Dickey, Tansley & Co. v. Pocomoke City National Bank

Boyd, J., delivered the opinion of the Court. Charles R. Lewis sold to the People’s Transportation Company, of Washington, D. C, a vessel named “Lady of the Lake,” and in part payment therefor the 'company executed, on the 24th day of August, 1894,.a mortgage on it for the sum of $30,000, payable in three equal payments of ten thousand dollars in four, eight and twelve months, respectively, with interest from date, “ as evidenced by three bills obligatory of said corporation” of even date therewith. The mortgage was recorded in the Custom House at Washington City. Some question was made at the argument as to whether the evidences of debt were promissory notes or single bills, but not only the form of the instruments shows them to be the latter, but the description of them in the mortgage, as above quoted, indicates very clearly that they were so intended to be by the parties.

We will, therefore, without further discussion of that question, treat them as such in the consideration of the case. Franklin C. Lewis made application on behalf of his brother, Charles R. Lewis, to the Pocomoke City National Bank to discount the single bill which was payable four months after date, but being informed by the cashier that ²⁹¹ the bank could not lend to any one person more than five thousand dollars, he returned on the ioth of September, 1894, with a note signed by himself and endorsed by Charles R. Lewis, and Charles R. Lewis and Company for five thousand dollars, dated September 1, 1894, and another for the same amount dated September 7th, which was made by Charles R. Lewis, endorsed by Franklin C. Lewis, and payable four months after date. With them he left as collateral the three single bills, the mortgage and insurance policies on the “ Lady of the Lake,” amounting to thirty thousand dollars. The single bill payable four months after date was endorsed in blank by Charles R. Lewis, but neither of the other two, nor the mortgage, nor the policies were endorsed.

The latter were issued to the Transportation Company, but were so framed as to be payable to Charles R. Lewis, mortgagee, as his interest might appear. The note signed by Franklin C. Lewis as maker, was renewed for a month and then paid, and the other was finally reduced to four thousand dollars. The single bill, which was endorsed by Lewis, was duly presented for payment, but was not paid. On February 15, 1895, the “ Lady of the Lake ” was destroyed by fire, and on the 21st of that month Franklin C. Lewis presented a letter from Charles R. Lewis to the cashier of the bank requesting him to send the policies so that he could collect the insurance money, and promising to remit to the bank the amount due it out of the money so collected.

The cashier mailed the policies to Charles R. Lewis, in order that he “might collect the money and pay the debt for which they stood pledged,” to use the language of the cashier. Some of the policies proved to be worthless, but suits which had been brought on others were finally compromised for $8,500.00. Messrs. Baldwin and Boston, the attorneys who collected the money, filed a bill of interpleader in the Circuit Court of Baltimore City, alleging that they had collected that amount and that after paying fees, expenses, etc., they had in hand $6,611.12, which was claimed by various creditors of Charles R. Lewis, ²⁹² who were made parties to the proceedings.

A decree was passed that the defendants interplead, and after considerable testimony was taken, another decree was passed directing that the fund be distributed in the following order: 1. To Edmund B. Duval, for services rendered and money expended by him in connection with the policies of the insurance upon the “ Lady of the Lake,” less such amount as he had received. 2. To the Pocomoke City National Bank the amount in full of its claim. 3. To Franklin C. Lewis the amount of interest paid by him to the bank as endorser for Charles R. Lewis, in subrogation to the rights of the bank. 4.

To Edmund B. Duval, the Second National Bank of Baltimore and the Maryland Meter and Manufacturing Company, according to their respective priorities, as assignees under an assignment from Lewis to Duval, as trustee, of October 18, 1895. The costs were directed to be paid out of the fund and the entire amount being thus consumed, the bill was dismissed as to the other parties and the case referred to the auditor to state an account in accordance with the decree. Charles E. Dickey and Charles H. Dickey, partners, trading as Dickey, Tansley and Company, and also as the Maryland Meter and Manufacturing Company, and the Second National Bank of Baltimore, appealed from the decree, but the other parties did not. The Dickeys also appealed from an order of the Court dismissing a petition filed by them on the 27th of October, 1898, which alleged that Franklin C, Lewis was a member of the firm of C. R. Lewis and Company and other matters, and prayed the Court to refer the case to an Examiner or the Auditor to take testimony on the the matters alleged, and not to sign a decree in the case pending said proceedings.

