Union Bank v. Edwards , 1 G. & J. 346 ( 1829 )

Dorsey, J.

delivered the opinion of the court. The rights of the parties in controversy in this cause, entirely depended upon the true construction of the mortgage from William Stansbury to the Union Bank of Maryland, bearing date the 27 th day of July, 1822. Its objects as set forth in the recital, was to secure the payment to the Union Bank of Maryland, of all and every sum, or sums of money then owing, or which might thereafter become due or owing from the said William Stansbury to the said bank, upon any promissory note or notes negotiated, or to be negotiated, at that bank, ofi*which he was or might be either drawer or endorser. He is described as a merchant of the city of Baltimore, and it is apparent that by the execution of this deed, he designed not only to provide an indemnity to the bank for what he already owed, but to obtain for himself a credit at that institution, which would induce a more free discount or negotiation of notes, on which Stansbury's name should appear as either drawer or endorser. Such a facility is an object of primary importance to him who is engaged in commercial pursuits. Its value to Stansbury is manifest, enabling him to obtain an immediate accommodation discount of nine thousand dollars on his own note, without an endorser. In litigating these rights, it is competent for either party to prove, what notes drawn and endorsed by Stansbury, and discounted at the Union Bank, existed on the 27th of July, 1822, when the mortgage was executed; and also all such as were negotiated at that bank, subsequently to that period. The first negotiation of Elizabeth Edwards's paper, was in September, 1822-

To this mortgage, Stansbury and the Union Bank alone were parties. Under it at law, no right was acquired, no interest passed; upon it, no action could be maintained but by the bank. All the circumstances which preceded its existence, and immediately followed its birth, demonstrate that the object of its execution was, not to indemnify those who were or might become his drawers or endorsers; but to ensure to the Union Bank, the payment of all notes negotiated by them, on which his name might appear either as maker or endorser. ’Tis true, if the fund had been sufficient, those who were on his paper, would in equity be protected from loss. But this was a consequence, not the design of his act. The legal construction of this instrument, is in strict accordance with what we have stated as the manifest object of its creation Such being thp posture of the 'parties at law; upon what principle is it, that a court of equity can be. called on to change their condition ? In construing agreements, it is said a Court of Chancery will sometimes adopt a more .liberal and enlarged construction, tlfin prevails at common law. But this latitude, if it exist at all, can never be tolerated, unless it be necessary to effectuate the motives which induced the contract. Here, no such necessity exists. The most perfect harmony prevails between the agreement executed, and the obvious intention of its framers. To adopt the interpretation of the mortgage, which was insisted on for the appellee, viz: that the property was conveyed to the bank, in trust to be appropriated rafeably to the payment of all notes negotiated with them, of which Stansbury was either the drawer or endorser, would be to defeat a leading object of Stansbury in making the conveyance. Instead of giving additional credit to his name, and a consequent increase to his favors at the bank; it would have been the most effectual means which he could have adopted, to exclude himself from all further discounts. As' he then stood, the payment of the nine thousand dollar note, was amply covered by the property mortgaged. But every additional discount in proportion to its amount, reduced the security for the payment of that note. So that should the bank have increased their accommodations to Stansbury to ninety thousand dollars, they would thereby have relinquished nine-tenths of the security, which they had previously held for the payment of the note of nine thousand dollars. Nay, such are the positive terms of this deed, if clothed with the attributes of a deed of trust, which are attempted to be affixed to it, that should Stansbury, holding a ;real note of the' most opulent merchant in Baltimore, have obtained its discount at the Union Bank, eo instanti, such merchant might demand its entire, or pro rata payment out of Stansbury's mortgaged estate. The deed providing, not merely for the payment of notes negotiated for the account or accommodation of Stansbury, but of all notes bearing Stmbury’s name, no matter for whom discounted.

The attempt to sustain the claim of the appellee by the doctrine of substitution, is equally untenable. Such relief is never extended to a security, but upon the assumption that the creditor’s debt has been, or is to be fully paid: that his further detention of the mortgaged property is against equity and good conscience. Can it be deemed an equitable substitution, which whilst it left in full force and unsatisfied, the just claims of a creditor, should wrest from him the fund specifically pledged for their payment, and leave him destitute of any other source to which he might apply for indemnity? If after satisfying all debts due to the Union Bank on Stansbury’s notes by them discounted, there should remain a surplus of the mortgaged fund, to that amount, might the drawers and endorsers of his accommodation notes, who had made payments to the Union Bank, seek to be substituted ?

The order of the Chancellor ratifying the auditor’s statement, making a rateable distribution of the proceeds of sale of the mortgaged premises, between Elizabeth. Edwards, and the Union Bank of Maryland, is reversed with costs, so far as regards the application of the funds to the payment of Stansbury's notes negotiated at said bank. The order, so far as it ratifies the residue of said statement, is affirmed.

This court will sign an order or decree, directing the trustee to pay the amount thus applied to the Union Bank of Maryland on account of William Stanshmfs notes to them for $8700.