Andrew Lawrence, Complainant and Appellant v. Hiram Tucker

• Decision Date: 01 December 1859
• Citation: 23 How. 14,16 L.Ed. 474,64 U.S. 14
• Parties: ANDREW LAWRENCE, COMPLAINANT AND APPELLANT, v. HIRAM A. TUCKER
• Court: U.S. Supreme Court

64 U.S. 14

23 How. 14

16 L.Ed. 474

ANDREW LAWRENCE, COMPLAINANT AND APPELLANT, v. HIRAM A. TUCKER.

December Term, 1859

THIS was an appeal from the Circuit Court of the United States for the northern district of Illinois.

The nature of the mortgage and the circumstances under which it was given are set forth in the opinion of the court, and need not be repeated.

The cause was submitted on printed argument by Mr. B. R. Curtis for the appellant, and argued by Mr. Vinton, upon a brief filed by himself and Mr. Hayne, for the appellee.

Mr. Curtis, after giving a narrative of the facts in the case, and contending that the answer did not allege nor was there any evidence tending to prove that the complainant, who was thus admitted to be a bona fide purchaser for a valuable consideration, had any notice of any lien upon this property save what he gathered from the record of the mortgage to the respondent, made the following points:

1. H. A. Tucker, individually, cannot set up this note against a subsequent encumbrance, as intended to cover future advances.

It is true that a mortgage may be taken to secure future advances; and perhaps, where no fraud is intended, a note for a sum of money may be given in consideration of such expected advances; though the policy of allowing such departures from strict truth on the public registries of the country is extremely questionable. But this mortgage, in effect, asserts that the note is not to stand for future advances. For it makes a specific and distinct provision for future advances, and expressly, and clearly distinguishes between them and the note, which is, in so many words, declared not to have been given for future advances, but for that amount of money already due.

If H. A. Tucker, individually, had actually made advances subsequent to the mortgage, he could not have a lien by virtue of it, to secure advances, by himself and his firm, beyond the amount of $6,000, without being allowed to contradict the express and clear terms of the deed, which limits the future advances to that sum.

But he has advanced nothing. And the question is, whether a mortgage to one partner, purporting to secure a debt due to him individually, can, as against a bona fide purchaser, without notice of any parol understanding between mortgagor and mortgagee, be set up as a security for advances made by the firm of which he is a member.

2. The mortgage expressly declaring that it was to stand as security for future advances only to the extent of six thousand dollars, it cannot stand as security for any greater amount of such advances, as against a junior encumbrancer, who has no notice of any parol agreement between the mortgagor and mortgagee, that it shall stand as security for a greater sum.

The public registry informed the complainant that future advances were not to exceed $6,000; that the note was not given for future advances to be made by any one, but for money then due; that the note had reference to dealings between H. A. Tucker, individually, and the mortgagors, and not between the mortgagors and the firm of H. A. Tucker & Co.

A decree allowing H. A. Tucker to set up the mortgage as security for $9,689.56 of advances made by his firm, contradicts each of these material representations, on which the complainant had a right to rely when he purchased the property.

3. Upon the face of the mortgage and the whole evidence, it is not made out with the requisite certainty that there was an original agreement between the mortgagors and the mortgagees, that the $5,500 note should stand as a continuing security for all future advances; and when advances to that amount had been made and repaid, that part of the security, if ever applicable to advances, was extinguished.

Truscott et al. v. King, 2 Seld., 147.

4. This mortgage to H. A. Tucker, to secure future advances by the firm of H. A. Tucker & Co., cannot stand as security for advances made after the admission of new partners into the firm. As against the mortgagors, their conduct and understanding may prevent them from taking this objection. But a junior encumbrancer is affected only by the precise terms of the mortgage itself, which provides only for advances to be made by the then firm of H. A. Tucker & Co. Either the admission or retirement of a partner puts an end to the right to make further advances upon the credit of the security, as against the junior encumbrancer, and, if the amount due at the time of such change of the firm is afterwards balanced by payments on account, nothing remains due on the mortgage.

Bank of Scotland v. Christie, 8 Cl. and Fin., 214.

Spiers v. Houston, 4 Bligh. N. S., 515.

Pemberton v. Oaks, 4 Russell's R., 154.

Cremer v. Higginson, 1 Mason, 323.

