Davis v. Rider

Campbell J.: This was a bill filed to foreclose a mortgage. On October 7th, 1854, George executed to Rider a promissory note, of which the following is a copy: “One year from date, for value received, I promise to pay Lorenzo J. Rider, or bearer, §785.87, with interest at ten per cent.; and if said money and interest is not paid at maturity, the ten shares of capital stock of the Peterboro and Shirley Railroad, hereby assigned to secure the payment aforesaid, is to be deemed and taken as forfeit. Interest semi-annually.” Accompanying this note was an assignment of the stock, reciting that the stock was full paid, and the railroad in operation. March 8th, 1855, Lorenzo J. Rider purchased of complainant certain real estate, and, to secure payment of part of the purchase-money, assigned the above-mentioned note and stock security given him by George, and gave a mortgage on the purchased premises, in the usual form, to. secure the performance of it. Upon a bill to foreclose this, complainant set up these facts and charges: That the stock was valueless, the road not in operation, and that Rider, knowing the facts, assigned the securities with a fraudulent design. The defense set up was that, subsequent to the execution of the mortgage, the complainant agreed that, in consideration of the depositing by George of the mortgaged railroad stock in the hands of some person at Grass Lake (where complainant lived), to be delivered to said complainant in case George failed to pay the note, such deposit should be in satisfaction of the mortgage; that the stock was so deposited with one Patterson, with whom the note was also left, and that, upon the maturity and nonpayment of the note, the papers were handed over to complainant. That Rider offered to pay the note if complainant would assign it and the stock back to him, but complainant refused. [433] The testimony shows very clearly that the railroad stock was entirely worthless. Considerable testimony appears in the case of a somewhat conflicting- character. As Zera Patterson’s evidence gives a full history of the transaction in controversy, and as he was the person, required as the depository of both parties, to act upon the agreement, and to understand it, we are disposed to place more confidence in his statement than in the somewhat differing accounts of the relatives of the defendants, and of those persons who were casual listeners and took no part in the affair. In the view we take of the whole case, it makes, however, very little difference whose accounts we receive. It appears that shortly after the execution of Rider’s mortgage to complainant, George deposited with Patterson the stocks which' he had jwevionsly mortgaged, and Davis deposited the original securities signed by George, so that George might take up the note upon paying it; and if he did not pay it Davis was to receive the securities. Patterson testifies that he knew nothing of any agreement that the Rider mortgage should be discharged. It appears that subsequently, and before the maturity of the note, Rider endeavored to make some arrangement with Davis to take up the note, by turning out property; and some witnesses testify that he proposed to pay the amount in money, and take back the securities, J>ut that Davis declined. In order to understand the precise position of affairs, it is necessary to review them from the outset. The security given upon the railroad stock by George was, both in form and legal effect, a mere chattel mortgage of the stock. Under this, the holder of the note to which it was collateral was entitled to the possession of the certificates of stock. Without such possession, the registered holder could transfer a clear title to any third person, and j wholly defeat the mortgage. And the statute of frauds requires a transfer of possession as against third persons. The mortgage given by Rider was an additional collateral security in the hands of [434] Davis, but it did not, in terms or by implication, compel him to resort first to his other collaterals. And there is no rule of law which would compel him to do so in the absence of such an agreement. ' When George proposed or agreed to leave the securities with Patterson, there was nothing in the arrangement in regard to the railroad stock, which differed in any degree from the already existing chattel mortgage in Davis’s hands. The deposit was in the same terms, and for the same purpose, with the chattel mortgage. No new security was assigned, and no new credit' was given. George had no right to require new terms as a condition of depositing the stock, for it was already his duty to give that up into the possession of his mortgagee. And his thus depositing them to secure the existing debt, was, in effect, a mere repetition of the original transaction in all its legal bearings. There is, therefore, strong-reason to doubt whether it amounted, or was intended to amount, to a new arrangement. Nothing in Patterson’s testimony would so make it, and the probabilities are all against it. But whether new, or a mere completion of the old arrangement, it could not have the effect of discharging the Rider mortgage. It was no transaction- with a principal whereby a surety could be discharged, because no new time was given, no new terms were imposed, and Rider assented to it. We think the weight of evidence decidedly preponderates against the existence of any agreement to discharge it. Patterson, who, of all others, ought to remember the facts, heard nothing of it. There was every reason for discharging it on the spot, if to be discharged at all, and no reason whatever for delaying the discharge. The mortgage was not then recorded, and needed no formal release, and then was the proper time to cancel it. No objection appears to have been made to its registry, and the fact that Rider was afterwards disposed to arrange it himself, is hardly consistent with any settled understanding that it had been agreed that it should be discharged in his favor. And there was no consideration to support any such agreement. If it really [435] ■existed, we could not resist the belief that it was brought about by gross fraud; for such a transaction could not, under the circumstances, have been accomplished among men of ordinary prudence without some such means. And the conduct of George in professing great anxiety to save stock which he must have known to be worthless, is, to say the least, very suspicious. But, inasmuch as the agreement is not proved to our satisfaction, and would, under any circumstances, fail for want of consideration, it is unnecessary to inquire fully into the fraudulent circumstances charged. Inasmuch as the real estate mortgage was not discharged or canceled, it remained operative in the hands of Davis unless afterwards satisfied. If Rider desired to save his property, it was always in his power to take up the note, and then he would have been entitled to all Davis’s rights under it. Not having done this, Davis is entitled to foreclose. If the debt is satisfied out of Rider’s land, he will still have his remedy over against George, and he will also be entitled to the note and securities after Davis is fully paid. It is claimed that Davis has converted the stock. The ■evidence shows nothing of the kind. He does not appear to have sold it, or to have changed the title in any way. If he had sold it, the proceeds would have been a proper deduction from the debt. If he had otherwise converted it,' the value should be deducted; and that is shown to be nothing at all. Upon a strict foreclosure, the rule is settled that the debt is canceled only to the extent of the value of the property. We are therefore of opinion that the complainant is entitled to a decree of foreclosure and sale to satisfy the amount of George’s note and interest, and that a decree should be entered accordingly. The decree of the Court below must be reversed with costs, and a decree entered in accordance' with the views ■above expressed. The other Justices concurred.