Economy Savings Bank v. Gordon

⁴⁹⁸ Schmucker, J., delivered the opinion of the Court. On July 30th, 1897, Cecil R. Atkinson executed a mortgage upon a warehouse, owned by him, on South Howard .•street, in Baltimore City, to Alphonzo J. Steers, which recited that he was indebted to Steers “ in the full sum of fifteen thousand dollars, payable February 10th, 1898,” and that it was executed to secure the payment of this debt with interest thereon. The mortgage was in due form, was regularly acknowledged and had attached to it a proper affidavit as to the éona fides of the consideration therein stated, and it was recorded on the day after its date. No note accompanied the mortgage but it contained a covenant to pay the mortgage debt and interest.

About the same time Steers, the mortgagee, applied to the American National Bank to lend him $6,000, offering to assign the mortgage as security for the loan. Schott, the cashier of the bank, explained to him that a national bank could not lend money upon real estate secui'ity,but informed .'him that the appellant savings bank, of which he (Schott) ■was ti'easurer, had some money on hand and would lend Aim $5,000 upon the mox'tgage if the security proved to be ■ample, but the matter must first be referred by the appellant to a committee who would investigate and report upon Ihe security. Steel's assented to the terms suggested by Schott and a committee from the appellant went upon the mortgaged premises and examined them and reported favorably upon the loan, provided there wex-e no incumbrances upon the property prior to the mox'tgage. The matter was then referred by the appellant to its attorney to ■examine the title, Steers placing the mox'tgage in its hands for that purpose.

The attorney examined the title and x-e-•ported favorably upon it, whei'eupon the appellant, oxx August 6th, 1897, lent the $5,000 to Steers, and at the same time took from him an assignment of the mortgage as security for the loan. The $5,000, so loaned, was given to Steers in the check ⁴⁹⁹ of the appellant to his order upon the American National Bank in which the appellant had on deposit at that time more than the amount of the check. Steers endorsed the check to the Eastern Electric Company, which at once deposited it to its own credit in the bank upon which it was drawn, and the $5,000 was passed to the credit of the Electric Company and charged to the appellant upon the books of the bank. The money was then used by the Electric Company to the extent of $2,000, in the payment of a loan which had been made by one Myerdirck upon a previous unrecorded assignment of the Atkinson mortgage, and the remaining $3,000 was almost entirely paid to the American National Bank in satisfaction of obligations due to it by the Eastern Electric Company, or by Geo.

H. Atkinson, a brother of Cecil R. Atkinson, the mortgagor. Steers subsequently assigned his equity in the $15,000 mortgage to one C. S. Hinchman as collateral security for a loan of $2,000. It appears from the record that Cecil R. Atkinson, the mortgagor, and his four brothers, William J., George H., Harry and Richard F., were promotors by profession, and together operated and controlled the Eastern Electric Company and other kindred corporations, all of which proved to be speculative enterprises and soon became insolvent and passed into the hands of receivers. Steers, who was put upon the stand by the appellees, testified that the consideration for the $15,000 mortgage from Atkinson to him consisted of $10,000 of Best Telephone Company bonds and $5,000 of Best Telephone Company stock which he had let Atkinson have prior to the execution of the mortgage, but his testimony was so inconsistent and contradictory in its different portions that it cannot be accepted as reliable.

The whole testimony touching the consideration for the mortgage leads to the conclusion that there was no substantial consideration for it, but that it was executed to provide a means of raising money to assist the Atkinson brothers in staving off the impending insolvency of the Eastern Elec ⁵⁰⁰ trie and Best Telephone Companies and the other enterprises which they were then attempting to keep afloat.. On December 29th, 1897, nearly five months after the loan of the $5,000 to Steers by the appellant and the assignment to the latter of the mortgage, Douglas H. Gordon, one of the appellees, obtained a judgment for $5,442.30 against the mortgagor, Cecil R. Atkinson, and his brother, Wm. J. Atkinson, on a note given by them to him on Nov. 13, 1896, for a loan which he then made to them upon Best Telephone Company bonds and stock as collateral. Gordon testified that at the time he made this loan Wm.

