Insurance Company v. McDonnell.
A married woman mortgaged lier separate property to secure tlie note of her husband given for the purpose of raising money to pay the debt of a lumber company of which he was president. The money was raised by loan from'an insurance companj^ on the note of the lumber company at one year, with the mortgage as collateral thereto — the insurance company having knowledge that the mortgaged property was designed by the mortgagor to serve as surety for the payment of tho *651loan. Without the mortgagor’s knowledge or Consent, the note of the lumber company at the end of the year was renewed, and soon thereafter surrendered, cancelled, and mai'ked “ paid ” upon the hooks of the insurance company, and a new note with other and different parties was substituted in its place. Held: That the mortgage was released.
Ekrob, to the District Court of Hamilton county.
The original action was commenced in the court of common pleas of Hamilton county by the People’s Insurance Company of Pittsburgh, Pennsylvania, against Agnes McDonnell, et al., minor children and heirs of Mary A. McDonnell and their guardian, Carter Gazlay, and the administrators de bonis non of John N. McDonnell and his wife, the said Mary A. McDonnell. The suit was begun after the death of said John N. McDonnell and his wife, to foreclose a mortgage dated June 1, 1870, upon a certain tract of land in Hamilton county, the separate property of said Mary A. McDonnell. The mortgage was executed and delivered by the said John N. McDonnell and Mary A. McDonnell to one Andrew F. Baum," and contained a clause of defeasance as follows:
“Provided, nevertheless, that if the said John N. McDonnell shall pay or cause to be paid to said Andrew F. Baum, or order, his certain promissory note of even date herewith for the sum of six thousand dollars, made and dated, Cincinnati, Ohio, June 1,1870, and payable to the order of said Andrew F. Baum, two years after date, at the Merchants National Bank, Cincinnati, Ohio, and bearing interest at the rate of eight per cent, per annum, interest payable annually, then these presents to be void.”
The plaintiff claimed to recover upon the mortgage, on the ground that John N. McDonnell and his wife, in order to enable said Andrew F. Baum to raise money for them, executed and delivered to him the note and mortgage set forth in the plaintiff’s petition ; and that plaintiff loaned to said Baum for the use and benefit of said McDonnell and *652his wife the sum of $6,000, which money said Baum paid to them.
Several defenses were set up in behalf of the minor children, heirs of said Mary A. McDonnell and by her administrator, and the plaintiff filed a reply denying all the defenses. The court of common pleas rendered a decree in favor of the defendants, and the plaintiff appealed to the district court, where the cause was heard on the pleadings and evidence, and upon request of the plaintiff that the conclusions of fact be stated separately from its conclusions of law, the court, among its conclusions of fact, found as follows:
“That this suit is brought to foreclose a mortgage executed by Mary A. McDonnell and John N. McDonnell, her husband, on the 1st day of June, 1870, on the separate property of Mary A. McDonnell, the wife, but referred to in the mortgage as the same property conveyed to John N. McDonnell by deed recorded in book 338, page 523, of Plamiltou County, Ohio, Records, being a tract of land in Hamilton county, to secure the payment of the note of John N. McDonnell, the husband, for $6,000, payable two years after date to the order of A. F. Baum, at the Merchants National Bank of Cincinnati.
“ That plaintiff was and is duly incorporated under the laws of the State of Pennsylvania.
“ That plaintiff has power to-buy notes and mortgages as well for loans, or for collateral security for loans, disconnected from the business of insurance, and had the corporate power to take the title to the note and mortgage.described in the petition, and the taking of the same was in no wise in contravention of the statute of Ohio regulating foreign insurance companies doing' business in this state.
