Court Opinion

ID: 7895314
Source: CourtListenerOpinion
Date Created: 2022-09-08 21:52:08.383052+00
Date Added: 2024-06-11T16:32:03.634562
License: Public Domain

Bartol, C. J.,
filed the following.dissenting opinion:
The questions on these appeals arise upon the distribution of the property and effects of Woods, Weeks & Co. among their creditors, under their deed of trust made to William H. Perot, dated July 24th 1877.
On the petition of Perot, the trustee, the Circuit Court took jurisdiction of the trust estate, notice was given to the creditors who filed their claims, and the cause being referred to the auditor, he stated and reported several accounts, marked “f, ” “ G,” “ H,” “Í,” and “A.”
By the order of the Circuit Court passed pro forma, “Account A” was ratified, and from that order these appeals were taken.
The claims of the appellants Garrett & Sons, Drexel, Morgan d Co. and Joshua G. Harvey, all had their origin in the dealings between the Garretts and Woods, Weeks & Co; these began, as it appears by the record, as early as 1875. .
Woods, Weeks & Co. were merchants engaged in the business of importing and refining sugar, and had an account current with Robert Garrett & Sons, Bankers.
By an agreement between the two houses, Woods, Weeks &■ Go. had the privilege of overdrawing this account, hv depositing with Robert Garrett & Sons, securities for advances made to them on their over-drafts. In compliance with this agreement Woods, Weeks & Co. deposited in February 1876, certain certificates of stocks, and hills receivable belonging to the firm or to the individual members, and also their own promissory notes; as these notes matured, they were either renewed or others substituted for them, and this was continued until the failure of Woods, Weeks & Co., July 23rd 1877.
The indebtedness of Woods, Weeks & Co. on their overdrawn hank account, was settled soon after their failure, by the collection of the collaterals which had been pledged as security. But there remained in the hands of Robert *544Garrett & Sons four promissory notes of Woods, Weeks & Oo. for $6000 each, deposited under the agreement before mentioned.
These, Robert Garrett & Sons claimed the right to hold, and to sell under the agreement, and on the 12th day of November 1877, sold the same to Joshua G. Harvey for $7740, and these constitute Harvey’s claim, filed with the auditor.
By the agreement before referred to dated Eebruary 2nd 1876, it was stipulated, that the stocks, hills receivable, and promissory notes of Woods, Weeks & Oo. were pledged as collateral security for “ the payment of moneys advanced to Woods, Weeks & Oo. in account, and for any indebtedness at present existing, or which may hereafter exist, with the understanding that if either of said loans, etc., or any one or more renewals thereof which may be made by Robert Garrett & Sons shall not be paid at maturity, the said Robert Garrett & Sons may, at any time thereafter, proceed to sell said stock and notes, at either public or private sale, or otherwise, without notice of time or place of sale for the purpose of satisfying said loans, etc. or renewals,” with the privilege to Robert Garrett & Sons to purchase the same, discharged from any right of redemption.
And it was thereby further “ understood and agreed, that any and all other securities belonging to Woods, Weeks & Oo. now in the hands of Robert Garrett & Sons, shall he liable for any deficiency on account of this contract; and any surplus from this contract, after settlement thereof, shall be applied to any indebtedness that may be due or become due to Robert Garrett & Sons.”
In addition to the Bank account other transactions took place between the parties in the year 1877.
To enable them to make their several importations, Woods, Weeks & Oo. obtained from Robert Garrett & Sons letters of credit, and to secure to the latter the pay*545ment of their acceptances, together with one per cent, commissions, Woods, Weeks & Co. entered into agreements, whereby the cargoes purchased with the credits so issued, were to he consigned to Robert Garrett & Sons, the hills of lading drawn to their order, and they were to have a specific lien upon the cargoes.
