Jared W. Post vs. The Tradesmen's Bank and others

Jared W. Post vs. The Tradesmen's Bank and others. P made an accommodation note for the benefit of A and delivered it to A. A procured W to endorse it for his accommodation and got it discounted at hank. At the same time A gave W a mortgage to secure him for this and sundry other liabilities assumed for him, the condition being that A should save W harmless from all the liabilities referred to. Before the note fell due A failed and went into insolvency, and W was compelled to take up the note when due. The trustee in insolvency afterwards sold the equity of redemption in the mortgaged property at public auction, giving notice at the sale what the mortgage was, and that the property was sold subject to it. W bid off the property at $700, took possession of it, and afterwards disposed of it. Held, in reversing a decree in equity, upon a bill brought by P, restraining W from enforcing a judgment obtained against him at law for the amount of the note:— 1. That the fact that the note was, as between P and A, ail accommodation one on the part of P, did not, of itself, constitute any reason why he should not be held liable to pay it to W. 2. That the mortgage being given to indemnify W for his liability on the indorsement, and not for the security of the note itself, the security did not in equity attach to the note, so as to entitle P to a pro rata application of the mortgaged property to its payment. 3. That W was entitled to be fully indemnified, and, until he was so, had a right to compel the payment of the note. 4. That the mere purchase of the equity of redemption by W was not in law a satisfaction and extinguishment of the mortgage debt. 5. That the purchase of the equity, under the special notice given at the sale, and for the price paid, did not in law constitute a satisfaction and ex-tinguishment of the mortgage debt, but was merely evidence of the agreement of W to that effect, to be considered by the court below. 6. That W was not estopped thereby from claiming that the property was of less value than the amount of the debt. 7. That in the absence of a finding as to the value by the *court [ *421 j below, this court could not infer from the amount paid by W for the equity of redemption, that the value exceeded the amount of the debt. .Bill in equity to restrain the respondents from enforcing a judgment obtained at law. The facts were specially found by the superior court. The plaintiff, Post, on the 15th day of October, 1856, made a promissory note, for the accommodation of the Volcanic Repeating Arms Company, a joint stock corporation, for the sum of $1,250, payable to the order of one Wheeler, by whom it was indorsed, also for the accommodation of the company. A contract was at the time entered into by which, upon a certain contingency, Post and Wheeler were to take certain shares of the stock of the company, in which case the above note, with others given about the same time, was to be applied in payment for the stock, otherwise the notes were to be treated as accomodation notes and paid by the Arms Company. The contingency never happened, and it became the duty of the Arms Company to provide for their payment. The arms Company, before the notes became due, procured the respondent Winchester, and one Gaston, since deceased, to indorse them for the accommodation of the company, and procured them discounted at the Tradesmen’s Bank. Gaston and Winchester, at the time of the indorsement of the notes, did not know that they were given without considation. To secure them for their indorsements of these and other notes for the company, and for other indebtedness and liabilities, the Arms Company mortgaged to them, by several mortgages, a large amount of real and personal property, of the value, at the time, of about $30,000, the condition of the mortgages being, with regard to the indorsements, that the Arms Company should save them and each of them harmless from all loss and damage therefrom, and the amount secured by the mortgages being limited to $30,000 outstanding at any one time. Before the note in question fell due, the Arms Company failed and made a general assignment of its property for the benefit of its [ *422 ] creditors. *The note was protested for non-payment, and was taken up by Winchester as indorser, who immediately delivered it to the Tradesmen’s Bank as collateral security for other indebtedness of his at the bank. The bank brought suit upon it for the benefit of Winchester, and recovered judgment against Post, which judgment was the one against which an injunction was sought by the bill. The trustee had sold the equity of redemption in the mortgaged property at auction, and Winchester had bid it in at the sutn of $700. The