“ That John N. McDonnell and Mary A. McDonnell were, at the time of the bringing of this suit, both deceased, the said Mary A. McDonnell having died in January, 1874, and the said John N. in February, 1874, and that the said Mary A. McDonnell was, at the time of the execution of said mortgage and had been for along time previously an invalid *653confined to her bed, and largely under the influence of her husband; that she was induced to execute the said mortgage upon representations made to her that it was necessary for the benefit of her husband, who was president of the Cincinnati Lumber Company, to raise money upon said note secured by her mortgage upon her separate property to pay for a mortgage incumbrance upon the Cincinnati Lumber Company’s property, which was then due, amounting to the sum of fifty-four hundred dollars, and that the representations were made to her by one Carter Gazlay, the secretary of the lumber company, and her husband, who was president of the lumber company, that the Cincinnati Lumber Company was doing a flourishing business and in good credit, and that it would not do for the money required to be raised upon any notes or note of the Cincinnati Lumber Company, as it might affect the credit of said company to put its note upon the market or to use its note commercially to raise said money. Under these circumstances and representations, Mary A. McDonnell executed the said mortgage; no pecuniary consideration was ever paid to her. Immediately after the execution of said mortgage, it was taken by the said Carter Gazlay and kept in his safe locked up until the 22d day of June following, when it was presented for record in the recorder’s office of Hamilton county, Ohio. The debt of the mortgage upon the lumber company’s property was paid by said Carter Gazlay in two installments, one of $3,000 in cash on the 10th of June, 1870, and the other by the check of said Carter Gazlay upon a Cincinnati bank for the $2,400, which was held by the owner of said mortgage on the lumber company’s property for six days until June 16th; that $5,400 of said money was paid to Carter Gazlay, who obtained it from A. F. Baum.
“ That on the 8th day of June, 1870, Andrew F. Baum, who was largely interested in the Cincinnati Lumber Company, as a person who sold lumber to it (but hot proven to be with the knowledge and consent of Mary A. McDonnell), borrowéd from the plaintiff at Pittsburgh, upon a note of that date, executed by the Cincinnati Lumber Company *654for the sum of $6,000, which note was indorsed by said A. F. Baum, and was then discounted by the plaintiff for said Baum, to whom the plaintiff paid the money, $5,400, and which was given by A. F. Baum with which to pay the note of Carter Gazlay, held by John K. Green.
“That at the time of the discounting of said Cincinnati Lumber Company note by the plaintiff the said A. F. Baum (not proven to be with the knowledge and consent of said Mary A. McDonnell), and without the delivery of the said mortgage, executed by her, executed a memorandum to the plaintiff of which the following is a copy:
‘“For value received, I, A. F. Baum, hereby assign, transfer, and set over unto the People’s Insurance Companj'-, of Pittsburgh, and its successors and assigns, all my right, title and interest and claim in a mortgage of John N. McDonnell and Mary A. McDonnell, of Hamilton county, Ohio, as collateral security on a note held by said insurance company, drawn by the Cincinnati Lumber Company to the order of John N. McDonnell and Matthew Hall. And indorsed, Carrier & Baum, at one year from June 8th, 1870, for $6,000, the said insurance company agreeing to cancel and surrender this transfer and mortgage to me on the payment of said note.
“‘(Signed), A. F. Baum.’
“ That on the 24th of June, 1871, that note was given to John Carrier, and another note of Carrier & Baum, indorsed by Robert Campbell, taken in its stead, and the following memorandum taken by plaintiff on the bottom of the above paper:
“ ‘ Pittsburgh, June 24=th, 1871.
1 “ ‘ The note above described has this day been surrendered tome and a note for $6,000, drawn by Carrier Baum, indorsed by Robert Campbell, at one year, June 8th, 1871, given in place of same.
“ ‘ (Signed), John Carrier.’
“That on the 8th of June, 1871, the said note of 8th of June, 1870, of the Cincinnati Lumber Company, was sur*655rendered, and a new note signed by the Cincinnati Lumber Company taken in its place, payable in one year, indorsed by said A. E. Baum, and interest received thereon by the plaintiff, at ten per cent, for the said year (not proven to be with the knowledge and consent of said Mary A. McDonnell), which note was -held only by the plaintiff, until the 24th day of June, 1871, when it was surrendered as above set forth, cancelled, and marked paid in red ink upon the books of the plaintiff. Upon the same day a new note was executed to the plaintiff signed by Carrier & Baum, and indorsed by Robert Campbell, dated June 8, 1871, and payable one year from date (all not proven to be with the knowledge and consent of said Mary A. McDonnell), which said note is the one referred to in the said paper writing at the foot thereof, and which was allowed to run by the plaintiff until October, 1872, when a new note of Carrier & Baum was executed to the plaintiff with said Robert Campbell, as indorser and payable eight months after date, which was allowed to run until June 10th, 1873, by the payment pf interest to the plaintiff at ten per cent., and surrendered, when a new note of said Carrier & Baum was executed to the plaintiff, indorsed by said Robert Campbell, payable in five (5) months (all not proven to be with the knowledge and consent of said Mary A. McDonnell), and the said last note signed b}r said Carrier & Baum, and indorsed by said Robert Campbell, was extended by the payment of interest at ten per cent, up to June 19, 1875.