It has been expressly decided by this Court in Waring v. Turton, Trustee, 44 Md. 546 , that no appeal lies from an order dismissing a petition for a rehearing filed under very similar cir ²⁹³ cumstances to those presented by the one in this case, and the appeal from that order will be dismissed. As the main question to be determined by us is whether the claim of the Pocomoke Bank is superior to that of Duval, trustee, under the assignment of October 18th, 1895, we will first ascertain what rights became vested in that bank in September, 1894, when the single bills, mortgage and insurance policies were left with it, as above described, and then see how far, if at all, the bank’s claim to the fund is affected by its sending the policies to Lewis on February 21, 1895, and by its subsequent conduct. There can be no question but that the title to the single bill, which was endorsed by Charles R. Lewis, at that time became vested in the Pocomoke Bank, as collateral security for the debt he owed the bank. The endorsement in blank, accompanied by delivery, authorized it to fill up the blank with an assignment to itself, and it could have sued the maker in its own name.

Chesley v. Taylor, 3 Gill, 251 ; Jackson v. Myers, 43 Md. 462 ; Code, Art. 8, séction 1. It was wholly immaterial that it could not have sued Lewis as assignor, because it was not assigned under his hand and seal, as provided for by section 9 of the above-named Article of the Code. As it was only assigned as collateral, and Lewis was personally liable on the notes given by his brother and himself, it may have been thought unnecessary to take the assignment under his hand and seal, so as to thereby bind him, but however that may be, the assignment in blank gave the bank absolute control over it to the extent of the debt intended to be secured by it. The other two were not endorsed, but they were left with the bank as collateral, according to the testimony of Franklin C. Lewis, and Wm.

F. King, the cashier, and indeed the bank still holds all three of them. The original proposition was to discount the single bill which first matured “ upon the placing of all the above-named papers as collateral security to secure the payment thereof,” and when the notes were taken with these collaterals, it is possible that only the one wa s ²⁹⁴ endorsed because it would mature before the notes would, and, if it had been paid, would have cancelled the indebtedness of Lewis to the bank. But if it be true that all three were left as collateral (and the testimony of Messrs. Lewis and King is uncontradicted as to that), then the right of the bank to a priority in any fund derived from the mortgaged property, if it had been sold, might have been asserted on either of two grounds — notwithstanding two of the single bills were not endorsed.

In the first place, when a mortgagee assigns one of three notes, or single bills, secured by one mortgage, and delivers the other two, although not endorsed, to the assignee as collateral, that of itself is some evidence of the intention of the mortgagee to give the assignee of the one priority over the others, if the fund derived from the mortgaged property prove to be insufficient to pay them in full. It is true that a mere assignment of one note does not give the assignee priority over others retained by the mortgagee, as was held in Brown, Trustee, v. The Freestone M. & M. Co., 55 Md. 547 , and other cases in this State; but in Chew v. Buchanan, 30 Md. 367 , in discussing the question of priorities, the Court said: “ Where the meaning of the parties has been expressed, or can be inferred from their acts, there has been no difficulty in disposing of the question;” and in Dixon v. Clayville, 44 Md: 573, the rule laid down in Donly v. Hays, 17 Serg. & Rawle, 400 , was adopted. It was there said that “ different parties holding respectively the several notes, or being entitled to the several instalments or portions of the debt secured by one mortgage, unless there be something in the terms of the contract to indicate a different intention, stand in equali jure," and again that “ the exception or qualification to this rule is where the assignor by guarantee or otherwisef becomes liable to the assignee for the payment of the installment, or part of the debt assigned. In such case the assignor, if he continues to hold the other portion of the debt, would not be allowed to participate in the fund until the installment due the assignee is fully paid.

