Fowler v. Barlow

• Decision Date: 08 May 1929
• Citation: 146 A. 77
• Parties: FOWLER v. BARLOW et ux.
• Court: Vermont Supreme Court

146 A. 77

FOWLER

v. BARLOW et ux.

Supreme Court of Vermont. Windham.

May 8, 1929.

Appeal in Chancery, Windham County; John C. Sherburne, Chancellor.

Petition by Frank W. Fowler against Charles C. Barlow and wife. Decree for defendants, and plaintiff appeals. Reversed and remanded, with directions.

Argued before WATSON, C. J., and POWERS, SLACK, MOULTON, and WILLCOX, JJ.

Frank E. Barber, of Brattleboro, for appellant.

Carpenter & Clawson, of Brattleboro (Richard E. Gale, of Brattleboro, of counsel), for appellees.

MOULTON, J. This is a petition in equity to foreclose a mortgage on real estate. The defendants have filed an answer, in which they say that they were sureties or guarantors only, and that they are discharged from liability because there has been a material alteration of the note without their knowledge or consent, because the statute of limitations has run on the note and mortgage, and because Leray Fowler, one of the makers of the note, died leaving an estate sufficient to pay the note in full, but the plaintiff made no attempt to collect the amount, and the estate has been disposed of.

A hearing was had before the chancellor, who has found the following facts: The mortgage originally covered several different parcels of land, some of which were owned by Charles Barlow, and some by his wife, Alice Barlow. The mortgage is dated January, 4, 1909, and is conditioned for the payment of a promissory note for $1,000, payable to the order of the plaintiff, and signed by Leray J. Fowler and John S. Fowler. The defendants are not signers or indorsers of the note. They gave the mortgage for the sole purpose of enabling the makers to procure the amount from the plaintiff, and no part of the money accrued to their benefit.

Payments on the note were made from time to time by the makers. The last payment was made by John S. Fowler, one of the makers, on August 16, 1927, and was in the sum of $25. It was made in the presence of defendant Charles C. Barlow. On January 10, 1912, Charles Barlow loaned $200 to John Fowler, so that the latter might pay the same on the note, on an agreement between Barlow and the plaintiff that upon such payment the plaintiff would release from the mortgage a certain piece of real estate, belonging to Barlow. The release was accomplished by a quitclaim deed. In the same manner, on May 1, 1914, Barlow loaned $250 to John Fowler, which was paid on the note, to release another piece of real estate belonging to Barlow. This left the property owned by Alice Barlow the only real estate covered by the mortgage. All belonging to Charles Barlow had been released. Alice Barlow had nothing to do with the release.

In 1927 the plaintiff began pressing for payment of the note, and verbal negotiations took place, with the approval of Alice Barlow, between Charles Barlow and the plaintiff, whereby a new mortgage and note should be substituted for these already in existence. But these negotiations came to nothing.

On March 25, 1914, the plaintiff wrote across the end of the note words to the effect that from that time on interest should be at the rate of 5 per cent., but the chancellor is unable to find on the evidence whether, as the plaintiff claims, this was at the suggestion of Charles Barlow.

Leray Fowler deceased in June, 1921, leaving an estate not exceeding the amount necessary to pay the expenses of his last sickness and funeral.

A decree was entered for the defendant, and the plaintiff has appealed.

Since the note was made and delivered before the Negotiable Instruments Act took effect, its provisions do not apply. G. L. 3059.

One who pledges or mortgages his property to secure the debt of another, without becoming personally bound for the payment, is, as to that debt, a surety. Jangraw v. Perkins, 79 Vt. 107, 109, 110, 64 A. 449; Cross v. Allen, 141 U. S. 528, 534, 12 S. Ct. 67, 35 L. Ed. 843; Eberhart v. Eyre-Shoemaker, Inc., 78 Ind. App. 658, 134 N. E. 227, 229; Gahn v. Niemcewicz, 11 Wend. (N. Y.) 312, 328; Bank of Albion v. Burns, 46 N. Y. 170, 174, 175; Fleming v. Barden, 126 N. C. 450, 36 S. E. 17, 53 L. R. A. 316, 78 Am. St. Rep. 671; Id., 127 N. C. 214, 37 S. E. 219, 53 L. R. A. 316, 326, 21 R. C. L. 949. It is sometimes said that, in such a situation, it is the property pledged or mortgaged that stands in the position of a surety. Mechanics' Bank v. Comins, 72 N. H. 12, 55 A. 191, 196, 101 Am. St. Rep. 650; Price v. Reed, 124 Ill. 317,15 N. E. 754, 7 Am. St. Rep. 367; In re Blanchard (C. C. A.) 253 F. 758, 765.

