M. gave to a bank a mortgage on land owned by him to secure
paper which the bank might discount. Among the paper so discounted
was a note made by J., which M. had discounted, and which J. paid
to the bank. The note had been given for a certificate of deposit
which J. afterwards endorsed, and subsequently paid. J. claimed
subrogation under the mortgage to the rights of the bank as
respected the certificate of deposit.
Held that the claim
could not be allowed; that the payment of the note to the bank by
J. discharged the mortgage, so far as it was a security for the
note, and that the certificate of deposit was not secured by the
mortgage.
The case is stated in the opinion.
MR. JUSTICE BLATCHFORD delivered the opinion of the Court.
The Mastin Bank, a Missouri corporation, located at Kansas City,
Missouri, became insolvent, and made an assignment, August 3, 1878,
of all its property and assets, to one Kersey Coates, in trust for
the benefit of all its creditors. The firm of John J. Mastin &
Co., doing business at Kansas City, was composed of John J. Mastin
and Thomas H. Mastin, the former of whom was cashier of the bank,
and the latter its assistant cashier. Both of them were
stockholders in and directors of the bank.
The Mastin Bank discounted with the Metropolitan National Bank
of the City of New York, from time to time, and when the Mastin
Bank failed, it was liable for its endorsements
Page 144 U. S. 670
on paper so discounted by the Metropolitan Bank to the amount of
over $200,000. The firm of John J. Mastin & Co. endorsed, for
the accommodation of the Mastin Bank, all of the paper so
discounted by the Metropolitan Bank. To secure such endorsements,
the two Mastins and their wives, on June 7, 1878, executed a
mortgage to the Metropolitan Bank covering lands owned by them in
Jackson County, Missouri, and in the City of Kansas, in said
county, and in Johnson County and Nemaha County, Kansas,
"to have and to hold the said described real estate, with all
the rights, privileges, and appurtenances thereto belonging, unto
the said Metropolitan National Bank of New York, its assigns and
successors, forever, and upon this express condition: whereas the
Mastin Bank of Kansas City, Missouri, is indebted to the said
Metropolitan National Bank as endorser on various notes, drafts,
and bills which the said Mastin Bank has sold to said Metropolitan
National Bank, now therefore if the said Mastin Bank, its assigns
or successors, shall pay or cause to be paid all notes, drafts, and
bills so sold to the said Metropolitan National Bank, and shall pay
or cause to be paid all notes, drafts, and bills which the said
bank may hereafter sell and endorse to the said Metropolitan
National Bank, then this conveyance shall be void; otherwise, in
full force and virtue at law."
In 1879, the Metropolitan Bank brought a suit in equity in the
Circuit Court of the United States for the Western District of
Missouri to foreclose that mortgage as to the lands lying in that
district against the Mastins and other persons. The Mastins did not
question the validity of the mortgage.
Among the promissory notes so discounted by the Metropolitan
Bank were two made by the firm of Johnson & Crawford, composed
of Augustus H. Johnson and Robert F. Crawford, Cone of such notes
being for $10,000, dated July 18, 1878, payable 30 days after date
at the Metropolitan Bank, to the order of Quinlan, Montgomery &
Co., and endorsed by the last-named firm, by John J. Mastin &
Co., and by the Mastin Bank, due August 20, 1878, and the other
being for $11,185, due September 19, 1878, about which no question
arises in this case.
Page 144 U. S. 671
The firm of Johnson & Crawford bought a quantity of cattle
from one G. Baer, and, to enable that firm to do so, it procured
from the Mastin Bank the money for which the note for $11,185,
above mentioned, was given. The $10,000 note above mentioned was
given to the Mastin Bank for a certificate of deposit, which the
bank issued to Baer, in the following terms:
"
No. 4945"
"Kansas, Mo. July 18, 1878"
"G. Baer has deposited in the Mastin Bank, Kansas City, Mo. ten
thousand dollars, payable in c'y to the order of himself on return
of this certificate, properly endorsed, thirty days after date,
payable in New York exchange."
"$10,000,00. Aug. 20. JOHN J. MASTIN,
Cashier"
"Countersigned: W. H. WINANTS,
Tel."
