Case ID: ohio-st_33/html/0250-01.html
Source: Caselaw Access Project
Author: {"author": "Wright, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Winters & Son v. The Franklin Bank of Cincinnati.
    1. Notes secured by the same mortgage, when transferred to different holders, are to be paid in the order of their maturity, unless a different intention is expressed by the parties.
    2. If facts or circumstances exist to make the order of priority other than the order of maturity, such facts or circumstances must be shown by the party claiming to vary this order.
    Error to the District Court of Miami county.
    Question on distribution of proceeds of mortgage sale. Lawton & Co. gave a series of notes, to the order of John Bains, secured by mortgage, and these notes were transferred to various creditors of Lawton & Co., whose assignee proceeded to foreclose. This was the original action of Matthias H. Jones, assignee of Lawton, Barnet & Co., against sundry defendants. A sale of the mortgaged premises and first distribution was had, about which no question arises. A fund then remained in the hands of the assignee, Jones, which is claimed by Winters & Son and the Franklin Bank, respectively. These parties come in as defendants, Winters & Son filing answer and cross-petition, and the Franklin Bank filing a reply, from which we gather these facts. Three of the mortgage notes by Lawton, Bar-net & Co. were delivered to Adolph Wood & Co. The first of the three is out of the case. Of the other two, the first was payable thirty months after date, the second forty-two months after date. On the 28th September, 1870, Adolph Wood & Co. assigned the first note to the Franklin Bank, and, on the 21st October, 1870, assigned the second to Winters & Son. The condition of the mortgage to John Bains was as follows:
    “ Provided always, and these presents are upon this condition, that if said Lawton, Barnet & Co., shall pay or cause to be paid unto Young & Baehus, three notes for $1,509.20 each, due in eighteen, thirty, and forty-two months respectively, and also pay unto Milmine & Bodman three notes for $2,067.99 each, due also in eighteen, thirty, and forty-two months respectively, and shall also pay unto Adolph Wood & Co. their three notes for $3,500 each, also due in eighteen? thirty, and forty-two months respectively, all of which notes are dated June 1, 1869, and bear interest from date, and made to said parties named, and upon all which nine notes the said John Bains is indorser and security for the said Lawton, Barnet & Co., and shall save the said John Bains harmless and free from any cost, damage, or loss arising from his indorsement of said notes, said notes being all made by said tíawton, Barnet & Co., to said parties, then these presents shall be void, otherwise to be and remain in full force. This mortgage is taken and held by John Bains for his own security, and as trustee for said named creditors of Lawton, Barnet & Go.”
    
    The fund to be distributed was not sufficient to pay both these notes, and the Franklin Bank claimed that its note should be paid in full. Winters & Son claimed that the fund should be distributed pro rata, and the court of common pleas so held. The district court, however, reversed this judgment, holding that the note of the Franklin Bank be first paid. Whereupon Winters & Son filed their petition in error.
    
      Gunckel & Rowe., for plaintiff in error:
    The rule in 13 Ohio, 240, that notes secured by the same mortgage should be paid in the order of their maturity is contrary to the principles of equity and equality and that case should be overruled. The following authorities holding the contrary doctrine we claim to be the better law Johnson v. Candage, 31 Maine, 28; Johnson v. Brown, 11 Foster (N. H.) 405 ; Page v. Pierce, 26 N. H. 317; Belding v. Manly, 21 Ver. 551; Keys v. Wood, 21 Ver. 331; Waterman v. Hunt, 2 R. I. 298; Betz v. Heefner, 1 Penn, 280; Donley v. Hays, 17 Serg. & Rawle, 400; Hancock’s Appeal, 34 Penn. St. 155; Stevenson v. Black, Sax. Ch. Rep., 338; Chew’s Adm’x v. Buchanan, 30 Md. 367; Phelan v. Olney, 6 Cal. 478; Stratton v. Wiggins, 23 Cal. 16; Toby v. Ewing, 1 Hump. (Tenn.) 537; Cooper v. Ulman, Walk’s Ch. 251; Bank of England v. Tarleton, 23 Miss. 173 ; Pugh v. Holt, 27 Miss. 461; 7 B. Mon. 209 ; 6 B. Mon. 236.
    