Four importations were made, viz., one by the “Brig Addie Hale,” (Ho. 8 in the record,) upon which Robert Garrett & Sons issued a letter of credit for $50,000, on which Woods, Weeks & Co. valued to the amount of $40,000. One by the “Brig Mary G. Mariner,” (Ho. 9 in the record,) upon which the letter of credit was for $50,000, on which Woods, Weeks & Co. valued to the amount of $28,000. One by the “ Brig Alice Bradshaw,” (Ho. 10 in the record,) on which the letter of credit was for $40,000, and the amount valued thereon by Woods, Weeks & Co. was $33,141.45, and one by the “Houston,” (Ho. 28 in the record,) on which the letter of credit was for £10,000 sterling, and the acceptances thereon of Robert Garrett & Sons amounted in United States currency to $14,090.16.
This last cargo arrived after the failure of Woods, Weeks & Co., and was sold by Robert Garrett & Sons, consignees, the receipts therefrom more than reimbursed their acceptances on that account, and the surplus was applied to the credit of Woods, Weeks '& Co.
With respect to the other importations, “Hos. 8, 9, 10," the course of dealing between the parties was as follows:
As the cargoes arrived before the acceptances of Robert Garrett & Sons matured, and Woods, Weeks & Co. desired to have possession of the same for their business operations, the merchandise was by agreement delivered to them, and in lieu thereof, and to secure to Robert Garrett & Sons the payment of their acceptances, Woods, Weeks & Co. deposited with Robert Garrett & Sons their own *546promissory notes and certain collaterals, that is to say, in lieu of the cargo of the '“Addie Hale” they deposited

The several agreements under which the promissory notes and collaterals were deposited, and the merchandise delivered to the possession of Woods, Weeks & Co., each contained the same stipulations as those contained in the agreement of February 2nd, 1876, before recited, authorizing Robert Garrett & Sons to sell the promissory notes and collaterals in case of default, &c.
The promissory notes deposited under these agreements, fourteen in number, amounting to $82,000.00, remained in the hands of Robert Garrett & Sons at the time of the failure of Woods, Weeks & Co., and were by them sold to Drexel, Morgan & Co., for $24,395. These notes constitute the claim of Drexel, Morgan & Co., filed with the auditor. When sold the notes were overdue.
It appears by the account of Robert Garrett & Sons, that Woods, Weeks & Co., owed them, at the time the *547deed of trust was executed, July 24th 1877, a balance of §134,719.79. ’ ■
For which they held
The promissory notes of Woods, Weeks & Co., §106,000.
Notes of other parties as collaterals, about §62,000.00, and the cargo of the Houston to arrive.
By receipts from collection of collaterals and sale of cargo of the Houston, the balance due Eobert Garrett & Sons was reduced to §50,537.77.
This was the state of the account when the promissory notes were sold to Drexel, Morgan & Go., and Harvey.
Deducting the amounts realized from those sales, there remained a balance due Eobert Garrett & Sons, including interest, of §19,313.90, and this constitutes the claim of Eobert Garrett & Sons, filed with the auditor.
Thus while the real amount or balance due Eobert Garrett & Sons was §50,537.77, there are exhibited accounts against the trust estate, claiming to share in the distribution, amounting to §126,250.40, which is the aggregate of the claims of Drexel, Morgan & Co., Harvey, and Eobert Garrett & Sons, all growing out of the transactions between the latter and Woods, Weeks & Co.
Ought these claims to be allowed? As they arise out of, and depend upon, the rights of Eobert Garrett & Sons, it becomes necessary in the first instance, to consider the nature and extent of their rights. If they had retained the promissory notes, and brought suit thereon they could recover no more than the amount of the debt actually due, which the promissory notes were given to secure. Maitland vs. Citizens’ Bank, 40 Md., 540, 570. As said in that case, while the Garretts were holders for value, they were only so to the extent necessary to protect the debts intended to be secured.
In that case the note of a third person was held as collateral ; the same rule applies a fortiori, where the notes given in security, are those of the debtor himself. In a *548suit upon such notes it is very clear no. more than the real debt could be recovered. The same rule would apply if the Garretts were here exhibiting the promissory notes, and claiming a dividend thereon against the trust estate; they would be allowed to prove for no more than the amount of the debt actually due. In bankruptcy this rule has been settled by numerous decisions both in England and in this country. The appellants contend that a different rule governs in Courts of equity, and have referred to several cases, all of which have been examined.
