Safe Deposit & Trust Co. v. Woodbridge

⁵⁶² Collins, J., delivered the opinion of the Court. Elizabeth W. Wilson of Baltimore City, on April 28, 1924, executed a deed of trust of certain securities to the Safe Deposit & Trust Company of Baltimore, which was amended by a later deed executed June 10, 1927. By the terms of this trust she reserved to herself during her life the net income therefrom and such part or parts of the principal as she might from time to time demand, and directed the trustee after her death to pay the net income therefrom to her adopted daughter, Elizabeth W. Woodbridge, during her life and thereafter to certain persons named therein. Elizabeth W. Wilson died March 26, 1940, testate, never having made any demand for any part of the principal of the trust estate.

The Safe Deposit & Trust Company of Baltimore was named executor and duly qualified. ■ • In 1924 and 1925 the trustee purchased as an investment for the trust an aggregate of $4,000 par value Florida, Central & Peninsular Railroad First Consolidated Mortgage 5% Bonds due January 1,1943. Seaboard Air Line Railway Company is successor by merger and consolidation to Florida, Central & Peninsular Railroad Company and in 1915 assumed all the obligations of the obligor with respect to the bonds, interest thereon, and the mortgage securing them. On December 23, 1930, receivers were appointed by the United States District Court for said Seaboard Air Line Railway Company. The receivers operated and still operate the properties securing said bonds as well as all the other properties of Seaboard Air Line Railway system.

The interest on the bonds to maturity is represented by negotiable coupons in bearer form. The interest coupons due previous to July 1, 1935, were paid by August 15, 1941. On March 2, 1942, the trustee under the mortgage securing the bonds filed foreclosure proceedings. On the same day the court appointed its aforesaid receivers as receivers in the foreclosure proceedings and consolidated the foreclosure proceedings with the original receivership.

The court further found that the trustee ⁵⁶³ under said mortgage was entitled to the income from the property covered thereby, but inasmuch as all the lines of the railroad operated by the receivers were operated as a unit or system, the court found it impossible for the receivers to determine and allocate the income from the property subject to such mortgage until a proper basis of allocation had been agreed upon or established by the court. No such allocation has been agreed upon or established by the court, and no decree of foreclosure or sale pursuant thereto has been had in the foreclosure proceedings. By order of court entered June 16, 1942, the receivers paid to the trustee on July 1, 1942, the interest coupon maturing on that date, and the trustee paid this distribution to Elizabeth W. Woodbridge, the payment having occurred after the death of Elizabeth W. Wilson. On October 30, 1944, the Reorganization Committee of Seaboard Air Line Railway Company applied to the court for authority and direction to the receivers to pay on December 1, 1944, eight semi-annual instalments.

Pursuant to that petition, the court ordered the receivers to pay eight semi-annual instalments of interest for the period July 1, 1939, to January 1, 1944 (exclusive of the coupon due July 1,1942, which had been paid as heretofore set out) at the rate of five per cent. (5%) per annum, except that the last two instalments for the year 1943 (the bonds matured January 1, 1943) should be made at the rate of six per cent. (6%) per annum. It is agreed by the parties to the case at bar that the reason why said Reorganization Committee applied for, and the court ordered the payment of the instalments of interest for the period July 1, 1939, to January 1, 1944, and the payment of the July 1, 1942 coupons, was the tax and accounting advantages to the receivership estate resulting therefrom.

The receivers have therefore paid all instalments of interest on the bonds for the period from July 1, 1929, to January 1, 1944, upon the surrender and cancellation of the coupons, except that no payment of the nine semi ⁵⁶⁴ annual interest instalments or the coupons representing the payments due for the period January 1, 1985, to July 1, 1939, have been paid. All of the interest so paid by the receivers was paid out of earnings from the property securing the bonds. The Seaboard Air Line Railway Company in no instance made objections to any of such applications or to the interest payments proposed thereby. None of the parties to the case at bar were parties to said receivership proceedings.

All of the outstanding bonds and the mortgage securing the bonds were executed and delivered in the State of New York. The place of payment of principal and interest is specified as the City of New York. The Safe Deposit & Trust Company of Baltimore, trustee, has distributed to Elizabeth W. Wilson or her estate all of the aforesaid instalments of interest received by said trustee except that (a) the said trustee distributed to said Elizabeth W. Woodbridge the July 1, 1942 instalment paid on that date as above set forth, and (b) the said trustee has made no distribution of the eight semi-annual instalments of interest paid December 1, 1944, designated by the receivers, under order of court as interest payments due for the period from July 1, 1939 to January 1, 1944. The Safe Deposit & Trust Company of Baltimore as trustee, being unable to determine to whom the payments designated by the receivers for the period July 1, 1939, to January 1, 1944, should be paid under the trust aforesaid, submitted this case as a special case stated in Circuit Court No. 2 of Baltimore City.

