Nashville Trust Co. v. Smythe

• Decision Date: 03 March 1895
• Citation: 29 S.W. 903
• Parties: NASHVILLE TRUST CO. v. SMYTHE et al.
• Court: Tennessee Supreme Court

29 S.W. 903

NASHVILLE TRUST CO. v. SMYTHE et al.

Supreme Court of Tennessee.

March 3, 1895.

Appeal from chancery court, Davidson county; Thomas H. Malone, Chancellor.

Bill by the Nashville Trust Company, in behalf of Martha M. Reed and others, against J. Carlton Smythe and others, to enforce a vendor's lien. C. L. S. Crowninshield, guardian, and James S. Pilcher, as holders of notes secured by the lien, came in as parties by petition, claiming a preference, and from

a decree disallowing the same they appeal. Reversed.

J. S. Pilcher, for appellants. Smith & Dickinson, for appellee Fourth Nat. Bank. Granberry & Marks, for other appellees.

SNODGRASS, C. J.

The question in this case arises under a bill filed July 30, 1892, by the Nashville Trust Company, as agent of Mrs. Martha M. Reed, against J. C. Smythe et al., to enforce lien for the purchase money evidenced by negotiable promissory notes executed as consideration for certain real estate sold and conveyed on the 20th of December, 1890, by defendant Everett to Mrs. Marlin. There were 126 of these notes, for $20 each, except the last, which was for $25, payable by Marlin and wife to Everett. They bore interest from date, and matured, respectively, on the 1st day of each succeeding month after their date, until the end of 126 months. They were secured by lien expressly reserved on the face of the deed of Everett to Mrs. Marlin. The complainant alleged that Mrs. Reed became the owner of 40 of said notes maturing on and after April 1, 1898. The bill was filed on her behalf and that of all other holders of said notes, and sought to sell the real estate for the amounts due on all. Other note holders came in by petition, among them Miss C. L. S. Crowninshield, as guardian of C. G. and Caroline Underhill, and James S. Pilcher. They alleged that 30 of said notes, the thirteenth to the forty-second inclusive, were assigned by said Everett to C. L. S. Crowninshield, as said guardian, on the 22d day of January, 1891, to secure the payment of $366.67, she, on that day, lent Everett; that at that time Everett was the owner of the entire series of notes; and that in the assignment of said 30 notes a preference was given over the other notes as to the vendor's lien to secure the same. The instrument giving the preference was in writing, and was as follows: "Nashville, Tenn., Jany. 22, 1891. Twelve months after date, we promise to pay to the order of Miss C. L. S. Crowninshield, as guardian of C. G. and Caroline C. Underhill, three hundred and sixty-six dollars and sixty-seven cents ($366.67), for value received, having pledged on deposit, as collateral security for the payment of this note, thirty notes out of the series of one hundred and twenty-six notes given by A. J. Marlin and Ella May Marlin for lot number 31 in B. F. Brown's subdivision; said thirty notes being numbers 13-42, inclusive, of said series, and preference is given to said thirty notes over the other notes of the said series as to the vendor's lien to secure the same." [Signed.] These petitioners show that the remainder of said 65 notes held by said guardian and James S. Pilcher were also held as collateral on said loan for $366.67, and that all of said 65 notes, after satisfying said loan of $366.67, were the property of James S. Pilcher; and they asserted priority for the 30 notes. Proof was taken, and it appeared that, at the time of the execution of this instrument, Everett was the owner of all the notes of the series, all of which were transferred by him before maturity, for valuable considerations, after January 22, 1891, the date of the assignment quoted, and no other preferences were attempted to be given. The assignees of the other notes had no actual notice that the preference had been given as to the 30 notes assigned to Miss Crowninshield. The property was sold, and the amount brought was insufficient for the payment of all the notes. The chancellor decreed that no preference should be allowed to petitioner Crowninshield, guardian, and that all the note holders were entitled to share equally in the proceeds of the sale. Petitioners Crowninshield and Pilcher appealed, and assign as error that the court did not decree that, as to so much as was due to C. L. S. Crowninshield on said note for $366.67, she was entitled to be first paid out of the proceeds of the property, basing said assignment on the following propositions of law: "First. A vendor of lands who holds a series of notes given for the purchase money, where a lien is expressly retained upon the face of the deed, or a mortgagee who holds a number of notes which are secured by mortgage, in assigning one or more of such notes, has the power by parol contract to give to the assignee of such note or notes a preference as to payment out of the proceeds of the property, and the subsequent assignee of the other notes can take no higher rights than the vendor himself had; and citing Menken v. Taylor, 4 Lea, 445; Hicks v. Smith, Id. 459; Hill v. McLean, 10 Lea, 107; Christian v. Clark, Id. 630. Second. The right and power of a vendor or mortgagee to give a preference as to the vendor's or mortgagee's lien by parol contract, in the assignment of a part of the secured notes made at a time when the vendor or mortgagee is the owner and holder of all the other notes, is a rule of property in Tennessee; citing Nichols v. Levy, 5 Wall. 438; Gelpcke v. City of Dubuque, 1 Wall. 176; Lee Co. v. Rogers, 7 Wall. 181; Chicago v. Sheldon, 9 Wall. 50; and averring that the assignment of the notes in question, made January 22, 1891, when Everett held all other notes wherein the preference was given to Miss Crowninshield, guardian, etc., was a contract which, in effect, embodied the rule established in the cases in 4 and 10 Lea cited above, and the same was and is a rule of property as to all such contracts made since said decisions."