Simpson v. Cook, 1 Bing., 452, 441.

There are cases in which it has been held that the security continues, though new partners are introduced into the firm. But this was only as against the debtor, or his assignees in bankruptcy, who have only his rights, and by force of an agreement by the mortgagors to extend the operation of the security to the new firm.

Without such agreement, which binds only the debtor and his representatives, there is believed to be no case which holds that the right to make advances on the credit of the security continues after a change in the members of the firm.

See Ex parte, Oakes, 2 M. D. and De G., 234.

Ex parte, Marsh, 2 Rose, 239.

If there was such an agreement in this case, the complainant had no notice of it, and is not bound by it.

The firm of H. A. Tucker & Co. was changed by the admission of new partners, January 1, 1857, and all advances made previous to that date have been repaid.

Mr. Vinton replied to these points as follows:

Question 1. The first question that arises in this case is, what was the mortgage to Tucker intended to secure?- We claim that it was intended to secure any indebtedness that might arise in the manner specified therein, to an amount not exceeding, at any one time, the sum of eleven thousand five hundred dollars; and that the actual knowledge of defendant's claim by the subsequent encumbrancers, and by Lawrence, the purchaser, made them chargeable with what was in fact due on the mortgage, not exceeding that sum, as the only condition on which they or any of them would be allowed to redeem the property. In other words, they can only redeem subject to the satisfaction of Tucker's prior equity, whatever that may be.

Question 2. May a mortgage be taken as a security for future advances, and be a lien on the property to the extent of the sum or sums provided for in it?

The cases which affirm the doctrine that a mortgage may be given to secure future advances, or future liabilities, are very numerous.

Shirras v. Caig, 7 Cranch, 34; Leeds v. Cameron, 3 Sumner, 492; Lyle v. Ducomb, 5 Binney, 590; Collins v. Carlisle, 13 Illinois, 256-are some of the leading American cases on this head.

In Leeds v. Cameron, Judge Story said: 'Nothing can be more clear, both upon principle and authority, than that, at the common law, a mortgage bona fide made may be for future advances and liabilities for the mortgagor by the mortgagee, as well as for present debts and liabilities.' He cites 3 Cranch, 73; 1 Pet. Rep., 448.

There are cases which question the prior lien of the first mortgage for future advances made after a second mortgage has been given; but in this case no such question arises, as all the advances were made before the execution of either of the subsequent mortgages.

The advances covered by the first mortgage having been made prior to a subsequent lien, and prior to complainant's purchase, it could make no difference, nor work any injury to the subsequent encumbrancers, nor to the complainant as purchaser, that at times during the continuance of the dealing under the first mortgage there was actually due less than the whole amount secured by it, or, if such were the fact, that there was no indebtedness or balance due; and they cannot avail themselves of that objection, because, during the continuance of the dealing, the mortgage and note for $5,500 were treated as and understood by the parties to be a continuing security for whatever advances might be made during the two years the contract was to last. And neither subsequent encumbrancers nor purchasers could suffer any prejudice, if due inquiry were made, from a mortgage, the record of which was notice to all persons of an encumbrance to the extent of eleven thousand five hundred dollars. They were interested in knowing what was in fact due when the subsequent encumbrance was taken, and when the subsequent purchase was made, and they were interested no further.

The note for $5,500 states on its face that it was given for an actual loan of money, and consequently the mortgage, to the extent of that note, appears to have been given to secure a debt then due, and this presents the question:

Question 3. Whether parol evidence can be given to show that the note mortgage were taken as a collateral security for advances thereafter to be made, and that in fact such advances were subsequently made, on the faith of that security?

As between the parties to the mortgage, there can be no question but such proof would be let in. Indeed, it is one of the most ancient principles of a court of equity, that if a deed be absolute on its face, it may be proved by parol, in a court of equity, that it was a conditional conveyance given to secure a loan of money.

Whether such proof will be let in against third persons will depend upon the fact whether the mis-statement or misrepresentation in the deed was made for a dishonest purpose, and whether such third person has been deceived or injured by it. This objection was made in the case of Shirras v. Caig, (2 Pet. Cond. Rep., 410.) Judge Marshall said: 'It is true the real transaction does not appear on the face of the mortgage. The deed purports to secure a debt of thirty thousand pounds sterling,...