Woodville v. Reed

26 Md. 179, 1866 Md. LEXIS 94

• Court: Court of Appeals of Maryland
• Decided: November 21, 1866
• Status: Published

Opinion

Bowie, C. J.,

delivered the opinion of this Court.

The cases of Woodville et al., vs. Reed, Easton, J. Dixon Roman et al., and Woodville & Others vs. Reed, Price & Others, in the Circuit Court for Baltimore city, were consolidated by an order of the 15th of April, 1862.

Subsequently accounts H. & O. were filed, in the former of which the appellee, J. Dixon Roman, as assignee of a mortgage, was allowed his claim in full, and the appellant, J. Philip Soman, as holder of certain notes, dividends “pro rata” out of the residue of proceeds in both accounts.

These accounts were ratified by orders of the 11th of March, 1864, (except as to the claims of J. Philip Roman,} which were rejected. Woodville and others appealed from the ratification and all anterior orders or decrees allowing J. Dixon Roman’s claims. J. Philip Roman appealed from the rejection of the dividends assigned him.

Originating in the same transactions, and being embraced in the same record, these appeals have been argued together and will be disposed of successively in the same opinion.

The nature of these claims will better appear from a compendium of the bill and proceedings in the several cases.

On the 10th of March, 1857, the complainants and appellants, Woodville and others, as creditors of the firm of Reed, Easton & Company, filed their bill against the firm, (consisting of Seth Reed, Levi Easton and William Burgess, of the city of Baltimore,) and Hezekiah Easton, of the State of Pennsylvania, and J. Dixon Roman, Esq., charging that the firm being indebted to the complainants in about $50,000 or $60,000, on or about the month of June then past, did agree to give, and did deliver to them and other creditors, their promissory notes endorsed by Hezekiah Easton, the payment of which was extended eighteen or twenty-four months from the 25th of July, 1856, and most of which when due were unpaid.

They further charged, that after the execution and delivery of the notes, on the 11th of August, 1856, Levi Easton executed and delivered to Hezekiah a mortgage of certain real estate to indemnify him on account of his endorsement, to the benefit of which they were entitled to he substituted ; that they have since discovered that prior to the mortgage of indemnity, on the 13th of May, 1866, for certain feigned considerations, Levi Easton conveyed by way of mortgage, all the property described in the first mentioned mortgage, to Hezekiah Easton, who afterwards, on the 23rd of February, 1857, assigned the same to J. Dixon Roman, Esq., to whom, afterwards, on the next day, the 24th of the same month, Levi and Hezekiah made and execute! a deed of trust of allsthe same property, with power to sell and convey the same, and pay, first, the mortgage of May 13th, 1856; secondly, to pay all other liens and encumbrances according to their legai priorities; thirdly, to pay all other debts of Levi Easton ; and fourthly, to pay the surplus, if any, to said Levi.

They charged that the said mortgage was fraudulent and void, prayed the same might be set aside, and the premises sold to pay the debts of the. complainants, and that the defendants might answer and make full discovery in regard to all the matters alleged, particularly in regard to the consideration of the mortgage of the 13th of May, 1856, etc., and the consideration for its assignment.

Pending these proceedings, on the 1st of May, 1857, it was agreed between J. Dixon Roman, trustee, and one of the defendants in the above cause, and the solicitors of the complainants, that the trustee should proceed to sell all the property conveyed to him in trust by Levi Easton and Hezekiah Easton, and report the same to the Court, and the money arising from said sales should he subject to the final decision of the cause, as the property would have been if unsold. That if the said deed of trust shall be finally decreed to be void, then the trustee shall bring into Court the whole proceeds of sales (after deducting costs and expenses incurred,) to be paid to the parties entitled, and he shall not claim, or be allowed, any commissions as trustee ; otherwise, he should he allowed, and the residue distributed to the persons entitled.

The answer of Hezekiah Easton, after admitting the execution of the mortgages of May and August, 1856, and that the latter was made to indemnify him as endorser of the notes of the firm of Reed, Easton & Co., to a very large amount — between fifty and sixty thousand dollars — as to the consideration of the first mortgage, says, all the stocks, bonds and securities therein mentioned, were in fact loaned to the firm in the vain hope of enabling said firm to mgintain its credit and obligations, the firm expecting to be able to use them, but being disappointed in that respect, the stocks were returned ; as to the cash loaned, being the sum of fifteen thousand dollars, as recited and secured by said mortgage, he avers, in April or May, 1856, he received from his brother, Levi, most urgent solicitations to aid him in sustaining the firm, which he represented as in serious danger, and he immediately borrowed from the Hagerstown Bank and other hanks in that region large sums of money, and went to Baltimore and paid over to his brother the said sum of fifteen thousand dollars. .

