Cromwell v. Brinton

Smith, J. The following facts appear from the bill of exceptions: First — That John Kebler, on, and for some months prior to July 26, 1877, was the agent of the parties to this litigation (both of whom were non-residents of, and absent from this state), for the purpose of investing for them, severally, money placed in his hands by them respectively, for that purpose. [536] ,• Second — On the 26th day of July, 1877, one Wm. Rankin executed and delivered to Kebler, a mortgage on certain real estate in this city, to secure the payrqent of two notes made by him to Kebler, one of which was dated February 14, 1877, due in two years after its date and calling for $2,975.50, with interest from date at 8 per cent, per annum, payable annually, and the other for $3,200, dated .July 2, .1877, due in two years after its date, with interest at 8 per cent., payable annually. Both were made payable to the order of Kebler. Third — On July 2,1877, as is shown by a letter of Kebler, dated July 26, 1877 (the day on which the moi'tgage was executed), addressed to Miss Cromwell, and which contained a statemexxt of his account with her brought down to July 2,1877, there was then in his hands of money of hers a balance of $3,231.50. In this letter he notifies her that he had invested for her, $3,200 in the Rankin note and mortgage of that amount as of Jxxly 2, 1877. There is no statement when that investment was made, but it must be considered from all the circumstances that it was done at least as early as Jxxly 26, 1877, and it may be that it should date as of July 2, 1877; but there is nothing definite to show that such was the case. He appears to have retained this note in his possession until January 2,1883, when he wrote to her a letter enclosing the note, in which he advised her that interest had been paid to her annually thereon in full up to July 2, 1882, axxd says, “I enclose that note dxxly endorsed to yoxx.” It was endorsed when receixmd by her as follows — “Propexly of Miss Max-garet Cromwell. Interest paid in full to Jxxly 2, 1882. Pay Margai-et Cromwell or order. John Kebler.” There is xiothing to show when either of these endorsements was made. Foui'th — In December, 1876, Mrs. Brinton had placed in Kebler’s hands for investment over $8,500. He had invested a part thereof for her prior to February 14 ,1877, and on that day ought to have held for her, as appears from his written statement aftei'wards made, aboxxt $2,975.50, which was the amoxxnt of the Rankin note of that date, and which, with the $3,200 note before mexrtioned, was afterward secured by the Rankin moi-tgage of Jxxly 26, 1877. On December 24, 1877, he sent to her this note of $2,975.50, indorsed to her without recourse, stating that it had been made payable to his order for convenience. There is no direct evidence as to the time when the ixxvestment in this note was made for her; but if the note in question was execxxted on the day it bears date, there is strong reason to suppose that it was done at that tixne, for it was for the exact sxxm that shoxxld have been in his hands, and it not being a round suxn, the coincidence between the two amounts and the fact that it xvas afterwards turned over to her, strongly tend to show that the investment was then made. Supposing this to be so, it then presents a case where Kebler having money in his hands to be invested for Mrs. Brinton does so invest it on February 14, 1877, in this note due in two years from that day, and having money of Miss Cromwell in his hands for a like purpose, invests that, either on July 2, or July 26, in the $3,200 note, on which last day a mortgage is givexx by the maker thereof to Kebler to secure both of the notes, and after this the mortgagee and payee turns over the notes to the parties for whom they were respectively pxxrchased. And the moi'tgaged premises having been sold, and the proceeds being insufficient to pay both of them in full, the question is, how shall the purchase money be applied as between the holders of the two notes. We think it entirely clear that if Kebler had been himself the owner of these notes in his own right, at the time the mortgage was made, and had thereafter transferred them to these persons, that Mrs. Brinton, as the owner and holder of the note which was first to mature, was entitled to be first paid, and this without regard to the order of assignment. The ground xxpon which the doctrine of our state, “that different debts secured by the same mortgage are to be paid from the mortgage fund in the order in which they fall dxxe,” rests, is this (as stated by Judge Lane in the decision of the Bank v. Covert, 13 O., 240), “that the obligation to pay the first, may be en [537] orced against the property before any default in the later payments.” Jones in is work on Mortgages; sec. 1699, says substantially the same thing. “The 'rule •ests upon the fact that the holder of the note first maturing, may foreclose upon non-payment without