Case ID: ny-super-ct_39/html/0207-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court.—Speir, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

SETH W. HALE, Plaintiff and Appellant, v. THE OMAHA NATIONAL BANK, Defendant and Respondent.
    I. ACTIONS—DISTINCTIONS BETWEEN NOT ABOLISHED.
    1. Trespass, trover, and special actions on the case.
    1. There are intrinsic differences between special actions on the case, and trespass or trover which are not abolished by the code.
    
    n. CHATTEL MORTGAGES.
    1.' Trespass or trover against mortgagee.
    1. Where a mortgagee, whose right to possession has become perfected under the mortgage, obtains possession in a lawful manner, and sells the property generally without taking any notice of a prior lien or mortgage, he is not liable in trespass or trover at the suit of the mortgagor or the prior lienee or mortgagee.
    
    HI. EQUITABLE LIEN.
    1. When it does not exist.
    
      a. Lessor or lessee.
    
    1. Where the lease, for the purpose of giving a security for the rent, contains this clause, “A lien shall be given by the said lessee to the said lessor to secure the payment thereof ” (that is of the rent) “ on all the furniture that shall be placed in said hotel by said lessee,” an equitable lien is not raised.
    
    2. Bona fide subsequent incumbrancer,
    
    
      a. Takes free of an equitable lien.
    
    1. Who is bona fide.
    
    
      a. One who, without notice of the lien, takes a mortgage to secure a prior indebtedness due him by the mortgagor, and by the mortgage extends the time of payment, is a bona fide incumbrancer for value.
    IV. INSTRUMENTS—CONSTRUCTION OP.
    1. Subject clause, effect of.
    1. Where, by the subject clause, property is transferred, subject only to certain specified liens,
    
      there is a strong inference
    
    that all other liens which may be held by the transferor
    
      are waived.
    
    
      Before Freedman, Curtis, and Speir, JJ.
    
      Decided March 1, 1875.
    The action is in trover to recover the value of certain household furniture. It was tried by the court without a jury, and judgment given for the defendant. The plaintiff appeals from that judgment.
    The findings of fact cover the case, and are substantially as follows:
    The firm of Cozzens & Bettman, on June 22, 1867, leased from the Credit Foncier of America, a hotel, in the city of Omaha, in writing. The lease contained this clause following the covenant to pay rent: “and a lien to begivenbj said lessees to said lessors, to secure the payment thereof as hereinbefore stipulated, on all the furniture which shall be placed in said hotel by" said lessees.”
    On July 22, 1867, the Credit Foncier assigned that lease to the plaintiff.
    On October 14, 1867, Cozzens & Do. executed to the plaintiff a mortgage on certain furniture which had been placed tin the hotel by them to secure some six thousand dollars, five hundred dollars thereof in six months from date, the balance in one year.
    • On March 10,1868, Cozzens & Co. executed a chattel mortgage on the same furniture to the defendant, to secure five thousand nine hundred dollars, in sixty days, for which a promissory note was then executed.
    On April 28, 1868, the defendant brought replevin against Cozzens & Co. on their mortgage to recover the furniture, and on July 20, 1868, obtained a judgment awarding it the right of possession thereof; the possession having already been delivered by the sheriff under mesne process.
    On September 24,1868, plaintiff assigned his chattel mortgage to the defendant, subject to proceedings in bankruptcy then pending against Cozzens & Co.
    
      When the defendant took its own second mortgage from Cozzens & Co., it had no knowledge or notice of the lease, or of the lien clause therein.
    On November 20, 1868, the defendant sold the furniture under the two mortgages ; but it does not appear whether the sale was in one lot or in parcels to one or more purchasers. At the sale defendant sold only the rights of Cozzen & Co. and of itself in the property, and did not sell any interest of the plaintiff, whatever that was. At the sale the property brought its full value, ten thousand one hundred and seventeen dollars and eighty-one cents.
    
