Case ID: ohio_5/html/0501-01.html
Source: Caselaw Access Project
Author: {"author": "Collet, J.,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

McCoy and Culbertson v. The President and Directors of Bank of United States.
    Indorsers charged at law, on the ground of being secured, subsequently, by a decree in chancery, are deprived of the security fund, in favor of a previous lien, can not be relieved in equity.
    This is a bill of review, reserved in the county of Ross, on the last circuit. The original bill states that Matthew Waddle, on March 9, 1819, made a promissory note, payable, sixty days after dato, to John Waddle or order, at the office of the Bank of the-United States in Chillieothe, for one thousand dollars, which was indorsed by John Waddle and the firm of McCoy & Culberston, and discounted by the bank for Matthew Waddle. That when the note became due, notice, but not legal, was given to the indorsers. That at December term, 1820, of the Supreme Court for Ross county, the bank recovered a judgment against the maker and indorsers of the note, for one thousand and ninety-five dollars damages,, and seventy-six dollars and seventy-five cents penalty, with costs. That on the trial the *bank did not prove a legal notice to the indorsers of the non-payment of the note, but relied on a deed of' trust made by Matthew Waddle to W. K. Bond, to indemnify the indorsers, dated October 9, 1818, and that the court chai'ged the jury that the deed .of trust made it necessary for the bank to prove-the notice to the indorsers, in order to-recover, on which the jury found a verdict against the indorsers. That the court, on being moved for a new trial by the indorsers, adhered to their opinion and refused it. -That on November 2, 1821, Job Harness filed a-bill in chancery against M. Waddle’s heirs, John Waddle, and McCoy & Culberston, on a mortgage of the premises covered by the deed of trust; the mortgage was made to Harness by Matthew Waddle and his wife, to secure the purchase money duo to Harness-for the premises, on April 18, 1817, but not recorded until May 1, 1819. That the Supreme Court, on hearing, decreed the deed of trust to Bond void, and ordered a sale of the premises to satisfy the mortgage of Harness. The bill and proceedings of Harness-are referred to, and prayed to be made a part of the bill. That the premises were sold on the decree ahd did not sell for a sum sufficient to pay the mortgage. That when the action at law was-tried, the complainants believed the deed of trust valid, but the-decree has deprived them of the benefit of it. The bill prays a new trial to be ordered, etc.
    The bank, by Creighton and Bond, answered that they authorized L. Belt to give the indorsers due notice of the non-payment of the note by the maker, which they presume he did; that they do not know whether evidence of notice was or was not given; that with the deed of trust evidence was introduced to show that it contained all the property of M. Waddle; that the indorsers availed themselves of every species of defense; that the bank admits the proceedings in chancery by Job Harness, referred to by the bill, and insists that the decree was founded on the knowledge of McCoy & Culbertson, and John Waddle, of the mortgage when the deed of trust was made, and that the mortgage did not include the personal goods conveyed by the deed of trust. The common replication was filed.
    *The deed of trust to Bond, dated October 9, 1818; the notes given to the bank by the parties, from the making of the deed of trust, renewed from time to time until March 9, 1819; the date of the note on which the judgment was obtained; the notice of non-payment, dated May 12, 1819, given to the indorsers the day after; the mortgage to Harness, dated April 18, 1817, and recorded May 1, 1819; and a deed from Harness to M. Waddle for the same premises of the same date; and an article between Harness and M. Waddle for the sale of the premises, dated March 13, 1817; and a transcript of the proceedings and decree in the case of Harness against the Waddles and McCoy & Culbertson were all exhibits in the cause. Also, an agreed statement that by the trust- deed McCoy & Culbertson had secured six hundred dollars, and that they had paid for liabilities intended to be secured by that deed two thousand four hundred and sixty-seven dollars and sixty-three cents. The court, on the hearing, were divided in opinion, and dismissed the bill. 2 Ohio, 336. The bill of review states that the complainants have paid the costs of the original suit, and that the judgment at law is paid; .that the-one-half paid by them amounted to one thousand-dollars. They assign general errors in the decree. The defendants demurred,, and the plaintiffs have joined in demurrer.
    Leonard, -for complainant.
    Gr. Swan, for defendant.
   Collet, J.,

delivered the opinion of the court:

It is urged for the complainants that the court of law, at the trial of the action against the indorsers, on the authority of the case of Bond v. Freeman, 5 Mass. 170, determined that where the maker of a note transferred all his property to the indorsers for their indemnity, or a. sufficiency for that purpose, they could not object to a recovery against them by the holder of the note that they had not notice of non-payment by the maker, for the notice was to enable the indorser to secure himself, if ho could, from the maker, and that when *he had before secured himself, notice could be of no service; that the deed of trust to Bond was considered as either a sufficient indemnify to the indorsers, or as containing all the property of the maker; that on these grounds a recovery was had against the indorsers. That this being the law, as laid down by the court, on its afterward appearing, by the decree for Harness and the salo of the premises contained in the mortgage and deed of trust, that the property conveyed by the deed of trust was not sufficient to indemnify the complainants, the indorsers are now entitled to relief in this court, by an order for a new trial at law or a final decree here.