Among them the cases most relied on are Re Barnerd’s Banking Company, Kellock & Co.’s Claim, and Re the Xeres Wine Shipping Company, The Alliance Bank’s Claim, decided on appeal before the Lords Justices in 1868, and reported in 18 L. Times R., N. S., 611.
Those cases were in equity, under what is known in England as “ the winding up Acts.” The Xeres Wine Company was in the course of liquidation. The Alliance Bank was its creditor to the amount of £15,638 Is., and held certain Dock Wine warrants as security for the debt, with the right to sell the wine referred to in them to the amount of £12,000. The winding up order was made in December, 1864. In November, 1865, and later, the Bank sold wine sufficient to realize £12,000, and applied the proceeds in part payment of the debt.' The Bank claimed to prove for the full amount of principal and interest due them, notwithstanding the receipts from the sale of the wine; provided they should not he paid more than twenty shillings in the pound.
Malins, Y. C., decided that the Rule in Bankruptcy was applicable, and that the Bank was entitled to prove for no more than the balance due, after deducting the amount of proceeds of the sales. 18 Law Times Bep., N. S., HI. This decision was reversed on appeal, the Lords Justices deciding that the Alliance Bank was entitled to prove for the whole debt.
*549In the appeal of “Barnard’s Banking Co.,” which had been decided by the Master of the Rolls, in favor of the Bank, (Kellock claimants,) the decision was affirmed on appeal.
In these cases it was held,
First, That the time for computing the amount of the debt was the time when it was sent in under the general order; and,
Secondly, That the creditor was entitled to prove for the whole amount of the debt then due, without reference to the value of the security or pledge then held, and which had not then been realized. The Rule in Mason vs. Bogg, 2 Myl. & Cr., 443, was followed, and not that in Greenwood vs. Taylor, 2 R. & Myl., 185.
The same principle was also decided, in the same year in Midland Banking Co. vs. Chambers, Law Rep., 5 Equity Cases, 119. There the collateral security was a guarantee of a third person.
And also in Ex parte Manchester and Liverpool D. Banking Co., Law Rep., 18 Eq. Cases, 249, decided on appeal in 1814.
In these cases the security held by the creditor was either property pledged, or the guarantee of third persons.
A case more analagous to the present was decided in 1869 by Lord Romilly, reported in 21 L. Times R., N. S., 12, in Re Blakely Ordnance Co., Ex parte the Metropolitan Bank, which was a case in equity under the “ Winding up Acts.” There the Bank was creditor of the Blakely Ordnance Co., on its acceptances for £4000, and held as security 32 debentures of the company for £250 each, upon which the Bank sought to prove, hut it was held that they were not entitled to prove for more than the £4000, the amount actually due. Kellock’s Case was cited and considered, and his Lordship drew the distinction between that and the case before him. He says “ Kellock’s Case does not apply. I will give two or three instances to show what my mean*550ing is. For instance, the Company owes the Bank £4000, for which they give a bill, and they execute a mortgage on White-acre. There KellocJc’s Gase applies. Again, if the company owe £4000, and pledge 100 bales of cotton, then KellocJc’s Gase applies ; the Bank may sell the cotton for what it is worth and prove the whole debt. I will go a step further. I will assume that they have got thirty-two debentures in Company X, and that they pledge those. Then KellocJc’s Gase applies again. The Bank may realize those debentures against Company X and prove for the whole of their debt. But the present case is quite different. Suppose that, in addition to the promissory notes for £4000, they give two other promissory notes for a similar amount, then KellocJc’s Gase does not apply at all. ****** ft js oniy one <qei3t. secured in various modes against themselves, and that distinction is perfectly plain, as it appears to me. In every one of the cases which I have last put, you must prove against the company itself, ****** and you can only prove for the amount that is due.” * * * * ue then adds, “It was very ingeniously suggested by Mr. Higgins in his argument, that they might sell the debentures; but the person to whom the debentures are sold and transferred, stands in no better position than the person who transfers them, in respect of that particular debt. You cannot by selling or transferring these debentures to ten persons, multiply the proof ten times over. You can only prove once for the debt.”
