Patten v. Pearson , 57 Me. 428 ( 1869 )

Barrows, J.

The plaintiff, as indorsee of a promissory note, dated Oct. 15, 1858, given by one Pratt, for the sum of $2,215, secured by a mortgage on real estate, in Malden, Mass., and made payable in three years, with interest, to the order of the defendant, and by him indorsed, claims to recover a balance due thereon, with costs of protest against the defendant as indorser.

The defendant denies his liability on the ground that his indorsement was without consideration, and was made for the accommodation of Bragg & Patten, of which firm the plaintiff was a member at the time of the indorsement. If the defendant indorsed the note merely to pass the title, and the understanding between these parties was, that the defendant’s indorsement was made solely for the purpose of transferring the note, and that the indorser assumed no conditional liability thereby in case the maker failed to pay, :and the property mortgaged for security proved insufficient, it was competent for the defendant, under recent decisions of this court, to show these facts, and thereby entitle himself to a verdict. Smith v. Morrill, 54 Maine, 48. Patten v. Pearson, 55 Maine, 39.

Touching these matters, the plaintiff himself testified “ that this note was given Bragg & Patten by Pearson, in payment for some lumber the firm had sold him in July or August, 1858. At the time Pearson’s paper was not good ; he was in embarrassed circumstances, insolvent. . . . He offered us this note, and a mortgage given to secure it. We did not like to take it; but found we could get nothing else, probably. The note was $120 or $125 more than the amount of our bill against Pearson. He offered to let us have the note and mortgage for the bill, and call it square ; to throw in the difference, and we take the note and receipt the bill. Finally, we concluded to do so.”

Now this is the plaintiff’s version of the transaction ; and upon this statement alone there would be fair ground for maintaining, and asking the jury to find that the true intent and understanding of the parties to that transaction was, that Bragg & Patten accepted the note and mortgage, looking only to the maker and the real estate as a full equivalent for their bill against Pearson ; that they did not expect nor understand that their insolvent debtor, from whom they were taking what they could get, and agreeing to “ call it square,” was assuming, by that very transaction, a liability to them for a greater sum than their original demand. If this be so, and if it would have been competent for the jury to have found, upon the plaintiff’s own statement, that such an understanding as to the object and effect of the defendant’s indorsement as was claimed by the defendant, actually subsisted between the parties to the negotiation, it follows that the instruction which made the verdict to depend solely upon the time when the indorsement was made, and whether it was before or after the note was first delivered to Bragg & Patten, was erroneous.

The jury w~ere told, that, “ if the note were not indorsed when he first delivered it and received his bill receipted, and defendant indorsed it afterwards at the request of Patten as he stated, the defence would be made out; but if they were satisfied that the note was indorsed prior to his handing it to Patten, and receiving his bill receipted, they would find for the plaintiff.”

This single point, of the time of the indorsement, was the only one of the slightest consequence as to which there was any conflict between the testimony of the plaintiff and the defendant. It was doubtless of some importance as bearing upon the question at issue. But was it necessarily decisive of that question so as to require a verdict for the plaintiff if the indorsement was made before the first delivery ? We think not. For obvious reasons, if the jury found that Bragg & Patten had accepted the note and mortgage, and receipted their bill before the indorsement was made, and that the plaintiff subsequently requested the indorsement for the expressed purpose of enabling them to collect the note, as the defendant testified, it might be conclusive against the plaintiff. But it is not so clear that the defendant’s ground was entirely gone if the jury failed to find this conclusive jact in his favor against the plaintiff’s denial.

But for the instruction complained of, they might still have found, from the circumstances of the negotiation, as testified to by the plaintiff himself, that Bragg & Patten took the note and mortgage as the best thing they could get from an insolvent debtor, and were to “ call it square,” — neither party understanding that that debtor was thus assuming a conditional liability for an amount greater than the original debt which he was trying to pay off.

Parties frequently indorse negotiable paper solely for the purpose of facilitating collections, and would be in bad condition if the fact of indorsement before delivery were to be taken as conclusive evidence of their liability as indorsers to the party to whom they pass it. As between the indorser of such paper and his immediate indorsee, or any one but a dona fide holder for value, all the circumstances of the negotiation may be inquired into for the purpose of ascertaining what the contract really was, and whether the indorser, for a valuable consideration, assumed any liability to the person to whom ho passed the paper. Prima facie, his blank indorsement imports a conditional liability ; but it is competent for the indorser to show that no such liability, in fact, exists, by proof of such circumstances connected with the transaction as may satisfy the jury, that neither of the parties to it understood that any such liability was to be assumed. And this he may do, although the indorsement preceded the delivery ; perhaps not so easily as if the indorsement had been requested afterwards, for a specific purpose, but still, to the entire satisfaction of the tribunal with whom the decision rests.

