Marling v. Fitzgerald

Decision Date16 February 1909
PartiesMARLING v. FITZGERALD ET AL.
CourtWisconsin Supreme Court

OPINION TEXT STARTS HERE

Appeal from Circuit Court, Milwaukee County; Warren D. Tarrant, Judge.

Action by Celia Ellis Marling against Charles Fitzgerald and others. From an adverse judgment, plaintiff appeals. Reversed and remanded, with directions.

Action to foreclose a mortgage.

The issues raised by the pleadings were closed by findings of fact, which may be presented,as follows: March 19, 1903, defendant Charles Fitzgerald, the then owner of the premises described in the complaint, duly mortgaged the same to defendant Herman to secure payment of said defendant's note of like date, for $3,000, payable to the order of said Herman, three years after date, with interest at the rate of 5 per cent. per annum, and said mortgage was duly recorded. The transaction occurred pursuant to an application by said defendant to said Herman for a loan of $3,000, to be used in the erection of a building on the mortgaged premises, the money to be advanced as fast as the improvement progressed. Upon the delivery of the note and mortgage to Herman, he delivered to said defendant an acknowledgment of the purpose thereof and, in effect, that he was indebted to said defendant to the amount of the loan, payable as before indicated. March 20, 1903, said Herman borrowed of George Ellis $1,900, giving his promissory note therefor, payable three months after date, and for collateral security for the payment of the debt, delivered to said Ellis said first mentioned note and the mortgage, duly assigning the same in writing, but not so as to enable the said Ellis to record the assignment and it never was recorded. Before the commencement of the action plaintiff became the owner of said $1,900, note and succeeded to all rights of said George Ellis to said collateral security. The said $1,900, note is wholly unpaid as well as the interest thereon from its date. No part of said $3,000, loan was ever paid to said Fitzgerald, nor could he ever collect any part thereof. Herman was known to Fitzgerald, at the time the mortgage was given, to be engaged in dealing in notes and mortgages and in loaning money for himself and others on real estate security.

On such facts the court concluded: First, the note and mortgage were given without consideration; second, neither said Ellis nor plaintiff took said note in due course so as to be entitled to the protection of the law merchant; third, the latter holds the same subject to equities and defenses, including the defense of failure of consideration, which said Fitzgerald would have, had the security remained in the hands of said Herman, and is, therefore, not entitled to enforce the same at all, and is liable to Fitzgerald for his costs and disbursements in the action.

Judgment against plaintiff was rendered accordingly and was so rendered.

Goff, Hayes & Hannan, for appellant.

Dorr & Gregory, for respondents.

MARSHALL, J. (after stating the facts as above).

The foregoing statement presents this proposition: If A. mortgages his property to B. to secure a loan of money, to be advanced from time to time, knowing that he is a dealer in such securities, B. agreeing to make the advancements at times and in a manner specified, and in harmony with the understanding between the parties placing the mortgage upon record, acquiring the status as to all the world of being the owner of the securities and a debtor to A. for the money agreed to be advanced, and thereafter B. for value, sells and duly assigns such securities to C., who takes the same without knowing of the relation of debtor and creditor between A. and B. under the agreement as to the advancement of money, the transaction between B. and C. not being such as to give the latter the protection of the law merchant, and B., neither before the assignment nor thereafter, advances the money or any part thereof to A. and wholly breaches his agreement in that regard, can C., nevertheless, enforce the note and mortgage against A.?

If the proposition as stated be answered in the negative, as counsel for respondents contend it should be, and the learned circuit court decided, the judgment must be affirmed. If, on the contrary, it be answered in the affirmative, as counsel for appellant contend it should be, the judgment must be reversed and the cause be remanded for judgment according to the prayer of the complaint.

The situation is governed by a few plain legal principles in respect to which the learned circuit court went astray.

Manifestly, the note was not without consideration to support it, merely because the money called for thereby was not advanced at the time it was given, nor at all. The agreement to advance the money, and the creation of the relations of debtor and creditor between Herman and Fitzgerald, were amply sufficient to support the note, respecting the consideration feature, as the actual transition of the money from the former to the latter at the time the securities were delivered by the one to the other, would have been. That is too manifest to require discussion. The learned trial court, it seems, failed to distinguish between delivery of a note and mortgage by the payor to the payee for money to be advanced subsequently, the security to take effect presently, and delivery thereof, but not to take effect till performance of a specified condition, as to making the advancement. In the former circumstances, the security would be a valid obligation from the start, but in the latter, performance of the condition would be essential to such validity. Nutting v. Minn. Fire Ins. Co., 98 Wis. 26, 73 N. W. 432;Thorne v. Ætna Ins. Co., 102 Wis. 593, 78 N. W. 920;State ex rel. Jones v. Chamber of Commerce, 121 Wis. 110, 98 N. W. 930;Golden v. Meier, 129 Wis. 14, 107 N. W. 27, 116 Am. St. Rep. 935;Hodge v. Smith, 130 Wis. 326-333, 110 N. W. 192;Ware v. Smith, 62 Iowa, 159, 17 N. W. 459;Belleville Savings Bank v. Bornman, 124 Ill. 200, 16 N. E. 210;Merchants' Exch. Bank v. Luckow, 37 Minn. 542, 35 N. W. 434;Burke v. Dulaney, 153 U. S. 228, 14 Sup. Ct. 816, 38 L. Ed. 698.

Again the learned circuit court misapprehended the law in assuming, if the note would be subject to defenses as between Fitzgerald and Herman, because of the latter not having kept his agreement with the former by advancing the money, the former could, under all circumstances, including the taking of the securities for value and in good faith without negligence, from Herman, by a third person, George Ellis, and without such taking having the essential of due course, of an endorsement of the note by Herman before maturity, make such defenses as against the third person. Such a situation is not governed absolutely by the law merchant. Before it can be solved in favor of the payor of the note, the familiar principle of equity, essential to the promotion of justice, must be dealt with, that if a person, by conduct, reasonably calculated to lead another to act upon the faith thereof, cause such other to act without negligence and in such manner as to suffer damage if the appearances created by such conduct be not warranted by the true situation, such person is precluded from taking advantage thereof to such other's injury. Whether that would apply in a case of this sort; in case of a want of consideration to support the note, or in case of its not having validity as between the original parties except upon performance of a condition precedent which is not performed, or even in case of the maker not having any reasonable ground to apprehend a probability of the note being taken by a third person, for value, without apprehending the existence of any equities in regard thereto or being negligent in respect to the matter, need not be considered, because no such situation characterizes this case, as we have seen.

It would seem, upon principle, that the law of estoppel ought to govern this case in favor of appellant, especially since Fitzgerald knew, or ought to have known, when he gave Herman the securities, that the latter was liable to transfer the same to another who would take the same as George Ellis did, and in the exercise of due care, having a right to believe that they were just what they appeared to be. He put Herman in a position to easily delude another in that regard, even making no restriction as to a transfer of the paper or recording of the mortgage, notwithstanding knowledge of his business. Can one do that, and then take advantage of circumstances which such other had no knowledge of, nor any reasonable ground to suspect, to such other's injury? Can one put up the bar of his own negligence and thereby save himself from loss by failure of another to perform an agreement with him, forming a full consideration for his note, and thereby effect, as to an innocent third person, a fraud to such third person's injury? It would seem that the principle of estoppel plainly arises to the contrary, so plain that illustration by reference to precedents to support such conclusion is not necessary.

Passing to the field of precedents we find, as would be expected, that the principle suggested has been often applied to situations...

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