Stickney v. Mohler, Graff & Co.

• Decision Date: 17 February 1863
• Citation: 19 Md. 490
• Parties: JOSEPH H. STICKNEY & HENRY C. REED, v. MOHLER, GRAFF & CO., ET AL.
• Court: Maryland Court of Appeals

19 Md. 490

JOSEPH H. STICKNEY & HENRY C. REED, v. MOHLER, GRAFF & CO., ET AL.

Court of Appeals of Maryland.

February 17, 1863

M., G & Co. became the drawers of three promissory notes, in favor of L., which they loaned to him, and all of which were discounted for L. by the Chesapeake Bank, M., G. & Co. receiving at the time from L. his two notes of even date with two of said notes for the same sums, and payable when said two notes were payable. The two notes of L. were discounted for M., G. & Co., by the Fells Point Savings Institution and L. failing at maturity to pay them, they were taken up and paid by M., G. & Co. Real estate of L. having been sold under a decree for the payment of a mortgage debt due to said bank for other notes discounted for him, M., G. &amp Co., by supplemental bill, asked to be subrogated to the rights of the bank under their said mortgage, as to the surplus of net proceeds of sale after payment of said mortgage debt, for the amount of the three notes loaned to L.; S. & Co. also claimed said surplus as second mortgagees of the real estate sold. HELD:

1. That the notes loaned by M., G. & Co. to L., cannot be regarded as accommodation notes, creating the relation of principal and surety.

2. Where there is mutual accommodation with specific exchange each party is bound to pay his or their own notes, and in paying them cannot be considered surety for the other.

3. That the aforesaid surplus of net proceeds should be applied to the payment of the mortgage debt of S. & Co.

4. It appearing that the third note, for $825, alleged to have been loaned by M., G. & Co. to said L., was obtained for value, in a strictly business transaction, the claim of M G. & Co., as to said note, was properly disallowed in the Court below.

APPEAL from the Circuit Court for Baltimore city.

The original petition in this cause was filed by the Chesapeake Bank, on the 21st of January 1856, in the Circuit Court for Baltimore city, for the sale, under the Act of 1833, ch. 181, of certain mortgaged premises, in pursuance of a mortgage from Henry D. Lawrence to said bank, dated March the 13th, 1855, therein recited. A supplemental petition was filed by the bank on the 2nd of December following. The allegations of these petitions, and the import and substance of the further proceedings in the cause, are so fully stated in the opinion of this Court, as to render any extended statement of the proceedings, here, unnecessary.

On the 10th of February 1857, a petition was filed in the cause by J. H. Stickney & Co., the appellants, reciting a mortgage by Lawrence to that firm, dated December 3rd, 1856, of the same property covered by the bank's mortgage, to secure certain notes of Lawrence due them in January and April 1856, amounting to $2,930.25; the consideration of said mortgage as stated, being that Lawrence had been sued on said notes by Stickney & Co., and that they had agreed to forbear proceedings until March 15th, 1857.

The petition further recites the proceedings up to the sale, under the bank's petition, the death of Lawrence, and the appointment of Hugh Lawrence and Edward Mohler as his administrators, and claims the benefit of the bank's decree and the allowance to the petitioners as second mortgagees of the surplus of proceeds of sale, after payment of the bank's claim.

This petition was set down for hearing on 21st February 1857, but on 13th February 1857, a supplemental bill was filed in the cause by Mohler, Graff & Co., reciting the mortgage by Lawrence to the bank, and alleging that, at the request of Lawrence, and for his accommodation, they became the drawers of three certain promissory notes in his favor, viz.: One for $1,560.75, dated 12th July 1855, payable six months after date; one for $825, dated 21st August 1855, payable six months after date; and one for $1,000.75, dated 25th November 1855, payable four months after date; all of which were discounted by the bank for the use of Lawrence. That he represented to them that these notes were to be discounted by the bank, under the security of its mortgage, and that they loaned them accordingly. That they took for the first and third notes, exchange notes of Lawrence, but that for the second they took none; that they refused to pay the notes at maturity, because the bank had security; that the bank did not, however, proceed upon its security, but sued the petitioners, and obtained two judgments, one on the first note, and another on the second and third notes, and that they paid those judgments under threats of execution; that they claimed thereupon an assignment pro tanto of the bank's mortgage, which was refused on the ground " that there were other unpaid claims of the bank against Lawrence, and that until they were paid, the bank could do nothing."