Mr. J. Dixon Roman’s answer to the original hill, filed on the 13th of November, 1857, after admitting the execution of the mortgages, states, that as president of the Hagerstown Bank, the respondent knew that Hezekiah Easton borrowed from that bank five or ten thousand dollars in April-or May, 1856, and be was informed and believes he obtained a like sum from two neighboring banks, which loans he understood were designed to aid Levi Easton, his brother, in sustaining the house of Reed, Easton & Oo., which was in a tottering condition, etc. That in the fall of 1856, the respondent beard from the friends of Hezekiah that be was deeply involved in debt of his own, and in liabilities for bis brother, to a serious amount, and knows his credit was thereby much impaired, and his facilities for obtaining discounts materially diminished. That in December last, and again in January, Hezekiah applied to him to borrow a large sum of money on'judgment binding his land in Pennsylvania, which respondent refused. Again in February he made another application and produced the first mortgage, dated May 13th, 1856, and was willing as to that part which secured the repayment of the $15,000 to pledge it as security or to sell it'absolutely.

The respondent refused to loan, but finally agreed to purchase if he should find on examination that it was a just incumbrance or clear title. The following week they met in Baltimore, and the title proving satisfactory, the respondent “then and there finally and bona fide paid to him the fall and fair valuation agreed upon, and took the assignment as purchaser, and placed it upon record. Seeing that a trustee must he eventually appointed to sell the mortgage premises, thesaid Levi and Hezekiah, the next day, vested in the defendant the full legal title to it, by executing the deed of trust mentioned in the bill, and thereby •conveyed all the property to be sold, etc.

The appellants, on the 3rd of May, 1858, filed their supplemental bill, charging that J. Dixon Roman was not a bona fide purchaser for a valuable consideration without notice, hut that the consideration was insufficient and illegal, and the assignment colorable with notice of the •equity of the complainants and others, and prayed he might discover the true consideration, how and when paid, ■and that they might have the same relief as prayed in the original hill, and the mortgage and assignment might be declared void.

The answer to the supplemental hill, after denying all fraud charged or imputed, responding to the interrogations, what was the actual amount of the consideration given or promised to be given for the mortgage, and whether it was paid in money or by check ? says, Hezekiah Easton produced the mortgage of May 13th, 1856, for $15,000, and offered to sell the same for thirteen thousand •dollars, stating he could well afford to make such a sacrifice, as he would certainly make twice as much by purchasing his endorsements before they became due, at the heavy discount at which they were offered, etc. The defendant ■agreed to purchase it at the price asked for it, provided when he should go to Baltimore he should find it a just incumbrance.

Further answering, he says, he proceeded to Baltimor# and made a satisfactory examination, etc., and when Heze° kiah arrived a day or two afterwards, he announced to him that said examination was satisfactory, and he was prepared to pay the price of $18,000, at which he had offered it. The assignment was prepared and executed, and “this defendant thereupon wrote and signed and delivered to him a check upon the banking house of Johnston, Bro. & Co., of Baltimore, for $13,000.

“In answer to the enquiry as to what was the object or design for which said check was to be used, this defendant understood and believed it was intended to be used in anticipating the payment of the endorsements of said Hezekiah as aforesaid, and thus avail himself of the heavy discount at which they were offered, and this defendant is informed and believes, and perhaps was present and saw,, the said Hezekiah endorse and deliver the said check to J. Philip Roman, then sojourning in Baltimore, to be used by him for such - purpose from time to time as said notes might be offered.”

The answer further shows, that a few days after returning to Hagerstown, the respondent was summoned to answer the original bill of the complainants, (the appellants,) and thereby being first informed the mortgage of the 13th May, 1856, was impeached for fraud in its inception, he wrote to J Philip Roman requesting him not to present the check, (if not already done,) or not to use the money until the validity of the mortgage could be further ascertained; a short time afterwards he met Hezekiah, much disappointed at the frustration of his plans, and although the defendant had scarcely a doubt of its validity, yet he declined to let the check be paid, and thus risk the uncertainty of a law suit.

