Darst v. Bates

Mr. Justice Scholfield delivered the opinion of the Court: When this case was in this court at a former term,—Darst v. Bates et al. 51 Ill. 439,—the court was under the impression that the notes described in the deed of trust, which was executed by Hall and Hurlburt to Alden as trustee, had been renewed from time to time, and what was then said in respect of the deed of trust was upon that hypothesis. It now very clearly appears, from the examination we have given to the record, that those notes were not renewed. Other notes were given by Hall and Hurlburt to Peter Sweat, and by him indorsed to William G. Bates, which Bates also indorsed, and, through Alden, procured to be discounted at the West-field Bank, in Westfield, Mass., to raise $10,000; and it was these notes, and not the notes described in the deed of trust, that were taken up and renewed by substituting other notes in like manner secured, from time to time. It is contended by appellees that the notes described in the deed of trust, as secured by that instrument, were held as security for these notes that were thus discounted and renewed from time to time, and the question to be determined is, whether the administrators of Alden (who has died intestate since the pending of these suits), in view of' all the facts proved, are entitled to have a foreclosure of that trust deed as a prior lien to the mortgage executed to Garrett and now held by Darst, to indemnify Alden’s estate for money that Alden paid to the Westfield Bank in consequence of those discounts. Having made this correction and explanation in regard to the facts, we are not disposed to depart, in the expression of our views of the law, from what is said in the former opinion. The instrument by which Garrett gave a priority to the trust deed to Alden, as trustee, to secure the payment of the notes to Bates, is as follows: “Whereas, I, Augustus O. Garrett, of the city of Peoria, in the State of Illinois, hold a certain mortgage made by Warren Hall and Ashbel Hurlburt upon lots three, four and five, block Ho. eight, in the city of Peoria; and whereas, the said Hall and Hurlburt have this day made a deed of trust conveying the said lots to Caleb Alden as trustee, said last recited conveyance being to secure the payment of $10,000, with the interest thereon, to one Wm. G. Bates, according to the tenor and effect of four promissory notes made by Hall and Hurlburt to said Bates : How, therefore, in consideration of one dollar to me in hand paid by said William G. Bates, I do hereby now forever release all claim or lien which I have by virtue of any mortgage or lien upon the said above described premises, as to and so far as the same may affect the lien of the said deed of trust and the security of the said Bates thereby, but no further. It being the true intent and meaning hereof that, as between the said Bates and myself, the said deed of trust for the benefit of the said Bates shall be deemed a valid and first lieu upon said premises, and that my mortgage shall be deemed and considered a lien on the same second in priority to said deed of trust. This made for the sole benefit of said Bates, it not being the intent hereof to in any manner release or waive the lien of my said mortgage as to any other parties. Witness my hand and seal at Peoria, this, the thirteenth day of October, A. D. 1856. A. O. Garrett, (Seal.)” According to the answers of Hall and Hurlburt, made under oath, and in response to material allegations in Darst’s bill, this instrument was executed pursuant to an agreement made between Garrett and Hall and Hurlburt, to enable them to obtain a loan of $10,000 through the assistance of Bates, (who was to guaranty their notes or bills indorsed or accepted by Peter Sweat or some other person,) for the purpose of expending said sum on the mortgaged premises in repairing, enlarging and improving the same, and rendering them more valuable. In view of this, it is manifest that a fair and reasonable construction of the instrument is to postpone the lien of Garrett’s mortgage to that created by the deed of trust therein recited. It was intended that, as to that $10,000, the Garrett mortgage should be a junior lien, but that in no other respect, and for no other purpose, should its priority be waived or relinquished. Whether Bates should continue to be entitled to that trust deed, or some one else should occupy his place, could make no possible difference to Garrett. It was not the person, but the loan, in which he was interested, and the name of Bates is used simply to make more specific and certain the particular deed of trust. This was the view entertained by the court when the case was here before, as will be seen by reference to the opinion then filed, and it is totally unaffected by the misapprehension of facts under which the court then labored. In our opinion, therefore, the postponement or relinquishment of the first lien, under the Garrett mortgage, is not limited to the person of Bates, but it is equally for the benefit of any person who is equitably entitled, apart from that instrument, to stand in the shoes of Bates, as regards the debt secured by the deed of trust. We are, moreover, of opinion that Garrett, having entered into a contract with Hall and Hurlburt in regard to relinquishing or postponing the priority of his lien, for the purpose before stated,.with full knowledge of the mode in which Bates was expected to raise the needed money, can not now be heard to urge the objection that the money was not loaned on the faith of the trust deed, but was obtained by discounts of other paper of Hall and Hurlburt. He knew, according to the evidence afforded by Hall and Hurlburt’s answers, that the money