Wilson v. Russell

Bartol, J., delivered the -opinion of this courL Several objections to the validity of the deed of trust,-of th'e 15th of February 1856, have been urged by the appellees, which it is necessary for us first to consider in the decision of this'appeaL That deed is in the nature of a mortgage, and was intended to secure to Thomas Wilson and Thomas Wilson & Co., the payment of certain sums of money, which'William-Ma-son & Son (the mortgagors) formerly owed them; and also to secure the payment of certain promissory notes, which the said- Wilson and Wilson & Co., respectively, agreed to loam to said Mason & Son. It has been assailed as fraudulent in fact, upon two grounds,first, because it secures the payment of debts which W. Mason' & Son were not legally bound to pay, they having before been discharged therefrom under the insolvent laws; and secondly,-because some of the notes loaned under the mortgage were afterwards purchased by Thomas Wilson, one of the mortgagees, at large discounts, much greater than the legal rate of interest. The old debt had never been paid, the moral obligation to' pay it remained, notwithstanding the release of the debtors under the-insolvent laws; and there is no principle better established-than that such moral obligation is a sufficient consideration- in law to support a promise by the debtor to pay the — 529 — debt. See Chitty on Contracts, 48, 49, and the cases collected in 3 Bos. & Pul., 249, note, and also 7 Conn., 57, where the rule is perspicuously stated. If Mason & Son were under a moral obligation to pay the old debt, their agreement to secure the same, or any part of it, cannot render the deed fraudulent. The stipulation with regard to the payment of the old debt is, that a sum equal to 5 per cent, of the amount of each note so to be loaned, by Thomas Wilson and Thomas Wilson & Co., shall be paid by W. Mason & Son, such payment to be made when each note is loaned, and to be applied toward the extinguishment of the old debts. This provision is somewhat novel, and it has been contended, on die part of the appellees, that it is merely colorable, and is a device adopted by the parties for securing usurious interest upon the notes loaned. In our opinion, the record contains no evidence in support of this view. It is not pretended that the pre-existing debt was not real and bona fide. There would have been no fraud in securing the payment of the whole of it, how then can fraud be charged on account of any provisions in the deed, whereby it is secured to be paid,' from' time to time, and by small instalments? Nor do we find any proof or indication of fraud in the fact j' that some of the notes loaned were purchased by Wilson at a heavy discount. Those purchases were made from third parties, in whose hands Mason & Son had placed the notes, and who held them for sale in the market; they were made in August and September 1857, eighteen months after the execution of the deed, and there is no proof in support of the charge,that at the time of the execution of the deed, there was any intention, on the part of either Thomas Wilson or Wilson & Co., to buy the notes at a discount. The record furnishes no evidence in support of the sixth' point made by the appellees; the arrangement was entered into voluntarily, on the part of Mason &• Son; no advantage appears to have been taken of their necessities, by the mortgagees; on the contrary the latter assumed very heavy pecuniary responsibility, the benefit of which was derived by the formery' — 530 — and so far as the circumstances attending the'transaction ate'* disclosed, there was nothing inequitable in its terms. There being no sufficient evidence to establish fraud in fact,in the execution of the deed, we are next to inquire whether it is fraudulent and void in law? The amounts which it was intended to secure are expressed in the deed, as required by the Act of 1825, ch. 50, and we concur with the judge of the circuit court in saying, that no-valid objection can be made to it, either under that act, or by-reason of its being intended to secure future advances. Deeds-to secure future loans or advances, if bona fide made, have always been sanctioned by the common law, and if unexceptionable in'Other respects, their validity cannot be questioned’ in Maryland; See Cole & Albers vs. Range, 1 Gill, 412. Much stress has been-laid upon the fact, that by the terms of this deed, the possession of the property was to remain nr the grantors, until default should be made by them, in the ’ payment of one or more of the notes, to be loaned and advanced to them. Such a provision, it is said, is in effect a conveyance of property for the use and benefit of the debtors, and therefore void under the statute of 13th Elizabeth, as tending to “delay, hinder or defraud creditors.” If it were a conveyance of the debtors’ property, for the payment of their debts,- such a-reservation would avoid the deed. This has been repeatedly decided by this court. See Green & Trammell vs. Trieber, 3 Md. Rep., 11. Sangston vs. Gaither, Ibid., 40. Malcolm vs. Hodges, 8 Md. Rep., 418. But this is not a conveyance for the benefit of creditors; it is not an assignment of the property of the grantors, for the payment of some or all of their debts. It is in the nature of ’' a- mortgage, and in such an instrument, a stipulation that the mortgagors shall remain in possession, is no evidence of fraud. • “If that were so, then no mortgage could be valid.” United States vs. Hooe, 3 Cranch., 89. In the case of Green & Trammell vs. Trieber, this court has said: “We must observe ' the distinction between conveyances of the whole or a part of the debtor’s property, as a security for particular-debts, on an — 531 — agreement with the creditors for further time, and voluntary conveyances by debtors for the payment of their debts; the latter the law presumes to be executed, with reference to the? benefit of the creditors, ami not to the advantage of the debtor.” “In one class, the object is to gain time for the debtor, by .agreement with the creditor, in which it is quite consistent with the nature of the transaction, that the former shall keep possession. In the other, the debtor oifers his property to his creditors in payment of their claims, or for distribution, according to such priorities as ho may prescribe. , Payment being the professed object of the assignment, it must not contain any provision to defeat or hinder this purpose, beyond such reasonable delay, as may be incidental and necessary to the proper execution of the trust.” 