The time of the indorsement and this particular conversation between the plaintiff and defendant, testified to by the defendant, and denied by plaintiff, were but a part of the proof upon which the defendant had a right to rely. Inasmuch as the instruction made the case to turn upon that point only, the exceptions must be sustained.

For the sake of avoiding, if possible, future delays in this much-vexed suit, it may be well, though it is not necessary for the present disposition of the case, to state the reasons for holding that the defendant has no cause of complaint in the instructions touching the question of payment.

The facts proved are these : Pratt’s mortgage, given to secure the note, contained a power of sale upon breach of the condition by the non-payment of principal or interest. Upon non-payment of the first half year’s interest, Bragg and Patten took measures to sell, employing one Fiske as their agent. A sale took place in August, 1859, and the property was struck off to Fiske for $1,950, of which $667.69 was reserved to pay off a prior mortgage. The testimony is, that the bidding by Fiske was on his own individual responsibility, without instructions from Bragg and Patten to bid it in for them, and contrary to their wishes ; but, subsequently, Fiske conveyed to Bragg and Patten, receiving compensation for his services in making the sale, and never, in fact, paying any part of the $1,950. Bragg and Patten deducted from the auction price the amount of the prior mortgage, and the sum paid Fiske for the expense of agency, advertising, and sale, and indorsed what would have been tbe net proceeds of tbe sale if Fiske had paid the price and kept the property, on the note as a part-payment thereof. Then, when they dissolved, Patten released his interest in the property to Bragg, who, in March, 1861, sold it to one Sargent for about $2,300. Hereupon the defendant claims that the sale to Fiske was a sham, and that there should be allowed, as paid on the note in March, 1861, the $2,300 which Bragg obtained for the property at that time.

This claim is manifestly inequitable in its full extent, because it allows nothing for relieving the property from a prior incumbrance, and nothing for the necessary expenses of sale.

Very clearly in this suit at law upon the mortgage note against an indorser, the defense of payment, beyond the amount indorsed, cannot be considered as maintained by such evidence.

The mortgaged'property operates an extinguishment of the mortgage debt, or a reduction of it pro tanto, only when the equitable rights of the mortgager have become extinguished, and the value of the property at that time, and not at some subsequent period, is the measure of such reduction. The fact that the mortgagee has taken possession of the property for the purpose of foreclosure does not make it a payment; but the debt is to be considered as subsisting, and the holder of it is entitled to his full remedy at law for the collection of it against all parties liable upon it until the property has become absolute in him by the extinction of all outstanding equities. Portland Bank v. Fox, 19 Maine, 99. Southard v. Wilson, 29 Maine, 56. West v. Chamberlain, 8 Pick. 336.

Afterwards, he can recover only the balance remaining unpaid when the fair net value of the property at that time has been deducted. If, then, the sale by auction in August, 1859, was regularly made in good faith, the equitable rights of the mortgager (and of the defendant, if he had any) were extinguished then; and it was the net value of the property at that date, and not the price obtained for it more than a year and a half afterwards, which is to be looked at in order to determine the amount which shall be allowed as a payment upon the note. And we know of no mode of ascertabling the value of property tliat can be more satisfactory than a fairly conducted sale at public auction.

The only suggestion made in behalf of defendant to impeach this sale is, that Bragg and Patten became the purchasers of the property indirectly through Fiske. There is no intimation that the sale was not fairly conducted, or that there was not a full compliance with all the requirements of law in other respects; no offer to prove that the property was, at that time, worth anything more than the $1,950, at which price it was struck off to Fiske.

Now even if it were conceded that it would have been competent for the jury to find (notwithstanding the uncontradicted testimony that Fiske bought for himself without instructions from his principals) that Bragg and Patten were the real, though indirect, purchasers at this sale, and that this defendant is not such a stranger to the property as to preclude him from calling the validity of the sale in question in the proper forum, there would still remain an insuperable objection to the use which the defendant proposes to make of the fact.

Sales where trustees, having power to sell, become the purchasers, though undoubtedly voidable in equity at the election of the parties interested seasonably interposing, are not void; and it does not seem to be held, in jurisdictions where courts having equity powers exist, that they can be treated as void or avoided at the instance of the principal in suits at common law, without proof of actual fraud and bad faith, or of disregard of positive instructions on the part of the trustee.

Herein the case at bar differs essentially from that of Howard v. Ames, 3 Met. 308, cited for defense. In that case the defendant (the maker of the note and mortgage) offered to prove, that the mortgagee had fraudulently and corruptly managed the sale, and sold the property under its value for the purpose of obtaining a title for himself at a price less than its value, and that a sale fairly made, would have realized more than enough to pay the note.

The barren facts proved in the case at bar warrant no such assumption, and cannot authorize us, in a suit at law, to treat as invalid a sale which no one has sought, in all these years, to set aside in equity.

Eor the cause first herein discussed only,

The exceptions are sustained.

New trial granted.

Kent, Walton, Dickerson, and Danforth, JJ., concurred. Appleton, C. J., did not concur.