Finally it was arranged that J.^Philip Roman should, with his own money, purchase said endorsed notes, taking a judgment against the said Hezekiah in Pennsylvania, and holding the said check as collateral security.

The defendant agreed that whenever his right to the said mortgage should be established, the said check, with interest from its date, should be paid to J. Philip Roman, to be by him credited on said judgment. The respondent further says, he supposes said check has remained in possession of said J. Philip Roman ever since, and has not been presented or paid, and this defendant does not intend it shall b.e paid until his right to said mortgage shall be established’.

A general replication was filed to these answers and a commission issued, under which the several exhibits filed with the bill, and a deposition of Hezekiah Easton, were filed and returned.

The testimony taken under the commission is exceedingly meagre upon the points which are controverted. The answers considered merely as pleadings, put the complainants upon the proof of all the allegations material to the relief prayed. It is conceded, that the consideration for the mortgage of the 13th May, 1856, was $15,000, actually advanced by the mortgagee to the mortgagor, and certain stocks, which were afterwards returned. No question, therefore, arises as to the relationship between the original parties to that instrument, hut it is sought to affect the assignment by imputing mala fides to the assignee, and want of consideration actually paid “ante litem motamd’

The answers of the assignee, although differing in circumstance, are not to be considered as involving such contradiction as to deprive them of their legal effect, in throwing the burden of proof upon the complainant. The first answer may be construed as stating the general result of the transactions between the assignor and assignee, when it avers, ‘'that the defendant then and there finally and bona fide paid to him (the assignor) the full and fair valuation agreed upon, and took the assignment as purchaser and placed it upon record.” The second answer setting out the mode of payment, discloses the particulars by which that result was effected.

A check given bona fide, on a hanker having fund's to pay it, is prima faeie payment in this State, if accepted as cash. The subsequent suspension of its payment, in consequence of the filing of the bill of the complainants, which assailed the original consideration of the mortgage, for which the check was given, did not cancel the check, but its payment was postponed by express agreement with the payee, until the validity of the first mortgage was established. In the meantime the check subserved the assignor’s object, in constituting a collateral security for advancements made by another, who engaged to supply funds to be used for the same purposes as the check. *

The brief interval between the assign ment to J. Dixon Roman and the execution of the deed of trust to him by the Messrs. Eastons, is not alone sufficient to overcome the positive denial of the answers, that the trusteeship was not a part of the original arrangement, and contemplated at the time of the execution of the power. So, also, with regard to the intent to- protect the property from attachment of. the creditors of Hezekiah Easton, imputed by the bill, and expressly denied" by the assignee, there being no evidence to overcome the answers, these allegations remain unproved.

There is not sufficient evidence to subject the assignee to the equitable liens which would have existed against the assignor, if the first mortgage had remained in his hands Undisposed of for a valuable consideration.-

The claim of the appellants to be substituted to the benefit of the indemnity given by the second mortgage, in priority to the first, as against the assignee, Roman, is not supported, in the judgment of a majority of this Court, by %he authorities cited.

How far an endorser, who takes a mortgage to indemnify himself as surety, waives his own lien upon the same property previously given, has not been decided by any case in this State. Several cases cited from our sister States, tend to establish that doctrine.

The substance of these is, that an endorser or surety holding a mortgage for his indemnity may, whilst solvent, for a bona fide consideration, assign the mortgage, hut when insolvency ensues, the mortgagee’s interest in the property is made to yield to the superior equity in favor of the creditors for whom he was surety. We are not disposed to extend the doctrine of equitable lien. In the view which we take of this case, the assignment was complete before the assignee was notified of the claims of the appellants, and the insolvency of the assignor was not established at the date of the assignment.

It results from these premises, that the orders of the Court below, allowing the claim of J. Dixon Roman, should he affirmed.

The claim of J. Philip Roman arises on certain notes of Reed, Easton & Co., endorsed by Hezekiah Easton, amounting to $19,023.13, including interest, purchased pending these proceedings and filed by the claimant as owner in his own right.

