Chipman v. Farmers & Merchants National Bank

³⁴⁵ Thomas, J., delivered the opinion of the Court. This appeal is from a decree of the Circuit Court of Baltimore City dissolving an injunction granted upon the application of the appellants and dismissing their hill of complaint. On the 5th of June, 1906, a petition was filed in the District Court of the United States for the District of Maryland against Henry C. Chipman, who was engaged in the business of manufacturing and selling chairs in Baltimore City, to have him adjudged a bankrupt, and he received his discharge in bankruptcy on the 23rd of March, 1907. At the time the petition was filed he was indebted to his wife, Emma G. Chipman, in the sum of $62,000.00; to his brother, Washington Chipman in the sum of $54,246.30; to his daughter, Mary C. Chipman, in the sum of $48,263.06; to his daughter, Jennie C. Dushane, in the sum of $38,298.52; to the Third Rational Bank of Baltimore in the sum of $13,500.00; and to the Parmers and Merchants Rational Bank, the appellee, in the sum of $24,156.60, which claims were filed against his estate.

On the 14th of August, 1906, Emma G. Chip-man, Washington Chipman, Mary C. Chipman and Jennie C. Dushane executed the following agreement: “This agreement made this 14th day of August, 1906, by and between Washington Chipman,- Mary C. Chipman, Emma G. Chipman and Jennie C. Dushane, hereinafter styled assignors, and Edward R. Rich, assignee. Whereas, the assignors, and each of them, did on the third day of July, 1906, in writing, duly assign all their and each of their respective claims and debts against the estate of Henry C. Chipman, bankrupt, and all dividends that may be due on said claims to the said Edward R. Rich, assignee, and at the time the said assignment was made it was agreed by and between the parties hereto that the said assignee should use, appropriate and apply all dividends received on said claims to the payment and satisfaction of the debts due by the said Henry C. Chipman, bankrupt, to the Third Rational Bank of Baltimore City, until said ³⁴⁶ debts were paid in. full, and that after the payment in full of the debts due by the said bankrupt to the aforesaid bank the said Edward H. Rich, assignee, should pay the balance of said dividends to the asignors, the same to be paid by a check to the order of all of said assignors; and, whereas, it has been agreed by and between the parties hereto that the said Edward H. Rich, assignee, shall pay the balance of the said dividends, which may remain in his hands after the payment has been made of the aforesaid debts of the Third Rational Bank, to the Farmers and Merchants Rational Bank, on account of the debts due the said bank by the said bankrupt. Row, therefore, this agreement is executed and witnesseth, that the assignors do hereby authorize and direct the said Edward R. Rich, assignee, to pay over to the Farmers and Merchants Rational Bank of Baltimore City on account of the debts due by the aforesaid bankrupt to the said bank, all of the aforesaid balance of the said dividends that may be received by him, until the said debt and interest shall be paid in full.” The agreement contained the further provision that the amount so paid by said Rich might be charged by him against all the assignors, or against any one or more of them, and that he should npt be required to apportion the same “between” them. On the 13th of September, 1906-, the Farmers and Merchants Rational Bank and George IT.

Chipman, a son of Henry 0. Chipman, entered into the following agreement: “This agreement, made this 13th day of September, 1906, by and between the Farmers and Merchants Rational Bank of Baltimore and George H. Chipman: Witnesseth, That for and in consideration of the agreement made and entered into this day by and between Edward R. Rich and the said Farmers and Merchants Rational Bank the said Farmers and Merchants Rational Bank agrees with the said George H. Chipman that it will procure a loan of forty thousand dollars ³⁴⁷ ($40,000.00) to be made to said Chipman, which loan is to be secured by a first mortgage, with the usual covenants, conditions and agreements satisfactory to said bank on the leasehold property on the south side of Boston street in the City of Baltimore, and the improvements thereon, and the plant, machinery, tools, furniture, fixtures and appliances located therein, and also located on the fee simple lot of ground or in the improvements thereon at the northwest corner of Boston street and Lakewood avenue, in said city, the said leasehold property being the same property which was formerly used by Henry C. Chipman as a chair factory, said leasehold property to be free of all encumbrances except the ground rent of two thousand dollars ($2,000.00) per annum. The principal of said loan shall bear six'-1 per cent, interest (6%) per annum, payable quarterly, and said principal shall be payable as follows: $5,000.00 in two years, $5,000.00 in four years, and $30,000.00 in ten years, and said loan and interest shall be evidenced also by the promissory notes of George H. Chipman. Said Farmers and Merchants National Bank further agrees that after it shall have received its claims in full (which said claims are specially mentioned in, referred to and payable in the manner set forth in the aforesaid agreement between said bank and said Edward N. Rich), it will procure an additional loan of $5,000.00 to be made to George H. Chipman, said loan to bear six per cent, interest per annum, payable quarterly, and to be paid off at a period of five years from the date of the aforesaid loan of $40,000.00, said loan to be secured by a second mortgage, with the usual covenants, conditions and agreements satisfactory to said bank on the aforesaid leasehold property, improvements, plant, machinery, tools, furniture, fixtures and appliances, subject only to the aforesaid ground rent and mortgage of $40,-000.00, eand said loan and interest shall be evidenced also by the promissory notes of George H. Chipman.