That certificate of deposit was taken by Baer in part payment
for the cattle, but shortly after he received it he became uneasy
as to the condition of the bank, and on his application, the firms
of Johnson & Crawford and Quinlan, Montgomery & Co.
endorsed the certificate. Before it became payable, the bank
failed. Johnson & Crawford paid the amount of the certificate
to Baer, and also paid the $11,185 note at maturity to the
Metropolitan Bank, but did not pay the $10,000 note to that bank,
because they had paid to Baer the amount of the certificate. The
Metropolitan Bank brought suit against Johnson & Crawford on
the $10,000 note. The assignee, Coates, paid to the Metropolitan
Bank, out of the assets of the Mastin Bank, dividends on the notes
of Johnson & Crawford amounting to $4,122,08. The Baer
certificate was allowed by the assignee, who paid to Johnson &
Crawford all the dividends upon it, except the last one, which he
did not pay to them because he had paid dividends upon the notes to
the Metropolitan Bank.
In October, 1880, Johnson having died and Jesse N. Johnson
having become his administrator, one F. L. Underwood, on behalf of
the firm of Johnson & Crawford, with the money of Johnson and
Quinlan, paid to the Metropolitan Bank the
Page 144 U. S. 672
balance of $7,603.50 due on the $10,000 note. After doing this,
Underwood gave to Johnson and Quinlan a paper writing as
follows:
"Kansas City, Mo.
Octo. 22nd, 1880"
"I have this day bought with the money of A. W. Johnson and C.
C. Quinlan a claim based on note of Johnson & Crawford for
$10,000, endorsed by Quinlan, Montgomery & Co. & J. J.
& T. H. Mastin, on which certain payments have been made by the
dividends of the Mastin Bank. This claim is in suit against Mastins
in the hands of Karnes & Ess, and said Johnson & Quinlan
are entitled to the said claim and all dividends made upon it, and
this shall operate as an assignment of said claim."
"F. L. UNDERWOOD"
Quinlan testifies that he furnished a part of the money, which
he charged to Crawford, and Crawford testifies that he repaid such
money to Quinlan.
When Underwood paid the $7,603.50 to the Metropolitan Bank an
agreement dated October 20, 1880, was signed by the bank, as party
of the first part, and by him as party of the second part,
containing the provisions set forth in the margin.
*
Page 144 U. S. 673
In pursuance of its agreement to that effect made October 20,
1880, the Metropolitan Bank, on February 1, 1886, filed a
supplemental bill in its foreclosure suit, adding as defendants
said Underwood, Crawford, and Johnson, administrator, averring that
they claimed to have acquired an interest in the subject matter of
the suit and in the mortgaged premises by virtue of an assignment
to Underwood of one of the notes secured by the mortgage, in trust
for Johnson & Crawford, and praying that the three new
defendants might answer, setting forth their interest in the
mortgaged premises or the proceeds of their sale, or be barred and
foreclosed.
On the 18th of February, 1886, Underwood, Johnson,
Page 144 U. S. 674
administrator, and Crawford filed their answer to the bill of
the Metropolitan Bank setting up the agreement of October 20, 1880,
and claiming that thereby Underwood had been subrogated to the
rights of the Metropolitan Bank as to the mortgaged property in
Missouri; that Crawford and Johnson alone, as between them and
Quinlan, Montgomery & Co., had become entitled to the benefit
of said agreement, and that it was made with the concurrence,
sanction, and approval of the mortgagors, the Mastins.
The answer then gives the history of the Baer certificate of
deposit and of the $10,000 note, and alleges that Johnson &
Crawford and Quinlan, Montgomery & Co. paid the certificate of
deposit; that the consideration of the $10,000 note, as between
Johnson & Crawford on the one side and the Mastin Bank and the
Mastins on the other, failed; that the Mastin Bank received $10,000
from the Metropolitan Bank by the discounting of the note; that at
the time of the agreement of October 20, 1880, payments had been
made upon the note by dividends from Coates, the assignee, on said
note and on the certificate of deposit, leaving due to the
Metropolitan Bank on the note $7,640.63 at the time the agreement
was made, and that afterwards, on September 22, 1884, Coates paid a
further dividend of 20 percent to the Mastins, being $2,000, on the
certificate of deposit, which dividend, but for the said agreement,
belonged to Johnson & Crawford, and to which the Mastins had
otherwise no claim.