They are excepted to and resisted by the appellees in the second case, on the ground that they are a portion, or renewals'of a portion, of the notes endorsed by Hezekiah Easton, which were designed to be protected by the mortgage of Levi Easton to him, and were purchased by J. Philip Roman as agent of Hezekiah, who being liable 'for their amount, is not entitled to dividends as a creditor.

By agreement of the solicitors, the answer of J. Dixon Roman to the supplemental hill is read as evidence, on the hearing of these exceptions, subject to all legal objections. The appellant, J. Philip Roman, denies all agency on his part, and claims to be a purchaser for a tona fide consideration.

His counsel in sustaining this position, insists in his brief, that the only evidence in the record legally applicable to this controversy, is the answer of J. Dixon Roman and the testimony of the brokers, the former of which, he conceives to be in complete harmony with the statement of J. Philip Roman.

In a preceding part of this opinion, we have seen J. Dixon Roman’s intimate connection with the affairs of Hezekiah Easton, and his ample opportunities of knowing his objects in assigning the 'mortgage of May, 1856.

Speaking of the design for which his check was to be used, he said “it was intended to be used in anticipating the endorsements of *said Hezekiah as aforesaid, and thus avail himself of the heavy discount at which they were offered; and this defendant is informed.and believes, or perhaps was present and saw, the said Hezekiah endorse and deliver the said check to J. Philip Roman, then sojourning in Baltimore, to be used by him for such purpose from time to time as the said notes might be offered.”

This check was dated the 23rd of February, 1857, from which time it remained in J. Philip Roman’s possession, to be used as indicated, until it was countermanded some two or three weeks afterwards. Thus, there was'an agency established then by this arrangement. After the payment of the check was countermanded, other means were to be supplied to effect the object, when it was agreed “that J. Philip Roman should, with his own money, purchase said endorsed notes, taking a judgment against the said Hezekiah in Pennsylvania, and holding the said check as collateral security.”

The final arrangement, by no means conflicts with the original purpose of the purchase for the benefit of Hezekiah Easton. On the contrary it confirms it; why should Heze-Inah confess a judgment in favor of J. P. Roman for $20,000, and leave the check in his possession as collateral security, if the purchase of the notes was not on his account ?

The theory of the claimant is, that Hezekiah Easton, hearing that the paper could not be paid by the makers at maturity, was extremely desirous that it should he retired from the hands of its then holders before its maturity, upon his being satisfactorily secured in its ultimate payment in full, and to that end did propose to the claimant, that he should acquire the paper and hold the same till the makers thereof could conveniently pay it, in consideration of which ho, Hezekiah, agreed to give a judgment bond in Pennsylvania. and did assign to him the check, etc. This is entirely inconsistent with other .facts established beyond all controversy.

The makers of the paper were according to the testimony utterly insolvent. There was no hope of indemnity from them. The paper was at a discount of fifty per cent., and there was no alternative for the endorser, beyond the security he had already received, except by purchasing the paper at the discount.

There can he no doubt the check for $13,000 was endorsed and delivered to the complainant with the understanding that he was to use it in purchasing the paper for Hezekiah Easton. When that was countermanded the judgment was substituted, with the retainer of the check as collateral, to indemnify the agent. This is the only deduction reconcilable with reason.

Ho inducement existed for the confession of judgment and deposit of the check, unless the arrangement originally founded on the latter for the purchase of the paper, on account of Hezekiah Easton, continued.

Would a debtor, whose paper was selling at one-half its nominal value, indemnify the purchaser, unless he particlpated in some manner in the benefit of the purchase?' The enormous profit resulting from the operation was sufficient compensation for the ri&fe, even in the critical circumstances of the endorser, without his insuring the purchaser against loss for an outlay which in no manner benefitted him. The answer of the claimant is overcome by the-weight of testimony and pregnant circumstances.

( Decided November 21st, 1866.)

It follows from what has been said, that in the opinion of this Court, the orders of the Court below in the first ease appealed from, ratifying the accounts allowing; J. Dixon Roman the amount of the mortgage of the 13th of May, 1856, and the decrees and orders on which said accounts are based, must be affirmed with costs to the appellee - in this Court; and so much of the order of the 11th of March, 1864, as rejects the allowance in said accounts to J. Philip Roman is affirmed, with costs as aforesaid to the appellees, and the cases- are remanded for further proceedings.

Orders affirmed and cesses remanded