CASE V. FANT.
41
visions, the government will accord and exact fair dealing and the utmost good faith. It is far better that the entire amount of the obligations of the stockholders in question should be lost to the trust fund than that the slightest judicial countenance should be given the proposed proceedings. The liability of the stockholders of the insolvent bank is several and not joint. Kennedy v. Gibson, 8 Wall. 505. And there is no reason why the property of every one who has conveyed or may convey it for the fraudulent purpose of avoiding his just and legal obligations arising under the law should not be followed, and every reason why it should be. What has been said is sufficient to dispose of the petition. It is, however, to say the least, extremely doubtful whether the court has the power to authorize the compounding of the statutory liability of a stockholder in a national banle The provision of the statute upon the subject is found in section 5234: of the Revised Statutes. By that section.it is declared: . "Such receiver. under the direction of the comptroller. shall take possession of the books. records. and assets of every description of such association. collect all debts due and claims belonging to it. and. upon the order of a court of record of competent jurisdiction. may sell or compound all bad or doubtful debts, and, on a like order. may sell all the real and personal property of such associatkm on such terms as the court shall direct, and may, if necessary to pay the debts of such association, enforce the individual liability of the stockholders. "
It is by no means clear that the statutory liability of the stockholders is a debt, within the meaning of the clause authorizing the court to sanction the compounding of all bad· or doubtful debts. In the view I have taken of the case, however, it is not necessary to decide this point. Petition denied. CASE v. F ANT et a1. (Circuit Court of Appeals. Eighth Circuit, No. 131.
October 17, 1892,)
1.
MORTGAGES-SUBSEQUENT CONVEYANCE-MERGER.
A mortgagee assigned the mortgage and note as collateral, and thereafter received the fee by a conveyance wherein the mortgage was expressly excepted from the warranty against incumbrances. He thereafter executed a second mortgage as security for a debt past due. giving notice of the prior mortgage to the second mortgagee. Held, there was no intention to merge the prior mortgage in the fee, nor could such merger take place even if the parties had so intended.
2.
SAME.
Where a note secured by a pledge of 8 note and mortgage, and not paid at maturity. is renewed. and the renewal note recites that the note and mortgage are pledged to secure its payment. the pledge has relation to. and will be given effect as of, the date when it was first made, if the interest of thepledgee requires it. A. man holding two notes by one maker. one of them secured by mortgage, who receives further security, with an express agreement that he may apply it to either note at his election. may make such application to the unsecured note, and a second mortgagee can make no valid objection thereto.
8,
PAYMEN'l'-ApPLICATION AT CREDITOR'S ELECTION.
Appeal from the Circuit Court of the United States for the District of Nebraska. Reversed.
FEDERAL REPORTER,
vol. 53.
by CALDW:Jjl;Ll,..Circult Judge:" . qu:tbe lath day of OctQ!Jer, 1890, John R. Case, the appellant, tiled hishlll in the ,district court of Bufl'alp,cOllnty, Neb., against Dillard R. 1<'ant. William A. FaW,1fIelViina C. 1<'ash, Etban:lI. Cowles, Bessie Cowles, Stanley Thompson, and the, B,ll, 1',10 C,0,un,ty Natio"nal. ,Bank. to fore, c,l,ose a mor,tgage 0,n .certain real estate. i,'l'he mortgage was On the 11th ofSeptember, 1884, by the defendants 1<'allh and wl{(ltothe defendant Ethan H. Cowles, to secure tile payment of a p'romissory note, of even the mortgage, made by Fash; and payable to the QrderQf Cowles, due: september 11,1889, {or the sum of$II:l,OOO, drawing 8 per cent., i,ntere,st,P,I"r, annum,'I.,f,or, which annual inter,est· coul;l0ns were att.ached, ' running until the maturity 01 the note, the principal sum drawing 8 per cent. in· terest·o:fter maturIty ontll'pidd; Case acquired the note and mortgage in the follOWing manner: On the 7th of February, 1885, Case loaned the defendant Cowles to secure, the payment of the same Cowles indorsed and as· signe,dtoCase the Fash ,now, in or, On the 12th day 9,f December, 1885, Case loaned Cowles $18,000, for which sum Cowles executed his note, payable one,year after da,te," OU,t Of.' the money received, on this lastloan Cowles paid the $9.WO, previouslyiborrowetl, and the Fashnote and mortgage, which had been pledged, to securElthe the $9,000 loau,were now pledged to secure the payment of the $18,000 loan. The $18,000 note .was not paid at maturity, and its payment was extended one year by a change of its date,l'but it was not paid at the expiration of the, year, ,8nq,Qn the 19th of October, 18813, it was renewed by Cowles giving 8 nQte 12th of December, 1889. ' The, RId note was not c8ncllled or surrendered. 