Marine Bank v. International Bank

By the Court, Cox,e, J. In the case of Wood et al. vs. Trask et al., 7 Wis. R., 566, decided at the last term of this court, we held that where there are several notes falling due at different times, and secured by the same mortgage, they are to be paid out of the mortgaged property, as a general rule, in the order of their maturity. In that case an undivided half of a second note had been assigned by one of the mortgagees to the assignor of Bailey, and an action was — 65 — brought by the mortgagees to foreclose the mortgage, on default in the payment of the first note, still held by them,, when it became due; and it was insisted on behalf of Bailey, that the court should direct, in the judgment, that the sheriff pay out of the-proceeds of the sale of the mortgaged premises, the notes pro rata„ and that the first note was not entitled to any preference, though it first became due. But the court refused, and, as we thought, properly, to order the fund to be rateably distributed. We were well aware that in some of our sister states, a contrary doctrine had obtained, and that it had been held that the fund arising from the sale of mortgaged premises, in case of a deficiency, should be rateably applied among the holders of the different notes or instruments; but when no special equities intervened to vary the rule, we thought the note or instrument first becoming due, was entitled to priority in payment. And, without enlarging upon the reasons that led us to this conclusion, it appeared to us that this priority must exist, under our statute, as the notes were the principal and the mortgage but an accessory, and the holder of the first note, upon default in its payment, had the right to commence his action, and subject the mortgaged premises to foreclosure and sale for the satisfaction of his debt. It seemed to us, therefore, that the maxim of prior in tempore, potior injure, rightly applied, in the absence of all equitable considerations between the assignors and assignees, to changet his rule, or principle of law. It is obvious to every one making the least examination, that the authorities are greatly in conflict upon the subject; and we therefore felt at liberty to adopt that rule which seemed to us most consonant to equity and the nature and meaning of the mortgage contract. The following are a few of the cases where the priority rule has been maintained: Bank of United States vs. Covert, 13 Ohio Rep., 240; State Bank vs. Tweedy, 8 Blackf., 448; Stevenson et al. vs. Black, Saxton, (N. — 66 — J.;) 338 ; Page vs. Pierce, 6 Foster, 321; Mechanics Bank vs. Bank of Niagara, 9 Wend. 410. It is quite manifest that the rule laid down in the case of Wood vs. Trask, is decisive of the case under consideration, unless the view of the circuit court be correct, that the option given by the mortgage, and exercised by the International Bank, made all the notes secured by the mortgage due and payable at the same time, so that no priority could exist; or, unless the evidence shows that there was some understanding between the Marine Bank and the assignors of the notes at the time of the transfer, that the notes taken by that bank, should not have any preference in payment, as they otherwise would have had. The mortgage in the present case was given by Franklin M. Hale, on the 16th day of March, 1857, for the purpose of securing the payment to the firm of Cobb & Anderson, of eight certain promissory notes, bearing even date therewith. The first note was for the payment of the sum of five thousand seven hundred dollars, with interest, until paid, at the rate of ten per cent., and became payable on the first day of July, 1857; the second for the sum of six thousand dollars, with interest at ten per cent., until paid, was made payable on the first day of July, 1858; the third, given for five thousand dollars became due on the first day of June, 1859 ; the fourth, for five thousand dollars, payable on the first day of June, 1860; and so on ; the interest being made payable on all the notes semi-annually. The first three notes were indorsed by the firm of Cobb & Anderson on the 21st day of March, 1857, to the Marine Bank, which gave in exchange a note against the Buffalo Car Company, for twenty-five hundred dollars, and paid the balance out of the bank. On the 24th of September following the remaining five notes were transferred to the International Bank, and the mortgage was assigned to that bank about that time, by the mortgagees. — 67 — This mortgage contained a condition that, “ in case of the non-payment of any sum of money, either principal, interest, or taxes, within thirty days after the same shall have become due, or any part thereof, then, in such case, the whole amount of said principal sum shall, at the option of the said parties of the second part, their representatives, or assigns, be deemed to have become due, and the same, with interest thereon at the rate aforesaid, shall, thereupon, be collected in a suit at law, or by foreclosure of this mortgage, in the same manner as if the whole of said principal sum had been made payable, at the time any such failure in any payment shall occur as aforesaid.” It appears that the first note taken by the Marine Bank was paid; and it will be borne in mind that the installment on the second note became due on the 1st day of July, 1858. On the 13th day of August, 1858, the International Bank, which held the