“ That after said mortgage had been recorded, on the 22d of June, 1870, it was sent by said Carter Gazlay to said A. ‘ F. Baum, and (no proof that it was with the knowledge and consent of said Mary A. McDonnell), said Baum then delivered said mortgage to said plaintiff, and on June 18, 1873, he executed a formal transfer thereof in writing to the plaintiff.
“That on or about the — day of-, 1871, said Cincinnati Lumber Company failed and became insolvent, and the said Andrew F. Baum and Carrier & Baum, of which firm Baum was a member, were large creditors thereof; that for a valu*656able consideration the said Baum then agreed to return the said mortgage of Mary A. McDonnell, and cancel the same of record, but he never carried out said agreement. That again, on the — day of-, 1872, the said John N. McDonnell executed to the said Carrier & Baum another mortgage upon the property of said John N. McDonnell, in the city of Cincinnati, in which his said wife joined in the release of dower for the sum of $9,118,05 with the distinct understanding and agreement made with the said Baum, that the mortgage of the said Mary A. McDonnell should be surrendered up and cancelled, as he had previousl}' agreed to do, and which formed the principal consideration for the execution of said new mortgage of $9,118.05, but that the said Andrew F. Baum never did so.
“That at the time the said first note of the Cincinnati Lumber Company was surrendered to Carrier and cancelled, and marked paid in red ink by the plaintiff, the lumber company had failed and made an assignment to said Carrier for the benefit of its creditors; that Carrier & Baum, and said Robert Campbell were all residents of Pittsburgh, known to the plaintiff, and its officers doing business there, and were of undoubted credit, and said Carrier & Baum were then reputed to be worth over a half million of dollars, and this was known to the plaintiffs.
“ That the character of Mary A. McDonnell, as surety, was known to A. F. Baum, and all said surrenders, renewals, extensions, and changes (were not proven to have been made with her knowledge and consent), and the said mortgage executed b3r her was not actually assigned in itself to the plaintiffs until more than three years after its execution, except by the memorandum hereinbefore referred to.
“ That the plaintiff, some time in 1875, (said Mary A. McDonnell and her husband both being dead), after the last extension of the said note, signed b3r said Carrier & Baum, and indorsed by said Robert Campbell, brought suit upon the same in the city of Pittsburgh, where the parties then resided, and recovered a judgment against said Carrier & Baum and Robert Campbell for the amount of said note, *657and interest, and having obtained said judgment, caused a transcript thereof to be taken and filed in the county of Pocahontas, West Virginia, and levied the same upon the real estate then belonging to said Andrew F. Baum and Robert Campbell in equal, undivided portions; that said real estate was then worth at least $20,000, but that the collection of said judgment as against said Baum was restrained (he having gone into bankruptcy) by his assignee in bankruptcy, but no evidence was presented by the plaintiff why their judgment lien was not enforced as against Campbell, whose interest in said real estate was at least $10,000.
“ That after the said original note executed by the Cincinnati Lumber Company was surrendered by the plaintiff, and marked upon its books in red ink, paid, plaintiff never made any claim, either on the Cincinnati Lumber Company or its assignee upon it, or upon any other obligation against it, nor was any claim ever presented by the plaintiff to the said John N. or Mary A. McDonnell during their lives upon said mortgage or note, which it secured, nor was there any claim presented by the plaintiff to their administrator after their .death.”
