Hyperlawhypertext legal database Coburn v. Baker 13 N.Y. Super. Ct. 532

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Coburn v. Baker

13 N.Y. Super. Ct. 532 6 Duer 532 Court N.Y. Super. Ct. Decision date 1857-03-20 English

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Coburn, appellant v. Baker and wife, and Gridley, receiver of Willett, respondents and defendants.

Headnote

When two persons exchange notes, each taking the note of the other, of the same date and amount, and payable at the same time, each note is the proper debt of the maker thereof, and each of such persons is a purchaser for value of the note he received from the other in exchange for his own.
Hence, if Willet (one of the two) transfers the note he so received to another, as collateral security for the payment of a mortgage on premises which Willett had bought subject to such mortgage, and on an agreement to pay such mortgage as a part of the contract price; and if Coburn (the other of the two) and the maker of the note so transferred, pay it, Coburn cannot maintain an action against Baker and wife, by reason of the same premises having been conveyed to Baker’s wife before the note made by Coburn became due or was paid, subject to the same mortgage, and on her agreement to pay such mortgage as a part of the purchase money, to obtain a judgment compelling Baker and wife to refund to him the amount of such note, or that, in default thereof, the mortgaged premises be sold, and the proceeds of such sale be applied to reimburse to him the amount of such note, although Willett has failed to pay the note he gave to Coburn, and has become insolvent, and a receiver of his property has been appointed on proceedings supplementary to execution.
Such a receiver, he having been appointed before the notes so exchanged were due,
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could have enforced payment, of the note made by Coburn, had it then belonged to, and been held by Willett, and the proceeds would, of right, be payable to the judgment creditors, at whose suit such receiver was appointed.
Judgment, dismissing the complaint, affirmed.
Before Oakley, Ch. J., Bosworth and Hoffman, J.J.)
Argued, February 15;
decided, March 20, 1857.
This action comes before the court upon an appeal by the plaintiff from a judgment dismissing his complaint.
One Bogart, being owner of the unexpired term of certain leasehold premises described in the complaint, executed two several mortgages of such premises; one dated May, 1851, to Jacob Christie, to secure the payment of $2000 and interest; the other, dated June 10, 1852, to J. B. Dunham and E. Scudder, to secure the payment of the further sum of $2000 and interest. Scudder assigned his interest in the latter mortgage to Dunham, on the 5th of October, 1852. • -
Subsequently, and on the 24th of February, 1853, Bogart conveyed the premises to Wm. M. Willett, subject to these two mortgages, which were to be paid by Willett, as so much of the consideration-money. ■
On the 22d of November, 1853, Willett, and Coburn, the present plaintiff, exchanged promissory notes with each other, each note bearing that date, and being for the sum of $1000, and payable three months from its date, and maturing February 25,1854.
Willett, holding the note thus made by Coburn, and having paid to Dunham $1000 on the mortgage held by the latter, transferred this note to Dunham, as collateral or further security for the balance of said mortgage debt.
Subsequently, and on the 13th of January, 1854, Willett assigned the leasehold premises to Josephine Baker, one of the defendants, subject to the moneys then due on both mortgages, which were to be paid by the said Josephine, as part of the consideration for the said assignment.
Willett soon after this failed in business. Under proceedings supplementary to execution, the defendant Gridley was appointed a receiver of all his property and effects by an order dated the 14th of February, 1854, and made an assignment of the same date of all his property to such receiver.
Coburn paid to Dunham, on the 25th of February, 1854, the
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note held by Dunham, but Willett wholly failed to pay the note which he had given in exchange for it to Coburn.
Soon after the 25th of February, 1854, Willett agreed with Coburn to obtain for him an assignment of the mortgage held by Dunham, in consideration of Coburn having paid to Dunham the note which Coburn had given to Willett, and gave an order to Scudder, who had the mortgage in his possession, to make such an assignment. On the 11th of March, 1854, Dunham executed a satisfaction piece, acknowledging payment of the mortgage, and delivered it to Benjamin H. Baker, the husband of Josephine. It was filed with the register on the daj*- of its date. The execution, acknowledgment, and filing of the satisfaction piece were done without the knowledge of Willett or of Coburn.
The complaint prayed that the said leasehold premises, and all the right and estate of Baker and wife, and of Gridley, as receiver, in and to the same, subject to said mortgage, be sold, and that out of the proceeds the plaintiff be paid $1000 and interest, and his costs of this action, and for such other, or other and further relief as might be just and equitable.
The action was tried before Mr. Justice Hoffman, who found the foregoing facts, and gave judgment for the defendant, dismissing the complaint. From that j udgment the plaintiff appealed to the General Term.
Jno. Miller, for plaintiff and appellant, among others,
made and argued the following points:—
I. After the purchase from Bogart by William M. Willett, subject to the two mortgages made by Bogart, which were allowed by Bogart to Willett as part of the consideration, and which Willett agreed to pay, he (Willett) in equity became the principal debtor on said mortgages, and Bogart security.
