Hamilton v. Fowler

• Decision Date: 04 December 1899
• Docket Number: 717.
• Citation: 99 F. 18
• Parties: HAMILTON et ux. v. FOWLER et al.
• Court: U.S. Court of Appeals — Sixth Circuit

99 F. 18

HAMILTON et ux. v. FOWLER et al.

No. 717.

United States Court of Appeals, Sixth Circuit.

December 4, 1899

[Copyrighted Material Omitted]

The original bill was filed by Thomas A. Hamilton and his wife Elizabeth H. Hamilton, in the chancery court for Shelby county, Tenn., for the purpose of enjoining the sale of certain premises situated in that county under a power of sale contained in a mortgage made by the complainants to secure a certain promissory note theretofore made by them to the Jarvis-Conklin Mortgage Trust Company, a corporation of the state of Missouri, whose principal office was at Kansas City. The note aforesaid was in these words:

'Mortgage bond.

'United States of America.

'Number.

Dollars.

'One.

Real-estate Mortgage.

$10,000.00.

'Coupon Bond.

'Secured by

Six Per Cent.

'First Mortgage.

Semiannually.

'Negotiated by Jarvis-Conklin Mortgage Trust Co., Kansas City, Mo.

'Five years after date, for value received, we promise to pay to the order of the Jarvis-Conklin Mortgage Trust Co., at its office in Kansas City, Mo., ten thousand ($10,000.00) dollars lawful money of the United States, with interest thereon at the rate of six per cent. per annum, payable semiannually on the first days of January and July in each year, according to the tenor and effect of the interest notes of even date herewith, and hereto attached. This note is to draw interest from date at the rate of six per cent. per annum if either principal or interest remain unpaid ten days after due. At the option of the legal holder, after any of said interest notes remain due and unpaid ten days, the whole of the principal and interest may be declared immediately due and payable. This note is given for an actual loan of the above amount, and is secured by a trust deed of even date herewith which is a first lien on the property therein described.

'Dated at Kansas City, Mo., July first, 1891.

'Thos. A. Hamilton. 'Elizabeth H. Hamilton.

'Witness: W. A. Smith.'

Relief against the sale was sought mainly upon the ground that the note was for money loaned in Tennessee by a foreign corporation engaged in doing business in Tennessee without having first complied with the Tennessee statute requiring foreign corporations, before carrying on business in the state, to record their charters, and the note and mortgage therefore void. Other objections to the right of the trustee to enforce the mortgage were also urged, which will be hereafter stated. A stay order was granted by the chancellor. Thereafter the defendants removed the cause to the circuit court of the United States for diversity of citizenship. The defendants Fowler and Caesar then answered, and, after denying the averments of the bill, averred that they were bona fide purchasers of the note secured by the mortgage before maturity, for value, and without notice of any of the infirmities alleged, if they in fact existed. Later the same defendants filed a cross bill, and sought a foreclosure of the mortgage by a sale under decree. Upon final hearing the issues were decided for Messrs. Fowler and Caesar, the note and mortgage were held valid, and a decree settling the amount of the debt due and ordering foreclosure by sale, as prayed by the cross bill, was granted, but enjoining the trustee from proceeding with the sale theretofore advertised. 83 F. 321.

Wm. M. Randolph, for appellants.

Thomas M. Scruggs, for appellees.

Before TAFT, LURTON, and DAY, Circuit Judges.

LURTON Circuit Judge, after making the foregoing statement of facts, .