      Bell, Bartlett and Wilson, attorneys, and Edward J. Bartlett, of counsel for appellant, urged:
    It is submitted that the clause in the lease of plaintiff created an equitable lien on the furniture placed in the hotel, as against Cozzens & Co., the lessees, and all persons asserting a claim thereto under them, either with notice of the lien, or not being tona fide mortgagees or purchasers in good faith (1 Story Eq. Jur. § 64 g.; 4 Bouv. Inst. n. 3739; 1 Fonblanque Eq. b. 1, ch. 6, § 9, note; 49 N. Y. 633; Hathaway v. Payne, 34 Id. 103; Champion v. Brown, 6 Johns. Ch. 398; Griffin v. Beecher, 10 Barb. 432; Moore v. Barrows, 34 Id. 173; Smith v. Gage, 41 Id. 60; Merithew v. Andrews, 44 Id. 200; 3 Rev. Stat. 5 ed. 199, § 78; Craig v. Leslie, 3 Wheat. 578; Wright v. Wright, 1 Ves. 409, 410, 411; Beekley v. Newland, 2 P. Wms. 182; Hobson v. Trevor, Id. 191; Laughton v. Horton, 1 Hare, 549; Case of Ship Warre, 8 Price, 269, n. ; Curtis v. Auber, 1 Jac. & W. 506; Mitchell v. Winslow, 2 Story, 639; 2 Story Eq. Jur. § 1231, and cases cited; Cross on Liens, ch. 12, p. 187, 188, 191, 192; Prebble v. Boghurst, 1 Swans. 309; Needham v. Smith, 4 Russ. 318; Randall v. Willes, 5 Ves. 262, 274-5; Simond v. Hibbert 1 Russ. & M. 719; Seymour v. Canandaigua & Niagara Falls R. R. Co., 25 Barb. 284; Wood v. Lestee, 29 Id. 145; Field v. Mayor of New York, 2 Seld. 179; Stover v. Eyclesheimer, 3 Keyes, 620; Union M’f’g Co. v. Lounsbury, 41 N. Y. 374 Hall v. City of Buffalo, 1 Keyes, 199; Story Eq. Jur. §§ 1040, 1040 B, 1055; Matter of Howe, 1 Paige, 129; White v. Carpenter, 2 Id. 266; Finch r. Earl of Winchelsea, 1 P. Wms. 282; Burn v. Burn, 3 Ves. Jun. 576; Delaire v. Keenan, 3 Dess. [S. C.] 74; Foster v. Foust, 2 Serg. & R. 11; 2 Lead. Cas. in Eq. [White & Tudor Fourth Eng. Ed. 1872] 772; Wellsbey v. Wellsbey, 4 Mylne & C. 561; Metcalf v. Archbishop of York, 1 Id. 547; Lyde v. Myner, 4 Sim. 504; Tooke v. Hastings, 2 Vern. 9).
    II. It is submitted that the defendant is not a bona fide mortgagee under either of the chattel mortgages on the furniture in the hotel. Judge Allen remarks in Weaver v. Barden (49 N. Y. 293): “ It is generally admitted that the mere existence of a precedent debt is not a sufficient consideration to support a conveyance as against prior equities but in some States it is held that when made in absolute payment and satisfaction of an antecedent debt, the purchase will be regarded as a purchase for value. But that is not the rule in this State (Dikerson v. Tillinghast, 4 Paige, 215).” (Coddington v. Bay, 20 Johns. 637; Van Heusen v. Radcliff, 17 N. Y. 583; Stalker v. McDonald, 6 Hill, 93; Young v. Lee, 12 N. Y. 551; Farrington v. Frankfort Bank, 24 Barb. 554, and cases cited; Boyd v. Cummings, 17 N. Y. 101; Essex County Bank v. Russell, 29 Id. 673; Brown v. Leavitt, 31 Id. 113; Cary v. White, 52 Id. 138; Bank of New York v. Vandervorst, 32 Id. 553; Payn v. Cutler, 13 Wend. 605; Crysler v. Renois, 43 N. Y. 209; Lawrence v. Clark, 36 Id. 128; United States v. Hodge, 6 How. U. S. 279; Bangs v. Strong, 10 Paige, 11, citing several cases at page 16; Neimceweiz v. Gahn, 3 Paige, 614, affirmed 11 
      Wend. 312; 1 Parsons on Notes & Bills, 224; Wood v. Robinson, 22 N. Y. 564; Atlantic Nat. Bank v. Franklin, 55 Id. 238; Bell v. Banks, 3 M. & G. 258; Elwood v. Diefendorf, 5 Barb. 398; Platt v. Coman, 37 N. Y. 440; Mech. & F. Bank of Albany v. Wixon, 42 Id. 438; Jennison v. Stafford, 1 Cush. 168; Howell v. Jones, 1 C.M. & R. 97; Fellows v. Prentiss, 3 Denio, 512; Ayrault v. McQueen, 32 Barb. 305; Cardwell v. Hicks, 37 Id. 458; Traders B’k of Rochester v. Bradner, 43 Id. 379; Mickles v. Colvin, 4 Id. 304; Park Bank v. Watson, 42 N. Y. 490; Brown v. Leavitt, 31 Id. 113; Chrysler v. Renois, 43 Id. 209; Boyd v. Cummings, 17 Id. 101).
    III. The sale by plaintiff to defendant of Ms first mortgage on the furniture did not in any way prejudice Ms rights under the lien of the lease. The learned judge at Special Term thus comments on this clause : “ The assignment was made subject only to the proceedings then pending in bankruptcy against the mortgagors, such single exception would appear to exclude any other claim.” It is submitted, with all respect, that this clause in the assignment will bear no such construction. Here was a party selling a mortgage and covenanting that the whole amount was due. The mortgagors were in bankruptcy, and, for aught he knew, had been discharged from all their debts. He, therefore, very properly draws his covenant subject to the proceeding in bankrupty. It is submitted that it is never the case to recite prior liens in assignments of younger ones, and the covenant as to whole amount being due would be true if there were a dozen prior existing liens not referred to and belonging to the assignor.
    IV. Cozzens & Co. became in equity, under the law of constructive or implied trusts, the trustees of the plaintiff, and were, as such, the custodians of the said furniture, subject to the equitable lien of the plaintiff for unpaid rent; and all persons receiving title to said property, with actual notice of said lien, although paying a valuable consideration therefor, or without actual notice of said lien if received to secure an antecedent indebtedness, or without parting with present value, took the same from said trustees subject to said equitable lien, and said takers are construed in equity to be themselves trustees, and liable as such to the same extent as the trustees from whom they took it (Perry on Trusts, 2d Ed. §§ 217, 232, 241, 828; Mackreth v. Symmons, 15 Ves. 329; Same case, 1 Lead. Cas. in Eq., 336; Lemon v. Whitley, 4 Rus. 423; Chapman v. Tanner, 1 Vern. 267; Blackburn v. Greyson, 1 Brown Ch. 428; Burgess v. Wheat, 1 Eden, 211; Story Eq. Jur. § 1217; Sugden on Vendors, [8th Am. Ed.], note K. margin, page 680; Perry on Trusts, 2d Ed. §§ 67, 82, 122, 217, 241, 843; Currie v. White, 45 N. Y. 822; Pye v. George, 1 P. Wms. 128; Mansell v. Mansell, 2 P. Wm. 678; Kennedy v. Daly, 1 Schol. and Lef. 355; Crofton v. Ormbsy, 2 Id. 583; Murray v. Ballou, 1 Jh. Ch. 566; Van Allen v. American Nat’l. Bank, 52, N. Y. 1, and case cited; Perry on Trusts, § 843; Denton v. Davies, 18 Vesey, 504; Oliver v. Piatt, 3 How. U. S. 333; Freeman v. Cook, 6 Ired. Eq. N. C. 379; Roberts v. Mansfield, 38 Geor. 458; Norman v. Cunningham, 5 Grat. [Va.] 72; Flagg v. Mann, 3 Sumn. U. S. 84; Howkins v. Howkins, 1 Drewry & S. 75; Hill on Trustees, 522). The Supreme Court of the Pnited States in 1871, in the case of Kitchen v. Bedford (11 Wallace 413) went so far as to hold the trustee, and those claiming under him, liable in trover at the suit of the cestui que trust.
    