When Willett assigned the premises to the defendant Josephine Baker, subject to the payment of the moneys then due on the mortgages, to be paid by her as part of the consideration for the assignment, then the ' defendant, Josephine Baker, became in equity the principal debtor, and Willett the first security, and Bogart the second security for the payment of said mortgage. (Marsh v Pike, 10 Paige, 595 to 597.)
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II. Subsequent to the deposit of the appellant’s note with Dun-ham, and on the 13th of January, 1854, Willett conveyed the mortgaged premises to the defendant, Josephine Baker. After such conveyance, the parties stood thus in relation to the mortgage held by Dunham:-—-1. Josephine Baker, principal debtor. 2. Wm. M. Willett, first security, fortified by the note of the appellant. 3. Stephen Bogart as the second security. While the parties stood in this relation, find on the 14th of February, 1854, Willett, under the supplemental proceedings, made an assignment to James Grridley, Esq., the receiver. At this time Willett had no beneficial interest in the mortgage, nor any claim against Josephine Baker, or against the mortgaged premises, which could pass under the assignment. The payment by an assignor out of his own funds, after assignment of a debt for which he was surety before the assignment, does not vest in the receiver the claim against the principal; such claim belongs solely to the assignor, as much so as the earnings of the assignor subsequent to the assignment.
III. At the time of the assignment by Willett to the receiver, on the 14th of February, 1854, the legal and equitable rights of Willett, in relation to Josephine Baker, to the mortgage, the mortgaged premises, and the appellant’s note, were simply these:— 1. That Josephine Baker, or the mortgaged premises, should pay the mortgage, in exoneration of himself and the note; and 2. That thereupon the appellant’s note should be returned to him.
IV. The receiver acquired no greater rights in regard to the note than Willett would have had, provided he had not made an assignment; and such rights Were subject to the same equities and duties on the part of the receiver, which would have devolved on Willett, if no assignment had been made. (Payne v. Cutler, 13 Wend. 605 -606; Rogers v. Gwathmey, 12 Wend. 484 ; Ibid. 14 Wend. 575 ; Smith v. Van Loan, 16 Wend. 654 , 661.)
Y. The utmost that the receiver can in any event claim, and all he ought in equity to claim, adverse to the interests of the appellant, is what he could have enforced against the appellant if the note had been surrendered by Dunham to the receiver.
YI. If the note had been surrendered to the receiver by Dun-ham, he could not have collected any thing upon it against the
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appellant, as the consideration had failed. Consequently it would have been of no value in his hands. (Story on Bills, § 184.)
YII. It was the duty of Willett to either pay the note he gave to the appellant, or to redeem the appellant’s note pledged with Dunham, and to re-exchange notes with the appellant. And the receiver’s rights on the appellant’s note would have been subject to the same duties.
J. JE. Burrill, for defendants and respondents.
I. The appellant is not entitled to be subrogated to the rights of Willett in respect to the mortgage. 1. The note made by plaintiff having been made upon an exchange of paper, was based on a valuable consideration, and Dunham, having takgn it in payment of the balance due on the mortgage, was a holder for value, and entitled to recover the same against Coburn. 2. The note made by Coburn to Willett, and which he transferred to Dunham, was the property of Willett, and when Coburn paid the note he paid his own debt. (Dowe v. Schutt, 2 Denio, 621 ; Wooster v. Jenkins, 3 Denio, 187 .) 3. The note made by Coburn was not made for the parpóse of being applied to the payment of the mortgage. 4. If Coburn seeks to enforce his remedy against Willett, it must be upon Willett’s note, and for nothing else. (Wooster v. Jenkins, 3 Denio, 187 .) 5. Coburn never in anywise became bound to Dunham for the payment of Willett’s bond and mortgage, nor did he ever become in any way the surety of Willett, in respect thereto. (Story’s Eq. §§ 331-499; Sandford v. MacLean, 3 Paige, 122; Dowe v. Schutt, 2 Denio, 621 ; Wooster v. Jenkins, 3 Denio, 187 .)
II. The agreement alleged to have been made between the plaintiff and Willett, by which Willett agreed that Dunham might assign the mortgage to him, was made after the maturity of the notes, and consequently after the assignment to the receiver.
III. Conceding, for the sake of the argument, that by the conveyance of the premises by Willett to Baker, subject to the mortgage, the land, or the defendant Baker, became the principal debtor, and Willett became the surety, as is claimed by the plaintiff, it follows that Willett, as such surety, could have compelled Baker to have paid the debt, and. to have saved Willett harmless,
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although Willett had neither paid nor been sued. (Story Eq. Juris. 780, 849, 850; Hayes v. Ward, 4 John. Ch. 132; Champion v . Brown, 6 ib. 406-7.) 2. The mortgage was due at the time of the conveyance to Baker, and if the latter assumed the payment, and covenanted to pay, then there was a breach of the covenant instan ter. 3. The right of Willett to compel Baker to pay, or his right of action against Baker for not paying the mortgage, are dioses in action, which passed by the assignment from Willett to the receiver, on the 14th of February, 1854.
IV. The judgment should be affirmed.

