Frederick-Town Savings Institution v. Michael ( 1895 )

Roberts, J.,

delivered the opinion of the Court.'’

The record of this appeal contains three exceptions, two of which relate to the admissibility of the proof offered, and one to the rulings of the Court below in rejecting the prayers of the plaintiff, and granting that of the defendant. The questions are interesting and important, not only on account of the large sum involved, as of the principles of law invoked, and which we are now called upon to consider and apply. This is an action brought upon a promissory note in the Circuit Court for Frederick County. The note sued upon is as follows:

$5,000.00. “ Frederick, Md., Aug. 4th, 1892.

Six months after date we jointly and severally promise to pay to the order of the Frederick-Town Savings Institution, five thousand dollars for value received, negotiable and payable at the Frederick-Town Savings Institution. Wm. Wilcoxon, Andrew J. Wilcoxon, John L. Michael.”

The principal question in the case arises on the issue taken on the replication to the second plea. The plea states that William Wilcoxon, the principal in said note, satisfied and discharged the same by payment before suit brought thereon. It is not, however, a technical question of pleading which we are called upon to decide. The material inquiry is, did said Wilcoxon satisfy and discharge said note by payment in such manner as to relieve the appellee, Michael, from further liability as surety thereon. This is the plain issue presented and which we are now to determine. The facts show;n by the record, touching the question of payment pleaded by the appellee, are that the appellant bank was, on the 21st of March, 1893, the holder of four notes of said Wilcoxon and sureties variously dated, and for various sums, and which together aggregated the sum of $11,300. The note sued on was one of the four making up said last mentioned sum. Being thus indebted and repeatedly pressed by the appellant for additional security to that then held by it, Wilcoxon and wife agreed to give to the. appellant their note for the sum of $11,300.00, secured by mortgage on his real estate. This offer was accepted by the appellant without qualification or condition. The mortgage was thereupon executed and delivered to the appellant, and the new note then discounted by it. From the proceeds of the said new note the indebtedness of said Wilcoxon, evidenced by said four notes, was paid and the same were then delivered by the appellant to said Wilcoxon. Within four months after the execution of said mortgage Wilcoxon applied for the benefit of the insolvent law of the State of Maryland, and was adjudged to be insolvent. Trustees having been selected, under the provisions of the law, they filed, with the sanction of the Court, a bill in equity, to set aside said mortgage, as giving to the appellant a fraudulent preference under the provisions of the insolvent laws. Wilcoxon being a merchant or trader, and found to be insolvent at the time of the execution and delivery of the mortgage, the Court decreed it to be an unlawful preference and struck down the same. An important question arises here as to the effect resulting from depriving said mortgage of its character as a legal preference. It is contended by the appellant that the action of the Court in the insolvency proceedings not only deprived said mortgage of its quality as a lien or- preference in the distribution of the assets of the insolvent estate of Wilcoxon, but that such action extinguished the liability of the surety in said note, for the payment of which the mortgage was given to secure. We have been referred to many cases touching the liability of sureties as to what constitutes payment and what does not, and we fully concur in the doctrine announced thereon. This, however, is not a case where in the renewal of a note the signature of the surety has been subsequently ascertained to be a forgery. In such a case, the renewal is invalid, and does not operate as a payment of the original note; nor does it effect an extinguishment of the right of action thereon. This is the almost universal concession of the declared doctrine of the Courts in England and in this country. There is, however, but small analogy between the case of a forged signature to a note and the case now under consideration. In the one instance, as far as the surety is concerned, the note is a nullity; in the other, which is the case now before us, we have a mortgage given to secure a perfectly valid note, but in consequence of the provisions of the insolvent law, the mortgage is not allowed to stand as a legal preference in the appellant’s favor in the distribution of the assets of the insolvent estate, only, however, because it has been executed and recorded within the inhibited period contained in the statute. This view of the law in no sense contravenes the doctrine of the cases of Goodrich v. Trucy, 43 Vt. 314; Markle v. Hatfield, 2 Johns. 455 ; Eagle Bank v. Smith, 5 Conn. 71.

This case was, by agreement of counsel, tried before the Court below without the intervention of a jury. The facts contained in the record are fully and satisfactorily stated by the reporter in his notes placed at the head of this case. The first exception taken by the appellant relates to the admissibility in evidence of the record of proceedings in equity cause No. 6128, on the docket of the Circuit Court for Frederick County, to which the appellee was not a party, and in no wise concluded from making in this action any defense which he had the legal right to interpose. This exception brings up for consideration the primary and leading question on this appeal: Has the appellee, by the action of Wilcoxon, been discharged of liability as surety on the note sued upon?

It will be necessary to consider, in the first place, the legal attributes of the joint note of Wilcoxon and wife for the sum of $ 11,300, which the appellant discounted for the purpose of paying the four notes of Wilcoxon and sureties,! at the time held by the appellant, and which were delivered to Wilcoxon when the note of himself and wife had passed to the possession of the appellant. We may have occasion later on to examine some of the consequences attending the execution of the mortgage. But let us inquire as to the legal status of the note of Wilcoxon and wife, after the mortgage had been declared an illegal and fraudulent preference. It was not a necessary incident to the execution of a valid mortgage, that a note of any kind should have been given. The mortgage would have been equally valid without it, and if given, it was only collateral to the note; and the wife was in no sense a necessary party to the note. The almost universal practice in this State has been for the wife to join with her husband in the execution of the mortgage, for the sole purpose of releasing and conveying her potential right of dower; but to the accomplishment of this purpose it was in no respect essential that she should join in the making of the note. Since the passage of the Act of 1872, ch. 270, (Code, Art. 45, sec. 2), by which the wife is authorized jointly with her husband to contract in writing on any note, bill of exchange, &c., there is a manifest object to be obtained in having the wife join in the note as well as the mortgage, especially if she be seized or possessed of property.