    
      V. The holder of an equitable lien has- his remedy against all parties who interfere with or defeat the same, having notice thereof, or standing in the position of mere volunteers under the party creating the lien (Goulet v. Asseler, 22 N. Y. 225; Hull v. Carnley, 1 
      Kern. 501; 17 N. Y. 202; Manning v. Monahan, 28 Id. 585; Hath way v. Brayman, 42 Id. 322, 7 Term R. 9).
    VI. The disposition of this case in the court of appeals did not leave it res adjudicada under the opinion of the general term as to the first cause of action set forth in the complaint, as was claimed by defendant at the trial. (1.) The court of appeals did not pass on the first cause of action; they were acting under the familiar rule that when the demurrer is general it must be entirely sustained or fall together (Peabody v. Wash. Mut. Ins. Co., 20 Barb. 342; Cooper v. Classon, 1 Code R. N. S. 347; People v. Mayor, 17 How. Pr. 57; Wait Ferguson, 14 Abb. Pr. 379). A defendant, where the complaint contains several causes of action, is at liberty to interpose a separate demurrer to each cause, and if he fails to do so, the court will overrule the demurrer on finding one good cause of action without looking further (Butler v. Wood, 10 How. Pr. 222; Martin v. Mattison, 8 Abb. Pr. 3; Harrison v. Hogg, 2 Vesey Jun. 323; Jones v. Frost, 3 Mod. 1; 1 Barb. Ch. Pr. 107; Code, § 145; Jaques v. Morris, 2 E. D. Smith, 639; Sheldon v. Hoy, 11 How. Pr. 11; Roeder v. Ormsby, 22 Id. 270). If a complaint charges a conversion of money of the plaintiff by the defendant, and claims damages, and the evidence fails to show a conversion, if it appears that the defendant has received the money in question to the plaintiff’s use, the plaintiff may under the code recover as for money received (Gordon v. Hostetter, 37 N. Y. 99; Byxbie v. Wood, 24 Id. 607; Wright v. Hooker, 10 Id. 51; Cobb v. Dows, 10 Id. 335; Eldridge v. Adams, 54 Barb. 417; Colton v. Jones, 7 Robt. 164).
    