The prayer of the answer, as a cross-bill, asked (1) that the
new defendants be subrogated to the right of the Metropolitan Bank
under the mortgage, (2) that in case the payment of the said
balance of $7,640.63 to the said bank should not be held as binding
on the Mastins the defendants should be repaid that amount, and
interest, by the bank, and (3) that they should be repaid the
amount, with interest, of all the dividends received by the Mastins
on the certificate of deposit.
The Mastins, on October 29, 1886, put in an answer to the
pleading of Underwood, Crawford, and Johnson, treating it as a
cross-bill, taking issue upon its allegations of fact and law, and
setting up that on May 18, 1886, the Metropolitan Bank
Page 144 U. S. 675
had executed and delivered to the Mastins a quitclaim deed
releasing unto them the premises in Jackson County, Missouri, and
in the City of Kansas, covered by the mortgage; the deed being
stated to be made in release of, and in satisfaction for, the
mortgage, "the indebtedness secured by said mortgage having been
fully paid off and discharged."
Crawford and the other plaintiffs, in the answer in the nature
of a cross-bill, put in a replication to the answer thereto of the
Mastins.
Proofs were taken, and the case was brought to a hearing in the
circuit court before MR. JUSTICE BREWER, who delivered an opinion,
which, though found in the record, is not reported, and entered a
decree dismissing the bill of the Metropolitan Bank and the answer
of Johnson, Crawford, and Underwood in the nature of a cross-bill,
and charging the last-named three parties and the bank with costs.
From that decree Underwood, Johnson, administrator, and Crawford
have appealed to this Court.
The circuit court arrived at the conclusion that it was shown
satisfactorily by the evidence that the agreement of October 20,
1880, was made with the assent of the Mastins; but it found that
the $10,000 note had been paid and extinguished by the makers of
it, who were primarily responsible upon it, and that, as the
mortgage was given to secure discounts, when the makers of the note
discounted had paid it, the mortgage, as security for such
discount, was at an end. It also said that, as the Mastin Bank had
given for the $10,000 note, instead of cash, the Baer certificate
of deposit, and as that certificate was executed by the Mastin Bank
alone, and was not a personal obligation of the mortgagors, and as
Johnson & Crawford at the request of Baer, had endorsed the
certificate of deposit, and before that certificate matured the
Mastin Bank filed, and Johnson & Crawford took up the
certificate of deposit, and held it at the time the agreement of
October 20, 1880, was made, and on the ground that the practical
effect of that agreement was to make the partial assignment which
it contained of the mortgage operate as security for the
certificate of deposit, it was claimed that Johnson & Crawford,
having paid
Page 144 U. S. 676
the $10,000 note, and holding the certificate of deposit, ought
to be permitted to transfer to the certificate the security of the
mortgage, and that the assent of the Mastins to the arrangement
made by the agreement of October 20, 1880, was equivalent to an
appropriation of the mortgage as security for the certificate, and
entitled Johnson & Crawford to be subrogated to the rights of
the Metropolitan Bank under the mortgage. But it held that the
Mastins had never said or done anything to make the mortgage a
security for the certificate of deposit, and that the payment of
the $10,000 note to the Metropolitan Bank by Johnson & Crawford
discharged the mortgage, so far as it was a security for that
note.
We concur in these views. The certificate of deposit is not
mentioned in the agreement of October 20, 1880. It was an
obligation of the Mastin Bank, and not of the Mastins. It was not
endorsed by the Mastins, and, as said by the circuit court, to give
to Johnson & Crawford a claim under the mortgage in respect of
the certificate of deposit would be for the court to make a
contract which the parties did not make, simply on the ground that
the court thinks the parties ought to have made such a
contract.
The debt to the Metropolitan Bank, on account of which Johnson
& Crawford claimed subrogation, was their own debt, for which
they were primarily liable as makers of the note, and on which no
one else was liable except as endorser. The note was paid by them
as makers, and not by a third party. They seek to be subrogated to
rights under a mortgage which was given to the Metropolitan Bank by
the Mastins, as accommodation endorsers, to secure accommodation
endorsements. The payment of the note by Johnson & Crawford
made it impossible for the condition of the mortgage to be broken
in regard to the note, and the anomalous claim is made that the
payment by them of a debt owed by them to the Metropolitan Bank, to
secure which debt the mortgage was given, instead of satisfying the
mortgage in regard to that note, operates as a breach of the
condition of the mortgage which will sustain a foreclosure. No such
principle can exist in a court of equity. It would be superfluous
to cite authorities on the subject.
