Flanagin v. Thompson

• Decision Date: 07 November 1881
• Parties: FLANAGIN v. THOMPSON and others.
• Court: U.S. Court of Appeals — Fourth Circuit

9 F. 177

FLANAGIN v. THOMPSON and others.

United States Circuit Court, D. Maryland.

November 7, 1881

William Sheppard Bryan, for complainant.

John H Handy, for defendants.

MORRIS D. J.

This bill is filed by Margaretta M. Flanagin, wife of William S Flanagin, a citizen of Pennsylvania, against Hedge Thompson a citizen of Maryland, and the Easton National Bank of Maryland.

The bill alleges that the defendant Thompson in 1867 executed a mortgage of land in Maryland to secure a bond for the payment of $5,000, which bond and mortgage, by proper assignments had become the property of the complainant, and that, except the sum of $1,000, no part of the money intended to be secured had been paid, but that the same was long overdue and the mortgage in default. The bill further alleges that the Easton National Bank of Maryland has possession of the bond and mortgage, and sets up a claim to the same by virtue of a pretended assignment, which the complainant charges is null and void. The bill prays that the pretended assignment to the bank may be annulled and set aside, and that the mortgage land may be sold for the payment of the mortgage debt. The bank, by its answer, asserts the validity of the assignment to it, giving the history of the transaction by which it acquired the mortgage, and also, in an amended answer, pleads, in bar of the action, that the same matters put in controversy by the bill had been adjudicated by the court of appeal of Maryland in a cause between the same parties. The mortgagor makes no defense. He admits that the mortgage is in default and that the title of the bank is valid.

The facts disclosed are:

That Mrs. Flanagin, the complainant, in 1872, was the owner of two mortgages on land in Talbot county, Maryland, viz., the one mentioned in this suit which may be called the 'Thompson' mortgage, and another which may be called the 'Johnson' mortgage. Her husband being pressed for money, she, at his request, assigned in blank both of these mortgages and the bonds they were intended to secure, and gave them to him to be disposed of. Failing in an effort to sell them outright, he applied to the Easton National Bank to loan him $7,000 on them as collateral security. This the bank agreed to do on condition that he should execute a note payable at six months, with two other persons as sureties. He did execute such a note for $7,000, dated December 16, 1872, at six months, payable at a bank in Philadelphia, and over the complainant's signature on each mortgage was written:

'I hereby assign, transfer, and set over the within mortgage and the accompanying bond, with all interest thereon, to the president, directors, and company of the Easton National Bank of Maryland, as collateral security for the payment of a note discounted December 16, 1872, in favor of William S. Flanagin, for $7,000, indorsed by R. D. Johnson and Hedge Thompson.'

The mortgage and bonds were then delivered to the bank's attorney, and Flanagin received the proceeds of the discounted note. Before this note became due Flanagin notified the bank that he would not be able to pay it at maturity, and asked for a renewal with the same collaterals and sureties. The bank granted his request and consented to renew, but informed him that as the note had been placed in a Philadelphia bank for collection he must take it up there. This he did, and a few days afterwards went from Philadelphia to Easton, and there received the proceeds of the renewal note. Thereafter renewals were granted to him by the bank, upon his solicitation, every six months until March, 1876, when the note then maturing laid over and remains unpaid.

Of the two mortgages thus assigned to the bank, the Johnson mortgage was a second mortgage, and in 1876 Ridgaway, the holder of the first mortgage, filed his bill on the equity side of the Talbot county court, making Flanagin and his wife, the bank, and other persons having an interest in the land, defendants, and obtained a decree for a sale. A sale was made by a trustee, and after paying the Ridgaway claim there remained a balance in his hands applicable to the payment of the second mortgage. Mrs. Flanagin then claimed that balance, and for the first time disputed the title of the bank, and insisted that, as the mortgages were pledged to secure a particular note of $7,000 of a certain date, described in the written assignment indorsed on the mortgages, and as that particular note had been paid, the bank could not hold the mortgages as security for notes subsequently discounted, to secure which she had never authorized them to be pledged, nor ratified the pledging of them. She claimed that the balance of the fund after paying the first mortgage should be audited to her, and not to the bank. This claim was resisted by the bank, and the issue was raised by proper exceptions to the accounts of the auditor distributing the fund, and was passed upon by the county court. The court's order is to be found in the record filed in this case, and in this language: 'The sole question to be determined in this cause is whether the proceeds of sale applicable to the Flanagin mortgage should be awarded to Mrs. Flanagin, or to the Easton National Bank. I am satisfied from the evidence that William S. Flanagin, on the sixteenth of December, 1872, with the consent and by the authority of his wife, Mrs. M. M. Flanagin, deposited said mortgage, and accompanying bond, as collateral security for the payment of a note for $7,000, discounted for him by said bank on that day, and also that the note, in these proceedings mentioned, is a renewal of said note. It is thereupon, this eleventh day of March, 1880, ordered,' etc.

The order overrules the exceptions of Mrs. Flanagin to the account awarding the fund to the bank, and directs the trustee to pay the bank. From this order Mrs. Flanagin appealed, and the record having been transmitted to the court of appeals of Maryland and the case having been heard there, the order of the county court was affirmed. The opinion of the court of appeals is in the record, and leaves no room for doubt but that the same question was considered and adjudicated by that learned tribunal. In the opinion of the court it is said:

'The question for decision, in this case arises upon the auditor's reports distributing the proceeds of sale of certain real estate, and this contest is over the right to the balance of purchase money in the hands of the trustee after paying first liens. At the hearing all the other objections were waived except the one affecting the right of the Easton bank to claim the fund as against the appellant. The appellant claims as mortgagee of the land. The appellee claims on the ground that appellant's mortgage and the bond which the mortgage secured were signed to the bank as collateral security for a note of appellant's husband and others, which has not been paid.'

After very fully discussing the facts with regard to the renewals of the note, and the law applicable to them, the court holds that the transaction was not a payment of the first note, but was an extension of credit, and simply a renewal of the loan; that the parties never intended to pay the first note, and that it never had been paid.

The court, as a further ground for affirming the judgment below held that as Mrs. Flanagin had indorsed the bond and mortgage in blank, and given them to her husband to dispose of, she had put it in his power to pledge them for each of the successive renewals; and, as she had actual knowledge that he had obtained the loan...