3 Md. Rep., 36. It is very important in this case to keep this distinction in view. Many of the principles and decisions, cited by the an pellees, are applicable only to deeds of the latter description; while the instrument before us belongs to the former class of conveyances. It is a mere security for debts due aud to he incurred; and so far from operating to defraud, hinder or defeat the claims of other creditors, its legal operation was fo grant time to Mason & Son, and to increase their means and ability to meet their responsibilities, while their property remained responsible for the claims of their other creditors, subject to the lien of the mortgagees. It seems to us to be no well founded objection to such a deed, that it might afford an opportunity for fraudulent collusion, between the mortgagors aud mortgagees, whereby the property might seetn to be liable for a large sum and not, in fact, be liable at all, as if the notes were not called foi\ The same objection might be made to every mortgage to secure future advances; parties may make corrupt bargains in any case. Hut in the absence of all proof, impeaching the bona Jides of the transaction, such instruments are iiot within the operation of the statute against fraudulent conveyances. Some objection has been made to the deed, on the ground that the power of sale conferred upon the trustees, in case of default, is vague and indefinite, but we do not consider this — 532 — objection as well founded. The terms of the deed, in this respect, are clear and explicit, and no authority has been pro • duced, to show that they are in contravention of any principle of law. Nor do we concur in the view presented by the appellees, that the omission to state, on the face of the deed, the time when the first advances were to be made, renders the deed invalid. The advances were to be made “from time to .time, as may be desired by Mason & Son,” and were tobe continued for a specific period “from the date of the first loans.” Jt is said, that the omission to state in the deed the time of the first loan, makes the period of the duration of the transaction, indefinite, and that this avoids the deed. No valid objection can be made to a mortgage, on account of the length of time it has to run; nor can we see any reason .why, in the .case of a mortgage to secure future loans, it is necessary to .designate, in the deed, the length of time during which the loans stipulated for are to be continued. There is po such requirement in the Act of 1825. In this case, however, if jt were material for the appellants jo show the length .of time, during which the transactions were to continue, we have no doubt, that it is perfectly competent for them to rely, for that purpose, upon the proof in the cause. This proof is not excepted to, and no exception to it could have been sustained if made; it was offered by the appellees and shows, that the first loans were made on the loth of February, the day on which the deed bears date. Several decisions of this court have been cited, for the purpose of establishing the proposition, that the validity of a deed executed by a debtor, for the benefit of his creditors, must be determined by the face of the instrument, and does not depend upon extrinsic circumstances, or in other words, that if a deed be fraudulent in law, for matter appearing upon the instrument itself, it cannot be made good by averment. This proposition is no doubt well established, but it is not applicable to the question before us. Here the deed is not void in law, for want of a definite statement, on its face, of thejtime when the first loans were to be made, or of the period, during which they were to continue. The deed provides for a continuance of the loans of notes, to the amount of — 533 — §36,000. for three years after the time of the first loan, and of §18,000, for one year longer. To show the actual amounts loaned, and to fix the du radon of the transaction, by showing the time when too first loan was actually made, extrinsic proof may be offered; ouch proof does not contradict the deed, or alter, in any respect, its legal operation and effect, [n the case of Cole & Albers vs. Runge, 1 Gill, 412, the deed purported, on its face, to be for and in consideration of §10,000 in hand paid to the grantors, and contained a proviso for the payment of §10,000, with interest, by a certain day, and it was held, that parol evidence was admissible for the purpose of showing that the deed was made to secure advances made, and to be made, to the mortgagors, to the extent of §10,000. The principle upon which that decision was put is equally applicable here, viz., that the evidence did not “have the effect of changing the character and legal operation of the deed.” The evidence in the cause shows, that after the date of the deed of trust, Thomas Wilson and Thomas Wilson & Co. went on to loan their notes to William Mason & Son, from time to time, according to their agreement; the transactions, so far as these loans are concerned, commenced on the 15th of February 1856, and ended on the 2nd of November 1857. On the 22nd of November 1856, William Mason & Son'sold the property mentioned in the deed of trust, and executed a bond of conveyance of that dale to Thomas M. Mason, Charles C. Grafflin and Charles Mason, by which they agreed to sell the said property for §127,556, and received therefor, from the purchasers, ten promissory notes, amounting in the aggregate to that sum, with the interest thereon. The bond of com veyance was duly recorded on the 1st day of December 1856, and contains the following stipulation: “But in case of any default in payment of the aforesaid promissory notes, or any of them, then it is hereby declared to be the agreement of the parties to these presents, the entire in, debtedness, on account of all the aforesaid promissory notes, shall then be considered due and demandable, at any time, by the obligors on the bond,” and then, and in that case, authority — 534 — is given to the obligors to proceed and sell the land, property and premises, and apply the proceeds of sale to the payment of said notes. It appears that one of the promissory notes, mentioned in the bond of conveyance, was passed, by Mason & Son, to the Bank of Commerce, and that three of them were passed to J. B. Russell and T. P. Russell, who passed them to C. W. Ellis. ' Aithetirhe of the execution and recording of said bond of ■-..conveyañc.