property was represented by the trustee at the sale as subject to all the debts and liabilities mentioned in the mortgages to Winchester and Gaston, including the note in question, and was sold subject to these mortgages. The plaintiff set up these facts in his bill, and claimed that, by the purchase of the equity of redemption by Winchester, the mortgage debt had been satisfied and extinguished. On the trial Winchester testified that he did not regard the actual value of the property as equal to the amount of the incumbranoes, and that he paid the price which he did for the equity of redemption under the advice of counsel, to perfect his mortgage title and to save all questions as to its validity ; and the person who bid against him testified that he did not bid with the expectation or intention of paying the incumbrances, if the property had been struck off to him. The court found in conformity with this testimony, but that nothing was said at the sale, either by Winchester or the person who bid against him, as to their motives and intentions. In pursuance of the purchase Winchester took possession of the mortgaged property as his own, and it wa%by him put into a new joint stock company, as the stock of the new company, at the price which it cost him, treating the whole amount of the debts and liabilities for which the property was mortgaged, including the note in question, as incumbrances to their full amount on the property; and at the same time Winchester put into the capital stock of the new company, at its cost to him, other property formerly belonging to the old company, not included in the mortgage, which the appraisers on the estate had appraised at $13,000, and *which Win- [ *423 ] Chester had purchased at the auction for $3,000. About half of the stock of the new company was subscribed for and was still owned by Winchester. The remaining half was taken and paid for by other parties at its par value, but the stock had never been worth par, and was now worth only about fifty per cent. The amount of the mortgage debts of Gaston and Winchester were found by the court to be, on the first of March, 1857, $35,724.26, but the court was unable to find upon the evidence before it the actual value of the mortgaged property, as it consisted to a considerable extent of patent rights which were of very uncertain value.. It was found that Winchester was entirely solvent. The superior court was of opinion that the note in question ought not to be collected out of the plaintiff, either by Winchester, or by the Tradesmen’s Bank for his benefit, and passed a decree enjoining them against collecting the judgment recovered for the same. The defendants filed a motion in error and brought the record before this court for revision. Bristol and Beach, for the plaintiffs in error. 1. No equity arises in favor of the petitioner that can affect the plaintiffs in error, out of the fact that the note was an accommodation one as between him and the Arms Company. There is no distinction between accommodation and business paper except as between the immediate parties. When vitality is once given to a note bv its negotiation, the liability of the parties to it is governed by the relative position of their names upon the paper. Fentum v. Pocock, 5 Taunt., 192. Church v. Barlow, 9 Pick., 547. 1 Parsons on Cont., 215. Strong v. Foster, 33 Eng. L. & Eq., 291. 2. No equity arises in favor of the petitioner out of the fact that Winchester had a mortgage from the Arms Company as an indemnity to him for this indorsement and for “ other indebtedness and liabilities,” until it is established that Winchester has realized, or ought to have realized, or can hereafter realize, sufficient funds out of his mortgage security to [ *424 ] indemnify him for this indorsement “ and the other indebtedness and liabilities.” The burden of proving that the value of the mortgaged property exceeded the indebtedness secured by it, is on the petitioner. And the record discloses that ’he was unable to establish this fact. It is found that the court was unable to find the actual value of the mortgaged property, consisting, as it did to a considerable extent, of patent rights of very uncertain value. This inability of the court to find this value is, and must remain, an inability to find any equities in the plaintiff’s case ; unless, 1st., such facts appear upon the finding as will authorize this court to infer that the actual value exceeded the mortgage debt, or, 2d., unless Winchester, by his purchase of the equity of redemption, is estopped to deny such excess of value. -3. As such excsss, if it existed, was susceptible of direct proof, the petitioner can not call upon either court to recognize its existence by mere inference. If the judge who tried the case, with all the facts before him, upon oral testimony, was unable to find such excess, either directly or inferentially, this court will hardly be justified in inferring it from a written statement of a few of these facts. If the court should feel justified in attempting to infer what the actual value of the mortgaged property was, the correct inference from the facts found is, that it was less than the indebtedness by a large amount, since the indebtedness is found to have been $35,724, and the property mortgaged to have been “ of about the value of $30,000.” 