Morgan v. Farmington Coal & Coke Co, (No. 4974.)

• Court: Supreme Court of West Virginia
• Writing for the Court: LIVELY
• Citation: 124 S.E. 591
• Parties: MORGAN et al. v. FARMINGTON COAL & COKE CO.
• Decision Date: 09 September 1924
• Docket Number: (No. 4974.)

124 S.E. 591

MORGAN et al.
v.
FARMINGTON COAL & COKE CO.

(No. 4974.)

Supreme Court of Appeals of West Virginia.

Sept. 9, 1924.

(Syllabus by the Court.)[124 S.E. 592]

Appeal from Circuit Court, Marion County.

Suit by Rufus E. Morgan and others against Farmington Coal & Coke Company and others. From a decree for plaintiffs, the named defendant appeals. Modified in part, affirmed in part, and remanded.

Ernest R. Bell and M. M. Neely, both of Fairmont, for appellant.

Harry Shaw, of Fairmont, and Poffenbarger, Blue & Dayton, of Charleston, for appellees.

LIVELY, J. The object of this suit is to enforce a vendor's lien against an undivided interest in the Pittsburgh vein of coal sold to defendant Farmington Coal & Coke Company, a corporation, under certain lands situate on Plum run and Mods run in Marion county, including mining rights and privileges.

The boundary of land under which this undivided interest in the coal lies is composed of five tracts aggregating 967.8 acres. By deed of January 3, 1910, Albert L. Lehman, now deceased, and Homer J. Price conveyed to Farmington Coal & Coke Company (hereinafter called the coal company) the undivided two-thirds interest in the Pittsburgh seam of coal in two of the tracts aggregating 397.8 acres, and an undivided ¹²⁵/57o of the said coal underlying the three other tracts aggregating 570 acres, for the sum of $102,967.68, of which $25,101.92 was paid in cash and the balance on time, represented by six interest-bearing notes, three of which were

[124 S.E. 593]

executed and delivered to Lehman, each for $13,336.33, payable at the People's National Bank of Waynesburg, Pa., the due dates thereof being as follows: First note on September 28, 1910, the second, September 28, 1911, and the third, September 28, 1912, all bearing interest from September 28, 1909. The other three notes were executed and delivered to Price, each for the sum of $12,405.58, and due and payable at the same times and place as set out in the Lehman notes. The deed conveyed the usual mining rights and privileges for mining and removing the coal, and a vendor's lien was expressly retained in the deed to secure the payment of the unpaid purchase money as represented by the notes above described. The first note payable to Lehman and the first note to Price, both due September 28, 1910, were paid. The interest on the other notes was also paid up to September 28, 1910. The two second notes, one to Lehman and the other to Price, not having been paid at maturity, they instituted a chancery suit at August rules, 1912, in the intermediate court of Marion county, against the coal company, to enforce the vendor's lien, the bill averring that the remaining four purchase-money notes unpaid were owned and held by plaintiffs Lehman and Price. The undivided interest in the coal deeded to the coal company had previously been conveyed to Lehman and Price by various persons who had reserved vendor's liens in their deeds; and one of the tracts conveyed to the coal company by Lehman and Price was incumbered by a prior deed of trust. Provision was made in the deed to the coal company to the effect that, if Lehman and Price did not pay these prior vendor's liens and discharge the deed of trust after they became due, then the coal company should have the right to apply so much of the deferred purchase money to the discharge of these prior liens, and it was stipulated that Lehman and Price should give credit on the deferred purchase-money notes for the amount so paid in discharge of the prior liens. These lienors and the trustee in the deed of trust and his cestui que trust were made parties defendant to the suit to enforce the vendor's lien in the intermediate court. A decree was entered on November 27, 1912, which fixed the amount of Lehman's lien at $30,126.76 and Price's lien at $28,024.20, and provision made by which the coal company should pay off the various prior liens and credit the amounts paid on the Lehman and Price liens. No further steps were taken to enforce that decree, and the coal company made various payments to Lehman and Price on their liens so decreed, amounting to $46,600 as of the 7th day of December, 1915. However, it appears that the four notes representing the balance of the purchase money had been negotiated by Lehman and Price as follows: The $13,336.33 note due September 28, 1911, payable to Lehman, was on June 15, 1910, indorsed and assigned by Lehman to plaintiff Festus Parrish, as collateral security for the payment of a debt of $10,000 owing by Lehman to Parrish; the other Lehman note for the same amount ($13,336.33), due September 28, 1912, had been indorsed and assigned by Lehman to plaintiff Ruf us E. Morgan; the Price note of $12,405.50, due September 28, 1911, was on January 17, 1912 (after the maturity thereof), indorsed and assigned to plaintiff People's National Bank of Fairmont, as collateral security for a debt which Price owed to that bank; the other Price note for $12,405.50, due September 28, 1912, had been indorsed and assigned by Price to plaintiff People's National Bank of Fairmont, on May 12, 1912, as collateral security for the same debt which the other Price note was assigned to secure. It will be noted that the interest on these four notes so assigned had been paid by the coal company up to September 28, 1910, and the amount thereof credited upon each note.