The effect ²⁹⁵ of a contrary rule would be to lead to a mere circuity of action.” In this case the assignor, Lewis, was liable on the notes, which were given instead of the single bill which he intended to have discounted. It was all one transaction, and even if he had retained in his possession the two single bills, and the mortgaged property had been sold, and the proceeds had proven insufficient to pay the three in full, it would certainly have led “to a mere circuity of action ” to permit him to receive a distribution on the two and require the bank to sue him for the balance due it, but the proof is conclusive that it was the intention of the parties to assign as collateral the whole of the indebtedness secured by the mortgage. His act in giving the two, though unendorsed, to the bank, was as distinct a declaration that the one endorsed was to have priority over them as if he had entered into a written agreement to that effect. Again, a written assignment was not necessary but the mere delivery of a bond and mortgage as security is a valid pledge and will be so treated in a Court of Equity.

Crane v. Gough, 4 Md. 334 ; Kamena v. Huelbig, 23 N. J. Eq. 78; Galway v. Fullerton, 17 N. J. Eq. 389; Prescott v. Hull, 17 Johns. (N. Y.), 284; Runyan v. Mesereau, 11 Johns. (N. Y.), 534; 18 Ency. of Law, 650. So on either ground the assignment of the one single bill and the delivery of the other two as collateral security, were sufficient to entitle the Pocomoke Bank to the benefit of any fund that could have been realized from them, to the extent of the debt for which they were pledged.

Independent of the Act of 1892, chap. 392, the assignment of the one single bill with the priority we have said was given, or of the three in the way we have stated, carried with it the mortgage and gave the bank the benefit of that lien. Demuth v. Old Town Bank, 85 Md. 323 , and other cases there cited. But it is said that the Act of 1892 is applicable, and therefore Lewis was conclusively presumed to be the owner of the mortgage after maturity. That Act provided that the title to notes and other instruments ²⁹⁶ secured by mortgages shall, after the maturity of such notes, etc., be conclusively presumed to be vested in the person holding the record title to the mortgage, and if the mortgage is released of record, the notes, etc., secured by it, shall, after their maturity, be conclusively presumed to be paid, so far as any lien upon the property conveyed by the mortgage is concerned.

The object of the Act was to avoid the complications that often arose by reason of the fact that the release of a mortgage by the mortgagee was not valid, unless he also owned the eviednces of debt secured by it, and hence it often left the titles to the mortgaged property involved, as the ownership of the evidences of debt was not necessarily, or usually, a matter of record. But without stopping to discuss the effect of that Act, under such circumstances as we have before us, if the mortgage had been recorded in this State on property located here, is it applicable to this case ? The mortgage was not recorded in this State but in the Custom House at Washington, District of Columbia. It can make no difference that the negotiation took place here, for if it was necessary to record the assignment, of course it must have been recorded where the mortgage was recorded, and could not have been elsewhere and accomplish what the law was designed to do.

Although this mortgage was doubtless recorded under the Act of Congress applicable to bills of sale, mortgages, etc., on vessels, the question has been argued as if it had been recorded under the laws of the District of Columbia, and there is no evidence as to what the law is in the District. The authorities are not uniform as to whether the Courts of one State will presume, in the absence of anything to the contrary, that a foreign State has adopted the same statute that is in force where the case is pending. But it would be carrying such presumptions to an unreasonable extent to presume, without any proof to that effect, that there is a statute similar to the Act of 1892 in force in the District of Columbia, even if it be assumed that the mortgage was recorded under the laws in force there. That statute made a complete ²⁹⁷ change of the law on the subject in this State.

Prior to its passage the mortgage followed the debt secured by it, and became the property of the owner of the latter, but since then the debt, after maturity, follows the mortgage and is conclusively presumed to belong to the person holding the record title to the mortgage. Until 1892, if the question had arisen in this State, in the absence of proof to the contrary, it would have been presumed that the owner of the single bills was the owner of the mortgage, for that was and always had been the common law of this State, and the common law would have been presumed to be in effect in the District, and must it now be assumed that the Congress of the United States passed a statute for the District similar to ours, contemporaneously with it, although the contrary was presumably the law in the District for the previous hundred years ? When a statute thus radically changes the common law of one State, there is no good reason to presume that the Legislature of another State has done likewise. In State, use Allen v. C. & P. R. R. Co., 45 Md. 41 , this Court, after stating that the presumption is that the common