The district court adjudged and decreed that said mortgage in the petition named, be ordered, cancelled and held for naught, and that said real estate be released from the operation thereof, and that the petition of the plaintiff be dismissed.
The plaintiff thereupon filed a motion to set aside the judgment of the district court, and to grant a new trial. The court having overruled said motion for a new trial, the plaintiff excepted thereto and to the said judgment rendered, and a bill of exceptions was taken embodying all the evidence offered by either party in the case.
To reverse the judgment of the district court this proceeding is prosecuted.
J. H. Bates and Rufus B. Smith for plaintiff in error.
Long, Avery, Kramer & Kramer for defendants in error.
*658Dickman, J.
Upon the organization of the Cincinnati Lumber Company, it purchased for the purposes of its business, certain' mill property, and assumed the payment of an incumbrance thereon, which, on the 1st of June, 1870, amounted to about' six thousand dollars. At the last named date, John N. McDonnell was president of the company, Carter Gazlay its secretary, and Andrew F. Baum, of the firm of Carrier & Baum, was largely interested in the company as a creditor, and though not appearing on the books as a stockholder, was the owner of stock which was held by his partner. The incumbrancer on the mill property pressed the payment of his claim, and Gazlay, acting for all parties in interest, applied to Mary A. McDonnell, the wife of John N. McDonnell, to induce her to give a mortgage on her separate real estate, for the purpose of raising the required sum. Mrs. McDonnell was, at the time, in very feeble health, and easily influenced by her husband, and it being represented to her by him and by'Gazlay, that it would injure the credit of the- Lumber Company to put its name on any more paper to be circulated in the market commercially, and that it was necessary for her husband’s benefit to mortgage her separate property to pay off the company’s debt, she was prevailed upon to join with her husband in executing a mortgage upon her real estate, to secure the payment of a note for six thousand dollars, bearing date June 1st, 1870, and made payable in two years after date to the order of Andrew F. Baum.
No pecuniary consideration was ever paid to Mrs. McDonnell, and no money was advanced by the payee to the maker of the note. The note and mortgage were both made solely for the accommodation of the Lumber Company; and it was the design of the parties to the instruments, that Mrs. McDonnell’s real estate should occupy the position of a surety only, for such amount as might be'raised by means of the note and mortgage to pay off the incumbrance on the company’s property. Although it was represented to Mrs. .McDonnell, that the credit of the Lumber Company might be impaired by putting its paper upon the market,*659we do not find that she imposed it as a condition, that her mortgage should be used or negotiated only in a specified manner. We think that the main object to be subserved was, to furnish a surety for the amount that might be obtained for the benefit of the company, whether Baum advanced the money himself, or sold the note and mortgage, or lodged them as collateral security for a loan to be made directly to the company. Such seems certainly to have been the understanding of Baum, as evidenced by his action and dealing in reference to the McDonnell mortgage ; for, on the 8th of June, 1870, the Lumber Company having drawn its note for six thousand dollars, payable to the order of John N. McDonnell and Matthew Hall, in one year from date, and indorsed by Baum himself, he procured the same to be discounted by the Peoples’ Insurance Company of Pittsburgh, transferred to that company the McDonnell note and mortgage as collateral security, and applied the proceeds realized, to wit, $5,400, in discharge of the incumbrance on the Lumber Company’s property.
There can be no dispute as to the relation of suretyship which Mrs. McDonnell’s property bore to the note made by her husband to Andrew F. Baum. It was competent for her to pledge or mortgage her separate property for her husband’s debt, and upon doing so, such property, became a surety or guarantor, and was subject to be discharged by anything that would discharge a surety or guarantor who was personally liable. And it has been held, that the fact that a mortgagee has no actual knowledge of the wife’s ownership of the mortgaged premises, and of the resulting relationship of principal and surety between the husband and wife, is immaterial, where the title is on record, as he thereby becomes chargeable with both knowledge of the title and the legal consequences resulting therefrom. Bank of Albion v. Burns, 46 N. Y., 170. But, we are satisfied from the conclusions of fact found by the district court, and from an examination of the testimony embodied in the bill of exceptions, that the insurance company at the time it made the loan to the Lumber Company, knew the true *660relation of all the parties to the transaction, and the nature of the understanding between them. The Insurance Company, we think, when it took the McDonnell note and mortgage as collateral security to a note for the same amount, dated only a few days thereafter, and drawn by the Lumber Company to the order of McDonnell its president, and Hall one of its members, was cognizant of the fact, that the note and mortgage were designed by the parties thereto for the accommodation of the Lumber Company, and to serve as surety for the amount which it was proposed to raise by loan for the benefit of that company. In reference therefore to the indebtedness of that company to the Insurance Company, the separate property of Mrs. McDonnell should hold the position of a surety, and be entitled to'the benefit of the rules protecting the surety from prejudice through the creditor’s dealing with the principal debtor.