éy there were outstanding notes loaned by Wilson .and Wilson Co., under the deed of trust, to the amount of .$36,000;-'thesb were afterwards paid by W. Mason &■ Son, .and other notes, to the same amount, were loaned to them, which Wéiey/lso paid, and then, between the 24th of July 185-!?,. and- the 2nd of November 1857, other notes, to the .amount of $36,000, were loaned and advanced by said Wilson and Wilson <fc Co., to Mason &■ Son, under the deed of trust, and default having been made in the payment of these last notes, or some of them, the question arises, whether the appellants, Wilson and Wilson & Co., are entitled to a priority of lien upon the property over the appellees, who claim under the bond of conveyance? This question arose in the case of Gordon vs. Graham, 7 Vin. Abr., 52 E. Plac., 3 and 2 Eq. Cases Abr., 598. That case is thus stated in Finer: “A. mortgages to’B. for.a tepm of -years to secure the sum of-already lent to the mortgagor, as also such other sums as should hereafter be lent, or advanced to him. Afterwards A. makes a second mortgage to C. for a certain sum, with notice of the first mortgage, and then the first mortgagee having notice of the .second mortgage, lends a further sum, &o. The question was, upon what terms the second mortgagee shall redeem the first mortgage? “Cowper, Lord Chancellor, held, 'That the second mortgagee shall not redeem the first mortgage, without paying all that-is due, as well the money lent after, as that lent before the second mortgage was made; for it was the folly of the second nrortgagee, with notice, to take such a security.’ ” — 535 — A contrary principle seems to have been decided by a majority of the Supreme Court of Ohio, in Spader vs. Lawler, 17 Ohio Rep., 371. We think there is great force in the opinion delivered by the dissenting judge in that case. The ruling of tlse court however, was based somewhat upon the effect of the statute of that State relating to mortgages, and is not strictly applicable here. With the exception of Spader vs. Lawler, we have seen no case overruling the decision in Gordon vs. is cited as authority by Powell, in his learne* gages vol. 2, page 533, and by Coote, in his law of mortgages, (69 Law Lib., 487.) Mr. Coventry, in his rpjes ........ vol. 2,pages 533,534., suggests some doubts as li> the soundness of the principle of Gordon vs. Graham, but clkncjpjligjIfiSll'iSY. marks by saying, ‘ ‘that he individually places D^slender pendence in the force of their application.” See Gibson vs. Ingo, 6 Hare., in 31 Eng. Ch. Rep., 112. In the case of Brinkerhoff vs. Marvin, 5 Johnson’s Cases in Chancery, 326, Chancellor Kent, after citing Gordon vs. Graham, and Shirras vs. Caig, (7 Cranch, 34,) says: “Again, in Livingston vs. M’Inlay, 16 Johns. Rep., 165, the Supreme Court (of N. Y.) observed, that if it was a part of the original agreement, a judgment may be entered as a security for future advances, beyond the amount then actually due, in like manner as a mortgage may be held as a security for future advances. The limitation to this doctrine, I should think, would be, that when a subsequent judgment or mortgage intervened, further advances after that period could not be covered.” But the same learned chancellor in his commentaries, vol. 4, page 175, says: “So a, mortgage or judgment maybe taken, and held as a security for future advances and responsibilities, to the extent of it, when this is a constituent parr, of the original agreement, and the future advances will be covered by the lien, in preference to the claim under a junior intervening incumbrance, with notice of the agreement.” Upon this question there is some conflict of authority, but after an examination of the cases cited at the bar, and souk — 536 — others, we are of opinion that the weight of authority sustains the principle established in Gordon vs. Graham. (Decided May 31st, 1859.) The subject of mortgages securing future advances has been elaborately considered in many cases,' of which a number are clearly reviewed in Truscott vs. King, 2 Selden’s Rep., 160, 161. An examination of that case will show, that at common law a mortgage bona fide made, may be for future advances, as well as for present liabilities. Our Act of 1825, modifies the common law only in the particular which we have mentioned. If the junior creditor may, “by inspection' of the record, and by common prudence, ascertain the extent of the incumbrance,” the first incumbrance must prevail. It results from what has been said, that the deed of trust of the 15th of February 1856, is a valid and binding instrument, and that- the mortgagees therein named, Thomas Wilson and Thomas Wilson and Company, are entitled to have the land and premises and property, therein described, sold by the trustees named in said deed; and the proceeds of such sale applied in accordance with the provisions of the deed; and that the claims which may be due from William Mason and Son, for and on account of the notes loaned to them under said deed, are entitled to be paid out of the proceeds of such sale, in preference to the claims due the complainants. A decree will be passed reversing the order of the Circuit court granting the injunction, and the order continuing the injunction, and-the cause will be remanded. Orders reversed and cause remanded.