latter was not a party to the foreclosure, was squarely taken in Parsons v. Little (1890) 66 N. H. 339, 20 Atl. 958, where the holder of three prior mortgages, after securing possession by a suit to foreclose the first of them, quitclaimed to the mortgagor's wife, who was a party to the fourth mortgage. The court said that the foreclosure "put plaintiff's [fourth] mortgage in abeyance, but did not discharge or annul it;" that after the reacquisition "plaintiff was let in with her mortgage, which operated as fully as if there had been no prior mortgages." It further said: "Whether the transaction be regarded as one in which Little [mortgagor] paid off the prior encumbrances, thereby letting in the plaintiff, or as a purchase outright by Little of Corey [prior mortgagee] after his foreclosure became complete, the effect is the same. In the one case the plaintiff's mortgage is let in by a removal of the bar made by the foreclosure of the piror mortgages, or in the other case by the title acquired by Little after foreclosure inuring by estoppel to the benefit of the plaintiff." And it spoke of the fourth mortgage as having been "revived," and concluded that, after acquiring her title, the wife was "estopped by her covenants from

setting it up against the plaintiff, to whose benefit her after-acquired title must inure."

The fact that it was the third mortgagee who acquired the property from the purchaser at the sale under the foreclosure of the first mortgage seems to have had some influence upon the decision in the reported case (MARTIN v. RALEIGH STATE BANK, ante, 442), which was based upon the theory that an estoppel was created in favor of the second mortgagee, who claimed possession under a subsequent foreclosure of his mortgage after the mortgagors had reacquired the premises by purchase from the third mortgagee. But why did the chancellor, whose decision was affirmed, save the third mortgagee's rights under his new mortgage and declare that the bank's (second mortgagee's) right was subordinate to that of the third mortgagee? And it will be noted that the appellate court, in the concluding paragraph of its opinion, said that the third mortgagee was not in any manner injured, as his lien was expressly made superior to the bank's title.

In Otter v. Vaux (1856) 6 De G. M. & G. 638, 43 Eng. Reprint, 1381, affirming (1856) 2 Kay & J. 650, 69 Eng. Reprint, 943, holding that a second mortgagee's rights were not cut off by a reconveyance back to the mortgagor, after the first mortgagee had put the property up for sale at auction and accepted a bona fide offer from another, who permitted the mortgagor to take the title, the Lord Chancellor said that this was "strictly the case of the original debtor, the original mortgagor, striving to set up a prior encumbrance created by himself against a subsequent encumbrance also created by himself," and "therefore to all intents and purposes that of a mortgagor liable to pay a sum of money to his first encumbrancer, paying it and getting a transfer, but that transfer is something which upon general principle he cannot set up against a creditor claiming by a title subsequent to that of the person whose charge he has so paid off; he pays it off for the benefit of the in

heritance; and all persons who are entitled to any portion of the inheritance under him are also entitled to the benefit of his having liquidated a demand prior to their title." And he said that it was not to be treated as a purchase from a stranger, the mortgagor being in effect the real purchaser, and that it made no difference that the money was furnished by another, who took a new mortgage.

Holding that a grantee's purchase of land, under the power of sale in a first mortgage, did not cut off, but inured to the benefit of, his grantor, to whom he had given a second mortgage, it was said in Box v. Bridgman (1875) 6 Ont. Pr. Rep. 234, that it was quite contrary to principle to say that a mortgagor could defeat his own mortgage by purchasing a paramount title. (In this case the contention that a subsequent mortgagee was induced to take his mortgage by a representation that it would be a first mortgage was overruled with the observation that he was not shown to have been misled thereby.)

And in holding that the lien of a second mortgage was not destroyed where a conveyance was expressly made subject to that and a first mortgage, and after a foreclosure or issue of a scire facias on the first mortgage the same grantee again took the title, it was said in Kennedy v. Borie (1895) 166 Pa. 360, 31 Atl. 98: "It is true that Martin was not the original mortgagor, but he was the grantee of the title of that person, and it must be assumed that the purchase money which he agreed to pay, and in consideration of which he obtained the title, was, in part at least, secured by the very mortgage which he now claims to be discharged because there was a sale under the prior mortgage, which also he agreed to pay." And it further observed that an improper purpose of using the sale as a means of devesting the lien of the second mortgage was properly averred, and that evidence indicating it was entitled to consideration in support of the charge of a combination to destroy that lien.

E. W. H.

contingent interests of all persons, not in being or not ascertainable, whose interests might be affected by the decision in this cause.

The case, being ready for hearing for final decree in accordance with the statute, has been certified to this court for determination. Said will and five codicils, as affected by a certain agreement of compromise duly authorized and approved by the superior court, were finally probated by the superior court upon appeal. The will and codicil provided for the payment of certain sums annually, hereinafter called annuities, to the testator's widow, to Maurice K. Washburn, and to Rebecca L. Davis, during their respective lives, and to each of the testator's four daughters until she attains the age of 35 years. As to the payment of said annuities to the beneficiaries, the fourth codicil provides that said annuities "shall be paid to them free and clear of all legacy, inheritance, income or other taxes or duties, and that such taxes and duties shall be paid by my executors or trustees as the case may be, in exoneration of the annuities and payments of income aforesaid."

Each of said beneficiaries is in receipt of a substantial income from sources other than the annuity under the terms of the will. This was well known to the testator at the time of the execution of the will, and at the time of his death. From that fact arise the questions in regard to which construction and interpretation of the will are sought.

The federal revenue acts in force since the death of the testator have each imposed graduated income taxes and surtaxes, rather than a uniform rate of tax, which results in a variation of the rate of tax. dependent upon the amount of the taxpayer's income, the rate increasing as the amount of income increases. The effect of that condition in the matter before us is that, when the amount of the income arising from the annuity is added to the other income of each of these beneficiaries, the rate of normal tax and

of surtax is thereby increased beyond the rate which would have been imposed if the beneficiary did not receive the annuity under the will, and also beyond the rate of tax which would have been imposed upon the income arising from the annuity if that had been the sole source of income of such beneficiary.

The testator clearly intended that as to each annuitant all of the federal income tax and surtax imposed by reason of the annuity should be paid by the trustees. It is also the duty of the trustees in protection of the estate to pay no more of the annuitant's total income tax than can be justly ascribed to such annuity.

As to most items of income, the federal taxing authorities do not apportion the amount of tax which is assessed against a specific item of income derived from a distinct source, but for the purpose of income taxation treat the taxpayer's income as a single unit and then assess the gross amount of tax properly ascribable to the total amount of income.

Doubt has arisen as to the method which shall be employed by the trustees in determining the portion of the total income tax and surtax imposed upon the income of each of these beneficiaries which shall be paid by the trustees for the purpose of exonerating the annuity to such beneficiary under the provisions of the will.

Three possible methods of making such determination and allocation have been suggested:

(1) By computing the tax that would be imposed on the beneficiary's income if he received no income except the annuity, and considering that amount of tax as payable by the trustees.

This method, it appears to us, would clearly fail to carry out the testator's intention that the beneficiary should receive the annuity free and clear of all income taxes and duties. The presence of the annuity as a constituent part of the annuitant's total income has, under the