Applying the well established rules for the protection of the rights of sureties, the conduct of the Insurance Company released the property of Mrs. McDonnell from the operation of her mortgage. Without the knowledge or consent of Mrs. McDonnell to the substitution, renewals and extensions hereinafter mentioned, when the note of the Cincinnati Lumber Company of the 8th of June, 1870, payable in one year, matured, it was surrendered, and a new note, at one year, signed by the company and indorsed by Baum, was taken in its place. This last note was held until June 24th, 1871, when it was surrendered, cancelled and marked “ paid ” in red ink, upon the books of the Insurance Company. On the same day, a new note, substituted for and in extinguishment of the obligation of the Lumber Company, dated June 8th, 1871, and payable in one year, was executed to the Insurance Company by Carrier & Baum and indorsed by Robert Campbell; and this note, after being twice renewed was, by a binding agreement between creditor and principal, extended to June 19th, 1875. Conceding to Mrs. McDonnell and those claiming under her, the rights of a surety, when the Lumber Company’s note was cancelled and marked “paid,” and a new *661note substituted in its stead, the mortgage executed by her was discharged. The evidence, in our judgment, shows that the note of Carrier & Baum was given in satisfaction of the original obligation, and that the surety was thereby released. After the surrender of the note of the Lumber Company, the Insurance Company never preferred any claim upon it or any note given in its stead, against the Lumber Company or its assignee; nor against John N. or Mary A. McDonnell upon the note and mortgage in litigation ; and presented no claim to their administrator after their decease. Letcher v. Bank of the Commonwealth, 1 Dana, 82 ; Castleman v. Holmes, 4 J. J. Marsh., 1; Bell v. Martin, 3 Harrison, 167; Farmers & Mechanics Bank v. Kercheval, 2 Mich., 504. When Carrier & Baum took upon themselves the liability of the principal debtor, and the Insurance Company, with knowledge of that fact, agreed to accept them as debtors, and cancelled the obligation of the Lumber Company, a novation resulted, which operated to release the McDonnell mortgage. Burge on Suretyship, b. 2, c. 5; 2 Pars, on Contr., 18; Sneed v. White, 3 J. J. Marsh., 525.
The McDonnell mortgage having subserved its intended purpose — known to the Insurance Company — of raising money for the use of the Lumber Company, it should have been surrendered when the Carrier & Baum note was accepted in satisfaction of the original obligation. And as between Mrs. McDonnell and Andrew F. Baum, the mortgage should have been cancelled, and her property released from its operation. In the year 1871, when the Lumber Company became insolvent, Baum, for a valuable consideration, agreed to return and cancel the mortgage. And in the year 1872, when John N. McDonnell executed to Carrier &' Baum a mortgage on his own property — his wife joining in a release of dower — in settlement of his pro rata share of the Lumber Company’s liabilities, there was an express understanding and agreement with Baum, that the mortgage by Mrs. McDonnell should be delivered up and cancelled according to his previous agreement. Though *662not delivered up and cancelled, we are of opinion, that the mortgage was fully settled and satisfied by John N. McDonnell during his life, in the final settlement of the affairs of the Cincinnati Lumber Company, and that neither Andrew F. Baum nor the Peoples’ Insurance Company have now any interest or claim in that mortgage.
It follows, therefore, that the judgment of the district court must be affirmed.
Judgment accordingly.