five last notes, gave notice to the mortgagor that it elected to have all the notes held by it become due and collectable immediately, by reason of the non-payment, for more than thirty days, of some of the moneys secured by the mortgage. And at this time, it will be observed, that the second note was past due, and the interest remained unpaid on the third note. The question now arises, what was the legal effect of the notice given by the International Bank on the 13th of August, that it elected to have the notes held by such bank become due and collectable, in consequence of the non-payment, for more than thirty days, of some of the moneys secured by the mortgage ? This will depend upon the nature and construction placed upon the stipulation, before cited, contained in the mortgage. By that stipulation, as we understand it, the parties to the mortgage agreed, that in case of the non-payment of any sum of money, either principal, or interest, or 'taxes, within thirty days after the same became due, then, in such — 68 — case, the whole amount of the principal secured by the mortgage, might at the option of the mortgagees, of their assigns, become due and collectable in the same manner as if the the whole principal sum had been made payable at the time any such failure in any payment, should occur. Although a failure might occur to make payment of any sum within thirty days from the . time it became due, yet such failure did not, of itself, render the whole sum due. The mortgagees, or their assigns, had to exercise their election that the same should become due, and give notice thereof to the mortgagor before this result would follow. See the case of Basse et al. vs. Gallegger et al., 7 Wis., 442. Was that done in the present case ? We think not. True, the International Bank, which owned, and could control only a part of the sum secured by the mortgage, gave notice that it elected to have the amount coming to it, due and collectable immediately; but it had no authority to elect for the Marine Bank. It may be said that the mortgagor would have no ground of complaint that a portion of the mortgage debt was called in. That an election that a part should only become due, when the whole amount might be called in, would be. manifestly to his advantage, and he, therefore, ought not to be permitted to object to if. It might, however, be a great hardship to the mortgagor to have a portion of the debt called in, and a portion left outstanding on the mortgage. He might be able to raise the whole amount by giving a new mortgage, and discharging the old one, when he might not be able to raise a part of the money upon a second mortgage. But whether it was for the benefit of the mortgagor that a portion of the money should be called in, rather than the whole amount, it is a good and sufficient answer to this view of the case, to say, that the mortgagor did not agree that the mortgagees, or their assigns, might elect to have a part of the — 69 — principal sum become due on his failure to pay, within thirty days, any moneys secured by the mortgage. He agreed that in such a case, at their option, the entire sum might become due and collectable. Now this condition in the mortgage is in the nature of a forfeiture, and ought to be strictly construed and followed. It is an entire and indivisible condition, which could only be exercised by all interested in the mortgage. As it appears to us, it was, therefore, not competent for the International Bank, to which a part only of the mortgage debt belonged, to exercise the election, without the co-operation of the Marine Bank. No election having been made, according to the authority given by the mortgage, it is incorrect to assume that all the notes secured by the mortgage became due at the same time, and are entitled to a rateable distribution of the mortgage fund. From the opinion of the circuit court contained in the printed case, it would seem that that court supposed this case fell within the principles of the case of the United States Bank vs. Covert, 13 Ohio, 240; but it is clearly and readily distinguishable from it. In the case in 13 Ohio, the condition of the mortgage was, that the $1S00 note was to become due absolutely, upon a failure to pay the smaller one. It was not necessary for the mortgagee, or his assigns, to exercise any election, and give notice thereof to the mortgagor. The court, therefore, might well hold that both notes became due at the same instant. But though we adopt and approve the doctrine of that case, it will be observed that, in its facts and circumstances, it was dissimilar to the one at bar. Upon looking into the evidence in the case, we think it certainly fails to show that there was any understanding between the assignors, Cobb & Anderson, that the Marine Bank, in taking the first three notes, were to loose that priority — 70 — which the law secured to them. The very contrary conclusion is deducible from the nature of the transaction between the parties, and all the evidence in the case. It becomes unnecessary to enlarge upon this point. The Marine Bank holding the notes first becoming due, are entitled to preference, and must first be paid out of the mortgaged property. There are two cases between the same parties which were submitted on the same argument, and depend upon the same decision. The judgments in both cases must be reversed, and the causes remanded for further proceedings in accordance with this decision.