waiting for the succeeding notes to mature:” It is coneded that this order may be changed by the agreement of the parties interested, s by a statement in the mortgage, or a stipulation in the notes themselves, or by some other arrangement, or perhaps by facts or circumstances which would show that the intention of the parties or mortgagee was that this presumption of the law should not apply. But it is expressly held in the Covert case, that the order of assignment of the notes does not change this rule of priority, and in the case of Bushfield v. Myers, 10 O. S., 334, 338, our court goes still farther, and contrary to the doctrine of some other courts holds, that even where the mortgagee and payee assigns some of the notes, retaining others, if all of them fall due at the same time, he is entitled to share fro rata with those assigned, in the mortgage fund; and it would seem to follow, that if the mortgagee retained the note first falling due, he would have priority. See also Kyle v. Thompson, 11 O. S., 616, and Winters v. Bank, 33 O. S., 250. And therefore, if Kebler had transferred the $3,200 note to Miss Cromwell, before he transferred the other to Mrs. Brinton, we think this would not alter the general rule that the note first maturing has priority. Does the fact, then, that Kebler was acting as the agent of both of these ladies, and actually had invested their money in these notes before the execution of the mortgage, if this be so, entitle Miss Cromwell to share fro rata in these proceeds? This is strongly urged by her counsel, and as stoutly denied by the counsel for Mrs. Brinton, and presents a question concerning which we know of no case in Ohio, though it is claimed that decisions of the supreme court of Indiana favor the doctrine claimed by counsel for plaintiff in error. The general rule of that state is the same as that of Ohio. Judge Woods, in deciding the case of Shaw v. Neusome, 78 Ind., 335, says, “It is the well settled law of this state, that if a mortgage be given to secure successive installments of a debt evidenced by promissory notes maturing at different times, the transfer of the notes operates as an assignment fro tanto of the mortgage, and the holders of the several notes have priority of lien in the order in which their respective demands become due.” But in this case the court holds, that the same rule does not govern where -“a single mortgage is given to secure obligations to different parties maturing at different times. This is said to be “equivalent to the simultaneous giving of separate mortgages to secure such obligations, and no priority is allowed.” But to this is added the qualification, “otherwise, if the obligations were payable to the same party, and had passed into the hands of different owners,” in which case the general rule would apply. This is the only case to which we have been referred, which gives this effect to a mortgage executed by a debtor to one person to secure obligations held by different persons, maturing at different times. The three cases cited by the judge delivering the opinion, 76 Ind., 75; 63 Ind., 409, and 45 Ind., 355, were all cases in which the mortgage in controversy had been given directly to several persons holding separate claims. We know of no case in Ohio, on these points, or which states the effect on the priority of the parties, where two or more mortgages, executed to different persons to secure several debts, coming due at different times, are left for record at the same moment of time. In view of the language of the statute (sec. 4133), which provides that mortgages shall take effect from the time the same are delivered to the recorder of the proper county for record, it may be, that such mortgagees might stand on an equality, without reference to the time at which their respective debts matured- — if so, it would doubtless be upon -the ground that such is the meaning of that section of the law; and the mortgages being several and distinct transactions, that there would appear to be nothing to show any element of [538] agreement on the part of him, who held the note last maturing, that those coming due at an earlier day should be first paid. On this point, however, it is stated it Jones on Mortgages, sec. 607: “Of two mortgages executed at the same time’ (in our state left for record at the same time), “to secure debts which mature a different times, if there be no other ground of priority, according to some authorities, that is the prior lien, which secures the payment of the note which first falls due. The rule is the same as it is when one mortgage secures debts maturing al different times; they are to be paid in the order of their maturing”; which seems opposed to the view taken by the Indiana cases. The counsel for the defendant in error claims that the decision of the supreme court in Winters v. Bank, 33 O. S., 250, practically decides the question in his favor. In that case Bains, having indorsed three series of notes for