Case ID: dc_12/html/0016-01.html
Source: Caselaw Access Project
Author: {"author": "Mr. Chief Justice Cartter", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Ramsey vs. Daniels et al.
    Equity.
    No. 4165.
    Decided December 23, 1880.
    The Chief Justice and Justice Wtiik sitting.
    1. Where the first of a series of three notes, payable in one, two and three years, and secured by deed of trust, had become overdue and was taken up, at the reguest of the maker, by a third party, who became the holder thereof, the payee delivering it uncancelled, the question whether such a transaction operated as a satisfaction and extinguishment of the note, so as to disentitle the holder thereof to any share in the fund, when, afterwards, through default in payment of the other two notes, the property is sold for a sum less than the incumbrance, is one depending upon the intention of the parties at the time of the transaction; if there was no intention to consider it as satisfied and extinguished, the holder will be entitled to share pro rata in the fund realized.
    2. A case of this character stated in which the court held there was no extinguishment.
    STATEMENT OE THE CASE.
    Appeal from a Decree in Special Term.
    In May, 1873, the defendant, Joseph Daniels, executed a deed of trust, conveying certain real estate in the city of Washington in trust to secure the payment of three promissory notes, each for the sum of $4,000, dated May 29, 1873, and payable to the order of John E. Carter, in one, two and three years, respectively, with interest.
    In February, 1875, E. M. Ramsey, a judgment creditor of Daniels, filed this bill in equity for the purpose of subjecting to the lien of his judgment the equitable interest of Daniels in the above property.
    
      A decree for sale was made and the property was sold, but realized less than enough to satisfy two of the notes. The •cause was referred to an auditor to report priorities and the proper distribution of the fund. The following facts were ■established before the auditor:
    Upon the maturity of the first note, Daniels, being unable to pay it, applied to Seth E. Terry, a broker, for assistance. A contract was accordingly made between Daniels and Terry, whereby the latter was to take up the note and hold it until certain claims, which Daniels was prosecuting against the United States, could be collected, provided that‘if said claims should not be paid within three years, then Terry was to enforce the payment of the note by a sale of the property under the Carter deed of trust. Those claims were never collected.
    In pursuance of this agreement Terry proceeded to take up the note, but, not having enough money himself, he applied to one C. C. Burr and made an arrangement with him, under which Terry was to pay one thousand dollars and the accrued interest on the note, in all about $1,400, and Burr to furnish the remaining $3,000. The latter to receive the note and hold it as security for the amount advanced by him.
    Terry, who had previous interviews on the subject with Carter, then went to Carter’s place of business, paid him the accrued interest and one thousand dollars, and told him that the three thousand dollars still due would be paid through the Second National Bank. At the time of the payment by Terry to Carter, though the latter had the note with him, he made no endorsement upon it of the amount paid by Terry. Subsequently Carter called at the Second National Bank and received the three thousand dollars, which amount had been paid by Burr, to whom the note was delivered •endorsed in blank, uncancelled, and, except an endorsement, ■“ Interest on the within paid to September 29, 1874,” without any mark or writing to indicate that there had been any payment upon it.
    
      After the note bad been transferred to Burr in the manner-indicated, Daniels, who had furnished none of the money, nor been present when it was paid, was given, by Carter,, a written acknowledgment that the note had been paid by him, Daniels. Of this paper neither Burr nor Terry had notice. In January, 1876, Burr died, and Martha Jane Burr was appointed and qualified as administratrix. In February, 1876, Nathaniel Carusi purchased from Carter, before maturity, the third note of the series. Subsequently, Carter-assigned to Dorsey E. W. W. Carter the second note, which was then overdue.
    Burr’s administratrix, though not made a party to the bill of complaint, appeared in the case before the auditor, claiming the right to participate pro rata with the holders of the-other notes in the distribution of the fund.
    The auditor reported that the notes held by Dorsey E. W. Carter and by Carusi were liens upon the fund, and that Carusi was entitled to priority. lie rejected the claim of Burr’s administratrix on the ground that the note held by her had been paid and extinguished. Burr’s administratrix and Dorsey E. W. Carter excepted to the report. At the hearing at Special Term exceptions of both were overruled. Thereupon the case was appealed to the General Term.
    PERRY and WilsoN for Burr’s administratrix:
    1. The note held by Burr’s administratrix has not been paid or extinguished. Nothing whatever has been paid on account of it by the maker. The money paid to Carter by Terry and Burr was paid with .the intention and for the purpose of taking up the note and holding it as a security, and the delivery of it to Burr amounted to an assignment, and this without regard to any unexpected intention or understanding of Carter at the time he received the money. The intention which controls is the intention of the parties paying the money. Dodge vs. E. S. & T. Co., 93 IT. S., 379.
    2. The security given by the maker of the note is an incident of the debt, and follows it into the hands of all bona fide holders. 1
    
