Baker v. Meloy

Jones, J., delivered the opinion of the Court. This is an appeal from an order of Circuit Court No. 2, of Baltimore City, overruling exceptions filed in this cause by the ⁶ appellant to the ratification of an auditor’s account and finally ratifying said account. The controversy raised by the appellant’s exceptions grew out of the following facts. The Massachusetts Building Company being the owner of a building in the city of Baltimore conveyed the same to John W. Linton by whom in the month of October, 1899,-it was conveyed to the Atlantic Trust and Deposit Company.

These conveyances were made subject to two deeds of trust held at the time by the Mercantile Trust and Deposit Company—the first of these deeds of trust securing bonds to the amount of $300,000, and the second to the amount of $150,000. To these bonds there were attached the usual coupons, representing the instalments of interest to accrue, which on their face were payable “at the office of the Mercantile Trust and Deposit Company of Baltimore, in the city of Baltimore,” on the first day of August and the first day of February. A sale of the property in question was made under the second deed of trust and the proceeds of sale proved insufficient to pay the bonds secured thereby. At the time of the sale the appellant was the holder of certain of these bonds and the appellee held certain coupons which had been detached from these same bonds before they passed to the appellant.

The appellee now brings in these coupons and claims to have them paid out of funds produced by the sale made under the deed of trust upon equality with the bonds held by the appellant. The auditor in making distribution of the funds stated two accounts “A” and “B” in accordance with instructions from the respective parties. In account A the claim of the appellee was disallowed ; and in account B the same was allowed equally pro rata with the bonds of the appellant. Each party excepted to the account which was stated contrary to the instructions given in his behalf.

The Court below, upon the testimony taken by both parties before the auditor and returned by him, rejected account A and ratified account B. The exceptions of the appellant to account B state that he excepts to the allowance of the claim of the appellee “based ⁷ on $3,725, coupons bought” by him (appellee) ‘‘when overdue, from the assignee of R. C. Flower and Company.” ist. Because it never was the intention of said R. C. Flower and Company to buy said coupons from their holders but to advance money to the Atlantic Trust and Deposit Company to pay the same. 2nd. Because the holders of said coupons at the time they were paid the money for them had no intention of selling them or knowledge that they were doing so. 3rd. Because the appellant purchased the bonds to which said coupons had been attached, with no notice either actual or constructive that said coupons had not been paid in the usual course of business.

The appellee testified that he acquired the coupons in controversy from a Mr. Manfull who owned them at the time as far as he (the appellee) knew ; and from whom he had information that Manfull had purchased the coupons from R. C. Flower. When the original holders of these coupons, or the holders who detached them from the bonds, received payment for them this payment was made to them at the office, in Baltimore City, of the Atlantic Trust and Deposit Company rnrough checks of R. C. Flower & Co. drawn upon R. C. Flower & Co., bankers of New York, which checks were endorsed and collected. The question raised by the exceptions of the appellant to the claim now made by the appellee is whether this transaction, between the holders who received payment for their coupons in the manner described and R. C. Flower & Co. is to be held as a purchase of the coupons by R. C. Flower & Co. or as a payment of them for account of the Atlantic Trust and Deposit Company to the extinguishment pro tanto, as against the bonds here in question, of the lien under the deed of trust securing them. There is no question that the appellant acquired in good faith the title of such holders of the bonds and stands before the Court now in their place with such rights as they would have if here.

On the other hand it is conceded that the appellee took no better title, as against these bonds, to the coupons now held by him ⁸ than could be asserted by R. C. Flower & Co., who acquired them when they were overdue and in the manner mentioned. The determination of the rights of the parties before the Court depends therefore entirely upon the solution of the question just stated and it is the only question in the case. There seems to be no real difference between the counsel, who have ably presented the respective contentions in the case as to the legal principles which must control in its consideration, and the question the Court has to deal with is principally, if not exclusively, one of fact. Beyond, therefore, averting to one or two settled principles of law conceded to have application to the question here involved, we need make little reference to adjudicated cases since each case in its facts presents its own peculiar considerations for determining the conclusions reached.