Lawton & Co. to be given to three different creditors of the firm, three notes in each series, due 18, 30 and 42 months from date, and all dated on the same day, he afterwards took from Lawton & Co. a mortgage to indemnify himself against his liability, and also as trustee for the holders of the notes, to secure their payment. Adolph Wood & Co. were the payees and holders of one of the series of notes. The one first •coming due was paid, and they assigned the note next maturing to The Franklin Bank, and the last one to Winters & Son. The only question in the case was whether the Bank’s note which first matured, should be first paid, and it was held that it should. This we understand to be simply an affirmance of the general rule. The court did, however, say in the decision that although Bains, the mortgagee, was a trustee, “he was a trustee for the parties according to their legal rights.” There is another view of the case, which may be important, and that is, whether it does not appear from the whole case that at the date of the execution of the mortgage (February 26, 1877), Kebler was himself the owner of both of these notes, he having never as yet in any way transferred them to these parties, or actually invested their money therein. The mortgage recites that the premises described therein, had that day been conveyed by Kebler to Rankin, and that these notes were given for the purchase money — and in view of all the circumstances, and of the many other strange and unauthorized acts of Kebler with reference to these investments, and the mortgage given by Rankin, which appear in the bill of exceptions, it may be that those notes were in fact executed at the date of the mortgage, and dated back to the 13th of February and 2nd of July, 1877, respectively. This appears plausible, for the reason that neither of those parties was notified of the investment for them until after the mortgage was executed, and from the fact that both the notes and mortgage were made directly to Kebler, and nothing appears to show that any one else had any interest in them at that time. If this was the fact, and Kebler afterwards concluded to invest the money of his client in those two notes, it would seem clear that the note of February 14, 1877, should be first paid. But in view of the whole case, a majority of the court is inclined to believe that the investments were made for these parties respectively by Kebler, at the dates of the several notes, viz., for Miss Cromwell in the $3,200 note on July 2, 1887, and for Mrs. Brinton in the $2,975.50 note on the 14th of February, 1887, and that from those respective dates, he held such notes as trustee for said parties respectively. That when the mortgage was afterwards given on the 26th day of July to Kebler, it was as trustee for the equitable owners of the notes, and that the doctrine of the case in 78 Indiana applies- — and that it is practically the same as if the mortgage had been executed by Rankin to Mrs. Brinton and Miss Cromwell, and that the proceeds of the mortgaged property should be divided between them pro rata. I am of a different opinion. I think it very doubtful whether anything was done by Kebler, the effect of which was to give either of these parties any interest in these notes, until after the execution of the mortgage. It may be that at that time he intended to hold them for them, but there is no evidence of this. But even [539] assuming this to be the case, the notes being in his name, and the mortgage being executed to him apparently in his own right and in his own name, there was no reason why he might not have had the mortgage stipulate that one oí the notes should have priority over the other. And though no such provision is, in terms, put into the mortgage, yet it was in effect done, by having one of the notes mature before the other, which in accordance with the well settled principle of law in our state, gave it priority over that which matured at a later day. The Indiana case relied on to establish the doctrine that where a mortgage is given to one person to secure several debts owing to different persons, there is no priority between them, expressly states that this rule would not apply “if the obligations were payable to the same party, and had passed into the hands of different owners,” which would seem to exclude its application to this case. And conceding farther, that Kebler at the time of the execution of the mortgage held the notes -as trustee for those parties, in the language of the judge deciding the case in 33 O. S., “he was a trustee for them according to their legal rights.” And Mrs. Brinton, being the equitable owner of the note first maturing, is in my opinion entitled to be first paid. W. T. McClintick and E. W. Strong, for plaintiff in error. Wilby & Wald, for defendant in error. But in accordance with the opinion of the majority of the court, the judgment of the court of common pleas will be reversed and the cause remanded for a new trial.