81ld the 1<'8sh npteand to be held securhy. f,qr. the payment ofc On the 19th of 1888, (Jl}se l.ent CO,wles the SU!11 of $10,000, wbich was secured by of $lO,OOQnotewlis not paid, and on the 16th of November, was renewell,there ,beh)g included in the, renewal note the overdue on the note to thllt date. making the sum of the note $14;183:60. On tbe 10th day of June. 1890, Cowles andwifee'xecuted a certain instrumellt assigning to Case certain property as further secUrity for the pay· ment ofthenotell.fot$18,OQ,Ollond $14,183.50, respectively. ,Co.se was 8uthorized by the}ermS of this instrumllnt to apply the proceeds Qf the securities therein men tiorled "to either afthe notes, "as he shall elect, " and the instrument was not to affect or impair the securities which he alreadyheld.'l'he prQperty men· tioned in this instrument was sold, and the proceeds applied in part payment of the note for $14,183.50, except the sum of $1;307.50. which was credited on the note for $H:l,OOO. On April 4. 1888, Fash and wife conveyed by deed to Cowles the land covered by the mOl'tgag-e from Fash and wife to Cowles, and which mortgage b,oen tranaferred by the to Case in the .J;Ilanner and for the purpose before stated. This deed warranted against incumbrances, "except a mortgage of $18.000, which grantee hereby agrees to IIssume as part of purchase price." On February I, 1884, the defendant Cowles executed his promissory note to the defendant D. R,Fant for the sum of $6,488, and, on the 6th day of March, .1889,to secure the payment of said,note, less $1,000 which had been paid thereon, Cowles, and wife executed a mortgage on the Illnds embraced in the mortgage frQm, Fash and wife to Cowles, and which lands Fash and wife had conveyed. by 4ee:d. to Cowles" as before At the time this mortgage was given, Fant exeC1,\ted the fQllowing instrument: . "Mr. E. H. Co,wles having this day given a '.mortgage to :po R. Fant on land in Bnffalo county to secure a note of $6.488. dated 2-1-84, due July 1. '84, on which was paid $1,000 May 22, '86, this is to certify that said Cowles represents and claims that there, is now existing on said lands a mortgage for $18,000; but said Fant does not acknowledge the existence of said for want of full information." . Fant appeared to the suit In.tbestate coort, and removed the case into the circuit court on the ground of diverse citizenship. and there filed an answer and cross bilL By his cross bill he seeks the foreclosure of, the mortgage made to himby Cowles, and to have the lien of this mortgage decreed to be prior and superior to the mortgage from Fash to Cowles, and which the complainant is seekin'g to foreclose by the original bill. The grounds upon which Fant claims that his mortgage SilOUld, be decreed to be the,first lien on the mortgaged premises are (1) that the conveyance'of the mortgaged premises by Fash to Cowles merged the legal title to the jands in Cowles, and thereby extinguished the Cowles mortgage, which had been previo'llsly ilssigned to the complainant Case; (2) that the renewal on the 19th of October, 1889, of the Cowles note to Caae·!Qr the $18,000 wa.s the If,
CASE
v.
FANT.
43
creation of a new 'debt, or wass neW loan, and. if tbeFasb note atld,mortgage was pledged to secure the renewal note, the pleqge must have relation to the of that' note, and be operative only from that date, and that as Fash had SIX months before that time conveyed the mortgaged premises to Cowles; that conveyance worked,a release of the mortgage, and Cowlesliad no mortgage to assign Case, as collateral security or otherwise; (3) that the, proceeds of the sale of the securities mentioned in the assignment from Cowles to Case, dated June 10, 1890. should be applied on the $18,000 note, The lower court decreed that the mortgage from CoWles to Fant was the first lien on the property, and gave it priority over the mortgage from Fash to 90wles. which had been assigned to Case. hom this decree the complainant, Case, appealed to this court.