The procuring of said loan is conditioned upon the ³⁴⁸ said Chipman complying with all the terms, covenants and conditions contained in the aforesaid mortgage to secure the sum of $40,000.00, and upon the said bank receiving its aforesaid claims in full at or before the expiration of one year from the date of the aforesaid loan of $40,000.00, which claims said George H. Chip-man agrees to pay at or before said expiration, provided they shall not have been received under the aforesaid agreement with Edward R. Rich. The mortgage loans herein provided for are conditional upon the title to the leasehold property being guaranteed by the Title Guarantee and Trust Company.” To this agreement was attached the following guaranty executed by Henry C. Chipman on the same day: “Whereas, the Farmers and Merchants Rational Bank has this day entered into an agreement with George H. Chipman to procure a loan of forty-five thousand dollars ($45,000.00); and whereas; said agreement was entered into at my request; and whereas, a condition precedent to the making of said agreement and the procuring of said loans is that this guarantee should be executed; now, therefore, in consideration of the premises and of the execution of the aforesaid agreement by the Farmers and Merchants Rational Bank of Baltimore, I hereby guarantee the repayment of any loans made under the said agreement, it being understood that this guarantee shall inure to and be made for the benefit of any person holding the notes evidencing said loans, it being further understood that recourse can be had against me immediately upon default in the repayment of any of said loans.” The agreement referred to in the above agreement between the bank and George H. Chipman as having been made by-Edward R. Rich on the same day, after reciting the bankruptcy of Henry C. Chipman; that the claims To which we have referred had been filed against his estate, and the provis ³⁴⁹ ions of the assignment by Washington Chipman and others of their said claims to him, for the purpose therein stated, as set out above, then proceeds as follows: “Row, therefore, this agreement witnesseth, That in consideration of the agreement this day entered into between the Farmers and Merchants Rational Bank and Geo. H. Chipman, the said Edward R. Rich hereby agrees to collect the dividends which may be finally audited and awarded to the aforesaid Washington Chipman, Mary C. Chipman, Emma G. Chipman and Jennie C. Dushane, and he further agrees, after the aforesaid Third Rational Bank shall have been paid out of the dividends so collected the balance due upon its claim, to pay all the balance of said dividends received by him to the aforesaid Farmers and Merchants Rational Bank until its aforesaid claim, amounting to $24,438.20, shall be paid in full with interest, as hereinbefore set out; no part of the amount paid to the aforesaid Farmers and Merchants Rational Bank by the said Edward R. Rich, shall be credited on account of the balance due to said bank by the aforesaid Henry C. Chipman, bankrupt, and when the said bank shall have been paid its claim in full, it will assign to the said Edward R. Rich so much of the said claims as shall have been paid by him.” George H. Ohipman became the purchaser from the trustee in bankruptcy of the property formerly owned by his father, Henry 0. Chipman, consisting of the leasehold property, plant, machinery,, etc., constituting the factory referred to in his agreement with the bank and the raw and manufactured material on the premises, and on the 15th of September, 1906, he. conveyed the same by mortgage, containing the usual terms and covenants, to Edward .Duffy of Baltimore City, to- secure the payment of a loan of $40,000.00, and interest thereon at six per cent, per annum, and further evidenced by three promissory notes, payable to said Duffy, as follows: One for $5,000.00, payable in two years; one for ³⁵⁰ $5,000.00, payable in four years; one for $30,000.00, payable ten years after date, and notes for tbe interest on said sums.