J. Atkinson stated that his brother, Cecil R., owned the Howard street warehouse, and he, Gordon, suggested that he be given a mortgage on the warehouse as security for the loan about to be made by him. W. J. Atkinson declined to procure the mortgage, saying that it would injure his brother’s credit, but státed that Gordon would have the benefit of the property by having its owner, Cecil R. Atkinson, upon the note. Gordon testified that he relied on this statement of Wm. J. Atkinson in making the loan.

Harry W. Boreau, the other appellee, obtained a judgment for $503.80 against Wm. J. Atkinson and Cecil R. Atkinson, on Sep. 29, 1897. On Dec. 18, 1897, after Boreau had obtained his judgment and after Gordon had sued the Atkinsons, but before he had gotten his judgment, the appellees instituted the present case, which is a creditor’s suit in equity against the appellant, Cecil R. Atkinson, Steers and Hinchman. The bill of complaint alleged that the mortgage from Atkinson to Steers and the successive assignments of it by him to the appellant and Hinchman were all without consideration and fraudulent and prayed to have them declared void.

The appellant answered the bill denying its material allegations and setting up its title to the mortgage to the extent of the $5,000 loaned on it and interest as a bona fide purchaser for value without notice of any infirmity in it. Neither Hinchman nor Steers answered and a decree pro confesso was entered against them. ⁵⁰¹ The case against the appellant came regularly to a hearing and the Court below at first filed an opinion sustaining the appellant’s claim, but upon a rehearing of the case 'the learned judge changed his views of the case and filed another opinion of a contrary tenor and signed the decree appealed from, denying the appellant’s claim to a lien on the property and directed it to be sold for the benefit of the creditors of the mortgagor. In his second opinion the learned judge held, upon the authority of the Cumberland Coal and Iron Co’s, case, 42 Md. 598 , that the appellant, although he found it to be a bona fide purchaser for value of the mortgage without notice, was not entitled to a lien for its loan to Steers and interest, made upon the faith of the mortgage, because the latter not being accompanied by a negotiable obligation was a mere chose in action which the appellant must be treated as having taken subject to all equities that might have been urged against it in the hands of Steers, the mortgagee. Under the facts of the case the appellant must be regarded as a bona fide purchaser for value of the mortgage without notice.

It advanced its $5,000 upon the mortgage in the ordinary course of business after a careful inquiry into to the value of the property and an investigation of the title upon the public records. It was not concerned in the disposition made by Steers of the borrowed money, not one dollar of which went back into its hands or was expended for its benefit. It was not put upon inquiry as to the bona fides of the mortgage by the fact that Schott, its treasurer was also cashier of the American National Bank, where Steers and the Eastern Electric Company and one or more of the Atkinson brothers kept their accounts, and that he might have seen, by an examination of the books of the bank, what disposition was made of the borrowed money. There was, in fact, nothing in the use made of the money to suggest any infirmity in the mortgage.

The next question to be determined is what are the rights of the appellant, as such bona fide purchaser, against ⁵⁰² the claims of the appellee. As there was no attempt by-Steers to assign the mortgage debt to one person and the mortgage to another, we are not called upon to consider the relative equities of one who claims as assignee of the debt and another who claims as assignee of the mortgage, as the Court were in the cases of Clark v. Levering, 1 Md. 178 , and Byles v. Tome, 39 Md. 461 , which were in part relied on by the appellees. What we have to consider is the attitude of the appellant as the bona fide purchaser of both debt and mortgage towards the creditors of the mortgagor, who were such at the time the mortgage was made. The mortgage was not given to secure an actual indebtedness of fifteen thousand dollars as it professes on its face to have been.

Its execution was evidently a means adopted by the parties to it to clothe Steers, the mortgagee, with the appearance of a good title to a large debt secured by a valid mortgage in order to enable him to raise money upon it. It was not fraudulent in the sense that its execution had been procured by fraud, misrepresentation or constraint practiced on the owner of the land who executed it, as was the case in Central Bank v. Copeland, 18 Md. 305 , and The Cumberland Coal and Iron Co. v. Parrish, 42 Md. 598 , in each of which the defrauded mortgagor was protected in equity against the assignee of the fraudulent mortgage. In the present case the execution of the mortgage was the voluntary and deliberate act of the mortgagor from which he had no equity to be relieved, even as against the mortgagee. Snyder v. Snyder, 51 Md. 77 ; Cushwa v.