The defendants insist that the notation placed upon the note by the plaintiff constituted a material alteration thereof, and, as such, not only avoided it as against the makers, but operated to discharge the sureties from their obligations, under the rule in Gray v. Williams, 91 Vt. Ill, 117, US, 99 A. 735, and Barton Savings Bank & Trust Co. v. Stephenson, 87 Vt. 433, 444, 89 A. 639, 51 L. R. A. (N. S.) 346.

But it is not necessary to decide whether there was a material alteration of the note in this instance. Assuming it to be so, the mortgage is not necessarily invalidated. Where such an alteration is made without fraudulent intent, although the note may be avoided, the debt is not discharged, and a recovery may be had upon the original consideration. Keene v. Weeks, 19 R. I. 309, 33 A. 446, 447; Jeffrey v. Rosenfeld, 179 Mass. 506, 508, 61 N. E. 49; Owen v. Hall, 70 Md. 97, 16 A. 376, 378; Clute and Bailey v. Small, 17 Wend. (N. Y.) 238, 242-243.

In Bigelow v. Stilphen, 35 Vt. 521, 525, it was said that whether a material alteration of a promissory note works a forfeiture of the debt, so that there can be no recovery by the party making such alteration for the original consideration, was a question upon which the authorities were not entirely harmonious, but that the weight of authority seemed to be in favor of the position that in such case there could be no recovery for the original consideration. However, since the action in that case was upon the note itself, what was thus said was obiter; and besides, it is clear that the court failed to distinguish between alterations innocently made and those made with fraudulent intent, because it was said that the object of the rule was to deter holders of written instruments from attempting to commit frauds upon the signers by altering them. In Gray v. Williams, 91 Vt. 111, 120, 99 A. 735, 739, in speaking of an alteration, the court said: "We are not now concerned with plaintiff's right to recover on the original consideration, for this is a suit declaring upon the note alone"—thus recognizing that, in a proper case, such recovery might be had.

It follows that the material alteration of a mortgage note, if not fraudulent, will not avoid the mortgage, which will still remain a valid security for the original consideration. Jeffrey v. Rosenfeld, supra, at page 509 of 179 Mass. (61 N. E. 49); Walton Plow Co. v. Campbell, 35 Neb. 173, 52 N. W. 883, 16 L. R. A. 468, 470; Smith v. Smith, 27 S. C. 166, 3 S. E. 78, 13 Am. St. Rep. 633, 635; Williston on Contracts, par. 1912. The rule is thus stated in Vogle v. Ripper, 34 Ill. 100, 85 Am. Dec. 299, 300:

"In a court of equity a mortgage is regarded as an incident of the debt, and where a mortgagee has released or discharged the debt by a fraudulent alteration or destruction of the written evidence of it, he ought not to' be permitted to sustain a suit for its recovery; but where the alteration was not fraudulent, although the identity of the instrument may be destroyed, we think it should not cancel a debt, of which the instrument was merely evidence. If there was no intent to defraud, there is no reason why a court should not assist the creditor as far as it can consistently."

This principle was applied, in Edington v. McLeod, 87 Kan. 426, 124 P. 166, 41 L. R. A. (N. S.) 230, 235, Ann. Cas. 1913E, 315, to a situation similar in its legal aspect to the one presented here. A wife Joined with her husband in a mortgage to secure the husband's note. The note was materially, though innocently, altered by the holder, after execution and delivery. It was held that the wife was in the position of a surety, but, since there was no fraudulent intent, the mortgage was not invalidated, although the note itself was rendered void. See, also, Cheek v. Nall, 112 N. C. 370, 17 S. E. 80, 81.

Plainly, there is here no intent to defraud. There is no finding of such a fact, and we cannot supply this material element by inference. Manley Bros. Co., Inc., v. Somers, 100 Vt. 292, 297, 137 A. 336. Neither can we presume the existence of fraud. Colston v. Bean, 78 Vt. 283, 285, 62 A. 1015. Even if there were such a presumption, it would be rebutted by the fact that the change was to a lower rate of interest than that specified, and consequently against the interest of the plaintiff and to the advantage of the makers. Keene v. Weeks, supra. We hold, therefore, that the mortgage was not affected by the act of the plaintiff in making the notation upon the margin of the note.

We pass now to the defense of the statute of limitations. The right of entry under a mortgage is barred by a continued interruption and ouster for the term of 15 years. Richmond v. Aiken, 25 Vt. 324, 326. Courts of equity act upon the analogy of the statute of limitations, and will presume payment and satisfaction of a mortgage debt after the...