Hamilton and wife have appealed from the decree upon the cross bill, and Fowler Caesar, and Maxwell have appealed from the decree enjoining a foreclosure by sale by Maxwell as trustee under the mortgage. The Tennessee act of 1891, c. 122 (Acts Tenn. 1891, p. 264), provides that all foreign corporations proposing to carry on business in Tennessee shall record their charters with the secretary of state, and in each county in which it is proposed to do business, and that 'it shall be unlawful for any foreign corporation to do or attempt to do any business or to own or acquire any property in this state, without having first complied with the provisions of this act, and a violation of this statute shall subject the offender to a fine, of not less that $100, or more than $500, at the discretion of the jury trying the case. ' Though this act does not, in express terms, declare void the contracts of corporations doing business within the state in violation thereof, yet it is well established by the Tennessee decisions that every contract made in the state by a foreign corporation dong business within the state, not having complied with the law, is unenforceable as between the parties thereto. Cary-Lombard Lumber Co. v. Thomas, 92 Tenn. 587, 22 S.W. 743; Association v. Cannon, 99 Tenn. 344-348, 4l S.W. 1054. These cases are in accord with a line of earlier decisions of the state holding that every contract made in the conduct of a business, or for or about a business which is prohibited and made unlawful, is, by implication, void, and unenforceable. Wetmore v. Brien, 3 Head, 723; Stevenson v. Ewing, 87 Tenn. 46, 9 S.W. 230; Haworth v. Montgomery, 91 Tenn. 17-19, 18 S.W. 399. But the Tennessee act has not application to interstate commerce, and a mortgage to secure the price of mill machinery sold by an Indiana corporation and set up on realty in the state was held valid and enforceable, although the corporation had not complied with the Tennessee law; the court holding that a contract made outside of the state was not within the prohibition of the statute, and that a mortgage on lands in the state was not a carrying on of business within the state under the statute. Manufacturing Co. v. Gorten, 93 Tenn. 590, 27 S.W. 971, 26 L.R.A. 135. In Neal v. Association, 100 Tenn. 607, 46 S.W. 755, the court held that a contract for the loan of money by a foreign corporation having no office or agency in the state, made direct from its home office in Louisiana, and secured by a mortgage on land in Tennessee, was a Louisiana contract, and that same was valid and enforceable. The question as to whether the Jarvis-conklin Mortgage Trust Company was at the time of the transaction with Hamilton and wife carrying on business within the state, or whether the loan to Hamilton and wife was in fact a loan negotiated and made in Tennessee, is not material in view of the fact that the appellees Fowler and Caesar are bona fide purchasers of the note made by Hamilton and wife, for value, and before maturity, and without notice that it had been made in the course of a prohibited business.

The note purports on its face to have been made at Kansas City, Mo., and is there made payable. It is true that it recites that it is secured by a mortgage upon land in Tennessee. But neither the fact that the note was secured by a mortgage upon realty situated in that state, nor that the mortgage was acknowledged there before a Tennessee notary, operates to make the note a Tennessee contract, nor to require the purchaser thereof to make further inquiry. The note purports to be a Missouri contract, and is payable to a Missouri corporation. This note, before maturity, was indorsed in blank by the payee to Messrs. Lubbock & Lubbock, London bankers, as security for certain debenture bonds theretofore or then issued, which does not clearly appear, and negotiated for value by the Jarvis-Conklin Mortgage Trust Company. Default was thereafter made in the payment of interest on those bonds, and this note, with others held as collateral security, were, by the terms of the trust under which they were held, forfeited, and by a decree of an English court of competent jurisdiction, delivered to Messrs. Fowler and Caesar as trustees for the debenture bondholders. It is immaterial whether these bonds were originally issued upon the security of this and other notes, or that they were subsequently assigned to secure them. The transfer of negotiable obligations as security for an antecedent debt is as much in the usual course of business as its transfer in the payment of the debt. In neither case is the bona fide holder affected by the equities between prior parties of which he had no notice. Swift v. Tyson, 16 Pet. 1, 10 L.Ed. 865; McCarty v. Roots, 21 How. 432, 438, 439, 16 L.Ed. 162; Brooklyn City & N.R. Co. v. National Bank, 102 U.S. 14-28, 26 L.Ed. 61.

Counsel for the mortgagors have placed much reliance upon Bank v. Bates, 120 U.S. 556, 7 Sup.Ct. 679, 30 L.Ed. 754, as in some way affecting the status and title of Messrs. Fowler and Caesar. But that case presented only the question as to whether the position of a mortgagee under a chattel mortgage made to secure a pre-existing debt was identical with that of one who took negotiable paper before maturity, and without notice of defenses, as collateral security for an antecedent debt. The court declined to extend to such a mortgagee the doctrine of Brooklyn City & N.R. Co. v. National Bank, cited above. Touching the distinction between the two cases, the court said:

'The rules established in the interest of commerce to facilitate the negotiation of mercantile paper, which, for all practical purposes, passes by delivery as money, and is the representative of money, ought not, in reason, to embrace instruments conveying or transferring real or personal property as security for the payment of money. At any rate, there is nothing in the usages of merchants, as shown in this record, or so far as disclosed in the adjudged cases, indicating that the necessities of commerce require that chattel mortgages be placed upon the same footing in all respects as negotiable securities which have come to the hands of a bona fide holder for value, before

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