Thomas I. Hall & Co. v. Farmers' National Bank

Irving, J., delivered the opinion of the Court. There are two questions presented by this record, and both, for their proper decision, depend on the construction which the agreement of the parties touching the subject-matter of the controversy, should receive; and that agreement must be considered in the light of the facts which gave rise to it, and are referred to in it. George Wells being indebted to the Farmers’ National Bank of Annapolis, upon thirteen notes, of which he was a joint maker, and one accepted draft, and a guaranty by way of securing payment of the same, executed two mortgages to the Bank, dated respectively on the tenth of January, 1877, and the twenty-eighth of February, 1877-Sundry persons were jointly liable with George Wells upon the several undertakings, some upon one and some upon another of them. Three others of the joint debtors, John B. Wells, Arthur Wells and Joshua Brown, also gave mortgages to the bank to secure the several claims on which they were respectively liable.

All the mortgages appointed the Bank or Alexander Randall, trustee, to sell the property in the event of default on the part of the mortgagors to comply with their stipulations of the mortgages. Thomas I. Hall & Co. and John W. Anderson having claims against George Wells, which were in no way secured, and Mrs. F. C. S. Wilcox having a claim which was supposed to be partially secured by the assignment, in whole, or in part, of a life insurance policy, for the purpose, as they say, of effecting an “arrangement, that ¹²² may result more beneficially to all the parties interested in the estate of George Wells than by reference of their rights and priorities to an adverse and hostile litigation/’ on the 29th of June, 1877, entered into an agreement with the Bank and the “sureties on the notes and draft described in the mortgage” hy which they, as unsecured creditors‘of George Wells, were admitted to a pro rata participation in the estate of George Wells mortgaged to the hank. The provisions of the agreement areas follows: 1. “ That all the property, real, personal and mixed, so conveyed hy George Wells to the hank, and so much of the policy of assurance assigned to Mrs. Wilcox, should he sold, or collected, and received hy the attorney of the said bank named in the said mortgages or assignments, or hy any other attorney or solicitor thereto to he appointed hy the Circuit Court for Anne Arundel County, in equity.” 2nd. “ That the proceeds shall first he applied as specified in said mortgages, to defray costs, commissions and expenses, and then to the punctual payments of insurance premiums upon the life insurance and fire insurance policies so transferred and assigned hy said George Wells, and to such other legal fees and expenses as may he allowed hy the Court.” 3rd. “In the event of said policies of fire and life insurance falling in before the completion of the trust, the proceeds of such policies shall be applied for the benefit; in the first instance, of the party to whom, the same may heretofore have been assigned hy the said George Wells.” 4th. “The nett proceeds of sales of all said assigned property so mortgaged and assigned, shall he applied towards the pro rata discharge of the claims of the several creditors enumerated herein, the exact amount of the unascertained claims, (meaning thereby all claims herein enumerated, except those named in said mortgages,) to he particularly ascertained in the progress of the cause.” ¹²³ 5th. “In case either of the unsecured creditors aforesaid have received, or may hereafter receive any property or security of any description from the said George Wells, not herein referred to, it is hereby specially agreed by the undersigned, creditors, that any such property or security shall be turned over by the party receiving the same to the trustee or attorney named in said mortgages, or his successors, to be applied by him for the purposes of this agreement.” This agreement contained the following proviso : “provided the assent of all the several sureties on the said notes and drafts shall be first obtained, agreeing that the bank may become a party to the present arrangement.” Such assent was appended to the agreement under the hands and seals of the persons so interested, so that they, thereby, become parties also to the agreement. The trustee disposed of the property mentioned in the mortgages, reported to the Court, and auditor’s reports were made, distributing the proceeds as the auditor understood the agreement.

Exceptions were filed to the auditor’s report on the behalf of Thomas I. Hall & Co., and by agreement, the reports in all the estates were considered together. The ground of exception is stated to be that the auditor has allowed a dividend to the bank on the full amount of all the notes due the bank, without first crediting them with the dividend audited the same claims from the other mortgaged estates as the exceptants contend should have been done. The Circuit Court for Anne Arundel County overruled the exceptions and ratified the audit, and that order forms the first subject of our consideration. The learned Judge who decided the case below, thought the terms of the agreement by proper construction, settled the question adversely to the exceptants, and we fully concur with him in that view.

It is clearly not a case to apply the equity rule, that where one party has two funds ¹²⁴ liable to the payment of his claim, and another creditor only one to which he can resort, the party having two must take the one which will leave the other free to the other creditor. Courts of equity have never interfered to compel a creditor having two funds from which to get paid, first to resort to the one on which another creditor had no lien, unless the fund or property answerable for his claim was all the property of the same debtor. Lord Eldon, in Ex parte Kindall, 17 Ves., 520, said “If I have a demand against A. and B., the creditors of B. have no right to compel me to seek payment of A., if not founded in some equity giving B. the right for his own sake to compel me to seek payment out of A.” Judge Story, 1 Equity Jurisprudence, sec. 645, after quoting the language of Lord Eldon, condenses the law on that subject into this sentence: “Where a creditor has a right to resort to two> persons who are his joint and several debtors, he is not compellable to yield up his remedy against either; since he has a right to stand upon the letter and spirit of his contract, unless some supervening equity changes or modifies his rights.” Here the Bank is the creditor of George Wells, and all the joint makers of the notes, set out in the mortgage, (and allowed a dividend in the audit on George Wells’ estate,) while the exceptants have no claim against any body but George Wells, and so far as this trust estate is concerned have no claim on the trust estate of George Wells, were it not for the agreement admitting them to share in the proceeds thereof. Unless that agreement, therefore, gives them a right to claim against the Bank, and against the other joint debtors, that the joint debtors shall first be resorted to for payment by the Bank, before the Bank can claim against the exceptants to participate in the fund arising from George Wells’ estate, they have no such right to be enforced.