4. Winchester’s purchase of the equity of redemption does not preclude him from claiming that the value of the mortgaged property was less than the indebtedness. The petitioner, asking the aid of a court of equity, can not rely upon estoppels to obtain it. And there is nothing in the act of purchase out of which an estoppel can be created. It lacks all its essential elements. Winchester’s purchase of the equity is perfectly consistent with his present claim ; nor has the petitioner been thereby induced to act otherwise than he would have acted. The fact of such purchase is not even relevant testimony, except as tending to show, either that * Winchester [ *425 ] then estimated the value of the mortgaged property as exceeding the indebtedness, or that Post was prejudiced by the opposing bidder being thereby prevented from taking the equity and paying the incumbrance. Both these inferences are expressly and in terms negatived by the finding. 5. The petitioner has no claim upon Winchester for contribution out of the avails of his mortgage security. The right of mutual contribution arises only between co-sureties. No such relation exists even among the indorsers of accommodation paper ; still less between an indorser and the maker. 1 White & Tudor, Lead. Cas. in Eq. (Am. notes,) 114. Smith v. Smith, 1 Dev. Eq., 173. Brahan v. Ragland, 3 Stewart, 247, 259. Farmers’ Bank v. Van Meter, 4 Rand, 553. Craythorne v. Swinburne, 14 Vez., 160. Longley v. Griggs, 10 Pick., 121. 6. There are no equities in favor of the petitioner against the Tradesmen’s Bank, entitling him to an injunction. In the absence of fraudulent collusion, a creditor may pursue his remedies against one debtor, at the request and for the benefit of another, who is also liable for the same debt, without inquiring into or being affected by the. equities existing between them. Hayes v. Ward, 4 Johns. Cha. 131. Couch v. Waring, 9 Conn., 264. Day v. Elmore, 4 Wis., 190. Even as between a surety and principal, the limit to which courts of equity have interfered, is to compel an inactive creditor to move in the collection of his debt. 1 Story Eq. Jur., secs. 327, 639, 640. Although the title of the bank is that of indorser of overdue paper, no infirmity or equity had attached to the note itself at the time of its transfer to them. Stedman v. Jillson, 10 Conn., 55. Robinson v. Lyman, id., 30. Winchester is abundantly solvent, and able to respond to any individual equities Post may have against him growing out of the mortgage security. Whatever risk there may be as to such continued solvency, Post ought in equity to assume it by paying this judgment, and not impose it on the bank by enjoining its collection. * Dutton and Walrous, for the defendant in error. [ *426 ] 1. The record shows that this is a contest between Post and Winchester only. It also shows that Winchester has received all the property of the Arms Company, and that it was conveyed to him.to protect him against his-obligations for the company on this note with others. It also shows that .Post is a party to this note wholly without consideration. The fact that these mortgages were given to indemnify against indorsements can make no difference in the case, for this is not a contest between holders of different notes claimed to be secured by the mortgages. The doctrine of the case of Thrall v. Spencer, (16 Conn., 139,) therefore does not apply. The record shows too with reasonable certainty that the property was worth enough to pay all the obligations upon which Winchester was liable for the company. There is therefore a strong equity in favor of Post, and the court will not, in the circumstances, be astute to discover technical grounds to justify Winchester’s claim. The judgment of the court below should, upon these facts, be sustained. 