On the 27th of October, 1906, the bank received from Edward N. Rich the sum of $7,438.10 and on February 27th, 1907, the further sum of $12,327.40, which sums, amounting to $19,755.51, with the dividends the bank received on its claims, paid in full its claim against the estate of Henry C. Chipman, and on the 6th day of April, 1907, George H. Ohipman executed to Edward Duffy a second mortgage of said property to secure a further loan of $5,000.00 and interest at six per cent, per annum, for which he gave to said mortgagee his promissory note for $5,000.00 payable four years after date, and other notes for the interest on said principal sum. These notes and the notes secured by the first mortgage and the mortgages were assigned by the mortgagee to the Farmers and Merchants National Bank, and the'proceeds of the bank’s checks to the mortgagee for the amount of said loans were received by George H. Chipman. Henry C. Chipman having received his discharge in bankruptcy, he and George H. Chipman, on the 9th day of May, 1907, executed a guaranty to the bank, in which, after reciting that George H. Chipman had borrowed from Edward Duffy the amounts mentioned in the two mortgages; that George H. Ohipman had carried on the business in the name of George Chipman & Son, and had used the money so borrowed in his business; that all the promissory notes referred to in said mortgages had been transferred by the mortgagee to the bank; that he, Henry C. Chipman, had or was about to enter into a partnership with George H. Chipman, .and that George H. Chipman had requested the bank to transfer his account in said bank to the account of said partnership under the name of George Chipman & Son, which the bank had agreed to do on condition that they executed said guaranty; they “jointly and severally, both individually and as co-partners trading as George Chipman & Son,” guaranteed the payment of and agreed to. pay each of the promissory notes ³⁵¹ described in said mortgages when they became due. After the execution of said guaranty tbe firm from time to time borrowed various sums of money from the bank until tbe sums so borrowed amounted, in August, 1908, to $6,900.00, for which the firm g’ave its note to the bank, and deposited with the bank, as collateral security for the note, forty-one shares of the capital stock of the Crown Cork and Seal Securities Company.

At the time the stock was deposited with the'bank, and before it was transferred to the bank, twenty-seven shares belonged to and was in the name of Emma G. Chipman, and the remaining fourteen shares belonged to Washington Chipman, and was in the name of George H. Chipman. One of the mortgage notes for $5,000 became due on the 15th of Septembex', 1908, and was not paid, and the note of the firm for $6,900.00 became due on the 18th of Septembex*, 1908. The bank having refused to accept renewal of the note for $6,900.00, the firm offex*ed to pay it and to take-up the stock deposited as collateral, but the bank refused to surrender the stock on the ground that by the terms of the note the stock was not only pledged to secure the payment of the note, but also to secure “any other indebtedness or liability ascex’tained or contingent (joint or several) that the said firm might then be xxnder or might thereafter incur”- to the bank. The bank threatexxed to foreclose the mortgage, and Emma G. Chipman and Washingtoxx Chipman threatened to contest the right of the bank to hold the stock as security for other indebtedness of the membex’s of said firm, whex*eupon, the said Emma G. Chip-man, Washington Chipman, George IT." Chipman, Henry C. Chipman and the bank, on the 6th day óf October, 1908, entered into an agreement-, in which, after setting out the excution of said xnortgages and notes, the pledging of said stock as collateral security for the payment of said notes, and the threat of Einmá C. Chipman and Washington Chip-man to contest the right of the bank to hold the stock as collateral security for the payment of the mortgage notes, and ³⁵² after reciting that it was entered into in order to avoid litigation, and in consideration of the mutual agreements therein, the said Emma G-.

Chipman, Washington Chipman, George H- Chipman and Henry C. Chipman agreed that the bank should hold said stock as collateral security for the payment of the notes mentioned in the mortgages and the note of $9,700.00 thereinafter mentioned, and any renewals thereof, and for any sums of money then or thereafter due the hank from George H. Chipman and Henry C. Chipman, or either of them, and the hank agreed to loan George Chipman & Son the further sum of $2,800.00 upon the delivery to it of the note of said firm for the sum of $9,700.00, covering the note of $6,900.00 and said additional loan, payable one year after date, with interest from date. The agreement also provided that the mortgage for $40,000.00 should not be foreclosed prior to.September 15th, 1912, and further provided: “that if the said George H. Chipman or Henry C. Chipman, either individually or as co-partners, trading as George Chipman & Son, shall fail to pay the note due September 15th, 1908, mentioned and described in the