Court Opinion

ID: 3514672
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:25:50.215009+00
Date Added: 2024-06-11T14:18:13.893610
License: Public Domain

I am wholly unable to agree with the controlling opinion in this case. In my opinion, neither McIlveen, *Page 233 
the holder of the notes, nor the Interstate Trust  Banking Company, as trustee, is entitled to recover from the appellants the amount of the notes. The notes read as follows:
                "Mortgage and Securities Company.
"Note No. 13.           First Mortgage Note             $400.00
"For value received the undersigned jointly and severally promise to pay on the first day of March, in the year 193 — without grace, to the Mortgage  Securities Company, or order, without deduction for any tax or taxes or charges which the undersigned may be required, or permitted to pay or retain therefrom, the principal sum of four hundred dollars, with interest thereon from date until maturity at the rate of seven per cent per annum, payable semi-annually on the 1st days of September and March in each and every year according to the terms of the interest coupons of even date herewith and hereto attached, together with ten per cent upon the amount of principal and interest then due on this note as attorney's fees, if placed in the hands of an attorney for collection under the provisions of the deed of trust securing this note. This note and the installments of interest bear interest after maturity at the rate of eight per cent per annum. Principal and interest are payable at the office of the Mortgage  Securities Company in New Orleans, La., in gold coin money of the United States in America, of, or equivalent to the present standard of weight and fineness.
"This note is secured by a first deed of trust on real estate duly recorded in the records of Forrest County, Mississippi.
"Dated at Hattiesburg, Miss., on the 1st day of March, 1928."
"Sam Adler "Annie Adler
"This note is subject to prepayment in accordance with the terms of the deed of trust securing the same." *Page 234 
On the back of the note appears the following:
                      "Guaranty Agreement.
"As the owner of this note by purchase from the maker, and as an inducement to third persons to purchase the same, the undersigned, under authority from its Board of Directors, hereby binds and obligates itself that in the event of any default in the payment of any installment of interest on this note it will, at the option of the holder, purchase at par, upon demand, the coupon or coupons evidencing said interest; and that in the event of default in the payment of the principal of this note, when due, it will, at the option of the holder, within twelve months from the final termination of the necessary proceedings brought or taken to realize upon the securities pledged to or otherwise secured by the trust agreement in connection with which said note was executed, purchase this note from the holder thereof, for an amount equal to the principal and accrued unpaid interest thereon, less any amounts which may have been paid to the holder of said note out of the proceeds realized from the sale of the collateral securing same, or otherwise received by the holder of said note."
By the terms of the note, the holder thereof was given notice that it was subject to prepayment in accordance with the terms of the deed of trust securing the same, and by the terms of the deed of trust the entire indebtedness was subject to prepayment on any semiannual interest payment date — the 1st of March and the 1st of September in each year.
The holder of the notes, McIlveen, owed the duty to the maker of the notes to have them presented at the place named therein for payment of the semiannual interest and for the full prepayment under the terms of the deed of trust, of which he had full notice.
Due notice was given the Mortgage  Securities Company in accordance with the terms of the deed of trust of the decision to make prepayment of the outstanding *Page 235 
note, and the money for that purpose was placed with the Mortgage Securities Company.
Had the holder of the notes presented them, they would have been paid. The contract making the notes payable at a given place imposed upon the holder thereof the duty of presenting them at that particular place for payment, and of authorizing some one to receive payment and surrender the notes.
Not only was the money there available for payment on one of the semiannual payment dates, but it remained there for such payment from that date until the following August.
The only provision of the deed of trust that was favorable to the grantor was: "It is further agreed and understood by and between the parties hereto that the grantors herein shall have the privilege on March 1st, 1924, or on any semi-annual interest payment date thereafter, of prepaying any one or all of the notes secured hereby and then outstanding upon payment of principal, accrued interest to date of payment and premium of one and one-half per cent of the amount so prepaid, having first given to the Mortgage  Securities Company sixty days previous written notice of their intention so to do."
