Tison & Gordon v. People's Saving & Loan Ass'n

BRICKELL, C. J.

1. We can not concur with the chancellor in the opinion, that the instrument under which each of the contending parties deduces title to the cotton in con-; troversy, is operative as a lien under the statute, (Revised, Code, §§ 1858-60.) Nor, if we concurred in the opinion,. -can we suppose it would enure to the benefit of the Saving • and Loan Association, so as to entitle it to priority over the appellants. The statutory lien can be .created only by writing, and as a security for a debt having the particular consideration expressed in the statute, and this consideration must be in ■writing — an advance of horses, mules, oxen, or necessary provisions, farming tools and implements, or money to purchase -the same. The instrument in question, expresses as its purpose, the security of a present debt, owing by its makers to Streater& Co.; and the consideration of this debt as money which had been advanced them, “ bona fide, for the purpose • of enabling us to make our crops during the year 1873, and without which advance it would not be in our power to procure •the necessary teams, provisions, farming implements and other materials essential to making such crops.” The object of the advance of the money, as expressed in the instrument, was to enable the makers to make crops in 1873. The compensation of laborers, the repairs of plantations, were as much Avithin the object of the advance, as the purchase of horses, mules, oxen, or necessary provisions, farming tools and implements. All are essential to the making of crops of cotton to the extent it was contemplated the makers of the instrument Avould make them. The statutory lien is of peculiar privileges, and extraordinary remedies are allowed for its enforcement. The intention of the legislature to limit it to debts having the specific consideration expressed in the statute, and no other, is apparent. However meritorious may be the consideration of other debts, and however sufficient to support a mortgage, or assignment, or other conveyance, they are insufficient for the creation of the statutory lien.—McLester v. Somerville & McEachin, manuscript.

If the recitals of the instrument were of facts on Avhich the statutory lien could be founded, the evidence leaves no room to doubt that such facts had no existence at the time of its execution. The lien can not be created by recitals in the instrument which is the. evidence of it. These recitals must be supported by corresponding facts. It is the existence of these facts, and their declaration in writing, Avhich creates the lien. The declaration, without the facts, is as impotent for the creation of the lien, as would be the facts Avithout the • declaration. Though the instrument recites, as its consideration and as its purpose, the security of a present debt for money advanced, no such debt had been contracted; no such advance had been made at the time of its execution. The -real transaction in which the instrument originated, and its actual consideration, was security for advances it was contemplated Streater & Co. would make to the grantors, as they needed such advances in cultivating the designated plantations in 1873. One of the disputed facts is, whether indemnity to Streater & Co. against loss, because of their acceptance for accommodation, of the bill of exchange drawn by Locke, did not enter into and form part of the consideration and of the purposes of the instrument. We do not propose to examine the evidence with the view of determining whether-such indemnity formed part of the consideration and purpose of the instrument. If it did, it is certainly not within the consideration defined by the statute. Indemnity against liability, absolute or contingent, incurred at the request of the maker, must be secured by mortgage or other appropriate conveyance. The statutory lien can not be raised for such purpose.

2. While the instrument is not operative as a statutory lien, it is valid as a mortgage. A mortgage may unquestionably be taken as a security for future advances and responsibilities. That the consideration expressed is a present debt, fraud not being imputable, and the rights of parties misled by the misreeital not being involved, does not prevent the introduction of parol proof to show that the real consideration was security for future advances, or protection to the mortgagees against a liability to be incurred for the mortgagors. Eckles v. Carter, 26 Ala. 563; Hair v. Little, 28 Ala. 236. In Shirras v. Caig, 7 Cranch. 34, a mortgage was executed, purporting to be a security for a present debt of ¿630,000. It was really intended to secure a present debt much less in amount, and advances afterwards to be made, and liabilities to be incurred to an uncertain amount. It was decreed to stand as a security, not only for the debts due at its execution, but for those subsequently contracted on its faith, and for advances subsequently made. There are numerous cases to be found in the books, in which, as between the parties, the equities of subsequent mortgagees, or of judgment creditors, without notice, not intervening, a mortgage declaring its purpose to be the security of a present debt, the amount of' which is expressed, has been declared a valid security for future advances to the extent of the amount expressed. Parol evidence in such cases is admissible, not to contradict, but to support the instrument — to show its real consideration, and the extent to which it operates as a security.—Bank of Atica v. Finch, 3 Barb. Ch. 293; James v. Johnson, 6 John. Ch. 417; Craig v. Tappin, 2 Sand. Ch. 78; Collins v. Carlisle, 13 Ill. 254. The parties to the transaction, the mortgagors and mortgagees, were dealing with each other fairly, in the utmost confidence, and with no motive to deceive others. The mortgagors were anxious to obtain assurances that they would be supplied with money, provisions, teams, or whatever necessaries they should need in the cultivation of their crops. It could not be known to what precise amount such advances would be required. They inserted ten thousand dollars, supposing that amount would cover such advances, and if indemnity against the liability incurred by the acceptance of the bill of exchange, was a part of the consideration, that it would also cover such indemnity. The consideration was expressed as a present, actual debt, because that was the form of mortgage most familiar to the parties.