      3. The proper rule of distribution among the holders of different notes secured by the same deed of trust, where the fund is insufficient to pay all, is payment pari passu. Ocean National Bank vs. Brown, 4 Wash. Law Rep., No. 31.
    4. A note does not cease to be negotiable when it becomes due. The only difference between such a note and one not-due, is, that in the former case, an indorsee can acquire no better title against the .maker than his indorser had. Byles on Bills, pp. 128, 130.
    5. Burr’s administratrix claims to stand exactly where-Carter stood when he parted.with the note. It is not pretended that Daniels could have made any defense, and she-is, therefore, in no worse position than an indorsee before-maturity.
    II. 0. & R. ClaughtoN for Dorsey E. W. Carter, contra:
    
    The court below held that as to Carter there, had been a payment of the note and a cancellation of the security, but as to Daniels the note was an existing liability, having been, with the consent of Daniels, after the payment of it to Carter, pledged to Burr.
    It is not deemed necessary to argue or cite authorities to show that the court was correct in that ruling.
    Walter D. Davidoe for Oarusi.
   Mr. Chief Justice Cartter

delivered the opinion of the court.

The great difficulty here is over the rights of the parties with reference to note No. 1. It is claimed by Burr’s admin-istratrix that she is entitled to a satisfaction of the note out of the fund. On the other hand, it is contended by Carter that the note is satisfied and extinguished. And the issue here is whether it is a satisfied cancelled instrument, or one remaining to perform the office of commercial paper. Was it paid? The maker ©f the note never paid it. He could not pay it. He had been requested by Carter to do so and he told Carter he could not. Carter, however, was paid and he was paid out of Burr’s and Terry’s money. Now, was this a payment in satisfaction of the note? Our judgment in this matter is ruled largely by the case in 93 II. S., which contemplates the disposition of a piece of paper of this kind according to the intention of the parties. It either survives with their intention or it dies with their intention. If a note is paid with reference to its satisfaction and extinction in the purpose of the parties, the law gives it that effect, and the assent of the maker of the note as well as that of the payee is necessary.

Now, Daniels never contemplated paying this note at that time, for he had entered into a stipulation with Terry to continue its existence. .Terry also says that he did not contemplate it; that the note was passed to'hie possession under an arrangement, between him and Daniels, to carry it to a postponed period, and to make use of it with its underlying security to enable him to negotiate a loan upon it as he did; and in this way it was transferred to Burr.

Mr. Carter says he understood it otherwise; that it was in satisfaction of the note that the payment was received. Now, we think, the weight of the testimony is decidedly the other way. We think that the delinquency of Daniels; the knowledge of that fact by Carter; the past due condition of the note; the history of the paper itself in the mode of negotiating this loan; all indicate anything but a transaction for the payment and destruction of the note. We think fhat it remained as a living piece of paper for commercial purposes; to negotiate just such a loan as was made upon it, and that this was with the implied^onsent of Mr. Carter. We do not think, therefore, that he ought to be permitted to assert as against it any exclusive control of the fund. He has received the money on this note. That money was advanced on the faith of the security underlying it and that it carried with it, and we fail to see why he should be preferred to a party who has thus advanced money upon it. The conclusion we have come to is that this fund should go to the payment of these notes pro rata.