American Loan & Trust Co. v. Atlanta Elec. Ry. Co., 1,044.

• Citation: 99 F. 313
• Decision Date: 20 June 1899
• Docket Number: 1,044.
• Parties: AMERICAN LOAN & TRUST CO. v. ATLANTA ELECTRIC RY. CO. et al.
• Court: U.S. District Court — Northern District of Georgia

99 F. 313

AMERICAN LOAN & TRUST CO. v. ATLANTA ELECTRIC RY. CO. et al.

No. 1,044.

United States Circuit Court, N.D. Georgia.

June 20, 1899

H. M Patty and King & Spalding, for plaintiff.

Burton Smith, King & Anderson, and C. P. Goree, for defendants.

NEWMAN District Judge.

The allegations of the bill are substantially as follows: That on the 2d of March, 1896, the Atlanta Electric Railway Company made and executed 42 bonds, each of that date, and each for the sum of $500, making a total of $21,000, payable to bearer at 6 per cent. per annum from date, payable semiannually that, to secure the said issue of bonds, the railway company on the said 2d day of March, 1896, executed and delivered to complainant a certain deed of trust whereby it conveyed its line of street railway within and adjacent to the city of Atlanta, in Fulton county, Ga., together with all its rights franchises, etc.; that the railway company agreed that in default of payment of interest as per contract, and when such default shall have continued for three months after payment had been duly demanded, etc., the bonds shall become payable, and the right given to the trustee, upon the request of the holders of one-half of the bonds outstanding, to sell the property covered by the trust deed, or to institute proper legal proceedings for the foreclosure of the mortgage; that the default in the payment of interest had existed for three months, so as to authorize foreclosure proceedings; that on the 17th day of August, 1895, the Atlanta Electric Railway Company had executed and delivered to D. H. Livermore a mortgage to secure $24,500 of existing indebtedness, and $5,500 which Livermore agreed thereafter to advance; that subsequently, and at a date unknown to it, Livermore gave his own note to J. F. Leary, ostensibly for the sum of $10,000 and undertook to deliver to Leary, as collateral, the notes secured by the mortgage upon the railway company, and also the mortgage; that the railway company had delivered the bonds secured by complainant's trust deed to Livermore, and had thereby extinguished the debt due Livermore, and secured by his mortgage; that on the 30th day of November, 1897, in the superior court of Fulton county, Leary caused a proceeding in the name of Livermore, suing for his use, to be instituted, for the purpose of foreclosing the mortgage held by him as collateral; that the proceeding was in the statutory form for foreclosure of a mortgage on real estate in Georgia, and a rule nisi was issued requiring the defendant to pay the sum of $24,500 principal, and interest and costs, on or before the first day of the next term of the superior court, which term was to convene on the 7th day of March, 1898, or, in default thereof, that the court would proceed as to justice might appertain; that the railway company by its president, acknowledged service, and consented that a judgment of foreclosure might be entered for the full amount sued for; that thereupon a rule absolute was granted by the superior court for the sum of $24,500 principal, and something over $5,000 interest, with all costs of suit, and the equity of redemption in said railway company was adjudged to be forever barred and foreclosed, and that said sum should be made and recovered out of the mortgaged premises; that execution was issued upon the said railroad, and the property advertised and sold on the first Tuesday in April, 1898; that on the sale the property was knocked down to J. F. Leary, as the best and highest bidder, for the sum of $500; that complainant had no notice of the foreclosure proceeding until the day before the sale; that it gave to the sheriff, and caused to be read at the sale, a notice setting up its rights; that Leary heard and read the notice, and was fully apprised of its contents, and of the claim of complainant, before the property was bid off by him; that complainant was not a party to the foreclosure proceeding, and by express provision of the law of Georgia, was not entitled to become a party to said proceeding. There are other parts of the bill, immaterial here. The only prayer in this bill, insisted on now, is to have a decree of foreclosure and a sale of the property.

The Atlanta Electric Railway Company and Leary have both answered the bill, and in both answers it is claimed that the transactions between the railway company and Livermore, and between Livermore and Leary, were both made in the utmost good faith, and that the consideration named in both transactions actually passed. The railway company says that it received from Livermore the amount for which the notes and mortgage were given, and both the company and Leary say that the $10,000 was actually loaned by Leary to Livermore at the time of the transaction between them.

