Ferree v. New York Security & Trust Co.

• Decision Date: 30 April 1896
• Docket Number: 694.
• Citation: 74 F. 769
• Parties: FERREE v. NEW YORK SECURITY & TRUST CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

74 F. 769

FERREE v. NEW YORK SECURITY & TRUST CO. et al.

No. 694.

United States Court of Appeals, Eighth Circuit.

April 30, 1896

This was an intervening petition which was filed by the appellant Leslie C. Ferree, in a case entitled New York Security &amp Trust Co. v. Lombard Inv. Co., which was pending, at the time the intervening complaint was filed, in the circuit court of the United States for the Western district of Missouri. The intervener, Leslie C. Ferree, was the holder of a note in the sum of $9,000, which was secured by a deed of trust on certain real estate situated in Kansas City, Mo. Another note, in the sum of $2,000, which was held by the appellees was secured by the same deed of trust. A controversy arose between the holders of the two notes as to which was entitled to priority of payment out of the proceeds of the sale of the mortgaged property. To determine that controversy, the appellant filed an intervening petition, and the case was submitted to the lower court upon an agreed statement of facts. The material facts, as disclosed by the agreed statement, on which the decision of the case depends are substantially these: George H. Donaldson and wife on February 1, 1889, executed a deed of trust to David H. Ettien, as a trustee for the Lombard Investment Company, on certain property situated in Kansas City, Mo., to secure an indebtedness of $11,000, evidenced by two certain notes or real-estate bonds, which were executed by said Donaldson,-- one for $2,000, due February 1, 1892, and one for $9,000, due February 1, 1894. On February 4, 1889, the Lombard Investment Company (hereafter termed the 'Investment Company, ') sold both of said notes or bonds to Daniel Bushnell, the intervener's intestate, and indorsed on the back of each of said notes an assignment in the following form, to wit 'For value received, the Lombard Investment Company hereby assigns this bond or note to Daniel Bushnell, of Pittsburg, Pennsylvania, or order, and agrees-- First, to guaranty the payment of the coupons attached hereto at the maturity thereof; second, to collect at its own expense and to pay over the principal hereof at maturity, provided the same is paid by the maker; third, in event of default being made by the maker, to collect at its own expense and to pay over the principal hereof, within two years from the maturity of the same, and to pay interest thereon at the rate of six per cent. per annum, payable semiannually until the principal is paid.' The investment company also assigned the mortgage or deed of trust securing the notes to said Bushnell, by a formal written assignment, which was duly recorded in the county where the mortgaged property was situated. Prior to February 1, 1892, when the note for $2,000 matured, Bushnell died. His administrator, Ferree, presented the note to the Investment Company, at its home office, in the city of Philadelphia, and received the amount due thereon from the investment company. When the administrator surrendered the note, on receiving the amount due thereon, he indorsed it, 'Without recourse,' and delivered it to the investment company. Subsequently, on February 15, 1892, the investment company placed the note for $2,000 in the hands of certain trustees who had been theretofore appointed to hold certain securities, consisting of notes and bonds that had theretofore been issued by the investment company, and that are still outstanding and unpaid. It was agreed by the parties that the investment company paid all the interest coupons attached to the two notes in controversy which matured previous to February 1, 1892, when the note for $2,000 became due; that it paid them over its counter in Philadelphia, where the note in controversy was also presented for payment, and that it thereafter paid the interest coupons on the note for $9,000 until the investment company became insolvent and passed into the hands of a receiver; but that it never informed the intervener, nor his intestate, when such coupons were paid, that the maker of the notes had defaulted in the payment of his interest. It was furthermore agreed that the intervener was not informed on February 4, 1892, when the note for $2,000 was taken up by the investment company, that the maker thereof had failed to provide the funds wherewith to pay it. When that note was taken up by the investment company, nothing was said by its agent or by the intervener relative to the subject of payment. The intervener still holds the note for $9,000, while the note for $2,000 remains in the hands of the trustees heretofore mentioned, and is held by them as collateral to secure the payment of the aforesaid debenture bonds that are still outstanding and unpaid. The mortgaged property is not worth to exceed $9,750. The intervener has paid out a considerable sum of money for taxes and insurance on the mortgaged property since the investment company became insolvent. On the foregoing state of facts the circuit court decreed that the proceeds realized from the sale of the mortgaged property should be applied in the following manner: First, to pay the necessary costs of foreclosure; second, to refund the various sums of money advanced by the intervener to pay taxes and insurance; third, to pay the note for $2,000 held by the trustees; and, lastly, to the payment of the note for $9,000 now held by the intervener. 65 F. 271. The intervener has brought the case to this court on an appeal from such decree.

O. A. Lucas, for appellant.

Frank Hagerman (Edward C. Wright and Sandford B. Ladd with him on brief), for appellees.

Before CALDWELL, SANBORN, and THAYER, Circuit Judges.

THAYER Circuit Judge, after stating the case as above, .

The decision of the present case hinges mainly, if not entirely, on the construction which shall be placed upon the acts of the parties when the note for $2,000 was surrendered by the intervener to the Lombard Investment Company, on February 4, 1892; and the question with respect to that transaction is briefly this: Did the intervener intend to sell and assign the note to the investment company, and to vest it with the right to participate in the proceeds of the sale of the mortgaged property according to Missouri laws, or did he intend that, as between himself and the investment company, the transaction should operate as a payment? We put the first clause of the interrogatory in this form because it is the established doctrine in Missouri that, where a mortgage or deed of trust is given to secure the payment of two or more notes of the same date, those which first mature are entitled to priority of payment out of the fund realized by a sale of the mortgaged property. Mitchell v. La Dew, 36 Mo. 526; Hurck v. Erskine, 45 Mo. 484; Thompson v. Field, 38 Mo. 329; Freeman v. Elliott, 48 Mo.App. 74. Therefore, if the first branch of the foregoing inquiry is answered in the affirmative, the note for $2,000 was entitled to be first paid, and the decree of the circuit court was unquestionably right.

We should have no difficulty in assenting to the decree rendered by the circuit court, if it appeared that when the note for $2,000 was indorsed, 'Without recourse,' and delivered to the investment company, the intervener was aware that the money to take up the note, as well as to take up the previously maturing interest coupons, had not been provided by the maker of the notes,...