Davis v. Rider

A debtor assigned to his creditor certain shares of railroad stock, and at the same time gave a note for the debt, reciting therein that, if the said debt and interest is not paid at maturity, the railroad 11 stock hereby assigned to secure the payment aforesaid is to be deemed and taken as forfeit for the above payment.” This constituted, in legal effect, a chattel mortgage of the stock, under which the holder of the note was entitled to possession of the stock certificates. The creditor subsequently assigned to a third person the said note and stock security for the purchase-price of lands bought by him, and gave a mortgage on the lands in the usual form, to secure the performance of the condition of said note. The note being past duo and unpaid, the mortgagee filed his bill in Chancery to foreclose the mortgage on the lands; — Held, That such mortgage, in the hands (of the mortgagee^ was an additional collateral security to that of the stock, and, as it did not, in terms or by implication, require the mortgagee to resort, first, to his other collaterals, there was no rule of law which would compel him to do so in the absence of such an agreement. In defense to the bill to foreclose such mortgage, it was alleged that, subsequent to the giving of the same, the complainant was anxious to obtain the stock, and agreed with the maker of the note, who still had possession of the certificates, that they should be deposited with a third person, and that, on such deposit being .made, complainant should receive such deposit in satisfaction of his mortgage, and discharge the same, but should give up the stock if the note was paid before due; that such deposit was made accordingly; and that, after the note became due, complainant demanded and received of such third person the cer- *.'4' tificates of stock, but refused to discharge the mortgage ; — Held, That the alleged agreement was without consideration, as complainant was already, under his assignment, entitled as of right to possession of such certificates. "Where one, holding property in mortgage converts it to his own use, the mortgage debt is thereby satisfied to the extent only of the value of the property.

Appeal from Jackson Circuit in Chancery. The bill in this case was filed to foreclose a mortgage given by the defendant Lorenzo J. Rider to the complainant, dated the 8th day of March, 1855. The bill alleged that the mortgage was given upon certain premises in the village of Grass Lake, in the county of Jackson, to secure the purchase-money of said premises, and was upon the following condition: “Provided always, and these presents are upon this express condition, that if the said party of the first part, pay to the said party of the second part, the sum of $792.02, or cause the same to be done according to the tenor and effect of a certain note or agreement made by one H. B. George, of the city of Cleveland, Ohio, bearing date, Cleveland, October 7th, 1854, of which the following is a copy, to wit: ‘One year from date, for value received, I promise to pay Lorenzo J. Rider, or bearer, $785.87, with interest at ten per cent.; and if said money and interest is not paid at maturity, the ten shares of capital stock of the Peterboro and Shirley Railroad, hereby assigned to secure the payment aforesaid, is to be deemed and taken as forfeit for the above payment. Interest semi-annually.’ And which assignment is in the words and figures following, to wit: ‘For and in consideration of one thousand dollars rec’d of Lorenzo J. Rider, to my full satisfaction, I do hereby sell, transfer and-convey to him, the said Rider, ten shares of the capital stock of the Peterboro and Shirley Railroad Company to Ms own use and benefit, which said stock has all been paid in full to the full amount of one hundred dollars per share, and which said railroad is in operation,’ (signed by H. B. George) — and which has been by said Lorenzo J. Rider sold to said Robert Davis. Now, if the said H. B. George shall well and truly pay, or cause to be paid, according to the tenor and effect of the agreement above named, bearing even date herewith, executed by said Lorenzo- J. Rider by assignment to the said party of the second part, then these presents and all liability hereon shall cease and be null and void; but in case of non-payment of the said sum of money, and failure to produce and surrender proper certificates of the stocks as aforesaid, or any part thereof, then and in such case,” &c.— going bn with the usual power of sale. The bill also set forth the note of George and the assignment qf stock, copies of which are contained in the foregoing condition, and also the assignment of Rider to Davis, as follows: “In consideration of $792.62 rec’d of Robert Davis, I hereby assign and sell to him the above claim, to his own use and benefit; and to secure the payment or performance according to the tenor and effect thereof, I have this day executed a mortgage on a certain lot in Grass Lake, this 8th day of March, a. d. 1855. Lorenzo J. Rider.” The mortgage was duly acknowledged on the 8th day of March, a. d. 1855, and recorded on the 7th day of June, of the same year. The bill also charged, that, on the said 8th day of March, 1855, the said shares of stock were valueless; that the said corporation, if in existence, had no such railroad in operation as represented by Rider, which facts Rider well knew at the time of such assignment; that said shares were assigned to complainant with intention to cheat and defraud him out of his premises; and that Rider, at the time of the assignment, represented the stock to be of the value of one hundred dollars per share, with intent to defraud complainant. The remainder of the bill is in the usual form of a fore" closure bill. To this bill the defendant George demurred, and the defendants Rider and Wilson answered. The answer admits that Rider purchased the premises, and paid in part for the same; admits the agreement of George as set forth in the bill, and the assignment from Rider to complainant; but denies that complainant was to have the stock and the right to enforce payment of the $785.87 in case George failed to pay; admits the making of the mortgage; denies that defendant Rider knew that the stock was valueless, or that it was so in fact, or is so now, and alleges that the corporation existed and was in operation March 8th, 1855; denies that the assignment made by Rider to complainant was so made with intent to defraud the complainant; denies that Rider represented the stock to be good, or at par, or of any particular value, with intent to defraud complainant. The answer then proceeds to set up as a defense, That on or about April 13th, 1855, the complainant was anxious to obtain the stock, and proposed to defendant George to have him deliver said shares to him in full payment of his (George’s) contract with Rider; that George declined doing this, and it was thereupon agreed between complainant and George that the certificates of stock should be deposited, at Grass Lake, with Zora Patterson, with the understanding and agreement by and between George and complainant, that on such deposit being