The mortgage to Harness was made in 1817 ; it was not recorded until May, 1819. The deed of trust to Bond was made in October, 1818, for the indemnity of the indorser; it included the land mortgaged to Harness, and other property, part of it personal, of which the complainants made six hundred dollars. The complainants relied on the want of notice of the mortgage of Harness as a defense to his suit, but the court on the hearing decreed for Harness, which must have been on the grounds that the complainants,when the deed of trust was made, had either actual or constructive notice of the mortgage. If they knew of Harness’ mortgage, when their trust deed was made, or at the time of the trial at law, why did they not then proceed and insist on it? The-deed of Harness was recorded in May, 1819 ; the trial was in November, 1820, eighteen months after. Constructive notice of this mortgage must have been a knowledge of such facts, by the indorsers or their agents, relating to the mortgage, as would have led prudent men to an actual knowledge of it, so that the indorsers or their agents must have been chargeable with some negligence, at least, in not relying on this mortgage as a defense at law. It is suggested that in equity the indorsers were trustees of the property contained in the trust deed, that it really belonged to Mr. Waddle, the maker of the note, and that the indorsers, as trustees, were bound not to do anything which might lessen the value of the trust fund. This is a poor excuse. Where a mortgagee, confiding in the mortgagor, or as his friend to save his credit and feelings, does not record his mortgage, and the mortgagor *is base enough to convey or mortgage over him to defeat his mortgage, are those to whom he conveys or mortgages undor obliga* fions to him to do all they can to aid him in committing such a fraud ?

The action at law was tried in 1820 ; it is a fact known to us all, without proof, that real property in general, especially if improved, ■would at'that time readily sell for one hundred per cent, more than in 1822, or for several years after. The decree for Harness was in 1823. When the property was sold by Bond, the trustee, we do not know. If the price of land had not fallen after 1820, there might have been no loss. If this occasioned the loss, the •equity of the bank to retain is at least as good to retain as that of the indorsers to recover back the amount of notes discounted on their credit.

The value of the property contained in the trust deed was a matter investigated on the trial at law; if this mortgage was known of by the indorsers at that time, this court can not relieve them. Why did they not produce it, or move for a new trial to ■obtain time for its production ? It seems probable that they either knew of it, or that their want of knowledge-was from negligence. In cither cáse no relief should be granted by this court. 4 Ohio, 464; 3 Johns. Oh. 750; 7 Cr. 332.

If the inquiry,'"on the trial at law, was not only as to the sufficiency of the property in the trust deed, but whether it was all ■of M. Waddle’s property, the cause may have gone off on that ground; then, according to the opinion of the court of law, its value would.make no difference. If all is secured, why give notico to the indorser? He can get no, more.

The court-of law had the right finally to try, and we have no right to inquire whether they erred or not. They had the right to determine whether notice was necessary or not, what was an •excuse for the want of notice, and what was sufficient proof of that excuse. They did so oh the trial, and on a motion for a new trial were satisfied with their determination. Again, M. Waddle was ip such circumstances that before complainants would indorse his note he had to indemnify them. The indorsers paid the notes; he was insolvent. It is probable, then, that the bank advanced ^the amount of the note to M. Waddle, on the credit of the indorsers alone. .The bank intended to give the indorsers immediate notice of the non-payment of the note, but by the mistake or negligence of their agent, they did not receive notico .until two days after the note became payable; no injury was sustamed by the indorsers in consequence of this delay. Now, could justice be advanced by taking this money from the bank and giving it to these indorsers? Has not the bank as much equity to-retain it as the indorsers to receive it ?

Anciently an indorser was compelled to show a loss from not receiving notice, before he could successfully insist on a want of notice; now, the law presumes an injury, and will not suffer the presumption to be rebutted except in af ew cases. Chit. on Bills, 214, 215, 552. And this is well on many accounts; it protects more persons who would have suffered by a want of notice and could not prove the injury, than it discharges of those who suffered no loss. If an indorser, who has not received notice on the day the rule requires, but who has suffered no loss thereby, should be adjudged to pay, would he, have an equity"to recover back? Unless the judgment was obtained by fraud, I should much question it.

This case differs from that in 2 Vern. 116, of the executor, who-informed the creditor of the testator that he had a mortgage securing a debt to the testator of three hundred pounds, on which information the creditor recovered a judgment against the executor for'.the debt to be levied of his goods. Afterward, it appeared that the premises were covered to their full value by prior mortgages ; the executor was relieved; he had not caused the creditor to let the testator have the consideration of his debt; he had done nothing hut disclose the fact of the existence of the mortgage as a source of ultimate payment to the creditor. The creditor had in consequence sued him. The costs, if the chancellor chose, could be thrown on the executor. Could an honest man have received of the executor this judgment so recovered?

Upon the whole, we are of opinion that this bill must be dismissed.