2. But Winchester seeks to avoid the decision on the ground that the property has not paid him in full. This claim is not supported by the facts, as the whole record taken together shows. At least Winchester has not shown this to be the fact, and it was for him to show it, as he had the property in his hands and could have shown it if such had been the fact. But, if the fact were so, he can not now make the claim, Because, 1st, He bought the equity of redemption at public auction and knew that the property was sold subject to the payment of this note. Express notice that it was to he taken subject to the payment of the mortgage debts was given at the time of the sale. This purchase extinguished the mortgage by paying the debts. Campbell v. Knights, 24 Maine, 332. 2nd, He chose to keep the property instead of letting it go to pay the debts, and, having kept and disposed of it, he must now account for it to those interested in it, and at the price at which he took it. 1 White & Tudor, Lead. Cas. in Eq. (Am. notes,) 496. Campbell v. Shrum, 3 Watts, 60. Young v. Stone, 4 Watts & [ *427 ] Serg., 45. * Blank v. German, 5 id., 36. Trevor v. Perkins, 5 Whart., 244. Dubbs v. Finley, 2 Penn. S. R., 397. Walker v. Physick, 5 id., 193. 3. Winchester’s sale, to the new company, without notice to those interested in it and without an order of the court, was ipso facto, an appropriation of the property in satisfaction of his entire claim. Sigourney v. Munn, 7 Conn., 324. Sedgwick on Damages, 365. 1 Parsons on Cont., 595. [MAJORITY — Ellswokth, J.] Ellswokth, J. The petitioner having been adjudged liable as maker of the note in question, in a suit brought by the Tradesmen’s Bank, by direction and for the benefit of the respondent Winchester, seeks in equity the stay of further proceedings on that judgment, and that the judgment itself may be decreed to be cancelled. It appears that after the malting of the note by Post, the petitioner, and its indorsement by Wheeler, the payee, the Arms Company obtained the indorsements of Gaston and Winchester, and then procured the note discounted at the Tradesmen’s Bank for their benefit. At the same time, or.immediately after, the Arms Company gave Gaston and Winchester a mortgage, and subsequently other mortgages, to secure them for these indorsements, and for other indorsements and liabilities, to an amount not exceeding $80,000 at any one time. When this note came due it was dishonored. The Arms Company had failed, and Post the maker, and Wheeler the payee and first indorser, neglecting to pay it, Winchester himself (Gaston being dead) paid the note to the bank, and then left it, as a subsisting note, to secure his further indebtedness to the bank. The assignee of the Arms Company, in closing up the affairs of the company, sold at auction all the property embraced in the mortgages to Gaston and Winchester. The equity was purchased by Winchester at the sum of $700, subject, as the motion states, to the incumbrances upon the property. The petitioner now claims that this note was satisfied and extinguished by means of the purchase by Winchester, and *that Winchester ought not to have recov- [ *428 3 ered judgment upon it, and ought not now to take any benefit from the judgment. If this be so, why, we ask, was not this defense set up at law ? If the note was paid by funds in Winchester’s hands, or by virtue of an agreement to that effect, either expressly made or raised by legal implication, the defendant could have availed himself of it by way of defense to the action at law, and ought to have done so. Is not that judgment conclusive that the debt was not paid at that time ? It must be so unless the defense could not then have been made, as growing out of facts subsequently occurring, or facts of a purely equitable character not within the cognizance of a court of law. Passing this however, the argument must fail, if for no other reason than that the value of the property mortgaged to Gaston and Winchester, (upon which the petitioner bases his claim to equitable relief) is not found by'the court. The amount due them is found to be $35,724. Until this debt is fully paid, it would seem clear that none of their security should be taken out of their hands. They are to be fully indemnified, come what may. Winchester insists that, after taking all this property and collecting the notes in question, he will not by any means be indemnified. How this is we can hot say, for the motion does not inform us. It states only certain evidence, from which an inference that the debt is paid is attempted to be drawn by the petitioner’s counsel, but the fact it does-not state, and indeed the judge says, that from any evidence before him he was not able to find the fact. Now, for a court of equity in these circumstances to proceed upon the assumption that the debt is paid, or that the property mortgaged is of so much value that it is inequitable for the mortgagee to retain this note, seems to us to be going too far. It'is said that all the paper which has upon it the names of' Gaston and Winchester, and comes within the description in the conditions of the mortgages, must