The Chancellor there decreed that the Safe Deposit & Trust Company of Baltimore, as executor of the estate of Elizabeth W. Wilson, should receive that part of such interest paid for the period from July 1, 1939 to March 26, 1940, when Elizabeth W. Wilson died, and the said Elizabeth W. Wood-bridge should receive that part of such interest paid for the period from March 26, 1940, to January 1, 1944. From that decree the appellant appeals. As according to the stipulation filed the receivers on March 21, 1940, found that the cash situation did not ⁵⁶⁵ justify payment before January 1, 1941, of more than one instalment then paid against the July 1, 1934, coupons, it is evident that the payments in dispute represented earnings after March 21, 1940. Under the plan for reorganization of the Seaboard Air Line Railway Company, it is admitted by the parties in the case at bar that there is every indication that all income and principal obligations on the bonds will be ultimately satisfied.

The appellant, however, contends that the nine payments received by the trustee from the receivers, designated as payment of interest for the period July 1, 1939 to January 1, 1944, should be applied by the trustee to satisfy the defaulted coupons due for the period January 1, 1935 to July 1, 1939, the result being that all of the payments in dispute would be paid to the appellant as Elizabeth W. Wilson did not die until March 26, 1940. The intention of the settlor of the trust should, of course, control. Handy v. McKim, 64 Md. 560, 568, 569 , 4 A. 125 ; Rogers v. Sisters of Charity, 97 Md. 550, 553 , 55 A. 318 . In the instrument creating this trust the words are plain and simple.

The settlor simply directed the payment of the income to herself for life and after her death to Elizabeth W. Woodbridge during her life and thereafter to certain other persons. If the payment of the nine instalments of interest in dispute was payment of interest or coupons due during the lifetime of AAAv.AotAAiAS; .^AAson, Ac, AmAA, oi AAsAtAVuted by the trustee to the appellant as executor of her estate. If, on the other hand, it was payment of interest or coupons due after her death, it should, of course, be distributed to the parties entitled to that income after her death. It is said in Restatement, Conflict of Laws, Section 368, “Application of Payments”: “The law of the place of performance governs the application of a payment to one or another of several debts payable there by the person making the payment to the person receiving it.” See also Section 358.

Fear v. Bartlett, 81 Md. 435, 446 , 32 A. 322 , ⁵⁶⁶ 33 L. R. A. 721. The law of the State of New York would therefore govern the application of the payments in the case at bar. It is a well-settled principle of both civil and common law, universally applied, that a debtor of more than one debt to a creditor of a debt composed of several items, has the right to direct to which debt or debts or to which item of a single debt and in what amounts a payment made by him shall be applied. Baker v. Stackpole, N. Y., 9 Cow. 420 , 18 Am.

Dec. 508 ; 40 American Jurisprudence, p. 792, Section 110. It was said by this Court in the case of Neidig v. Whiteford, 29 Md. 178 , at page 185: “The question, therefore, resolves itself into one of application of payments. And in reference to the principle governing such a case as this, the law is clear. The general rule is, that the debtor has the right, if he so elects, to make the application of payments in the first instance, and if he omits so to do, the creditor may make the appropriation ; but if neither make any appropriation, the law appropriates the payment to the earliest and, generally, the most onerous debt.

Mills v. Fowkes, 5 Bing. N. C., 455; Gwinn v. Whitaker’s Adm’x, 1 Har. & J. 754 ; Dorsey v. Gassaway, 2 Har. & J. 402 [ 3 Am. Dec. 557 ] Frazier v. Hyland, 1 Har. & J. 98 ; Calvert v. Carter, 18 Md. 73 ; Trustees of G. L. E. St. M. Congregation v. Heise, 44 Md. 453 ; Harris v. Hooper, 50 Md. 537, 550 ; Dickey v. Permanent Land Co., 63 Md. 170 ; Maryland Jockey Club v. State, 107 Md. 262, 265 , 68 A. 613 ; Legum v. Farmers Nat. Bank, 180 Md. 356, 361 , 24 A. 2d 281 .

The appellant in his brief states: “Where a debtor himself has