This decision seems to me to be reasonable and just. It is in harmony with Rigby vs. Macnamara, 2 Cox, 415, and In re Oriental Bank, Ex parte European Bank, Law Rep., 7 Ch. App., 99; in this case it was said by Mellish, L. 3.: “ The principle itself, that an insolvent estate, whether wound up in chancery or in bankruptcy ought not to pay two dividends in respect of the same debt, appears to me to be a perfectly sound principle. If it were not so, a creditor *551could always manage, by getting his debtor to enter into several distinct contracts, with different people for the same debt, to obtain higher dividends than the other creditors, or perhaps get his debt paid in full. I apprehend that is what the law does not allow ; the true principle is, that there is only to be one dividend, in respect to what is in substance the same debt, although there may be two separate contracts.”
And in Third National Bank vs. Eastern R. R. Co., 122 Mass., 240, which arose under an Act of the Legislature, providing for the payment of creditors equally out of the property and earnings of the Railroad Co., the same principle was decided. The Court say, “ a debtor’s liability to his creditors, where other • creditors are concerned, is not increased by increasing the number of promises to pay the same debt, in whatever form he may make them.”
The cases of Regents’ Canal Iron Works Company, L. R. 3 Ch. Div., 43, and Morris’ Canal & B. Co. vs. Fisher, 1 Stockton, 667, cited by the appellants, in the re-argument do not seem to me to be in conflict with the rule before stated. The case in Stockton was referred to and considered by the Court in 122 Mass., before cited.
Such being the rights of Robert Garrett & Sons as against the trust funds, I think “ Account L ” is correct so far as it allows a dividend only on the debt actually due from Woods, Weeks & Co., and which was secured by their promissory notes held by Robert Garrett & Sons. These notes were sold to Drexel, Morgan & Co. and Joshua G. Harvey; the question next to be considered is, what rights did the parties acquire by the purchase?
As to Drexel, Morgan & Co. These parties purchased the notes now held by them, after they were past due and dishonored; they took them therefore subject to the equities inherent in them and then existing between the original parties, and acquired no better right against the trust fund than the Garretts could have asserted at the time of *552the transfer. As the notes acquired hy them were in part security for, and represented in part, the debt due the Garretts, they are entitled as assignees to a proportion of the dividend upon that debt.
It cannot he denied that this would he the measure and extent of their rights, if they held the notes merely as endorsees after maturity; hut it is supposed that the power of sale, conferred on the Garretts hy the original contract, and the execution of that power confers on the purchasers, different and better rights, and that they are entitled as purchasers to prove for the whole amount of the notes. It does not seem to me that this position is sound.
If the notes had been passed to a bona fide endorsee for value before maturity, the rights of the holder would be protected hy the law merchant. But that is not the position. of Drexel, Morgan & Co. They took them after maturity, with full knowledge of all the facts, and whether they acquired them hy endorsement or hy purchase from the Garretts, I think they can claim no greater or better right than could he asserted by the original holders.
With respect to the claim of Joshua G. Harvey, I have reached the conclusion, after a careful examination of the proof contained in the record, that he stands in no better position than Drexel, Morgan & Co. He purchased the notes before their maturity, hut under circumstances which, in my judgment, charge him with notice of the infirmity in the paper, and deprive him of the protection which the law throws around an innocent endorsee without notice.
It is not necessary, in order to impeach the title of the endorsee to prove express notice or knowledge. If the facts are such as necessarily to cast a shade on the transaction, and to put him on inquiry, the knowledge will he imputed to him. Story on Prom. Notes, sec. 197; Magruder vs. Peter, 11 G. & J., 217; Price & Bevan vs. McDonald, 1 Md., 403; Smoot vs. Andrews, 19 Md., 398; Green vs. Early, 39 Md., 223.
*553In my opinion Account L is correct in so far as it allows a dividend upon the actual debt due from Woods, Weeks & Oo. to the Garretts, and distributes that dividend between the Garretts, Drexel, Morgan & Co. and Harvey, in the proportion between the balance due the Garretts, and the notes held by Erexel, Morgan & Co. and Harvey who claim as assignees.
Entertaining these views, I respectfully dissent from the opinion of the majority of the Court.