be held to ‘be proportionally secured by the mortgages, so that each note or draft is entitled to its proportion of the property in payment, which 'of course must somewhat reduce the amount due on [ *429 ] *this note. Whatever propriety there may be in the general rule of law here asserted, it does not apply to all cases, but only to such as. present peculiar equitable circumstances which do not exist here. Doubtless it is true that in equity the security which a creditor holds for the payment of" his debt is, in ordinary cases, attached as an incident to the debt itself, and passes with it into the hands of a purchaser, or of the person who is obliged ultimately to pay the debt, or, where there are several notes secured, held by different parties, to the several parties interested in proportion to the amounts of their claims. This is well settled as a general rule. Stebbins v. Hall, 29 Barb., 533. But where a person agrees to become an indorser generally, not to exceed a specified amount, and takes a mortgage to indemnify himself to that amount, as was done in this case, it bv no means follows, nor do the authorities so hold, that the mortgage is an appropriation of a fund in the indorser’s hands for any and each specific note indorsed by him. If it. were so'the indorser could not return or give up his security, however he might desire to do it. But he certainly may do this, if it is done fairly, before there is any insolvency, and before any equities are vested by subrogation or otherwise in third persons who have advanced their money knowing of the security so given to the indorser. This is the view of the subject presented in the cases of Thrall v. Spencer, (16 Conn., 139,) Homer v. Savings Bank, (7 id., 478,) New London Bank v. Lee, (11 id., 112,) and Lewis v. DeForest, (20 id., 427.) But further, the doctrine has no relation to the present case. Gaston and Winchester, are not co-sureties with Tost on this note. Post is, and must be treated as, the maker and principal debtor, and Gaston and Winchester, when they endorsed the note, had no knowledge that it was not a business note, as on its face it appeared to be, and as it in fact was as the matter stood at the time of the indorsement. But, were it otherwise, were the note an accommodation note, the parties are liable to each other in the order in which their names stand on the paper. This is the rule of law, in the absence of any agreement or understanding to *the contrary. 1 White & Tud., [ *430 ] Lead. Eq. Cas., 114. Smith v. Smith, 1 Dev. Eq. 173. Brahan v. Ragland, 3 Stew., 247. Farmers’ Bank v. Van Meter, 4 Rand., 553. Craythorne v. Swinburne, 14 Vez., 160. Longley v. Griggs, 10 Pick., 121. 33 Eng. L. & Eq., 291. McCarty v. Roots, 21 How., 432. It is again said, that the respondent, by purchasing the equity of redemption, has got into himself both the legal and equitable titles, and that the entire debt of $35,724 must, as a consequence, be held to be paid or cancelled; and, if not as a legal consequence, that yet Winchester agreed that it should be só by assenting to the terms of sale as announced by the assignee at the time of the sale. First then, as to the sale. What was its legal and proper effect ? Did it of itself, irrespective of any supposed agreement, cancel this large debt ? I perceive no reason for such a result, which I should regard as entirely an anomaly. As the law was at one time in this state, a foreclosure and possession were held to extinguish the mortgage debt; but, so manifestly absurd and unjust was this rule, that the legislature many years since altered the law, and provided that the property should be held to be taken at its value only, and so much of the debt as remained should stand as before. In the state of New York, and in some other states, the mortgaged premises are sold under an order of the court, and the amount realized is applied oil the debt. Our law, in the mode prescribed'for applying the property to the debt, amounts essentially to this. In the one case the sale shows the value of the property, in the other it is shown by evidence in court. If then a purchase in the state of New York, at the public sale by the mortgagee, (and the mortgagee may buy the property as well as any other person,) does not cancel the mortgage debt, and a foreclosure in this state does not, why should a purchase of the equity of redemption at a public sale work such a result ? Certainly it cannot be because of a union of the equitable and legal titles, for this is so in the case, of a foreclosure; and yet this consideration was dwelt upon in the argument as of much importance. If a stranger had made the purchase here, instead of the respondent, I think there would have been no difficulty in this part of the case. A