Counsel for complainant conceded on the argument that such was the fact; that the transaction between Livermore and Leary was a bona fide transaction. So the case stands in this way: On the 17th of August, 1895, the railway company gave to Livermore notes and a mortgage to secure the same, for the principal sum of $24,500; that in September and October, 1895, Leary loaned to Livermore $10,000 and took from him a transfer of the notes and the mortgage named as collateral security; that subsequently to this, on the 2d of March, 1896, after the transaction between Livermore and Leary was complete, the trust deed was executed to complainant to secure an issue of $21,000 of bonds; that, in 1897, Leary foreclosed his mortgage under the statutes of Georgia, and according to its forms, and caused the property to be sold, bidding the same in for $500, and causing the deed to be made to his daughter. Leary claims that he had the deed so made, solely for the purpose of enabling him to sign any bond that might be required, that it was done upon the advice of his attorney, and that he assumed all responsibility for the bid.

Conceding, as counsel have in the argument of this case, that Leary actually loaned the money, and that the transaction was bona fide in every way, we come to consider the rights of complainant. The complainant must stand in this case, of course, as a junior mortgagee, and with such rights as that relation, to the transaction will give it. The contention is that it has the right, notwithstanding the purchase by Leary under the foreclosure sale, to have the property resold, inasmuch as it was not a party to the foreclosure proceeding. The Civil Code of Georgia (section 2746) provides for any defense by the mortgagor or his special agent against a foreclosure proceeding which might be made in an ordinary suit instituted on the debt, and section 2747 provides as follows: 'If the mortgagor or his special agent or attorney fail to set up the defense provided for in the preceding section, it is not competent for any third person to interpose; neither will the court itself, of its own motion, do so. ' It seems, therefore, that complainant, as a junior mortgagee, having been precluded from asserting its rights in the statutory foreclosure proceeding, may now do so, in a proper way. Its right is to have its debt paid after the amount due on the older mortgage shall have been paid off. To accomplish this object, its remedy would seem to be by a bill to redeem.

The purpose of the bill here seems originally to have been to attack the debt from the railway company to Livermore, and from the company to Leary, and, While complainant's right to redeem is mentioned in the bill, it can hardly be said to a bill strictly for that purpose. Even treating it as a bill to redeem, it lacks a very necessary ingredient, and that is an offer to pay off the prior incumbrance. As the case now stands, by the answers and by concession of counsel, any right which complainant in this case may have is subordinate to Leary's right to have his debt paid, and, before this junior mortgagee can have any standing in court, it must offer to do equity, which is to pay Leary's mortgage. 'Payment of the amount due on the mortgage is a necessary condition precedent to redemption. ' Jones, Mortg. (5th Ed.) Sec. 1070. This property having been sold for a less amount than the older mortgage debt, it is not sufficient to tender the purchase money, but there must be a tender of the amount due on the senior mortgage. 'To redeem property which has been sold under a mortgage (as is alleged irregularly), it is not sufficient to tender the amount of the sale. The whole mortgage money must be tendered, or, if suit be brought, be paid into court. ' Collins v. Riggs, 14 Wall. 491, 20 L.Ed. 723.

It is unnecessary to pass any further upon the rights acquired by the purchaser at this sale than to say, at present, that the most complainant can claim in this case is the right to redeem the property by paying off Leary's debt, with interest and costs (not passing for the present upon the question of attorney's fees, as that was merely alluded to, but not argued), and to institute proper proceedings for that purpose. Unless, by the present bill, such a tender is made, the bill must be dismissed.

On Rehearing.

(November 14, 1899.)

Subsequently to the filing of the former opinion in this case, filed June 20, 1899, complainant, the American Loan & Trust Company amended its bill, and tendered to Leary the amount due him by Livermore, with interest and costs, in the event that the lien of Livermore's mortgage, transferred to Leary, should be held superior to complainant's lien. After this amendment was allowed, a decree was entered in which it was adjudged (1) that the mortgage to Livermore was a good and valid security for Leary's debt of $10,000, and that Leary was entitled to enforce the same for the purpose of collecting the debt due by Livermore; (2) that the Livermore...