Page 144 U. S. 677
The agreement of October 20, 1880, recites that the Mastins are
endorsers on the note in question, and that they executed the
mortgage to secure the payment of that note, with others. The
endorsement of the Baer certificate by Johnson & Crawford was
made after it was delivered to Baer. They did not endorse it at the
request of the Mastin Bank or of the Mastins, and, as before said,
the Mastins were in no way parties to the certificate. Johnson
& Crawford endorsed and paid the certificate voluntarily, and,
so far as appears, without consideration. The endorsement of the
$10,000 note by the Mastins, as accommodation endorsers of it for
the Mastin Bank, could not, on the facts, operate as an endorsement
by the Mastins of the certificate of deposit. It does not appear
that the Metropolitan Bank, in executing the agreement of October
20, 1880, had ever heard of the certificate of deposit, and that
agreement operated merely as a permit by the Metropolitan Bank to
Johnson & Crawford to take a share of the proceeds of the sale,
under the mortgage, of the property of the Mastins.
The payment to the Metropolitan Bank of the note, by Johnson
& Crawford as its makers, operated to extinguish the claim and
suit of that bank against them as such makers, and thus was of
benefit to the Mastins as endorsers of the note; but Johnson &
Crawford were in no different position after the agreement of
October 20, 1880, was made, from what they were in before that
time, for they paid voluntarily a debt as to which they were the
primary debtors. The Mastins received nothing by reason of the
agreement.
Decree affirmed.
*
"First. That the said party of the first part, as endorsee from
the Mastin Bank of Kansas City, Missouri, is the owner and holder
of a certain promissory note executed by Johnson & Crawford to
Quinlan, Montgomery & Co., and by said Quinlan, Montgomery
& Co. endorsed, and upon which said note there is a balance due
of principal and interest at this date, of $7,603.50, and for which
suit is now pending in the circuit court of the United States at
Kansas City."
"Second. On said note John J. Mastin and Thomas H. Mastin are
also endorsers, and to secure the payment of the same, with other
liabilities, said Mastins executed to said party of the first part
a mortgage on certain real estate in Missouri and Kansas, and, to
foreclose said mortgage, suits are now pending, one in the circuit
court of the United States at Kansas City, Missouri, and one in the
circuit court of the United States at Topeka, Kansas."
"Third. For and in consideration of the sum of $7,603.50 paid to
said party of the first part by said party of the second part, and
the payment of all costs in said suit thereon, said note so
executed by said Johnson & Crawford has this day been assigned
and transferred, without recourse, to said party of the second
part."
"Fourth. It is also further agreed, as a part of said assignment
and transfer, that the said party of the second part shall release,
and hereby releases, all claim or interest in so much of said
mortgage as covers the real estate therein described and lying in
the State of Kansas, but as to the land lying in the State of
Missouri, and covered by said mortgage, the said party of the
second part shall retain his interest therein, in consideration of
the release of the Kansas lands, as aforesaid, and the said party
of the first part stipulates and agrees that, in said foreclosure
proceedings in Missouri, it will file a supplemental bill, showing
this assignment of said note, and to which said party of the second
part agrees to enter his appearance and make proper answer or plea
thereto, so that the same may be determined as a part of said
foreclosure, and so that said party of the second part may obtain
such orders as he may deem necessary and proper to obtain a
pro
rata division of the proceeds arising from the decree of
foreclosure."
"Fifth. In all matters pertaining to said mortgage, whether by
foreclosure or otherwise, it is agreed by and between the parties
hereto that the same shall be managed exclusively by said party of
the first part without any interference or hindrance by said party
of the second part, provided, however, that nothing shall be done
to impair or affect the right of said party of the second part to
receive his
pro rata share of whatever sum may be realized
by the foreclosure or otherwise from the Missouri lands."
"Sixth. It is also further agreed by and between the parties
hereto that, except as to the Kansas lands so released as herein
before recited, said party of the second part shall be entitled to
receive on said note a
pro rata share on any other
security held by said party of the first part for this and other
indebtedness of said John J. Mastin and Thomas H. Mastin."
"Executed in duplicate the day and year aforesaid."
"THE METROPOLITAN NATIONAL BANK OF NEW YORK"
"By KARNES & Ess,
Att'ys"
"F. L. UNDERWOOD"