Markell v. Eichelberger

JBartol, J., delivered the opinion of this court. The facts in this case are very fuby set out in the agreement of the solicitors, appearing in the record, and may be briefly stated as follows: George J. Fischer was indebted to Corilla H. Smith and Philemon M. Smith in the sum of $535, on his promissory note, dated the 12th day of March 1850, and Jacob Markell was liable as his surety on said note. Fischer, in order “to indemnify, secure and save harmless said Markell from all loss by reason of his liability as security aforesaid,” dn the 26th of November 1850, executed to said Markell a mortgage, with the condition that the said Fischer should pay the aforesaid sum of money, with legal interest thereoh, and should “well and truly indemnify and save harmless the said Markell from all and every loss by reason of his liability as security as hereinbefore recited,” which mortgage was duly executed and recorded; after which the said Fischer executed another mortgage, conveying the same property to other persons, for the purpose of securing other creditors and sureties. The note due Corilla H. and Philemon M, Smith was placed by the payees, after its maturity, in the Farmers & Mechanics Bank of Frederick county, for collection, with instructions to institute suit thereon, if not paid by a certain day. The cashier then told Fischer, if he would pay a part of the sum due on said note, the bank would discount a note for him,'to enable him to pay the balance. Whereupon the said Markell, together with one Joseph Be van, united with said Fischer in giving a note, dated November 8th, 1854, for $475, payable, in six months, to Thomas Morgan, cashier, or order, and the money raised by said note, together with the sum paid by Fischer, was applied to the payment of the note due C. PI. and P. M. Smith. At the time Markell put his name on said note for $475, it was understood by him and Fischer, that the [85] money to be raised upon it, was to be applied to the payment of the balance due on the note to the Smiths. The name of Bevan, thereon, was procured by Fischer, because the bank required another security or drawer; and the same remains unpaid, and is held by the bank. It is also admitted that Fischer is insolvent, and was generally known to be very heavily indebted at the time the said note was discounted. The mortgaged property was sold under a decree of the Circuit Court for Frederick County, sitting in equity, passed upon a bill filed by prior incumbrancers, and the fund arising from the sale was brought into court. The cause being referred to the auditor, he stated an account, applying the proceeds of sale to the payment of the claims of prior mortgagees, and to parties claiming under the subsequent mortgage, to the exclusion of the said note for $475, held by the bank, on which said Markell is surety. And the said Markell filed exceptions to the auditor’s report, claiming that he is entitled, under the mortgage of the 26th of November 1850, to have the said note for $475 paid out of the fund. The Circuit Court, by its order of the 25th of September 1857, overruled the exceptions, and ratified the auditor’s account, and from that order this appeal is prosecuted. It is admitted that the fund is insufficient to pay all the mortgage claims, and that the claims Nos. 11 and 12, allowed in the audit, are claims secured by the last mortgage, which was executed after that of the 26th of November 1850, had been executed and recorded. We think this case is within the principle recognized and decided by the Court of Appeals, in the case of Chase & McDonald, vs. Ridgely, 7 H. & J., 160. There the mortgage was given to indemnify Ridgely as surety on account of his prospective liability as endorser on certain notes to be given to the Union Bank; the notes were given, but were afterwards paid with funds obtained from the City Bank, upon notes endorsed by the mortgagee as surety. The court held, that the liability of the surety on the notes given to the City Bank, was covered by the mortgage; it was treated as a continuation of the same liability on the part of the surety, although the [86] notes originally given to the Union Bank, after being renewed from time to time, as specified in the mortgage, had been paid and surrendered. The court considered that the debt for which the surety was liable, remained unpaid. It was only transferred from one bank to another, and the indemnity secured to the endorser under the mortgage, remained. That is a stronger case, in support of the appellant’s views, than the one before us. Here the original note was held by the Farmers & Mechanics Bank of Frederick county, for collection. The bank consented to accept payment of a part, and to take a new note from Fischer for the balance. On the new note thus given for a part of the original debt, Markell, the mortgagee, remained liable as endorser and surety. We see no good reason why the mortgage should not stand as security to indemnify him from that liability. If the note for $475 had been given to the Smiths as a renewal in part of the first, there could be no doubt that Markell’s liability upon it would be covered by the mortgage, although no provision is made in the mortgage for renewals; the case of Brinckerhoff vs. Lansing, 4 Johns. Ch. Rep., 65, cited by the appellee’s counsel, establishes that position. Then what difference is there in principle growing out of the fact that the bank, which held the note as agent of the pa)mes, made the arrangement whereby $475 of the debt remained unpaid, and Markell’s liability to that extent was continued? We are of opinion that the mortgage to the appellant, of the 26th of November 1850, is a subsisting security to indemnify him .for his liability on the note for $475, and the fund should be applied to the payment thereof, after satisfying prior liens. The question next arises, is' he in a position to claim the benefit of it, not having paid the note to the bank? In this case the principal debtor is insolvent, and the funds pledged by the mortgage to indemnify the surety are in court; it would, in our opinion, be inequitable to deny to the surety the right to have them applied to the payment of the debt. To use the language employed by the Chancellor, in Chase & McDonald, vs. Ridgely, “If the mortgage had been given to the bank, and not to Markell, equity would give him the benefit of it, [87] and surely if a court of equity would give him the benefit of the mortgage given to the bank, it will not deprive him of one given to himself.” 5 G. & J., 314. (Decided June 2nd, 1858.) In order that the auditor’s account may be corrected, and further proceeding’s had, in conformity with the opinion of this court, the cause will be remanded. Order reversed and cause remanded.