made by said George, the said complainant should thereupon receive said deposit in full payment and satisfaction of said mortgage given by Rider to complainant, and should execute a satisfaction to discharge the same of record, and that if George should not pay his note before due, then Patterson was to deliver the stock to complainant; that George so deposited the stock, and complainant took the mortgage, and started to write a discharge, but on some one saying it wras necessary some officer should be present, did not do it, but agreed to do it; that George failed to pay the money, and complainant demanded and received the stock; that in August, 1855, Rider requested complainant to discharge the mortgage, but he refused, claiming he could foreclose the same; that Rider then demanded the shares of stock, and proposed to give the complainant other securities in their place, or raise the cash, or pay other property, or leave the matter to' others; which complainant declined to do. «And defendants claim that the mortgage was thus paid and satisfied; that Rider was prevented from deriving any benefit from the stock; and they allege that George has since become insolvent. Replication having been filed to this answer, and the various papers set forth in the pleadings having been proved, oral evidence was taken as follows: O. L. Rider, a brother of L. J. Rider, testified on behalf of defendants, That at the time of the transfer of the property by complainant to defendant Rider, the deed was deposited with the witness at the request of complainant, and complainant was to keep the mortgage until he should write to the defendant George, to see if George would place the stocks in some one’s hands in the immediate vicinity of Grass Lake. The reason assigned by complainant for this was, that it would be unnecessary to record the mortgage if George placed the stocks where they could be reached. That witness kept the deed until the first of June following— until after George came to Grass Lake. That complainant and George then and there, in the presence of witness, made an arrangement with respect to the stocks and note as follows: That George should deposit the stocks in the hands of Zer^i Patterson, to secure to complainant the payment of the note he had received against George, and if George did not pay the note when it was due, he forfeited the stocks; Patterson was then to deliver the stocks to complainant, which complainant was to receive as payment of the note. They said the object of leaving the stocks with Patterson, was to leave the security which George had given (the stocks) for the payment ^of the note, and that that should release the mortgage which Rider had given complainant, and clear George entirely from defendant Rider; that the matter should be left exclusively between complainant and George. George said that Rider had not used him well, and had agreed not to sell the note; he also said that there was a half share more of the stocks than the note called for, but it was undivided and he would have to leave it all; that he intended to redeem them; if he did not pay the money on the day the note was due, the stocks were forfeited to complainant, and if the stocks were forfeited they should be received by complainant in payment of the note. In the same conversation, George said that he had deposited the stocks at the request of complainant. This was in the presence of complainant. He said he would not deposit the stocks unless in payment of the note, and that the mortgage of Rider to complainant should be released. He said he and complainant had been trying to write a proper discharge or receipt for the mortgage; that they did not know how to do it, and had agreed to leave it until defendant Rider came to Grass Lake, and let him attend to it. Patterson then came, and the stocks were placed in his hands. One of the parties then stated to Patterson the arrangement. Patterson asked what the object was in placing the stocks in his hands. They said the object was to leave the stocks as called for by the note, to be forfeited if George did not pay the note; then Patterson was to hand them over to complainant, and he was to receive them in payment of the note, which was to satisfy the mortgage given by Rider to complainant. It was then said that the mortgage was to be discharged at any time when the defendant Rider should come to Grass Lake and attend to it. Further evidence, to establish this arrangement, was adduced on the part of the defendants from this witness, and also from Milton L. Rider and Charles E. Lord. Zera Patterson testified ¿to the papers having been deposited with him, as stated in the answer, and that he kept them until a few*days after the George note became due, and then delivered them to' the complainant at his request. With respect to the arrangement at the time they were left, the witness said: “I think O. L. Rider said to me they were going to let Davis have a note, and some papers to secure the payment of the note when it was due, and wanted I should hold them until George paid the note and took the security; or if it remained in my hands till it was due, then I was to deliver the note to Davis, and the security, too; at the same time George remarked that he should be there before it was due, and take it up, as he would not lose the security. There was something said about leaving it in my hands, as they did not want the note and security both left in Davis’s hands. I remember nothing now which would materially qualify this statement. I remember of nothing- Davis said, except that he preferred to leave the papers with me. It was said to me, if George came and paid up the note I was to deliver up to him both the note and stocks, and if he did not, I was to deliver the note and stocks to Davis. I don’t remember as anything was said about the discharge of any mortgage Davis held against Rider. Did not hear anything said about it there. I don’t recollect as there was anything said that day in my hearing about any mortgage; there might have been. I know there was nothing said about any mortgage in the condition upon which the papers were left with me. I took particular pains as to what was said to me in regard to the condition upon which the papers were left with me. They'did not, in my presence, make any agreement as to the discharge of the mortgage, as I hoard. I don’t know as there was anything said as to what Davis was to do with the note when he received it. The reason George gave why he should pay the note before it became due, was that he did not want to leave the security, as the security was more in amount than the note. George said he was a stranger to Davis, and he wanted him to feel abundantly secure in regard to the note. I charged my mind more as to the condition upon which the papers were .left with me than as to the rest of the conversation.” . Testimony was also adduced on the part of the complainant, to prove that the stock was worthless "in market in March, 1855, and that but ten miles of the railroad were then in operation. On the hearing below, the Court dismissed the bill with costs, and complainant appealed to this Court.