Fairbank v. Merchants' National Bank

Mr. Justice Baker delivered the opinion of the Court: The mere change of the form of an indebtedness does not release the security given therefor, unless such was the intention of the parties. A renewal of the note, its reduction to a judgment, or other change not intended to operate as a discharge of the lien, still leaves it, as between the parties, in full vigor. (Rogers v. School Trustees, 46 Ill. 428; Flower v. Elwood, 66 id. 438.) In the latter ease this court said: “Whether this exchange of notes operated to discharge the mortgage, as between the parties, at least, depended upon their intention. ” In Jarnagan v. Gaines, 84 Ill. 203, Jarnagan had a note secured by mortgage, and after the institution by him of proceedings in bankruptcy against the maker, he entered into an agreement" with the other creditors of the maker to dismiss the proceedings in bankruptcy and take a new note, payable in two years from date, without interest, and it was held, in the absence of proof of, any distinct intention that the mortgage ■should be released, that the taking of such new note, under the circumstances, would operate as a release of the mortgage. In Tucker v. Conwell, 67 Ill. 552, Conwell had sold to Croskery a quarter-section of land, and Croskery, to secure the purchase money, executed notes and a mortgage on the land. ■Croskery sold the land to one Berry; also gave to him his notes and a mortgage, and'he transferred them to Conwell. In May, 1857, Berry sold the west half of the quarter-section to one Shubert, and Conwell received Shubert’s notes for one-half of the amount of Berry’s notes, and released said west half from all prior incumbrances. Shubert, in February, 1859, sold said west half to one Morris, and he mortgaged it to Conwell and one Walker, to secure the payment of his promissory notes given for the purchase money. In August, 1857, Berry sold the east half of the quarter-section to one Adkins, who gave Berry a mortgage on the land to secure the purchase money. In August, 1858, Adkins sold .to Morris, who mortgaged the whole quarter-section to Parker, Russell & Co., and subsequently conveyed to Beaman, and others composing that firm, the east half, and they afterwards foreclosed their mortgage against Morris and others, and Parker, Russell & Co. became the purchasers of the entire quarter-section at a sale made by the master in chancery, and, the land not being re■deemed, obtained a deed, and afterwards sold the land to Tucker and others. Walker and Hancock, to whom the Berry notes were assigned, filed a bill and obtained a decree against Berry and Morris, and sold the land, and Conwell became the purchaser, and afterwards obtained a master’s deed. In August, 1867, the lands were sold under a judgment in scire facias against Croskery on the note last falling due on his purchase, and Conwell became the purchaser at that sale. It was held •.that the Croskery note and mortgage were fully discharged and satisfied before the scire facias was brought, and this court there said: “Why take new mortgages at each sale if it was not understood those formerly given were then released P If ■ Conwell relied on the Croskery notes and mortgage, we can see no reason for new notes and mortgages. They in nowise increased the security. If the land was worth the debt, its ■collection could be enforced upon that security as effectually as by taking new mortgages. The Croskery mortgage was a ■ lien on the land prior to all others, and could not be bettered by taking others on the same property.” The reasoning in Tucker v. Conwell seems to be, at least to ■some extent, applicable to the transactions involved in the case at bar. The mere renewal of the John L. Peck notes and of the Peck & Bausher notes would not have had the effect ■of releasing the pledges given for the security of those notes. The shares of stock could as easily and as effectually have been sold under the first pledge which was made of them for the payment of the combined indebtedness, as under any of the subsequent pledges made, or the pledge of May 14,1883. In fact, such first pledge would much more certainly have afforded a sufficient security and remedy, for under it, beyond . any chance for cavil or controversy, the dividends which had been declared and might be declared upon the stock, from the ■date of the pledge until a sale was made under the power given, would have accrued to the pledgee, and that question would have been eliminated. Then, why take new pledges at the time of the execution of each new note, if it was not understood the pledges formerly given were then released ? Mark the language of the contract made on May 14,1883: “Having deposited with said bank, as collateral security, certificates for one hundred shares of the stock of the Chicago ■City Bailway Company. This stock is also held as collateral security for note of Peck & Bausher.” This contract was accepted by the bank, and it must be presumed it expressed the .then existing intention of the parties. What was it that was pledged for the John L. Peck indebtedness? One hundred shares of stock, and not said shares and also the twelve dividends which had, during the preceding three years, been declared and paid thereon, and also ninety-nine additional shares of stock that had theretofore been issued by the railway company. If it be granted the bank did not at that time know of these dividends or of these additional shares of stock, yet. it is not perceived how that changes the case. When it took this written contract of pledge, it understood it was taking in pledge the one hundred shares, only. The evidence of the-vice-president of the bank, who seems to have acted in these various transactions on behalf of the bank, is corroborative of this. In speaking of these one hundred shares, he says: “I know, as a matter of fact, that on February 10, 1883, the stock was quoted so that the stock was worth more than the indebtedness which we held; that is all that I cared to know.” It also appears from his testimony in' that connection, that he did not pay any attention to the value of the stock from the-last mentioned date until after May 14, 1883. By the terms of the contract it was also “this stock”—the one hundred shares—which was then taken in pledge as security for the Peck & Bausher debt. What else do we find in the written contract that shows the then present intention and understanding of the parties ? The-power of sale contains this language: “I hereby give the said hank authority to sell the above described securities, or any part thereof, on the maturity of this note,” etc. Why “hereby give” a. power of sale, if the like authority theretofore given was not understood to be then revoked and released? And the subject of the power so given was stated to be “the above described securities,”—i. e., the one hundred shares of stock, and not shares of stock additional thereto, or any other or different securities. In Jones on Pledges (sec. 157,) it is said: “Parol evidence is not admissible to contradict the contract of pledge, such as a statement in a promissory note that certain stock had been transferred as collateral security. * * * The rule that oral