3. We hold the instrument valid as a mortgage, and that it operates as a security for such advances as the mortgagees may have made on the faith of it, subsequent to its execution. An assignment of the debts contracted for such advances, would "in equity pass the mortgage, which is but a security for their payment. There is, however, not only a transfer of the debts, but an assignment of the mortgage to the appellants, thus transferring the legal title it conveyed.—Graham v. Newman, 21 Ala. 487.

Assuming the mortgage was intended, not only as a security for future advances, but also as indemnity to the mortgagees against their acceptance of the bill of exchange, drawn by Locke, the question arises, whether the appellants are bound by the equity of the holder of that bill, to be subrogated to the security for its payment, the mortgage was intended to afford. The assignee of a mortgage, intended as security for 1 a debt which is not negotiable, stands in the light of an assignee of a mere chose in action. The general and well settled principle is, that the assignee of a chose in action-takes it subject to all the defenses and equities existing against it at the time of the assignment. The rule is generally supposed to extend only to the equities and defenses of the mortgagor, and not an equity residing in some third person against the assignor, of which the assignee has no notice. Murray v. Lylburn, 2 Johns. Ch. 441; Livingston v. Dean, ib. 479; Mott v. Clark, 9 Penn. St. 399. “In the case first cited,.', it was said by Chancellor Kent : “The assignee can always go to the debtor and ascertain what claims he may have against the bond, or other chose in action, which he is about purchasing from the obligee; but he may not be able, with the utmost diligence, to ascertain the latent equity of some third person against the obligee. Pie has not any object to which he can divert his inquiries; and for this reason, the claim of the assignee, without notice, of a chose in action, was preferred, in the late case of Redfram v. Ferrier and others, (1 Dowe Rep. 50), to that of a third party setting up a select equity against the assignor. Lord Eldon observed in that case, that “ if it were not to be so, no assignments could ever be taken with safety.” The purpose of the mortgage as expressed on its face, is the security of a debt for advances, excluding, rather than indicating, that indemnity for a liability, absolute or contingent, incurred by the mortgagees for the mortgagors, was within its objects. This expression was well calculated to confine the inquiry of the assignees to the mortgagors, and to the fact of the extent of the advances. Locke, who seems to have been the active agent in the negotiations preceding the execution of the mortgage, and subsequently in obtaining advances, was notified of the assignment soon after it was made, and the notice did not provoke from him any disclosure that it was intended for any other purpose than security for advances. There was no object to which the appellants could have directed inquiry, and if they did not take the mortgage freed from the latent equity, now preferred against them — an equity resting in parol, and known only to Locke, one of the mortgagors, Streater, one of the mortgagees, and two of the officers of the Savings and Loan Association — never disclosed, until after Streater’s death, and it becomes certain the mortgage is an insufficient security for 'the debt assigned to appellants, no assignment ean ever be taken with safety.

If loss ensues to the Saving and Loan Association, and the mortgage was really intended as a security to Streater & Co. against the liability on the accommodation-acceptance of the bill of exchange drawn by Locke, the loss is the result of their own laches. They were informed the mortgage was to be executed, and if they relied on it as a security directly to them, or enuring to them through the liability of the acceptors, they should have seen the mortgage was so framed, as to give notice to all who might deal with mortgagor or mortgagee, of their rights or equities. They trusted to Locke and Streater to frame the mortgage and to their representations of its purposes. If the mortgage was so framed by those whom they trusted, that others in the ordinary course of business would deal with the mortgagees without notice, or without reason to suspect they were not the absolute owners, the loss of misplaced confidence must be borne by them. It is not insisted the appellants had notice that security for any other debts than those transferred to them, debts for advances to the mortgagors, was intended, and it is not denied they are bona fide assignees for a valuable consideration. They are entitled to priority of payment of the debts transferred to them from the cotton in controversy.

The decree of the chancellor must be reversed, and the-cause remanded for further proceedings, not inconsistent with this opinion.