It appears that the coal company knew nothing of the assignment of the purchase-money notes, until after it had paid the $46,600 to Lehman and Price; and upon a refusal of the coal company to pay these notes to the holders, the plaintiffs, Rufus E. Morgan, Festus Parrish, and the People's National Bank, instituted this suit in the circuit court of Marion county to October rules, 1920, for the purpose of enforcing the vendor's lien reserved in the deed of January 3, 1910, given to secure the balance of the purchase money represented by the notes held by them, making the prior vendor's lien-holders and the trust lienholder parties.

The coal company asserts that the lien for purchase money, the amount of which is evidenced by these notes in the hands of the plaintiffs, should be credited with the $46,600 paid by it to Lehman and Price. Plaintiffs assert that they are holders of these notes in due course, and are entitled to full payment thereof, and that there are not and cannot be any offsets or equities against the notes or the lien securing them. Who is to lose the $46,600 paid by the coal company to Lehman and Price, if perchance it cannot be recovered from Price or Lehman's estate? This is the meat of the controversy.

A general demurrer to the bill was interposed and overruled, and upon the coming in of the answer the cause was referred to a master commissioner, who took evidence and made a report. Exceptions to the report were filed by defendant, which were sustained in part and overruled in part. The decree denies the contentions of defendant; finds that plaintiffs are holders for value and in due course of the notes, with the exception of the one which was negotiated after its due date; ascertains the amounts due to the holders on the notes and the sums

[124 S.E. 594]

due on the prior liens; refuses to subject the amounts decreed to plaintiffs to a credit of the amounts decreed to the prior lienors, namely, A. O. Thomas, $1,582.06, and F. J. Hugus, $3,242.77; and directs a sale of all of the Pittsburgh seam of coal underlying the entire tract of 967.8 acres. The sum decreed Festus Parrish was $15,270.42, the sum decreed Rufus E. Morgan, $23,358.09, and the sum decreed the People's National Bank of Fairmont, $20,507.89.

When the coal company executed these notes negotiable in form, it was bound to know that they might pass into the hands of innocent purchasers in due course, and thus be impressed with peculiar rights in the hands of purchasers under the law merchant. In making payment to discharge the obligation evidenced by these notes, it was clearly the duty of the coal company to see that the notes were in the hands of the person to whom it paid the money, and proper credit made thereon, especially on those notes not due at the time of partial payment. The coal company neglected to observe this precaution or duty when it made payments aggregating $46,600 to Lehman and Price, subsequent to the decree in their favor entered November 27, 1912. Evidently relying upon the decree based on the allegation in the bill in that proceeding by Lehman and Price, that they then held and owned the notes, all of which were then past due, the $46,600 was paid in good faith. Unfortunately the notes had been negotiated, as above set out, before the decree was entered. The notes, excluding the one assigned after its maturity, are all held by plaintiffs in due course for value. The court has so held under the evidence. Apparently both parties have acted innocently and in good faith. It may be said that the failure of the coal company to see that its payments aggregating $46,600 mere made to the proper person, and the amounts credited on the notes, has brought about this difficult situation. Who is to suffer? What are the equities? The general rule of equity is:

"Whenever one of two innocent persons must suffer by the acts of a third, he who has enabled such third person to occasion the loss must sustain it."

The coal company admits that it owes a balance of the purchase money, even after the $46,600 is given, and after all other equities are set off against the notes, and that when such balance is ascertained it is ready, willing, and able to pay the same.

The principal point of controversy is whether the $46,600 payment should be credited on the lien. The alleged errors in the decree are as follows:

The first assignment is that the decree was pronounced in the absence of necessary parties defendant. If the decree has been pronounced without necessary parties before the court, then the appellate court will enter upon no inquiry into...