They recite, further, the mortgage from Lawrence to Stickney & Co., and a subsequent deed of trust, dated 27th December 1856, by Lawrence to W. J. Ward, for the benefit of creditors. They then claim, as sureties of Lawrence on the three notes aforesaid, to be subrogated to the bank's securities, and allege that Stickney & Co. knew of their being sureties on said notes, and of their right and claim to be so subrogated; and that Stickney & Co. took their mortgage for the purpose of defeating that right. They pray, therefore, for an allowance to them out of the surplus of proceeds of sale (after payment of the bank's claim) of the amount of said three notes, and interest, & c.

On March 17th, 1857, Stickney & Co. answer the petition or bill of Mohler, Graff & Co., and though admitting that the three notes referred to in that petition are the notes of Mohler, Graff & Co., they deny any knowledge of the consideration of said notes, or whether they were, in fact or law, accommodation notes, and put the petitioners on proof of the same.

They further deny, that at the time of the execution of the mortgage to them, (Stickney & Co.,) they or either of them knew that Mohler, Graff & Co. had loaned the notes in question to Lawrence, or that they had been discounted by the bank for Lawrence's use, on the faith of the mortgage, or that Mohler, Graff & Co. had paid said notes as sureties of Lawrence, or that they had any right to be substituted to the bank, or that they (Stickney & Co.) took their mortgage for the purpose of depriving Mohler, Graff & Co. of any rights.

The answer of Wm. J. Ward, trustee of Lawrence & Mohler, administrators of Lawrence, and of the Chesapeake Bank, were all filed; but they are formal merely, making no claim to the fund in controversy, and submitting the matter to the Court.

The auditor's report and account exhibits a fund in Court of $3,513.42, after payment of costs and the bank's claim of $8,500 and interest, which is claimed on the one hand by Stickney & Co. as second mortgagees, and on the other by Mohler, Graff & Co., as alleged sureties of Lawrence, claiming rights of subrogation.

Under a commission, evidence was taken on the part of both claimants of the fund. Upon the question of the consideration of the three notes, alleged by them to be accommodation notes, Mohler, Graff & Co. proved by one of the directors of said bank, that the notes were discounted by the bank for Lawrence's use; that " at the time of the discount, the witness, as well as the bank, looked on them as business notes; but witness afterwards changed his opinion, as after the discount Lawrence told him they were loaned notes."

Upon this point, Stickney & Co. proved by the bookkeeper of Lawrence, that the notes for $1,560.75, and $1,000.75, were exchanged between Mohler, Graff & Co. and Lawrence, for the accommodation of Mohler, Graff & Co.; that in 1853, Mohler brought his note for $1,000.75 to Lawrence, and exchanged it for one of Lawrence's of like amount, and that this note, as well as other exchange notes, were renewed from time to time; that the renewals were all entered on Lawrence's books, each and every one as it matured; that he was Lawrence's clerk up to the time of his death, and heard him frequently say that the notes were renewed from time to time, for the accommodation of Mohler, Graff & Co.; that the note for $825 was a real note, the consideration being a note of Wm. Mason & Son, belonging to Lawrence, by him transferred to Mohler, Graff & Co., and paid by Mason & Son. Stickney & Co. further proved on this point, by another witness, that he had frequent conversations with Lawrence on the subject of the notes, who invariably said that the notes were given for the accommodation of Mohler, Graff & Co.; and also proved by the books of Lawrence, in his account with Mohler from 1852, that Mohler was charged, on the 17th of September 1854, with Mason & Son's note for $806.75, and credited, September 18th, with Mohler, Graff & Co's note for $825. Stickney & Co. also relied on admissions of counsel, that Mohler, Graff & Co. used Lawrence's notes for $1,560.75 and 1,000.75, by having them discounted for their, Mohler, Graff & Co's, own use, in the Fells Point Savings Institution, where they paid them; and further proved that they used Mason & Son's note for $806.75 in the same manner, by having it discounted for their use at the Fells Point Savings Institution, and that it was paid there by Mason & Son, at maturity.

In reference to the claim of Mohler, Graff & Co., to be secured by the bank's mortgage, and to the alleged knowledge of Stickney & Co. of such claim, and of the claim of the former, that the notes in question were accommodation notes, evidence was offered by them that, at a meeting of the creditors of Lawrence, Mohler, Stickney and Reed were all present when Mohler publicly alleged that his claim was secured under the bank's mortgage, and that Stickney & Co. were told of Mohler's...