Court Opinion

ID: 7936661
Source: CourtListenerOpinion
Date Created: 2022-09-08 23:10:19.10143+00
Date Added: 2024-06-11T16:33:33.495904
License: Public Domain

Montgomery, J.
(dissenting). On the 19th of September, 1890, the Scofield Buggy Company executed two concurrent and collateral mortgages to the complainant as trustee for certain named creditors. One mortgage was upon real estate, the other upon personal property. The real-estate mortgage contained the following recitation:
“Whereas, the said Scofield Buggy Company is indebted to the parties in the sums respectively next below named, and are liable as indorsers upon certain customers’ and business papers, discounted and used by sundry corporations and persons, as below stated, to wit.”
Here followed a list of creditors, including the Fifth National Bank of Grand Bapids, $5,500, and the further statement: -“And are liable for indorsement of paper discounted at the Fifth National Bank, Grand Bapids, to the amount of $19,000.” The mortgage was upon the condition that if “the said first party shall well and truly pay or cause to be paid to each and all of said parties, or to said trustee for them, the amounts so due to them respectively, with interest thereon, and shall well and truly discharge* or cause to be discharged each and every such contingent liability, on or before the 1st day of October, 1890, and shall also pay or cause to be paid all taxes and assessments of whatever nature which may be levied upon said premises above described as soon and as often as the same may become due and payable, * * * then these presents and said indebtedness shall cease and be null and void.” The mortgage contained a further express *510stipulation to “pay said amount, with interest, and discharge or cause to be discharged said contingent liabilities, as above provided.” The chattel mortgage contained the same recitation as to indebtedness, and stated that the mortgage was given “for the purpose of securing said debts and the interest thereon to the said parties thereof jointly and severally, and for the purpose of securing said contingent liability, and each and every one of them, jointly and severally, equal with the said other indebtedness.”
The trustee has realized from the securities a sum insufficient to pay the whole indebtedness due and owing to the creditors secured by the mortgages, and remaining unpaid. It appears that a portion of the $19,000 of notes held by the Fifth National Bank was paid by the' makers of the notes which had been indorsed by the mortgagor, and the question presented is whether, in the distribution of the avails of the securities, the bank is entitled to its pro rata share upon the sum which the mortgages were originally given to secure, or upon the amount remaining due and unpaid of the collateral notes added to the amount of its original indebtedness.
I think it clear that the distribution should be made upon the basis of the amount remaining due to the creditors when the fund comes into the hands of the trustee. The effect of the mortgage was not to transfer to the creditors 'the property named in aliquot parts proportioned to the amount then owing by the mortgagor to the parties and upon which the. mortgagor was contingently liable, but it was given as a security which applied equally as to all indebtedness. Many of the items of indebtedness due to the bank were paid and discharged by the makers of the obligations. This discharged the indebtedness, and relieved the buggy company of the contingent liability. "When the indebtedness ceased, the security of necessity *511ceased to exist as a security for the payment of that, indebtedness. At the time when the fund was ready for distribution, the indebtedness to the bank, w-hich was originally $22,558.19, had been reduced by payments made by the makers of the paper indorsed by the Scofield Buggy Company, amounting to $8,295.20, leaving- a balance due of $14,262.99. To the extent that the paper had been retired the security had fulfilled its purpose, which was to indemnify the bank against loss upon each of the items of paper. The mortgage did not fix the indebtedness or create any indebtedness. It was simply intended as security for the direct indebtedness, and as an indemnification against loss upon paper upon which the buggy company was contingently liable. The case does not fall within that class of cases to which Third Nat’l Bank v. Hang, 82 Mich. 607, and Southern Mich. Nat’l Bank v. Byles, 67 Id. 296, belong, in which it is held that a creditor holding two securities will not be required to relinquish either before he is entitled to enforce the other. The cases proceed upon the ground well stated by Mr. Justice Cahill, namely, that the holder of the security would have a legal right to proceed against the debtor personally, and realize from, him the whole amount of his debt, or as much as he could, without reference to his security. That was true of the case then under consideration, which was a case of general assignment, and the creditor proving his claim being one who held collateral security for the amount of the debt. The same reasoning was adopted by Gray, J., in People v. Remington, 121 N. Y. 328, in which case it was said:
“The agreement between the debtor and the creditor was that the debt should be paid. That debt is a definite quantity, and nothing less than its full amount can be said to be the debt. It is not altered or affected in its amount because the creditor may hold some collateral security. That is not a factor of the debt, but merely an incident to the debt. The very force - and meaning of a *512collateral security are in the idea of a guaranty of the' performance of the principal agreement, which was to pay the debt. * * * As between the creditor and his debtor, the latter could not compel the former to resort first to his collaterals before asserting his claim by a personal suit. * * * Then, on what principle can we hold that, because the debtor becomes insolvent, the contract with his creditor is changed, and that the creditor cannot, under those circumstances, enforce his direct claim against the debtor until he has realized on his securities?”
It was held, in accordance with the doctrine of Third Nat’l Bank v. Haug, that the creditor’s right could not be so postponed. But this case is different. Certainly the bank here could not proceed against the Scofield Buggy Company upon the notes which are extinct by reason of their payment by the makers. The security, which is a mere incident to the debt, is a security for the unpaid portion of the indebtedness. No case is cited, nor have I been able to find one, in which it has been held that a debt which has been paid and discharged can be revived and resuscitated for the purpose of enabling the former holder to avail himself of a security for its payment; much less can I discover any equity or any reason in principle for holding that an engagement for indemnity, although coupled with a security for the payment of a debt, can be made use of to enlarge the debt, and to swell the dividend which the holder of the security is entitled to receive, as against those concurrently secured, either by the same instrument or otherwise.
In my opinion, the decree below should be reversed, and one entered in this Court in accordance with these views.
McGrath, J., concurred with Montgomery, J.