Mitchell v. Ladew

• Decision Date: 31 October 1865
• Parties: ISAAC W. MITCHELL, Appellant, v. AUGUSTUS P. LADEW et als., Respondents.
• Court: Missouri Supreme Court

36 Mo. 526

ISAAC W. MITCHELL, Appellant,

v.AUGUSTUS P. LADEW et als., Respondents.

Supreme Court of Missouri.

October Term, 1865.

Appeal from St. Louis Court of Common Pleas.

Lackland, Cline & Jamison, for appellant.

In a case where several notes falling due at different times are held by different persons, and are secured by a deed of trust or mortgage, the question is how are the proceeds of the property conveyed or mortgaged to be disposed of where they are not sufficient to pay all the notes. The following cases seem to decide that the proceeds must be disposed of in the payment of the notes as they fall due; that the note or notes first falling due must be paid first, and have priority over those falling due subsequently, unless there is something in the contract, or to be inferred from the dealings between the parties, showing their intention to be otherwise, to-wit: Gwathmeys v. Ragland, 1 Rand, 466; U. S. Bank v. Covert, 13 Oh. 240; Woods v. Trask, 7 Wis. 566; Stanley v. Beatty, 4 Ind. 134; Larrabee v. Lumbert, 32 Me. 97; State Bank v. Tweedy, 8 Blackf. 447; Hinds v. Mooers, 11 Iow. 211; Grapegether v. Fesservry, 9 Iow. 163; Rankin v. Majors, 9 Iow. 297; Cullen v. Erwin, 4 Ala. 452.

The following cases decide the other way--that there is no such priority, but the proceeds must be disposed of to pay all the notes pro rata, unless it is otherwise agreed, &c.: Waterman v. Hunt, 2 R. I. 298; John v. Candage, 31 Me. 28; Bk. of England v. Tarlton, 23 Miss. (1 Cush.) 173; Lewis v. De Forrest, 20 Conn. 427; Donley et al. v. Hays, 17 Serg. & R. 400; Perry's App., 22 Penn. S. R. 43; Hancock's App., 34 Penn. S. R. 155; Cooper v. Ulman, Mich. Walk. Ch. 251; Pugh v. Holt, 27 Miss. (5 Cush.) 461; Righter v. State, 3 Sandf. Ch. 608; Carpenter v. Carpenter, 1 Vern. Ch. 440; Braithwait v. Braithwait, 1 Vern. Ch. 334; Bois v. Marsh (folio ed.) 2 Ch. (3 vols. in 1) s. p. 155; Blower v. Merritt, 2 Ves. 420; Clark v. Sewell, 3 Atk. 100; Brown v. Allen, 1 Vern. Ch. 31; Eure v. Eure, case 15, 1 Eq. Cs. 115.

The English cases above referred to will be found cited by the court in the case of Donley et al. v. Hays, 17 Serg. & R. 400; the fact, however, is that no English case has been found by us bearing directly on the point.

The above cited English cases were decisions construing wills, marriage settlements, &c., where preference was claimed by a portion of the beneficiaries. Thus when a testator died leaving a will by which he devised legacies as follows: 1st, to his son John, £ 100; 2d, to his son George, £100, and so on, and there was not sufficient property left by the testator to pay all the legacies; in such cases, the English courts universally have decided that the legacies must be paid pro rata; that the first legatee has no right to have the whole of his legacy paid and satisfied to the exclusion of the other legatees; which seems to assert a principle of justice and equity applicable to the point upon which the American cases bear.

Whittelsey, for respondent.

The main question in this case is, by what rule shall the proceeds of sale of property conveyed by mortgage or deed of trust, given to secure payment of notes maturing at different dates, be applied in payment? The respondents claim, there being no particular equities to modify the general rule, that,

I. Where a mortgage or deed of trust is given to secure notes maturing at different dates, that the notes are to be paid from the proceeds of sale in the order of their maturity; the note first due should be first paid -- qui prior est in tempore potior est in jure. This rule seems most reasonable, and is analagous to the case of successive conveyances of lands subject to one encumbrance. To satisfy the encumbrance, the parcel last conveyed must be first sold, and so on, in the reverse order of conveyances (Aldrich v. Cooper, 2 Wh. & Tud. L. C. Eq., Pt. I, 171;) or rather it is like the case of successive mortgages, in which there is no contribution.