      King, Thompson $ Longworth, for defendant in error :
    The general rule in this state is that promissory notes falling due at different times, secured by mortgage, on sale of the mortgage premises, are to be paid in the order in which they become due. Bank v. Covert, 13 Ohio, 240; Bushfield v. Meyer, 10 Ohio St. 334,; Kyle v. Thompson, 11 Ohio St. 616 ; Swartz v. Leist, 13 Ohio St. 419. And see, Bank v. Tweedy, 8 Blackf. 447 ; Wood v. Trosk, 7 Wis. 566 ; Hurd v. Mooers, 11 Iowa, 211; Thompsons. Fields, 38 Mo. 320; 7 Ind. 140; 14 Ind. 439 ; 9 Wis. 57; 13 Iowa, 274; 22 Iowa. 448.
   Wright, J.

The Franklin bank holds a mortgage note, payable thirty months after date. Winters holds one payable forty-two months after date. The property mortgaged being insufficient to pay both, shall the bank be first paid, or the proceeds be distributed pro rata ?

On this question there is a conflict of decision. The authorities cited by counsel for plaintiff in error show the difference of holdings in the various states. We do not, however, enter into a discussion of this contrariety of opinion, as we deem the matter to have been settled by our Supreme Court.

In the Bank of the United States v. Covert, 13 Ohio, 240, Lane, C. J., stated the rule as follows: “ When a mortgage is given to secure money payable by installments, it obviously should be applied first to pay the installments first due, fob the obligation to pay the first may be enforced against the property, before any default in the later payments.”

Thif* decision was made in 1844, and for many years has been the understood rule of law, upon which our people have acted, and in view of which financial transactions have long been and are now had. To overrule now would unsettle commercial ideas to an extent not to be desired. "We do not consider that Swartz v. Leist, 13 Ohio St., overrules Bank v. Covert. In the syllabus of Swartz v. Leist, the language is used “ that if several promissory notes are jointly secured by mortgage, the assignee of one of these notes, so secured, becomes equitably entitled to a pro rata participation in the benefit of the security.” But in that case there was no question as to priority of right as between notes differing in date' of maturity. A note was given to a mortgagee, who assigned it, and then canceled the mortgage. The property having been sold, the point was, could the note be enforced against an innocent purchaser of the laud ?

We understand, then, the rule to be that the note first due is entitled first to be paid, unless a different intention has been expressed by the parties. People’s Savings Bank of Evansville v. Tierney, Supreme Court of Indiana, September 25,1878, not yet reported. But it is claimed that special circumstances take this case out of the general rule. It is argued that in Bank v. Covert, the condition of the mortgage was to pay “ according to the tenor and effect ” of the notes; and in other cases it was to pay the notes “ as they became due.” In this mortgage the condition is to “ pay the said notes and save the said John Bains harmless and free from any cost, damage, or loss arising from his indorsement of said notes.” We can not see any difference,- in legal effect, between this condition and the others mentioned. The ouly way in which John Bains could be saved harmless was by paying the notes “ as they became due.” If they were not so paid, he would inevitably be put to the cost, damage, or loss necessary in enforcing their payment.

Nor does the phrase in the condition of defeasance— “this mortgage is taken and held by John Bains for his own security, and as trustee for said creditors of Lawton, Barnet & Co.” — alter the case. If John Bains is security, as he was, in the notes which lie had indorsed, it can make no difference to him what the order of distribution was, so that all the proceeds went to creditors. Whether these proceeds went all to A., or half to A. and half to B., the amount for which he would be ultimately liable must be still the same.

And although he was trustee, he was trustee for the parties according to their legal rights.

Judgment of the district court is affirmed.