The view taken of the plaintiff’s rights and position, by his counsel, we understand to be, in brief, this:—

If the note made by Coburn had continued in Willett’s hands until the defendant Gridley was appointed receiver, and had, on that day, been delivered to Gridley, as such receiver, Gridley could not have maintained an action upon it, because the consideration of it had wholly failed, by reason of the insolvency of Willett, and his consequent inability and failure to pay the note which he gave in exchange to Coburn. That the note would have been valueless and invalid in the hands of such receiver.

That at the time Willett assigned to the receiver, the legal and equitable rights of Willett, in relation to Josephine Baker, and to the mortgage, and to the mortgaged premises, and to Coburn’s note, were: 1st. That Josephine Baker, or the mortgaged premises, should pay the mortgage, in exoneration of himself and the note, and, 2d. That thereupon Coburn’s note should be returned to him.

That Coburn having been compelled to pay the note, because it had been hypothecated to Dunham, and the debt which it was made to pay being one which the mortgaged premises or Josephine Baker should pay, and for the payment of which Willett was a mere surety as between himself and Josephine Baker, the plaintiff was, in effect, a surety for Willett, and should be subrogated to his rights.

In Dowe v. Schutt ( 2 Denio, 623 ) the court held, that when two persons exchange notes, each taking the note of the other, of the same date and amount, and each payable at the same time, each

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note is the proper debt of the maker thereof, and each holder is a purchaser for value. As the note taken by either is a debt due to the holder, and is his property, he may sell it on such terms and at such price as he pleases. Although discounted on usurious terms, that cannot affect its validity as respects the maker. That in such cases the relation of principal and surety does not exist, and that a promise of either maker to indemnify the other cannot be implied. The cases uniformly hold and fully sustain these propositions. (Rice v. Mather, 3 Wend. 62 ; Cameron v. Chappell, et al., 24 Wend. 94 ; Chitty on Bills, 84-85.)

In Wooster v. Jenkins ( 3 Denio, 187 ) the question was fully considered, and the court held, that after such an exchange of notes the rights of each holder were the same as if he had taken the note held by him for money paid or goods sold. That each party was bound to pay his own note, and that no contract of either to indemnify the other could be implied. That the remedy of each was on the note he had taken, and neither could recover against the other, in an action for money paid to the use of the party making the note which had been paid.

The settled doctrine would seem to be, that any indorsee of such a note, before its maturity, has the same rights against the maker of it as if each note had its origin in a distinct and independent transaction, and the consideration of it was property sold and delivered to the maker.

These views, if sound, dispose of the whole case. The note, if it had been held by Willett, and if it had passed into the hands of Gridley, as receiver, on the 14th of February, 1854, would have been valid and available in his hands, and collectible for the benefit of the particular creditors of Willett, at whose suit Gridley was appointed receiver.

Under such circumstances, if any one has a right, in consequence of the payment of this note to Dunham, to resort to the mortgaged premises to obtain payment of the amount of this note, it is Gridley, the receiver, and he would hold whatever he might collect for the judgment creditors of Willett, at whose suit the receiver was appointed. (Nantucket Pacific Bank v. Stebbins, ante, 341.) .

Although Willett had failed, even if no receiver had been appointed, and Willett had then held the note made by Coburn, the

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latter could not have instituted an equitable action, on the 14th of February, 1854, to compel the set off of one note against the other, because neither note was then due. (Keep v. Lord, 2 Duer, 78 ; Bradley v. Angel, 3 Com. 475.)

We think the present action cannot be maintained on the facts found. The complaint was properly dismissed, and the judgment must be affirmed, with costs.

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