This provision clearly was intended to make the Mortgage 
Securities Company, the payee, the agent of the holders of the notes, and the trustee for receiving notice of the makers' desire to prepay the notes before the several maturities. One note might be held by one holder, and another by another holder. The Mortgage  Securities Company was to be given the notice sixty days before the semi-annual interest dates, so that each holder of a note might have the notes at the office of the Mortgage 
Securities Company for payment in full, as well as payment of the interest due. It was the duty of the holder of the note to inquire of the Mortgage  Securities Company whether such notice had been given, and to have the notes at the place of payment for that purpose. *Page 236 
In no sense was the Mortgage  Securities Company the agent, in that regard, of the mortgagor or the maker of the notes. The maker could not exercise his right in any other way. Any other construction of the deed of trust defeats, rather than protects, the right of the maker to advance the maturity of the notes. There were many provisions in the deed of trust to protect the holder of the notes and the grantee in the deed of trust. Among these was the right of the grantee to mature the whole series of notes if there was as much as five days' default in paying a note, or a like default in the payment of taxes. The advantages given to the payee of the deed of trust and notes are so numerous and stringent as to make the right to prepay a valuable and desirable one. Both parties have rights under the contract, and the rights of each should be impartially enforced. Suppose the holders of the notes should have elected to mature all notes, and to foreclose promptly after the interest and one note were in default: and the maker had the funds at the place of payment, but no one there with the notes to give receipts and accept payment. Would this court sanction such inequity?
If this suit is one in equity, and McIlveen was the complainant, he would not be entitled to any relief because he had not done equity, and could not come into equity with clean hands with reference to the matter. Had he done what was equitable he would have been paid, and the whole transaction would have been settled. See Bogert on Trusts, page 538; 3 Story on Equity (14 Ed.) 328, section 1696; 19 R.C.L., page 272, section 43; Mayor, etc., of Baltimore v. United Rys.  Electric Co., 108 Md. 64, 69 A. 436, 16 L.R.A. (N.S.) 1006, and note at page 1013; 26 R.C.L. 1279, sections 129-131.
How could the maker of the notes exercise the option of paying off any note on a semi-annual date where the holder of the notes was unknown, and where the notes were not presented at the place designated as the place *Page 237 
of payment? The maker had no recourse except to place the money with the payee of the notes, and have the trustees satisfy the mortgage of record.
It is certainly an inequitable and unrighteous result, when an appellant is prevented from exercising a clear contractual right, of which the holder of the note had knowledge, by the refusal of such holder to present notes for payment at the place where the payment was to be made. The right to prepay an indebtedness is a valuable right, and it was certainly the fault of McIlveen primarily, and of the trustee, the Interstate Banking  Trust Company, secondarily, not to have the notes presented for payment so the option to prepay could be exercised. 8 C.J. 549, 550.
In my view of the case, when the holder of the notes, McIlveen, purchased the notes, which showed that the right of prepayment could be exercised, the provision of the deed of trust constituted the Mortgage  Securities Company the agent, to act for the holder, and to receive payment.
The maker of a note can go to the place of payment and demand the production of his note upon tendering payment, and, if not produced, no interest will be allowed the holder because it was not presented for payment at such place. But it is doubtful whether the holder of such a note, suing in a court of equity, could recover even in that case, when he was in default in presenting the note at the place where the payment was called for, if the place of payment was a solvent institution. However, that is not the case here. In the case now before us a valid contract is involved and greater equity rests upon the holder of the notes in such a case.
The trustee, the Interstate Trust  Banking Company, cannot rightfully recover in equity, because it was even more grossly derelict in its duty, and probably more negligent than McIlveen, the holder of the notes.
Under section 2153, Code 1930, it is provided that: *Page 238 
"The trustee in a deed of trust may acknowledge satisfaction of the deed of trust in like manner as the cestui que trust may, and with like effect, but in such case the trustee shall be liable to the cestui que trust for the amount secured by the deed of trust."
