Harris v. American Building & Loan Ass'n

• Citation: 122 Ala. 545,25 So. 200
• Court: Supreme Court of Alabama
• Decision Date: 08 February 1899
• Parties: HARRIS v. AMERICAN BUILDING & LOAN ASS'N ET AL.

25 So. 200

122 Ala. 545

HARRIS v. AMERICAN BUILDING & LOAN ASS'N ET AL.

Supreme Court of Alabama

February 8, 1899

Appeal from chancery court, Colbert county; Wm. H. Simpson Chancellor.

Suit by C. L. Harris against the American Building & Loan Association and others. Decree for defendants, and plaintiff appeals. Affirmed.

On September 12, 1887, Harvey H. Brumbach and Susan H. Brumbach his wife, became indebted, nominally, to one James R. Crowe in the sum of $4,000, for which they executed their note payable to his order, 90 days after date, at the First National Bank, of Sheffield, Ala., and to secure its payment executed a mortgage to the payee on seven lots in the city of Sheffield, on two of which was situated an hotel building with other improvements, styled the "Park House." These lots were numbered 10 and 11, in block 15 1/2; and the bone of contention in this cause is, to which mortgagee, complainant or the American Building & Loan Association, belongs the priority of lien upon them. The note of Brumbach and wife was transferred and indorsed, at or soon after its execution, to the First National Bank of Sheffield, by the payee named, James R. Crowe. There is evidence tending to show that the money for which the note was made was lent the Brumbachs by that bank. The note first made was not paid at maturity, but was renewed in the same form and terms, with the same parties several times, and was, eventually, divided into four notes of $1,000 each. These, in turn, were several times renewed, in like form and terms, payable to said Crowe, by whom they were indorsed to the bank, which held the mortgage from the inception of the transaction.

This method of doing things continued until the failure of the bank on November 29, 1889, at which time the four Brumbach notes were owned by the bank, but held as collateral for its indebtedness to certain of its creditors. The mortgage given to secure the indebtedness, when originally contracted, remained in the hands of the bank, the agreement having been, as the various renewals occurred, that it should stand as security for the indebtedness. It was filed for record January 16, 1889. It was conditioned for the payment of an indebtedness of $4,000, on September 12, 1888; and was expressly subject to any indebtedness of the purchase money for the property embraced in it. The last four notes in the series of renewals were unpaid at the time of failure of the bank, viz. one by the Sheffield Land, Iron & Coal Company of Alabama, which was afterwards paid to it; two were then held by two New York banks, and were by them turned over and surrendered to the receiver of the Sheffield bank, R. W. Austin, from whom the creditor banks took receiver's certificates of claims proved, entitling them to share in the dividends distributed; and the Nashville Trust & Banking Company, having realized its debt from other collateral in its hands, returned the other Brumbach note, which it held, to the receiver of the Sheffield bank.

In the summer of 1889, long after the debt to the bank had been contracted, and after the mortgage executed to secure the same had been duly recorded, H. H. Brumbach applied to the American Building & Loan Association, appellee, for a loan of $5,000, offering as security therefor his stock in said association and a mortgage on said lots, 11 and 12 in block 15 1/2, in Sheffield, on which was the Park House and improvements, and which were embraced in the mortgage to Crowe for the bank loan, and then held by the bank. At the time of such application the building and loan association had created and established at Sheffield, a local board or branch of the association, under sections 1, 2 and 5 of article 9 of the by-laws of the corporation. This board consisted of a president, secretary, treasurer, attorney and board of directors, who were to hold office for one year, and until election of successors. In pursuance of the system of the building and loan association, H. H. Brumbach applied on July 31, 1889, for a loan of $5,000, the face value of 50 shares of stock in the association, offering a premium of $50 per share for the loan. He then held 100 shares of the stock of the association. In his application, after giving a description of the property he proposed to mortgage as security, its value, rental and improvements, he says, in response to the question in the application blank: "Are there any mortgages or judgments against the property?" "Four thousand dollars mortgage on it." This application first passed through the hands of the local board at Sheffield, by which the property was appraised, and the loan was recommended over the signatures of the directors of the said local board. When this application and appraisal and recommendation of the local board reached the main office, it was approved, on September 5, 1889, for $4,500. An abstract of title was furnished at the expense of Brumbach, which was prepared, it seems, by Mr. Joseph Nathan, the attorney of the local board of the building and loan association at Sheffield. The abstract traces the title of the property from the government, through intermediate owners, to Brumbach notes the mortgage made by Brumbach to the appellee, the building and loan association, recorded December 31, 1889, but omits any reference to the mortgage on the property, made to Crowe but held by the bank, which was recorded on January 16, 1889, nearly a year before that to the association. Why this omission occurred is explained by the testimony of Nathan, Allen, Crowe and Brumbach, to the effect that it was agreed by the persons just named that the money received by Brumbach, on the loan from the building and loan company, was to be applied to the payment of the four notes, into which, by renewals, the debt secured by the mortgage to Crowe had been divided. But there was no authority from the First National Bank of Sheffield, or any of its officers, or any of the holders of the notes, except Allen, for the Sheffield Land, Iron & Coal Company of Alabama, to satisfy the mortgage, or affect, dispose of, or bind their several interests in any manner. It appeared from the testimony of Crowe that, although he knew that the notes had been transferred,...