As already stated, the appellant was urging upon Wil■coxon to give additional security for the notes which were ■already in the possession of the bank, and yet, as soon as the new. note and mortgage were delivered to the bank, it voluntarily surrendered to Wilcoxon the. four notes on which he was originally indebted.

Is it not a reasonable inference that the appellant was sufficiently well satisfied with the character of the new security which it had taken in payment of the original indebtedness of Wilcoxon on said four notes as to cause it, of its own motion, and not otherwise, to part with the possession of the four notes by delivering up the same to Wilcoxon, so that the new note and mortgage were in no just sense additional security? But there is another suggestive fact in the record which the testimony makes clear, and that is, the appellant cannot, under the circumstances of the case, justly-claim to have been without notice of the financial status of Wilcoxon, and his liability to be declared an insolvent within four months of the execution of the mortgage. The appellant had in its possession at that time, four notes, covering an indebtedness of $i 1,300, and each of. said notes was for money'borrowed by Wilcoxon during the year 1892. These notes, or most of them, had been renewed from time to time and were long past due, yet Wilcoxon had not, to the 21st of March, 1893, the date of said mortgage, paid one farthing in discharge of the principal sums constituting his indebtedness on said notes. The doctrine is well recognized that insolvency may be inferred from the circumstances surrounding a transaction. If the appellant knew that Wilcoxon was a trader and indebted to it in the .sum of $11,300, and that he had for nearly two years failed to pay his notes at maturity, in the ordinary course of business, and further knew that he had, within four months -of the execution of the mortgage, suspended payment of his negotiable paper, and had failed to resume payment thereof within twenty days thereafter, did not these circumstances ■constitute reasonable cause from which the bank was justified in believing that Wilcoxon’s business credit and pecuniary standing were bad, and such as would warrant the belief on the part of the bank that if it accepted a mortgage from him to secure itself, he would be liable to be proceeded against under the provisions of the insolvent laws ? If with knowledge of the facts recited, and we cannot escape the conviction based upon the testimony in the record, that the appellant had such knowledge, it then delivered up the four original notes to Wilcoxon, the appellant has taken a venture, the consequences of which it must accept. We are, after careful consideration, unable to lend our sanction to the theory advanced, that in striking down the mortgage as a fraudulent preference under our insolvent laws, the note, which the mortgage was given to-secure, must also abide the same result. We do not think, upon principle or authority, that any such conclusion follows'frbm the premises stated. In Allers v. Forbes, 59 Md. 376, which was an action brought by Forbes against Allers. and wife to recover on three promisory notes signed by them as joint makers, the husband pleaded in his own behalf, that he had been discharged under the insolvent laws, and for a further plea the defendant and wife pleaded “ that by the discharge of the husband, they were jointly and severally discharged from all liability on account of said notes.” Judge Miller, delivering the opinion of this Court, said: “ We can discover no possible reason why the discharge of her husband under the insolvent laws should release her and her property. Her property does not pass to his trustee, nor are her rights therein in any way affected by his insolvency. The statute makes her stand, with respect to the obligations so signed by her, in the same position as any other party so signing them would stand.” The same conclusion was reached by Vice Chancellor Hall on a similar state of facts in' construing the English married woman’s property Act of 1870, in the case of Davies v. Jenkins, L. R., 6 Chancery Division, 728. We have referred o these cases with but one purpose in view, and that is to ascertain the legal status of the wife, as affected by her husband’s insolvency, in a case like the present, where she has jointly with her husband executed a note.

There is nothing in the record to show whether Mrs. Wilcoxon is possessed of property or not, and there can be no just reason assigned why the appellant should be deprived of its indisputable right to proceed against her. If it had been the intention of the parties to controvert the responsibility of Mrs. Wilcoxon as surety on said note, it was their privilege to have done so at the trial below. But this they did not do, and without indulging in speculation as to her financial ability or looking to the consequences, as they may affect either party to this cause, we must apply the law as we find it. It is well-established law in this State, that a married woman is competent to become surety on'a note which she has signed jointly with her husband, and it is wholly immaterial whether she has separate property or not. In some of the States where the laws relating to married women have undergone changes of like character with our own, there have been well-considered decisions of the Courts of those States holding femmes covert liable to the same extent announced by this Court. It has been argued that the note is void as against the wife, because there is no consideration to bind. her. A different view is, however, taken by Chief Justice Gray, who delivered the opinion of the Court in Major v. Holmes, 124 Mass. 108. He says : “ Before the statute of 1874, ch. 184, the female defendant would not have been liable in either of those cases, because contracts could only be made by a married woman in reference to her separate property, business or earnings. But this statute has removed that restriction and in the broadest terms enables a married woman to make contracts, oral and written, sealed and unsealed, in the same manner as if she were sole, and does not require that the consideration of her contracts should enure to her own benefit.” We have given careful examination and consideration to the questions presented by this appeal, and finding no error in the rulings of the Court below, we must affirm the same.

(Decided June 19th, 1895.)

Judgment affirmed with costs.