purchase by a stranger does [ *431 ] not of itself subject him personally to a liability to pay the mortgage debt. That is an independent matter. If he pays to the auctioneer the amount which he has bid for the property, he may keep or abandon his purchase as he pleases. He may discover that the property is not worth redeeming and let it alone, or he may go forward and pay the incumbrances and retain it. And in the present, case, Winchester would not lose any security which he had in the note in question, whatever course he shouTd take with regard to redeeming or abandoning the property. Stebbins v. Hall, 29 Barb., 533. .The other question, what is the effect of the purchase under the notice given at the sale, that the property would be sold “ subject to all the debts and liabilities mentioned in the mortgages to Gaston and Winchester,” is a much more serious one, and the one which doubtless more than any other led the superior court to hold' the note in question to be extinguished by the purchase. But what is there here besides a mere purchase—an acquisition of an equity of redemption ? Had the purchase been made by a stranger, it is too obvious to admit of argument, that he would not have become personally liable to pay the mortgage debts. He must have done something more. He must have assumed them as his own. But what evidence is there of any assumption by Winchester ? Had not the debt in question belonged to him this claim could not stand for a moment. And does this circumstance make any difference ? We think not. The fact that, at the time of the sale, the assignee made the announcement mentioned, only shows that he took that occasion to make known to the buyers that the property was under mortgages to Gaston and Winchester. That declaration did not create any new obligations, nor prove, (certainly not as matter of law,) any assumption by Winchester of a single debt due from the Arms Company. If it was evidence conducing to prove an assumption it should have been weighed by the court below. Here it is worth nothing if it falls short of [ *432 ] proving, as matter of law, *that such a contract was made by the purchaser. Now, exactly what will be sufficient proof, we will not undertake to say. The point was before us in the case of Townsend v. Ward, (27 Conn., 610,) but we did not there find it necessary to decide the question. The case went off on another ground, though we did say. that such an agreement might be proved ; and we intimated that where a person sells his property, under a mortgage or lien, for a gross sum, and the debt secured by the mortgage or lien is deducted from the purchase money, slight evidence would be sufficient to prove that the purchaser had taken upon himself to pay the debt, and that it might be a proper legal inference from the facts that he had at least agreed to save his vendor from any injury therefrom. Regularly such an agreement should be in writing. It would be better still if the old note and mortgage were cancelled, and new ones, executed by the purchaser, substituted in their place. In England professional conveyancers require covenants of indemnity in such cases, as we learn from Littledale, J., in the case of Burnet v. Linch, (5 Barn. & Cress., 589,) and from Denman, C. J., in that of Wolveridge v. Steward. (3 M. & Scott, 561.) See also Stebbins v. Hall, before cited. I have carefully examined the cases cited on the trial by the petitioner’s counsel, and I find none among them, not a single one, if I mistake not, which goes so far as to hold that a person becomes liable himself as the debtor, for mortgage debts, by merely purchasing the equity of redemption at a public sale. Besides, every case of such personal liability proceeds upon the idea that it is only from the peculiar circumstances of the case that such an agreement may be inferred. It was said on the argument that since Winchester gave $700, for the equity of redemption, it is to be regarded as certain that the property exceeded in value the debt of $35,724 by that sum. This would not follow, in our judgment, as a conclusion of law, and Winchester insists that it proves nothing in point of fact, for he says that he paid that sum, not because the equity was of that value, or of any *value whatever, [ *433 j but because he was advised by counsel that it was the cheapest and most sure way of perfecting his title to sundry patents for machinery, which he held under the mortgages, and which constituted a considerable part of his entire security. How this point is we can not say. We do not hold it as settling the question of fact, and that is a sufficient answer to this claim. There is manifest error in the judgment complained of. In this opinion the other judges concurred. Judgment reversed.