Lonergan v. Peebles

• Decision Date: 18 February 1919
• Citation: 81 So. 514,77 Fla. 188
• Parties: LONERGAN et al. v. PEEBLES et al.
• Court: Florida Supreme Court

81 So. 514

77 Fla. 188

LONERGAN et al. v. PEEBLES et al.

Florida Supreme Court

February 18, 1919

Rehearing Denied March 19, 1919.

Appeal from Circuit Court, Santa Rosa County; A. G. Campbell, Judge.

Suit by A. B. Lonergan and another against J. O. Peebles and wife the Banking, Savings & Trust Company, and J. H. Smithwick. Decree pro confesso against defendant Peebles and wife, and judgment in favor of the other defendants, and plaintiffs appeal. Reversed, with directions.

Syllabus by the Court

SYLLABUS

In an equity proceeding when the defendant in his answer sets up an affirmative or substantive defense, the burden is upon him to establish it.

In a bill to foreclose a mortgage given to secure the payment of certain promissory notes for the purchase price of the land mortgaged, one of the defendants answered that the plaintiff held two of the notes which were indorsed to him by defendant payee, that at the time of such indorsement, which was a qualified indorsement, it was agreed between plaintiff and defendant that if the maker should fail to pay the notes held by plaintiff at maturity, the latter should have no benefit of the mortgage lien upon the land. Held, that the burden of proof was upon the defendant setting up such defense.

A decree which is not supported by the evidence and clearly appears to be erroneous will be reversed.

COUNSEL H. S. Laird, of Pensacola, and Smith &amp Wilkinson, of Birmingham, Ala., for appellants.

Watson & Pasco, of Pensacola, for appellees.

OPINION

ELLIS J.

This is a suit to enforce a mortgage lien given to secure the payment of five promissory notes, brought by the appellants who were complainants below and who are the holders of two of the notes. Each note held by the appellants is for the sum of $1,200, dated September 1, 1914, one payable on December 1 1915, and the other payable December 1, 1916, at Pensacola, Fla. Two of the remaining three notes were for the sum of $3,800 each, one payable December 1, 1915, and the other payable December 1, 1916. The remaining note was for the sum of $5,000 and payable December 1, 1917. Each note was made by J. O. Peebles and payable to the order of J. H. Smithwick.

In order to secure the payment of these promissory notes J. O. Peebles and his wife, Alice L. Peebles, executed and delivered to J. H. Smithwick a mortgage upon a certain tract of land, containing 640 acres, located in Santa Rosa county, Fla. The mortgage contained a clause to the effect that if the indebtedness or any part of it should not be paid according to the terms of the notes, then the indebtedness covered by the mortgage should become due and payable within 60 days and the mortgage should become 'immediately foreclosable for the sums secured' thereby.

On September 9, 1914, J. H. Smithwick indorsed the two notes for $1,200 each to Lonergan & Kendrick Realty Company, a corporation, without recourse, and on the 25th day of September, 1915, that corporation, by its president A. B. Lonergan, indorsed the notes to A. B. Lonergan and F. L. Kendrick.

J. H. Smithwick's indorsement was in the following words:

'Pay to the order of Lonergan & Kendrick Realty Company, Inc., without recourse, this 9th day of Sept. 1914. J. H. Smithwick.'

The transfer of the notes under this indorsement took place in Birmingham, Ala.

Some days later the three remaining notes were indorsed by J. H. Smithwick to the Banking, Savings & Trust Company, a Florida corporation doing business at Pensacola. After that transaction, or about the same time, on September 25, 1914, the mortgage was filed for record and duly recorded in the public records of Santa Rosa county, Fla.

The bill of complaint was filed on April 29, 1916, and alleged that J. O. Peebles failed and refused to pay the note for $1,200 due December 1, 1915. The prayer is for an accounting of the amount due upon the notes and mortgage, and that J. O. Peebles be decreed to pay to the complainants and to the Banking, Savings & Trust Company and to J. H. Smithwick whatever sum is found to be due each, together with the costs and attorneys' fees, and in default of such payment that the lands described be sold to satisfy the indebtedness, etc.