evidence can not be admitted to alter a written contract, is applicable, and must prevail.” The conduct of the bank at the time the note of May 14, 1883, was given, and its conduct antecedent to that date, was consistent with and corroborative of the view each making of a new note and new written contract of pledge was understood and regarded by the parties to be a new pledge and a cancellation of the old pledge. On each of these occasions the old contract of security was returned to the maker, and a new contract of pledge and power of sale substituted therefor. It is a question of intention, and such surrender and substitution are indicative of an intention on the part of the bank to waive its rights under the old and rely upon its rights under the new contract. It is manifest from its conduct, and from the whole course of dealing between the parties, and from the testimony of the vice-president of the bank, that appellee deemed the one hundred shares of railway stock as not only ample security for the John L. Peck indebtedness, but also as affording some security, in addition to that held in the shape of lard and stearine receipts, for the firm indebtedness of Peck & Bausher. The bank may have had no notice or knowledge the railway company had issued any additional shares of stock to its stockholders during the time the one hundred shares of stock were in its possession as collateral security, and may have had m> information in respect to the dividends made by the company during that time and paid to appellant’s testate; but it must have known, or at least have had good cause for knowing or supposing, that a street railway company in the city of Chicago, located as the lines of the Chicago City Bailway Company were, and of its capital, financial standing and bulk of business, must, in the nature of things, have earned and declared dividends of some kind and to some amount during the almost three years that the one hundred shares of stock were held as a pledge, and the bank and its officers are presumed to have known the law, and that if the first contract of pledge was a 'continuous and never-released contract of pledge, as is now contended, said hank, as pledgee of the stock, was entitled to receive, as a part of its security, the accruing dividends upon such stock so in its possession. But it did not attempt to collect such dividends, made no inquiries or demand in regard thereto, and did not even take the trouble of notifying the railway company of its interest in the stock, by having it transferred to it on the books of the company, as it might readily have done, or otherwise. Such conduct on the part of a pledgee, of the business knowledge and capacity of appellee, and of ordinary prudence, is only explicable upon the supposition the bank and its officials understood the contract for collateral security existing between it and John L. Peck was not one and a continuing contract, extending from August, 1880, but that, on the contrary thereof, they understood the contract of pledge was, from time to time, released, and a new contract of pledge substituted therefor, by agreement of parties, $nd that they were satisfied with the arrangement thus made, and content to hold the one hundred shares of stock only as security, and to waive the right to the dividends which had accrued in the lifetimes of the several surrendered contracts of pledge. So, also, the conduct of appellee-after the 14th of May, 1883, as well as its conduct at and before that date, was consistent with and corroborative of the theory of separate and distinct contracts of pledge, accompanied by a release of the preceding pledge and a waiver of its rights thereunder. The note and contract, with power of sale, dated May 14, 1883, with the indorsements thereon, is in evidence. There is indorsed thereon, under the date of July 12, 1884, the following credit: “Net proceeds from the sale of the within one hundred shares of stock of Chicago City Railway Co., $24,-687.40.” -The reference here, by the word “within,” is to the note and contract for collateral security and power of sale found in the instrument of May 14, 1883, showing it was under that contract and power that appellee acted in making sale of the stock. The reference, also, by the words “the within one hundred shares of stock,” etc., is to the one hundred shares mentioned in the note, and referred to in the power by the words “the above described securities,” and other like expressions, as the “collateral security” which was deposited with appellee, and as the subject of the power which it held and exercised. Still another corroborative circumstance of after-conduct is, that on October 31, 1884, it caused the following indorsement to be made on the note: “Balance due and in judgment, $2855.62. Charged to profit and loss, October 31, 1884,”—and also caused like indorsements to be made on the two Peck & Bausher notes. The uncontradicted evidence is, that Sarah L. Peck, who had collected the dividends upon the stock, and who had subscribed for and received the ninety-nine additional shares of stock, at that time had ample property to respond to any demand made upon her, growing out of said dividends and said additional stock. If, when the note of May 14,1883, was executed, and a new pledge of the one hundred shares of stock made, and a new power of sale given, the intention was to release and abrogate the former pledge and priof power of sale, then it would seem it is immaterial whether the new note then given is regarded as a payment of the antecedent indebtedness or not, for, even if we assume the old indebtednéss continued, notwithstanding the giving of the new note, the case is one where, by the agreement of parties, a security given for an indebtedness is can-celled, and another security therefor substituted. We do not regard the case of Campbell v. Trotter, 100 Ill. 281, cited by appellee, as decisive of this, for there the new mortgage was designed by the parties as a continuation of the lien of the first mortgage, while here we find the fact to be, that it was the intention of the parties the old lien should be released and a new lien taken in its place. Here, there were successive pledges of the same property, and the bank is only entitled to the benefit of the last pledge. As, however, Mrs. Peck, after the last pledge of the one hundred shares of stock, collected from the railway company one dividend that, accrued upon said stock, and said dividend belonged to the bank as a part of its security, appellant should be held to account, as executor, for said dividend. The view we have taken of the case obviates the necessity of considering the question raised by appellant that has especial reference to that portion of the decree of the trial court which ordered him to transfer to appellee, as pledgee, the ninety-nine shares of additional stock. For the reasons we have stated, the judgment of the Appellate Court and the decree of the circuit court are reversed, and the cause is remanded to the latter court, with directions to enter a decree in conformity with the views herein expressed. Judgment reversed. Magbudeb, J.: I think the judgment of the Appellate Court in this case ought to be affirmed.