Keene v. Snowden

Bartol, C. J., delivered the opinion of the Court. On the 11th day of December 1871, Joshua Kidd and wife executed a mortgage to “ The Merrimac Perpetual Building Association No. 1,” conveying a house and lot on Ensor street in Baltimore City. The condition of the mortgage was that the mortgagor should perform certain covenants contained therein ; among them the payment of certain weekly dues, &c. &c., until the combined weekly payments should amount to $4000. The mortgage recites as the consideration therefor, an advance by the Association of $4000, ($2000 in cash, and the balance in six and twelve months,) — the mortgagors accepted in lieu of money the promissory notes of the mortgagee, on each of which was the endorsement “this note is secured by mortgage on house No. — Ensor street, Baltimore.” One of these notes came into the hands of G-aehle the complainant for value, and was afterwards renewed; a new note for the same amount was given by the mortgagee dated January 11th 1873, payable twelve months after date to Jos.

Kidd or order, and by him endorsed to the complainant for value, and the same memorandum was endorsed thereon, “that it was secured by mortgage on house No. — Ensor street, Baltimore.” Proceedings in chancery were instituted against the Association, and in October 1873, John Henry Keene, Jr., Isidor Rayner and Samuel Snowden were appointed and duly qualified as receivers. They instituted proceedings and obtained a decree for the sale of the mortgaged property ; the sale was made by Mr. Ratcliffe who was ap ³⁴⁶ pointed trustee for that purpose, and was finally ratified on the' 12th day of May 1874. At this sale Henry'Kidd was the purchaser for $3000, and the property was conveyed to him hy the trustee on the 21st day of May, 1874, and on the 29th of March 1877 he mortgaged the same property to “ The Baltimore Butchers’ Loan and Annuity Association ” a body corporate.. After the ratification of the sale by Ratcliffe, trustee, the case was referred to the auditor.

The auditor’s report showed a balance of $1802, for further distribution by Ratcliffe, trustee, after allowing for three notes held by the German Bank similar to that held by Gaehle, and.amounting to over $1000. Gaehle’s note was not filed. In the case in which the receivers were appointed, after notice was given by publication in the newspapers to “ all creditors to file their claims properly authenticated with the clerk of the Court,” the case was referred to the auditor who stated an account, which was finally ratified on the 19th day of September. By this account it appeared that several claims were allowed to parties claiming by subrogation; their claims being secured by mortgages held by the Merrimac B. Association No. 1.

That account showed also that a dividend was allowed to Gaehle of $38.79 on a claim of $464.84. The basis of the claim being an affidavit made by John Henry Keene,' Jr., on the 5 th day of May 1876, “that Gaehle is the owner and holder of a promissory note, made by the Merrimac Building Association, the defendant in' this cause, said note is payable to the order of the President of said Association, endorsed by the officers, for the sum of four hundred dollars, and dated May 1st 1872 payable twelve months after date, to the best of deponent’s knowledge and belief, that said note was filed among the papers in this cause, and that it has been mislaid or lost; that diligent search for it has been made and in vain; that an ³⁴⁷ affidavit has heen filed to said note, taken by the claimant, Mr. Gaehle.” All the money in the hands of the receivers has been paid according to the auditor’s account, except the dividend to G-aehle, who refused to receive the same, and on the 3rd day of' May 1877, he filed this bill of complaint against the receivers, Henry Kidd, the purchaser at the trustee’s sale, and the Butchers’ Loan Association. The object of the suit is to hold the defendants and the property answerable for the payment of his note. So far as regards Henry Kidd and his mortgagee, there is no equity in the bill against them.

They are bona fide purchasers, without any notice of the complainant’s claim, and the property in their hands is held free from any claim or lien of the complainant; the Circuit Court was clearly right in dismissing the bill as to them. We are next to inquire whether the bill can be maintained'against the receivers or either of them. The complainant was equitably entitled to the security of the mortgage for the payment of the note; this was distinctly decided in McGracken’s Case, 43 Md., 471 . Although the note was not given by the mortgagor, and did not represent any part of the mortgage debt, it formed part of the consideration for which the mortgage was given.

The mortgagee as the maker of the note, was primarily bound to pay it, and held the mortgage as an indemnity from the mortgagor, the payee, for whose benefit the note was drawn. Under such circumstances, the security of the mortgage enures to the benefit of the holder of the note, who would be entitled to the security afforded by the mortgage for its payment. It follows that the complainant was entitled to a prior lien or claim upon the fund arising from the sale of the mortgaged property, provided this claim had been asserted at the proper time and in the proper manner, by filing it in Court, duly authenticated.