Brown v. First Nat. Bank

• Decision Date: 07 January 1902
• Docket Number: 794.
• Citation: 112 F. 901
• Parties: BROWN et al. v. FIRST NAT. BANK OF NEWTON, KAN.
• Court: U.S. Court of Appeals — Seventh Circuit

112 F. 901

BROWN et al. v. FIRST NAT. BANK OF NEWTON, KAN.

No. 794.

United States Court of Appeals, Seventh Circuit.

January 7, 1902

Wm. E Brown, for plaintiffs in error.

Blewett Lee, for defendant in error.

Before JENKINS and GROSSCUP, Circuit Judges, and BUNN, District Judge.

BUNN District Judge.

This action was brought by the First National Bank of Newton Kan., against William E. Brown, Cora E. Brown, and Thomas J Norton upon a promissory note for the sum of $3,366.75, upon which was indorsed as credits $125 July 9, 1898, and $215 on the same date, being proceeds of two different claims. The note was signed by the three defendants. The defendants pleaded that William E. Brown was the principal upon the note, and the other two defendants were sureties, and that the plaintiff was cognizant of this relation.

Among other defenses, it was claimed that the note sued upon was a renewal of a series of notes given by the defendants to the plaintiff, and running back several years; that defendant Brown had turned over a note and mortgage about November, 1891, for $2,500, against one Hodgson and wife to the plaintiff, as collateral security to the note in suit; that prior to this time one G. W. Rogers had owned this note and mortgage, and had commenced a suit thereon in the district court of Harvey county, Kan., to foreclose the same, and afterwards had sold the note and mortgage to William E. Brown, who had assigned the same to the plaintiff as collateral security for the note in suit; that judgement was afterwards rendered on the said note and mortgage in the case of Rogers against Hodgson and wife, which was a personal judgment against them for $3,912.50, as well as a foreclosure against the property described in the mortgage; that afterwards Rogers assigned said judgment to Brown by a separate instrument of assignment, and that Brown by another instrument of assignment assigned the same to the bank as collateral security for his note for which the note in suit is a renewal, and that Rogers assigned on the judgment docket the said judgment direct to the bank by an assignment absolute in form, but really for the purpose of passing title to the bank, that the same might be held as collateral security for the note of Brown; and afterwards the foreclosed property was sold at sheriff's sale, and the bank bid it in for $500 under an agreement with Brown that the bank should hold the property as collateral security, as it held the balance of the judgement. The defendants also claimed that, without the knowledge or consent of any of the defendants, the bank released from the lien of the judgment about $20,000 worth of real estate in Harvey county, Kan., which was free and clear of all incumbrances except said judgment; that this release was made by the bank on the 14th of April, 1893, and that afterwards, on the 13th of June, 1898, the bank released the balance of the judgment in full, and that the judgment amounted to about two or three times the amount of the note sued upon; that the judgment debtors are solvent, and had ample property to pay this judgment, and that thereby the security has been lost to the said Brown, and that the sureties were deprived of the benefit of the collateral, and that thereby the obligors on the note had been released and discharged. This defense is set up also by another plea substantially in the same manner, and the whole contention in the case relates to this defense. There was a jury trial, and the plaintiff on the trial introduced the note in evidence, and rested. There was much time occupied by the defendant in putting in testimony to substantiate the allegations of his several pleas. There was also a written stipulation as to much evidence which was introduced by the defendant, and there is no contention but that the evidence introduced tended to prove the allegations of the defendants' defense in regard to the releasing of the collateral securities without the consent of Brown.

Before the defendants had got through with their testimony or rested their case, and without any rebutting testimony being offered, plaintiff's counsel made a motion to direct a verdict in favor of the plaintiff for the amount of the note and interest, and the court accordingly took the case from the jury, directing a verdict as requested. The principal question in the case is whether this was error. The reason assigned by the court for directing a verdict was that the matters of defense were cognizable only in a court of equity, and not in a court of law. The court stated in its charge to the jury that:

'In the opinion of the court, all of the testimony relating to the satisfaction of the judgment, which has been referred to in the testimony as collateral held by the bank, is a matter which can only be adjudged in a court of equity; that in a court of law the judgment, on the undisputed testimony, as far as has been heard or offered, is not satisfied until the judgment is paid in full, and it is not so satisfied; that, if there had been any wrong done to the defendants by the bank, there was a perfect remedy in the courts of equity; and we, sitting in a court of law, can determine only law matters, generally speaking, and not determine matters of equitable consideration, unless it be in a plain and simple case at the utmost. Here it is complicated beyond measure, that I am satisfied that it is not one that can be adjudged here.'

This was error. We think that the several defenses upon which evidence was introduced on the part of the defendants should have been submitted to the jury. We cannot see from the bill of exceptions that the matter was so very complicated. At any rate, we are satisfied that the matters set up as defense, and which the evidence of the defendants tended to prove, were matters of legal, as well as of equitable, cognizance. If these matters were true, as alleged by the defendants pleas, and as their evidence tended to show, it furnished a reason in law why there should not be a verdict for the plaintiff. The evidence showed beyond controversy that the bank had tried to get Brown's consent to release the judgment, but he had constantly refused to give it, and told them that they must not release it, and that they released it contrary to his express will and direction. If that be so, and they were turned out as collateral to the note in suit, it is difficult to see why the releasing of the judgment was not a defense at law, as in equity. The evidence on the part of the defense, as appears by the bill of exceptions, does not show a case more complicated than thousands of other cases at law that are daily submitted to the consideration of a jury, and we think that is no reason why they should not be submitted, and especially as to the sureties upon the note of Brown the releasing of the collateral security was a complete defense to the action of the note against them. They signed the note as surety with Brown, and it was incumbent on the bank to collect these securities, and apply them upon the note, and the releasing of such collateral securities, without the consent of Brown or of the sureties, would most certainly relieve the sureties of their obligation.

In Hayes v. Ward, 4 Johns. Ch. 130, 8 Am.Dec. 556, Chancellor Kent lays down the rule as follows:

'The surety, by his very character and relation as such, has an interest that the mortgage taken from the principal debtor should be dealt with in good faith, and held in trust, not only for the creditor's security, but for the surety's indemnity. A mortgage so taken by the creditor is taken and held in trust, as well for the secondary interest of the surety, as for the more direct and immediate benefit of

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