The Interstate Trust  Banking Company, in fact, did satisfy the deed of trust of record. It knew the money was paid by the Mortgage  Securities Company, and was therefore subject to the trustee's demand for its possession, had it seen proper to make the demand. Moreover, the money was on deposit with the trustee, but in the name of the Mortgage  Securities Company. In fact, the very money that was paid by Adler and wife was placed in the bank by the Mortgage  Securities Company. In addition to this, the record shows that the Interstate Trust  Banking Company had assets belonging to the Mortgage  Securities Company which had been placed with the Interstate Trust  Banking Company as collateral security for the debt that the Mortgage  Securities Company owed the Interstate Trust  Banking Company.
It was the duty of the Interstate Trust  Banking Company, when McIlveen made demand upon it, to take steps to secure the money paid by Adler and wife, which money was under the control of the custodian until a receiver was appointed for the Mortgage 
Securities Company, to have made claim that the money was trust funds deposited by Adler and wife for the benefit of the holder of the outstanding notes. The Mortgage  Securities Company was not entitled to take this money deposited by Adler and wife for the purpose of paying notes, and apply it to the satisfaction of the demands of their general creditors.
A trustee is not to take his duties too lightly. He owes a duty to both parties, and he must do what is reasonably necessary to protect the interest of each party. The trustee in the case at bar had the right, and it was its *Page 239 
duty, before marking the deed of trust satisfied, to see that the holders of the notes had been paid, or else to take funds for that purpose into its own control and possession. If the deed of trust had not been marked satisfied, Adler and his wife could have tendered the money to the trustee, and compelled it to enter satisfaction. See Mayor, etc., of Baltimore v. United Rys. 
Electric Co., 108 Md. 64, 69 A. 436, 16 L.R.A. (N.S.) 1006-1013. To now say, after acting in such manner as to cause Adler and wife to lose the right of compelling a cancellation and tendering the money into court, that the trustee should be substituted to the rights of the holder of the mortgage, and to have the cancellation erased, and a judgment entered in its favor, would be wrong. It would be recovering in a suit founded upon its own wrong. The trustee would not, under the facts in this case, have been liable to the holder of the notes, because the holder of the notes had been negligent in presenting them; but even if it was liable, its act was such an inequitable one that equity could not afford it any relief. 21 C.J. 172, section 151 et seq.; 10 R.C.L. 392, section 1413, 1 Story Eq. Jur. 76, section 69. In 41 C.J. it is said that: "The trustee is the representative of both parties to the deed, not of the creditor alone, and his relations must be absolutely impartial as between them. He must act fairly toward both parties and in the best interests of both, not exclusively for the benefit of either, his position in this respect being different from that of other mortgagees, as the ordinary relation of mortgagor and mortgagee is not that of trustee and cestui que trust."
The trustee is in no position to assert an equitable demand. It could not get relief in any form. To allow it to recover would be to allow it to recover by its own wrong. This wrong was not brought about by the sole act of the Adlers, and the trustee did not rely upon the Adlers' statement that the money had been paid. The record shows that demand was made upon it to enter *Page 240 
satisfaction of the deed of trust, and that it relied upon the statement of the Mortgage  Securities Company that the money had been paid. 21 C.J. 180, section 163 et seq.; 10 R.C.L. 389; sections 139, 140; 1 Story Eq. Jur. (14 Ed.), p. 98, section 98.
The fact is that the Mortgage  Securities Company and the Interstate Trust  Banking Company are affiliated corporations. True, they are separate entities, but they have some officers and stockholders in common.
Whatever the right of the appellee at law, as complainant in the court of equity it cannot recover, because it has not come into court with clean hands, has not done equity, and consequently should not be heard, even if it must suffer a loss.
It is a fundamental principle of law that where one of two parties must suffer a loss, the one that must suffer is the one who could have prevented the loss — the one who was in a position to prevent it. Clearly the Interstate Trust  Banking Company, at the time the cancellation was made, had been, and was, able to take into its own control the funds paid to the Mortgage 
Securities Company, and it was under duty to find out the facts. It seemed to be entirely satisfied with the funds in the hands of the Mortgage  Securities Company, and made no effort to communicate with the holder of the notes, or to take the funds into its own control.
I cannot see the justice or equity of allowing either McIlveen or the Interstate Trust  Banking Company to recover.
I think the payment should be treated as a compliance with the contract, and that the trustee should be treated as being in default, and consequently that it is not entitled to recover upon any theory.