As reflecting upon the inquiry we are to make, the following quotation from 2 Cook on Corporations, sec. 771, p. 1742, will be appropriate. “ When coupons are presented for payment and are cashed, they are held to be cancelled so far as the bonds and other coupons are concerned. Even though a third person was buying them instead of the company paying them, the bondholders may insist on their mortgage lien free from these purchased coupons, unless the party presenting the coupons knew that he was selling them. The reason is that it takes two parties to make a sale, and, moreover, the coupon holders might have preferred to foreclose rather than sell.” This embodies a proposition that is sustained by authority and which in the absence of authority addresses itself most strongly to reason and the common understanding. In the case of Ketckum v. Duncan, 96 U. S. 659 , it is said at page 662 of the volume: “It is undoubtedly true that it is essential to a sale that both parties should consent to it.

We may admit also that where, as in this case, a sale, compared with payment, is prejudicial to the holder’s interest by continuing the burden of the coupons upon the common security and lessening its value in reference to the principal debt, the intent to sell should be clearly proved. But the intent to sell or the assent of the former owner to a sale need not have been ex ⁹ pressly given. It may be inferred from the circumstances of the transaction. It often is.” In Woodv.

Guarantee Co., 128 U. S. 416 , it is said: “ The question as between payment and purchase is one of fact rather than of law to be settled by the evidence, largely presumptive generally, in the case. It is a question of the intention of the parties.” To the same general effect, though they do not bear as close an analogy to the case at bar as those just referred to, are the cases of Com. of Vir. v. Ches. & O. Canal Co. et al., 32 Md. 501 , and Cameron v. Tome et al., 64 Md. 507 . By these accepted tests we are to judge of and decide upon the facts before us here. The holders of the bonds and the coupons when the latter were paid in the manner described were Mr. John E. Semmes, the Traders’ National Bank, Mr. B. F. Bennett and the Western National Bank, all, both individuals and corporations, resident in the city of Baltimore.

In the case of Ketchum v. Duncan, supra, which is the one most relied upon by the appellee, the Court in dealing with the evidence laid stress upon the fact that it clearly appeared therefrom that the parties, who made payment of the coupons involved in that case and who, upon the evidence there, were held to be purchasers, intended to purchase the coupons and not to pay and retire them, or to advance money to have them paid and retired,and then held that the facts and circumstances attending the transaction in question in that case were not such as to defeat that actual intention. This element of proof which operated there so strongly as a basis of the conclusions reached by the Court is present in this case but applies in a different aspect. It is made entirely clear by the evidence here that the parties who held the coupons in question in presenting them for payment did not intend to sell them but to have them paid and cancelled. Each one of these parties was examined as a witness and each of them testified with emphasis that he had no intention to sell his coupons.

Mr. Semmes, the largest holder, saying that he would not have sold if the proposition had been made to him, and giving the very reason that is mentioned in the quotation from Cook on Corp., supra, that if there was to be a default ¹⁰ upon interest upon the bonds secured by the mortgage he desired to be interested in the foreclosure thereof the better to protect his bonds. Nor is it perceived how the parties representing the Atlantic Trust Co. and Flower & Co., through whom the transactions in question in respect to these coupons were had by the holders, could have been in any way misled as to the intention of the holders, or could have supposed that these holders thought they were doing anything more than getting their coupons paid and retired. In the first place these parties knew that it was against the interest of these holders to sell their coupons and leave them outstanding to the impairment of the security of their bonds, which is a circumstance strongly bearing on the question of intent. Walker v. Stone et al., 20 Md. 198, citing language from Chief Justice Shaw.

But more specific grounds for holding that there could have been no reasonable mistake in reference to the attitude of the holders to the transaction in regard to the payment of the coupons are that in the case of Mr. Semmes he received payment in January, 1900, for coupons due in August, 1899, and then had no conversation in respect to the transaction that he could remember, it being apparently of a matter-of-course character. At the next transaction, in February, 1900, he expressly informed the other parties to it that he “ wanted it to be understood distinctly ” that he “ did not sell these coupons.” He “presented them for payment.” The exact answer made to this he was not able to give, but what he said as to his recollection of it went to show it was of a vague and evasive character, and such as not to give him to understand or suppose, or to suggest to him, that the transaction was to be regarded as a sale of the coupons by either side, in view of his emphatic testimony that he would -not have made the transaction on that basis, and the reasons he assigned for not being willing to do so. In the case of Mr. Bennett he testified that he had previously collected second mortgage coupons at the office of the Atlantic Trust and Deposit Company in cash and took the coupons involved in this controversy that were héld by ¹¹ him to the same place and received the check of R. C. Flower & Co., “ per Hill,” in payment for them and collected the check, and said