Henry S. Osborne, (Osborne Bros. & Burgett, on the brief,) for appellant. Before CALDWELL and SANBORN, Circuit Judges, and SHIRAS, District Judge. CALDWELL, Circuit Judge, (after stating the facts.) 1. The conveyance by Fash to Cowles of the mortgaged premises did not operate as a merger or extinguishment of the mortgage for several reasons. The general rule is that a mortgage will not be merged or extinguished by a subsequent conveyance from the mortgagor to the mortgagee of the mortgaged premises unless such appears to have been the intention of the parties, and justice requires it. 1 Jones, Mortg. § 870; James v. Morey,2 ColV' 246, 285; White v. Hampton, 13 Iowa, 259; Purdy v. Huntington, 42 N. Y. 334; Miller v. Finn, 1 Neb. 254. In this case the deed from Fash to Cowles was made subject to the mortgage for $18,000, and when Fant took his mortgage he signed a writing distinctly admitting that he had notice that there was then "existing on ,said land a mortgage for $18,000." The statement in the deed that the premises are suqject to the mortgage shows that it was the intention of the parties to the deed not to extinguish themortgage. 1 Jones, Mortg. 1 § 870; Insurance Co. v. Corn, 89 Ill. 170; Bank v. Essex, 84 Ind. 144. Fant had notice in fact that it was not extinguished at the time he took his mortgage to secure an indebtedness which accrued years before. It is clear, therefore, that he was not misled or in any manner, and has no equity to claim that the mortgage should be extinguished for his benefit. The note which the mortgage from Fash to Cowles was given to secure. was negotiable, .and was indorsed and transferred with the mortgage. for a valuable consideration moving at time, beforeits maturity, and before the execution of the deed from Fash to Cowles for the equity of redemption. The mortgage debt had not matured at the date of this deed. Upon these facts it was not competent for Fash and Cowles to extinguish the mortgage if they had desired and intended to do so. The rule is well settled that, where the mortgagee has transferred his mortgage as collateral security for the payment of a debt before his purchase of the equity of redemption, no merger takes place, for the reason that the different estates in such case do not vest ill the same person. Kellogg v. Ames, 41 N. Y. 259; 1 Joues, Mortg. § 870. It would operate as a fraud upon the pledgee of the mortgage to hold that a subsequent conveyance of the equity of redemption to the mortgagee extinguished the mortgage.
44
FEDERAJ,. REPORTER,
2\'The'$18,OOO loaned by'Caseto Cowles on the 12th of December, Iiever paid. was due on that loan at the date of the decree'fu;the lower court $22,787.50. The time of payment was extended and 'the note renewed from time to time, but these extensions and renewals did#9t payor extinguish the debt, but at most. only changed the evidence of it. The Fash note and mortgage was held as collateral security'for the payment of the debt. Giving a new note for the debt did not pay the debt. Independently of any agreement to that effect, the collateral security would remain as security for the debt precisely as though there had been no renewal of the 'note. Jones v. Guaranty, etc., Co., 101 U. 'S. 622,630; Bank v. Cheeney, 87 Ill. 602,614; Collins v. Dawley, 4 Colo. 138; Lytle's Appeal, 36 Pa. St. 131. But, in fact, at each extension or renewal there was a specific pledge in the same terms of the same collateral security, for the payment of the debt. The recital in the reriewalnote of the security pHidged for its payment was but a. repetition and confirmation oftlle orig;inalpJedge. The creditor never parted with the security. It'remained aU the time, by virtue of its first pledge, in his: possession, as fbr the payment of the debt due him. Notwithstanding'the reliewalnote recited the note and mortgage were secure its payment, has relation to, and will be as of, the date it was first pledged [or the payment of the debt eiidenced by the renewal note; if the interest of the pledgee reqUires'it. '3. By the express terms anhe instrument by which Cowles assigned toClta'e bertain property to be sold, and the proceeds applied on Cowles' indebtePness, Case had the right to credit the proceeds on the note for 318,000, or on the note for $14,183.50, at his election. Case applied part of the proceeds on each note, as he had an undoubted right to do. Therlght of appropriation of payments belongs exclusively to the debtor and creditor, and no third party has a right to demand a change in the of payments assented to by them. Mack v. Adler, 22 Fed. Rep. 570; Whart. Cont. § 926; Gordon v. Hobart, 2 Story, 243, 264; 1 Suth. Dam. 411. No principle of law or equity required Case to apply the payment on his debt secured by the mortgage, instead of hisullsecured debts, in order to give Fant the benefit of this mortgage security. Farit had no lien upon, or interest in,.the property sold underthe assignr.hent or the proceeds derived from its sale, and Cowles had the right that belongs to every debtor to appropriate the property or its proceeds to the payment of any bona fide debt which he owed. The decree afthe circuit court is reversed, and the cause remanded, with directionsto render a decree declaring that the mortgage from Fash to is 'the first and prior lien on the mortgaged premises for th'3 anlbulit found due thereon at the date of the decree below, namely, $22,787.50, with interest on that sum Jrom that date.