was not to be obtained by a direct loan on the faith of the trust deed, but by discounts of their paper when guaranteed by Bates, and that the trust deed was intended to protect Bates in guaranteeing the paper to be thus discounted. He has not, therefore, been defeated or disappointed in this respect. Whether Hall and Hurlburt have kept faith with him, as to the use of the money thus obtained, is quite another question. He relied solely on their agreement in that respect, and there is no authority in the record for saying that either Bates or Alden was party or privy to that agreement. The point is made, and pressed with some apparent earnestness, by counsel for appellant, that Garrett occupied a relation to the trust deed analogous to that of surety, and hence that his postponement or relinquishment of priority should be held to be revoked or canceled by all acts or circumstances that would, in the case of a surety, be held to release him.. Without conceding that, under the evidence, there appear here to be any acts or circumstances which would, in the case of a surety be held to release him, we think it sufficient to say, in our opinion the position of Garrett, in relation to the trust deed, can not be held to be analogous to that of surety, for this reason, if for no other : Accepting the evidence afforded by the answers of Hall and Hurlburt to be true, his postponement or relinquishment of priority was an original and independent undertaking upon his part, based upon a valuable consideration, namely, the concurrent undertaking of Hall and Hurlburt that the money to be obtained by the loan should be used in improvements, repairs, etc., upon the mortgaged property, thereby appreciating the value of his security. We think the position of Garrett, with regard to the trust deed, is precisely that of any other junior mortgagee—his rights are no more and no less. Another point, urged with some show of earnestness, which, we think, may be disposed of with' very few words, is this: In February, 1860, there was an accounting between Hall and Hurlburt and Bates, in regard to the paper guaranteed by Bates for them and discounted at the Westfield Bank, upon which it was found there was due from Hall and Hurlburt to Bates $9350.59, for which amount they then gave him their note, on six months’ time, and, on the same day, confessed a judgment in his favor. The note was indorsed by Bates, by his attorney in fact, to the Westfield Bank. Nothing was ever collected on either the judgment or the note, but it is argued this was a novation, and operated as a release of the trust deed. This point was fully considered when the case was here before, and it is not affected by the misapprehension of fact under which the court then labored. It was then held the reduction of the note to judgment did not in anywise affect the trust deed. Where a mortgage is given to secure the payment of a debt, and the debt becomes merged in a judgment, the mortgage stands as security for the judgment. Wayman et ux. v. Cochrane, 35 Ill. 152. See, also, Rogers v. Trustees, etc. 46 Ill. 428; Hamilton v. Quimby et al. id. 90; Flower v. Elwood, 66 id. 438; Worcester National Bank v. Cheeney, 87 id. 602. The question of most difficulty is, did Alden occupy such a relation towards the loan effected by Hall and Hurlburt, by means of their discounts, that he can be held, in equity, entitled to take the place of Bates, and enforce a foreclosure of the deed of trust and avail of the proceeds. Since this case was here before, Alden paid to the bank of Westfield the amount due on the note for $9350.59, given by Hall and Hurlburt on settlement in 1860, which had remained, from the time of its assignment by Bates, in the possession of the bank, unpaid. Appellant’s counsel insist that this payment was purely voluntary on the part of Alden. The proof sufficiently establishes these facts: In the month of June, 1856, Bates was employed by Hall and Hurlburt, as their attorney, to obtain a loan of $10,000 for them, which they wished to expend in repairs and in the erection of additions to the buildings situated upon the premises described in the mortgage and deed of trust in controversy. After making some ineffectual efforts to obtain this loan,—it having been agreed between Hall and Hurlburt that they would pay him a commission of $400, and make their four promissory notes for $2500 each, secured by first mortgage or deed of trust upon the property in controversy, to protect and indemnify him against loss as their guarantor, and that they would also furnish him with good bankable paper1, properly secured by personal security, which he was to indorse and guaranty, for the purpose of discounting to raise the $10,000,—Bates, on the-day of October, 1856, advanced, of money Avhich he borroAved of the Westfield Bank on his orvn note, the desired $10,000, less his commission, and a debt of $15 owed him by Hall and Hurlburt,—that is to say, $9585; and he then applied to Alden to effect the loan of the $10,000, as the attorney of Hall and Hurlburt, offering as security the securities furnished by them to him, and his personal guaranty of the bankable paper to be discounted. Alden agreed, thereupon, to effect the loan for him; and it was then, in consideration thereof, further agreed between them, and reduced to writing, as follows: “Mem. of agreement—W.G.Bates, A. C. Alden and others: “Bates is to hold the four notes of $2500, and the mortgage to secure them, as security for himself as indorser of the floating notes of H. and H., and also as security for Alden, and Alden and others, for raising the money on the negotiable notes furnished by H. and H., and to guaranty the same to Alden, and Alden and others, who