The question of the case, therefore, involved in this assignment, is whether the assignee of the last assigned notes, they being negotiable promissory notes taken before maturity without actual notice of prior assignment and lien contract, and for valuable considerations, took them subject to any equity between the vendor and vendee of the land or the prior assignee of the first notes assigned. The assignment of error treats it as though it were only a question whether the assignor passed his rights; and it is assumed, that being settled affirmatively, the subsequent assignee takes no higher right than the assignor himself had. In support of this assumption and contention, appellants lay down two propositions: That the assignee of a mortgage or deed of trust does not occupy the position of an assignee of commercial paper, but takes and holds the same subject to all the equities that could be urged against it in the hands of the original owner; citing Olds v. Cummings, 31 Ill. 188; Walker v. Dement, 42 Ill. 272; Cramer v. Willetts, 61 Ill. 481; Haskell v. Brown, 65 Ill. 29; Shippen v. Whittier, 117 Ill. 282, 7 N. E. 642; Abele v. McGuigan (Mich.) 44 N. W. 393; Harrison v. Burlingame, 48 Hun, 212; and that the privileged character of negotiable paper does not extend to a mortgage by which it is secured; citing Oster v. Mickley, 35 Minn. 245, 28 N. W. 710; Johnson v. Carpenter, 7 Minn. 176 (Gil. 120); Hostetter v. Alexander, 22 Minn. 559; Blumenthal v. Jassoy, 29 Minn. 177, 12 N. W. 517; Richardson v. Woodruff, 20 Neb. 132, 29 N. W. 308; Crane v. Turner, 67 N. Y. 437; Horstman v. Gerker, 49 Pa. St. 283; Twitchell v. McMurtrie, 77 Pa. St. 383; City of Atchison v. Butcher, 3 Kan. 104; Temple v. Whittier (Ill. Sup.) 7 N. E. 642; Fernon v. Farmer, 1 Har. (Del.) 32; Edw. Prom. Notes, 165; 2 Daniel, Neg. Inst. 432. These propositions will be found advanced and maintained in many of the cases cited, to which more could be added if necessary. They are based to some extent on a failure to discriminate between the case of a mortgage to secure a debt expressed merely in the face of the mortgage, or to secure accounts or other nonnegotiable debts, and that of a mortgage to secure negotiable paper. Respecting those which hold that the same rule prevails where the debts secured are negotiable notes, they are based upon the theory that, although the mortgage notes are negotiable, the mortgage itself is only assignable in equity, and therefore the assignee, having to resort to equity to enforce his rights, is compelled to do equity towards the mortgagor, and allow him all the rights of defense he had against the mortgagee. Courts so holding make no distinction between mortgages securing negotiable and nonnegotiable paper. But this view, Mr. Jones, in his work on Mortgages (5th Ed. § 838), says and shows is contrary to the general doctrine, and that the assignment of negotiable paper carries with it the security of the mortgage, and is unaffected by the equities between the mortgagor and the mortgagee. This latter he declares to be the generally accepted doctrine. Section 840. This has been recognized and declared by the supreme court of the United States. Carpenter v. Longan, 16 Wall. 271. In that case, Judge Swayne, who delivered the opinion of the court, calls attention to the distinction between the assignment of claims secured which were negotiable and nonnegotiable, and to the confusion which has resulted from ignoring the character of claims secured by lien or mortgage. He thoroughly explodes the fallacy that an assignment of such negotiable paper for a valuable consideration, before maturity, without notice, does not carry to the assignee a right superior to that of the assignor. "The transfer of the note," he says, "carries with it the security, without any formal assignment or delivery, or even mention of the latter. If not assignable at law, it is clearly so in equity. When the amount due on the note is ascertained in the foreclosure proceeding, equity recognizes it as conclusive, and decrees accordingly. Whether the title of the...