GAY MANUF'G CO.
'Io
GITTINGS.
46
GAY MANUF'G CO. et al.v. GITTINGS et at (Oircuit Court of Appeals, Fourth Circuit. October 19, 18112.) No. 30. CORPORATIONS-RECEIVERS-PRovABLE CLAIlIS-GUARANTY.
A corporation which had guarantied the payment of the principal and interest of railt'oad. bonds payable in 1911 snbsequently went mto the hands of a receiver. The railroad cOJllpany was solvent. had secured the bonds by mortgage of all its property. and had promptly met all couppns. Held, that owners of the railroad bOlids could not prove the guaranty of the corporation, and have a dividend declared thereon, or have money retained in court to meet a possible future liability on the guaranty, as against creditors of the corpor"tion, who were pressing for a sale and distribution, and who held either specific and general liens or demands past due.
Appeal from the Circuit Court of the United States for the Eastern District of Virginia. Affirmed. Statement by SIMONTON, District Judge: The Oay Manufacturing Company is a corporation under the laws of Virginia, engaged in the lumber business. Its operations were extensive, and it enjoyed large credit. Getting into pecuniary straits, a bill was. filed against it by Gittings and others,-a creditors' bill. The bill sets out that there is outstanding a mortgage upon all the property of the company to secure payment of bonds issued by it to the amount of $60,000; that the company cannot meet said bonds, and that a sale under the terms of the mortgage is inevitable; that, besides this, the company owes some $70,000, pressing for payment; that of these at least $21,000 is in judgment or under mechanic's lien, and that there is danger that the large and valuable assets Of the company will be wasted and lost. The bill then prays the appointment of a receiver, and the settlement of the affairs of the company. The trustees of the mortgage and the corporation, parties defendant, filed their answers, substantially admitting the facts of the bill. A receiver was appointed. The cause was referred to a special master on 24th August, 1889, who made his report at length. This report was confirmed in part 13th January, 1892. On 4th April, 1892, an order for the sale of all the property of the company was entered. This order recognized certain claims as valid and existing debts of the Gay Manufacturing Company, and. as liens on the property in the order set out in the report; but no distribution of the proceeds of sale is provided for. Pending these proceedings, certain persons, among whom were Gittings, Brooks, and others, complainants in the bill above alluded to, filed a petition in the cause December 4, 1891. This petition, in substance, sets forth that they are holders of certain bonds of the Suffolk & Carolina Railroa.d Company, guarantied by the Gay Manufacturing Company. After stating in detail what bonds they hold, they add that many other persons unknown to them are also owners of bonds of the same class and issue as those held by the petitioners. The schedules filed with the petition show that on the 13th April, 1886, the Suffolk & Carolina Railroad Company prepared for issue coupon bonds payah11'. mol to pl'lnl'il'al, in 1911, With semiannual COIlI'JOIUI 'f01' illt(']·p;;t. II,," a 'O\'l'l"