This rule is adopted in most of the States; State Bk. v. Tweedy, 8 Blackf., Ind. 447. This is a well considered case, and has been followed by Stanley v. Beatty, 4 Ind. 434; Hough v. Osborne, 7 Ind., 140. In Virginia, Gwathmeys v. Ragland, 1 Rand. 466. In Alabama, McVay v. Bloodgood, 9 Port. 547; Bank of Mobile v. Planters' Bank, 9 Ala. 645; Cullum v. Erwin, 4 Ala. 452. In Ohio, Bk. of U. S. v. Court, 13 Ohio, 240. In Iowa, Grapegether v. Fesservary, 9 Iow. 163; Rankin v. Majors, 9 Iow. 297; Hinds v. Mooers, 11 Io. 211; Larabee v. Lumbert, 32 Me. 97. In New Hampshire, Hunt v. Stiles, 10 N. H. 466. In Wisconsin, Wood v. Trask, 7 Wis. 566; Harrison v. Roberts, 6 Flor. 171.

Some of the States, following the rule in Donley v. Hays, 17 Serg. & R. 400, apportion the proceeds of sale pro rata to each note secured by the same mortgage; but, in that case, Ch. J. Gibson dissented, and the Indiana court declared that his opinion was better sustained by principle and reason.

II. The transfer of the debt carried the security with it without regard to the mere possession of the deed of trust or mortgage, or any assignment thereof. (Lagrave v. Chauvin, 2 Mo. 179; Crinnion v. Nelson, 7 Mo. 466; Thayer v. Campbell. 9 Mo. 277; Anderson v. Baumgartner, 27 Mo. 80; Roe v. Dawson, 2 Wh. & Tud. L. C., Pt. 2, p. 236 & 449.)

WAGNER, Judge, delivered the opinion of the court.

The plaintiff filed his petition in the St. Louis Court of Common Pleas o foreclose a deed of trust made by A. P. Ladew to John G. Priest and George Knapp, as trustees to secure the payment of three negotiable promissory notes made by said Ladew to John J. Anderson, which were given for the purchase of property situated in St. Louis county; said notes were dated May 5, 1858, for the sum of four thousand five hundred and sixty-six dollars and sixty-six cents each, payable in one, two and three years, with interest at six per cent. per annum from date. The petition alleges that Ladew paid the first note; that said Anderson endorsed the said second and third notes to John J. Anderson & Co., who endorsed them to one John C. Page, who endorsed them to plaintiff; that the second note was not paid at maturity, and that after protest and notice John J. Anderson took it up and paid plaintiff the amount due thereon, and alleges that said George Knapp claims to be the holder of said note and to have it paid in full or in part out of the trust property.

The petition then further states that the third note was duly protested, and was held by the plaintiff, and was still unpaid, and that the property conveyed in said deed of trust would not, upon sale, pay both notes; and that George Knapp, being holder of one of the notes, could not act as trustee in making a sale, and that no provision was made for a sale by J. G. Priest alone. It then prays that the equity of redemption be foreclosed, the lands sold, and that from the proceeds of sale, after payment of costs, the note held by plaintiff be paid in full.

Ladew, the maker of the notes and deed of trust, in his answer, denies all knowledge of any endorsement of the notes to Page or plaintiff, admits that the notes payable at two and three years are still due and unpaid, alleges that the note due at two years was transferred by John J. Anderson to George Knapp & Co. before the maturity of the third note, and prays that the second note be first paid from the proceeds of sale.

The answer of George Knapp & Co. admits the payment of the note at one year, and also that John J. Anderson upon protest of the second note took it up, but alleges that plaintiff had endorsed the same to one A. A. Howell, who was the legal owner thereof at maturity. They allege that said Anderson assigned to them said two years note, before the maturity of the note at three years, in payment of and as security for his indebtedness to them; and allege, also, that they were purchasers of the note for a valuable consideration and without any notice of any equities existing against it, and that they took the said note upon the faith that it was secured by deed of trust and was to be first paid upon sale under said deed; that George Knapp had never accepted the trust, and had executed a disclaimer and quit-claim to said Priest. They claim priority of payment under the deed.

At the trial before the court, the court found both notes due, and decreed a foreclosure and sale; and that the money arising therefrom, after paying the expenses and costs, should be applied to the payment of the note due at two years first.

There is but a single question that arises in the determination of this case, and that is, whether, when a deed of trust or mortgage is made to secure the payment of promissory notes falling due in instalments or at different dates, and the property on which the security is taken is not sold till the maturity of all the notes, and is not sufficient to pay them all, the proceeds shall be applied to the payment of the notes, first, in the order in which they become due, or...