THIS was an appeal from the Circuit Court of the United States for the northern district of Illinois.
The nature of the mortgage and the circumstances under which it was given are set forth in the opinion of the court, and need not be repeated.
The cause was submitted on printed argument by Mr. B. R. Curtis for the appellant, and argued by Mr. Vinton, upon a brief filed by himself and Mr. Hayne, for the appellee.
Mr. Curtis, after giving a narrative of the facts in the case, and contending that the answer did not allege nor was there any evidence tending to prove that the complainant, who was thus admitted to be a bona fide purchaser for a valuable consideration, had any notice of any lien upon this property save what he gathered from the record of the mortgage to the respondent, made the following points:
1. H. A. Tucker, individually, cannot set up this note against a subsequent encumbrance, as intended to cover future advances.
It is true that a mortgage may be taken to secure future advances; and perhaps, where no fraud is intended, a note for a sum of money may be given in consideration of such expected advances; though the policy of allowing such departures from strict truth on the public registries of the country is extremely questionable. But this mortgage, in effect, asserts that the note is not to stand for future advances. For it makes a specific and distinct provision for future advances, and expressly, and clearly distinguishes between them and the note, which is, in so many words, declared not to have been given for future advances, but for that amount of money already due.
If H. A. Tucker, individually, had actually made advances subsequent to the mortgage, he could not have a lien by virtue of it, to secure advances, by himself and his firm, beyond the amount of $6,000, without being allowed to contradict the express and clear terms of the deed, which limits the future advances to that sum.
But he has advanced nothing. And the question is, whether a mortgage to one partner, purporting to secure a debt due to him individually, can, as against a bona fide purchaser, without notice of any parol understanding between mortgagor and mortgagee, be set up as a security for advances made by the firm of which he is a member.
2. The mortgage expressly declaring that it was to stand as security for future advances only to the extent of six thousand dollars, it cannot stand as security for any greater amount of such advances, as against a junior encumbrancer, who has no notice of any parol agreement between the mortgagor and mortgagee, that it shall stand as security for a greater sum.
The public registry informed the complainant that future advances were not to exceed $6,000; that the note was not given for future advances to be made by any one, but for money then due; that the note had reference to dealings between H. A. Tucker, individually, and the mortgagors, and not between the mortgagors and the firm of H. A. Tucker & Co.
A decree allowing H. A. Tucker to set up the mortgage as security for $9,689.56 of advances made by his firm, contradicts each of these material representations, on which the complainant had a right to rely when he purchased the property.
3. Upon the face of the mortgage and the whole evidence, it is not made out with the requisite certainty that there was an original agreement between the mortgagors and the mortgagees, that the $5,500 note should stand as a continuing security for all future advances; and when advances to that amount had been made and repaid, that part of the security, if ever applicable to advances, was extinguished.
Truscott et al. v. King, 2 Seld., 147.
4. This mortgage to H. A. Tucker, to secure future advances by the firm of H. A. Tucker & Co., cannot stand as security for advances made after the admission of new partners into the firm. As against the mortgagors, their conduct and understanding may prevent them from taking this objection. But a junior encumbrancer is affected only by the precise terms of the mortgage itself, which provides only for advances to be made by the then firm of H. A. Tucker & Co. Either the admission or retirement of a partner puts an end to the right to make further advances upon the credit of the security, as against the junior encumbrancer, and, if the amount due at the time of such change of the firm is afterwards balanced by payments on account, nothing remains due on the mortgage.
Bank of Scotland v. Christie, 8 Cl. and Fin., 214.
Spiers v. Houston, 4 Bligh. N. S., 515.
Pemberton v. Oaks, 4 Russell's R., 154.
Cremer v. Higginson, 1 Mason, 323.
Simpson v. Cook, 1 Bing., 452, 441.
There are cases in which it has been held that the security continues, though new partners are introduced into the firm. But this was only as against the debtor, or his assignees in bankruptcy, who have only his rights, and by force of an agreement by the mortgagors to extend the operation of the security to the new firm.
Without such agreement, which binds only the debtor and his representatives, there is believed to be no case which holds that the right to make advances on the credit of the security ...