may raise the money, and he is to apply the payments and net proceeds received from H. and H. on the loan, as received by him, till the same is paid, the rate of interest on the notes to be taken by Alden being 10 per cent, as discount, to be paid by H. and H. He agrees to enforce the payment of loan by proper legal proceedings, in case of neglect, or to allow Alden, and Alden and others, to do so in his name, if he declines to do so, if such shall be thought best, it being understood that Alden, either by himself or with his friends, is to raise the money to the amount as mentioned in the four mortgage notes, and for the time proposed as agreed, in case said Bates shall furnish him with negotiable paper of H. and H., and by Bates, or guaranteed by him. “[Signed,] W. G. Bates. “November 3, 1856.” Although this was signed by Bates alone, the evidence is full and satisfactory that it was written as evidencing the real agreement between Bates and Alden, and that one copy was given to and accepted by Alden as such, and the other was retained by Bates. Alden then took the note executed by Hall and Hurlburt to Peter Sweat, and by him. indorsed, and guaranteed also by Bates, for $10,000, payable May 1,1857,—obtained $10,000 of the Westfield Bank, which he paid over to Bates, as the attorney of Hall and Hurlburt, and deposited this note as collateral security for the payment of the $10,000. Bates repaid himself with this $10,000—the money he had previously advanced, and the amount due him for commissions, etc. But this we regard as precisely the same as if the $10,000 had gone directly to Hall and Hurlburt. All the parties treated this as the real loan, and the advancement by Bates as but a temporary accommodation replaced by this money. In all the subsequent renewals of notes, discounting, etc., this was, by all the parties, treated and regarded as the real loan. Alden, in giving his evidence, says: “I told said Bates that I would accept the proposition,” (that is, the proposition to raise the $10,000,) “and would raise the money, from time to time, till the debt of Hall and Hurlburt should be paid.” And again: “I received the notes which were guaranteed or indorsed by said Bates, and I procured the same to be discounted, on my promise to pay the same in case of failure to pay by said Hall and Hurlburt, or said Bates. I also agreed with said bank, the late president, directors, etc., of the West-field Bank, to be responsible in like manner for any paper which should thereafter be given by Hall and Hurlburt to said Bates as such collateral, and which should be guaranteed or indorsed by him.” He had previously said: “It was agreed by said Bates with me, as attorney for Hall and Hurlburt, that I should receive 10 per cent for interest on amount due on the loan, during its continuance.” Again, he says: “The bank relied upon the credit and pecuniary responsibility of Hall and Hurlburt, Bates, who was a man of abundant responsibility and property, and, perhaps, upon my promise; but they had nothing to do with the mortgage of Hall and Hurlburt to secure the notes of $10,000 first spoken of; nor were they informed, so far as I know, of the existence of it. The discount was made to me, by a majority of the directors, a few days after.” It is obvious the debt here to the bank was in reality Alden’s debt. He, it is seen, was, by his contract with Bates, to “raise the money.” He was to receive a compensation for so doing. The notes of Hall and Hurlburt, to be furnished and guaranteed by Bates, are called and treated as collaterals. Collaterals to what? Manifestly to Alden’s promise to repay the bank. It is evident, from all the proofs, the bank did not loan money or give credit to Hall and Hurlburt. It did not buy these notes, nor accept them as payment of a pre-existing debt,—but it accepted them simply as a collateral security for the debt of Alden—leaving the primary liability upon him. Had Hall and Hurlburt or Bates paid these- notes and discharged the debt to which they were collateral, Alden would, of course, have been discharged from further liability—but the notes not having been thus paid, their acceptance as collateral security had no effect whatever on the original debt, either to impair or suspend the right of action. Wilhelm v. Schmidt et al. 84 Ill. 187-8. The debt remaining unpaid, Alden was simply paying his own debt, and his liability was unaffected by the Statute of Frauds. Says Brown on the Statute of Frauds, p. 165, “ It is a general principle, which prevails in all cases under this branch of the statute, that whenever the defendant’s promise is, in effect, to pay his own debt, though that of a third person be incidentally guaranteed, it is not necessary that it should be in writing. The statute contemplates the mere promise of one man to be responsible for another, and can not be interposed as a cover and shield against the actual obligations of the defendant himself. The common case of the holder of a third person’s note assigning it for value, with a guaranty, seems to be clearly referable to this principle. The assignor owes the assignee, and that particular mode of paying him is adopted; he guarantees, in substance, his own debt.” 2 Daniell on Negotiable Instruments, § 1761; Smith v. Finch, 2 Scam. 321 ; Nelson v. First National Bank of Chicago, 48 Ill. 36. Alden having paid a debt which it was his legal duty to pay, is entitled to be subrogated to all the securities held for its payment. But apart from this, by the terms of his contract with Bates, he is entitled to resort to a foreclosure of the deed of trust for protection. And of the power of Bates to make such a contract, we think there can be no question. He might assign the notes