Such construction involves the unreasonable supposition that the Bank by that agreement designed to waive its claim on George ¹²⁵ Wells’ estate, which it had taken in security, unless the estates of the other joint debtors should prove insufficient to pay its claim; or the equally unwarrantable implication of a right to the unsecured creditors to share in the estates of the other joint debtors, against whom thay had no claim. The recitals and terms of the agreement plainly exclude such'an idea. The notes were joint and several notes, and the Bank had each and all bound for the whole amount of its claims, and could look to any one for payment. It had taken security from several of them.

The appellants for reasons satisfactory to the Bank, and to the co-debtors with George Wells, had been by agreement between them all, admitted to participate pro rata in George Wells’ estate mortgaged to the Bank; but that agreement did not accord the appellants any thing more. It did not provide for their sharing any of the securities the Bank had taken from the other debtors. The securities certainly would never have consented- to such an agreement as the appellants contend was made. Upon what basis, then, was the pro rata computation to be made?

Clearly upon the claims mentioned in the mortgage according to the amount therein designated, and upon the unsecured claims as they might “be ascertained by proof in the progress of the cause.” The amounts of the several secured claims due the Bank are named in the mortgage, and it is upon them as set out in the mortgage, the agreement provides the Bank shall receive a pro rata share of George Wells’ estate. The fourth clause of the agreement provides “the exact amount of unascertained claims (meaning thereby all claims herein enumerated except those named in the mortgage) to be particularly ascertained in the progress of the cause.” The provision for the ascertainment of the amount of one class of claims for the purpose of distribution to them excludes the idea that any computation or proof was necessary to the ascertainment of the others. Judge Hammond, most ¹²⁶ forcibly says that “the amounts of those claims stated in the mortgage are adopted, and upon such amounts the prorata is to be computed. But not only are these unsecured creditors under an agreement with the Bank to have the distribution made pro rata in the sums named in the mortgages, but they have agreed with the other parties in interest to do the same.

Before these three creditors were authorized to come in, under the mortgage, they, and the other parties in interest agreed that the arrangement might be made, and it would not do now to say that this arrangement may be disregarded; and that Brown & Hammond, Wilson & Swann, Taylor, Handy and others, may have their liabilities increased by reducing the Bank's dividend out of George Wells’ estate, and yet leaving to these creditors all the advantage of sharing the proceeds of the mortgage sale.” The Bank can have but one satisfaction of its claim, and it is abundently clear from tbe record that all the estates will not discharge it. But if it were otherwise, and the several distributions more than cancelled the debt, the persons interested in such a contingency would seek their remedy, whatever that might be. It would be a matter inter sese with which the appellants have nothing to do. In our opinion it makes no difference, that in point of fact, on some of those notes George Wells was only a surety for the other makers, John B. Wells and Arthur Wells.

It is a fact outside the notes and the mortgage, for in the notes and in the mortgage they are described not only as joint, but several makers. Eor the purposes of this case, and distribution, the agreement as we construe it, requires George Wells to be regarded as a several debtor for each sum named in the mortgage, and as if he was the only debtor. Independent of the agreement, and if nobody was secured, the rule which is contended for by the appellants would be applied, and in cases where George Wells was not the principal debtor, the claim would be credited ¹²⁷ •with the dividend from the principal debtor’s estate, before a dividend would be computed from George Wells’ estate. The agreement is to he construed in the light of all the faets disclosed by it.

Although George Wells was security for John B. and Arthur Wells on some notes, on other notes mentioned in the mortgage they were security for him, and it was important to them that his estate should pay as much as possible to relieve them, so that an influential motive is readily seen for their assenting to the arrangement. Being security for each other and to prevent their having to pay their own debts and George Wells’ also,-they agreed to this arrangement which simplified the whole matter by giving the Bank and the unsecured creditors of George Wells, a pro rata distribution of George Wells’ estate in the hands of the trustee, in which distribution all the claims on which George Wells was hound to the Bank were designated to participate in the fund. We do not think the parties contracted for a distribution according to the rule in chancery, which would have been applied, if it had been an ordinary deed of trust. It is stated in the preamble of the contract that “with a view to an equitable distribution,” and to avoid “ hostile litigation ” the agreement was made.

It .is not stated that it is done with a view to a distribution according to chancery rule,” hut “ an equitable distribution ” is the term