A decree pro confesso was entered against J. O. Peebles and wife, but the bank and Smithwick answered, admitting execution and delivery of the notes and mortgage, the indorsement of the two notes by Smithwick as alleged, and the transfer to the complainants and the indorsement of the remaining three notes to the bank by Smithwick and the failure of Peebles to pay, but the defendants averred that when Smithwick indorsed the notes to Lonergan & Kendrick Realty Company it was understood and agreed between Smithwick and the indorsee the Lonergan & Kendrick Realty Company that if the maker of the notes should fail to pay the same when due the two notes were not to participate in or have any benefit of the lien of the mortgage. The answer was afterwards amended by adding the following averment:

'That the said Banking, Savings & Trust Company at the time of the negotiation by the said Smithwick to the transferor of the complainants of the notes held by the complainants, held, as the complainants and their transferor then knew, prior mortgages made by the said Smithwick on the property against which foreclosure is here sought; that at the time of the negotiation of the notes held by the complainants, they and their transferor were informed by said Smithwick, and assented thereto, that the remaining notes were to be transferred to Banking, Savings & Trust Company, and were to have a superior right under the mortgage sought to be foreclosed, and that the then existing mortgages in the hands of Banking, Savings & Trust Company would not be canceled by it unless its right of priority was preserved; that the said remaining notes were thereafter negotiated to said Banking, Savings & Trust Company, and accepted by it in the belief and with the intent that they should be entitled to priority of security in its hands, and on the faith that it would have a priority it took the said notes and an assignment from said Smithwick of the said mortgage made by the said Peebles in the place and stead of the mortgages then held by it, and in the belief that the priority held by it by reason of such mortgages would be and was preserved to it in taking the notes of the said Peebles, and the assignment of said mortgage from said Smithwick; it therefore canceled its prior mortgages; that it never was the intention or design of any of the parties to this suit that the cancellation of its said mortgages by said Banking, Savings & Trust Company should put it in a worse position than it was prior to such cancellation, wherefore it says that the notes held by it are entitled to priority of security and payment from the mortgaged property.'

It appears from the pleadings and testimony in the case that Mr. Smithwick, who was the owner of the land described in the bill and another tract in the same county, desired to sell the same, and to that end employed the Lonergan & Kendrick Realty Company, a corporation doing business in Birmingham, Ala., to find a purchaser. The Lonergan & Kendrick Realty Company produced Mr. J. O. Peebles, and a trade was made between him and Mr. Smithwick. A small part of the purchase price was paid in cash by Mr. Peebles, a portion of it paid by a conveyance of certain lots in Birmingham to Mr. Smithwick, and the remainder of the purchase price, which was represented by the five promissory notes, was, it seems, secured by the mortgage described in the bill and another mortgage upon the other tract of land upon which there were some incumbrances held by the defendant bank which Mr. Smithwick was to remove.

The commission earned by the Lonergan & Kendrick Realty Company was paid by the indorsement to it of the two notes mentioned without recourse, and the conveyance to it of certain of the lots in Birmingham.

It is clearly apparent from the circumstances of the transaction why Mr. Smithwick should wish to protect himself against the possible failure of Mr. Peebles to pay the two notes at maturity, because in such an event it might become necessary for him to foreclose the two mortgages to collect the remaining three notes, in which case it might become necessary for him to purchase the lands at foreclosure sale, which would leave him practically in the same situation he was in before the sale, with little or no margin of profit, after paying all the expenses incident to a foreclosure proceeding except that represented by the small amount of cash received and the value of the lots in Birmingham, out of which Lonergan & Kendrick Realty Company had received part of their commission as stated.

It is also apparent why the defendant bank would have under the circumstances insisted upon its lien being superior to the complainants' lien in the event it should become necessary to resort to the security for the collection of the notes against Mr. Peebles.

Whether the understanding and agreement between Mr. Smithwick and the Lonergan & Kendrick Realty Company was actually entered into between them before or at the time of the indorsement of the two notes to the latter, and whether such an agreement could be shown or established by oral evidence, is fully presented by the record. The answer of Mr. Smithwick and the bank does not aver that the agreement was in writing, and the evidence adduced in behalf of the defendants tends to show that the agreement, if it existed at all, which was denied by the testimony of both Mr. Lonergan and Mr. Kendrick, was a verbal agreement or understanding.

The chancellor found for the defendants, in that he held that while the complainants were entitled to a...