by indorsement; or by a separate writing assign them absolutely or conditionally. The suggestion that Alden being a trustee was prohibited from becoming interested in the trust fund, can have no force. His duty, as trustee, was simply to sell the property to satisfy the mortgage—and this could not be in anywise affected by the circumstance of what particular person might become the owner, legally or equitably, of the notes secured. Indeed, it is quite common to make the holders of the notes or their assignees trustees in mortgages, with powers of sale; and this has repeatedly received the approval of this court. Longwith et al. v. Butler, 3 Gilm. 32; Strother v. Law, 54 Ill. 413; Bloom v. Van Rensselaer, 15 id. 503. So far as we are able to see from the evidence preserved in the record, Garrett’s rights and those of Darst, as his assignee, as junior mortgagee, have never been impaired or interfered with. Garrett, until his assignment to Darst, and Darst since that assignment, has, at all times, been at liberty to redeem from the deed of trust and become subrogated to any and all securities to which such a redemption would entitle him. Ho contract has been made and no act done which could, in the slightest degree, prevent or embarrass such a redemption. Darst, as assignee, when he purchased, had notice that his rights were those of junior mortgagee only. Presumably, he contracted with reference to that condition of security. It does not now lie in his mouth to deny that such were his rights. Some criticism is made in argument with reference to the conduct of Bates and Alden towards the Westfield Bank, of which both were directors, and Bates was the nominal president. This, as we conceive, is a matter solely between the stockholders of the bank and these parties, which in nowise concerns Darst, who makes no pretence of having been injuriously affected thereby. The question of usury, also, which is suggested rather than argued, does not concern Darst. Hall and Bates set up no such defence, and that ends it. Perceiving no substantial error in the decree of the circuit court, the judgment of the" Appellate Court is affirmed. Judgment affirmed. Subsequently, upon a rehearing of this case, the following additional opinion was filed: Mr. Justice Scholfield : One of the points made in appellant’s original argument was, that “the circuit court erred in its order referring the cause to the master, by therein requiring the master to ascertain the amount due said administrator upon the basis of said judgment.” By inadvertence, no notice is taken of this point in the foregoing opinion. Upon petition for rehearing a re-argument, on this point, was ordered. The question has been fully considered, and our conclusion is, the point is well made, and, in that respect, there was error in the ruling of the Appellate Court. It will be recollected that in February, 1860, there was an accounting between Hall and Hurlburt and Bates, in regard to the paper guaranteed by Bates for them and discounted at the Westfield Bank, upon which accounting, the foregoing opinion recites, “ it was found there was due from Hall and Hurlburt to Bates $9350.59, for which amount they then gave him their notes, on six months’ time, and, on the same day, confessed a judgment in his favor,” etc. The decree of the circuit court recites this accounting, the amount found due thereupon, the execution of the promissory note and confessing of judgment thereupon, and, among other things, refers it to the master in chancery to ascertain and report to the court the amount due and unpaid upon the said judgment, computing interest thereon at the rate of six per cent per annum, due annually, commencing at the date of the judgment, March 2, 1860, and, upon this basis, the master’s report was made. Cutler Laflin testified: “I know of a reckoning between Bates and Hall, in Peoria, in 1860; I ascertained what sum was due from them to said Bates; I went because Mr. Bates was sick; I carried with me sundry bills and notes of Hall and Hurlburt which were discounted at the Westfield Bank. Mr. Bates had also a mortgage made to Alden, as trustee, by Hall and Hurlburt, to secure the said Bates for his indorsing the paper of Hall and Hurlburt. Mr. Hurlburt took no part in the reckoning. The interest was cast at 10 per cent. The amount found due was $9350.59, including interest to the maturity of the note.” Taking this to be true, and it is clear the account should be taken of the amount due upon the note, and not of the amount due upon the judgment. Taking the account due upon the judgment, would give six months’ interest, at six per cent per annum, upon the amount thereof, more than Plall and Hurlburt were required to pay. But, waiving Lafiin’s evidence, it is the note, and not the judgment, that represents the debt secured by the deed of trust. In the original opinion, we held the reduction of the note to judgment did not in anywise affect the trust deed, and we still adhere to that opinion. It stands as security still for the debt which it was intended to secure. That debt here, by the common understanding of all the parties, is evidenced by a note payable in six months without interest. By reducing that note, which is not yet due, and which does not bear interest until it is due, to a judgment, does not change the equitable rights of the parties, as respects the debt. For this error, in directing the master to compute interest upon the judgment from its date, instead of upon the note from its maturity, the decree below is reversed, and the cause remanded with direction to conform the decree below to this opinion. In all other respects the decree below is affirmed. Decree reversed in part, and in part affirmed.