      B. R. Meade, attorney, and Wheeler B. Peckham, of counsel for respondent, urged:
    I. Conceding, for the argument, that plaintiff had legal title, instead of a covenant for a lien, under his lease—yet he can not re cover. It is well settled that the seizure and sale of chattels under a junior encumbrance is no wrong to the holder of a prior lien, though the prior lien be a full mortgage (Hull v. Carnly, 17 N. Y. 202; Goulet v. Asseler, 22 Id. 225; Manning v. Monaghan, 23 Id. 545, where in the opinion, Judge Comstock reasserts the principles of his dissenting opinion in Goulet v. Asseler; Manning v. Monaghan, 28 N. Y. 585, which again overrules the principles of Judge Comstock; Hathaway v. Brayman, 42 N. Y. 322; Trust v. Pierson, 1 Hilt. 292).
    II. Defendant took its second mortgage without notice of plaintiffs equitable claim under the lease,, and having given time and some money as consideration for said second mortgage, became a bona fide holder for value, and held in priority to plaintiff’s claim under the lease. As to value, Bank of Sandusky v. Scoville (24 Wend. 114, 115); Traders’ Bank of Rochester v. Bradner (43 Barb. 379), cited and approved 42 N. Y. 438. As to priority, Taylor v. Baldwin (10 Barb. 627).
    III. The assignment by plaintiff to defendant of plaintiff's mortgage, gave defendant a right prior to that of plaintiff under the lease, (a.) Before that assignment plaintiff had two rights with respect to this property. (1.) A complete legal right under the mortgage. Default had been made in its condition, and the title of the plaintiff had become absolute at law. He could have maintained trespass or replevin. (2.) An inchoate or equitable right under the lease. To perfect it would have required the execution by Cozzens & Co. of the lien covenanted to be made, or the decree of a court on bill filed. (5.) Were either course adopted, the effect would have been to make the lien, given in pursuance of the clause in the lease, a lien subsequent to that of the original mortgage, because' subsequent in point of time. To make it a first lieu would have required a special clause in the new lien, contract, or decree. While these two rights were in plaintiff’s own hands, they had an equal equity ; but one only had a legal «character. He then transfers his legal lien, which has also an equal equity. That act gave his transferee priority ; for where the equities are equal, the legal title will prevail (1 Story Eq. § 642).
    IV. The assignment by plaintiff to defendant of the mortgage, subject only to certain bankruptcy proceedings, is a virtual covenant that it is a first lien— "Expressio unius&c.
    V. The decision by the court of appeals does not touch the case as now presented.
    VI. Plaintiff cites a number of cases of the enforcement of equitable liens. Such cases go merely to the point that such a bill may be filed against the covenantor, and any person holding under him and having the property, to enforce the lien against the property. Wellesly v. Wellesly (4 Myl. & C. 561), Wood v. Lester (29 Barb. 145), Seymour v. Canada & Niagara Falls R. R. (25 Id. 284), are good illustrations of the cases cited. No case can be found where an action for damages has been maintained against one for enforcing his legal rights against property on which another had even a prior equitable lien.
   By the Court.—Speir, J.

The complaint is in substance the same as a declaration in trover, under the former system of pleading.

Although the code has abolished all distinctions between the mere forms of action, and every action is now in form a special action on the case, yet in their nature they are essentially dissimilar, marked by intrinsic differences which no law can abolish. In trespass and trover, before the code, the plaintiff recovered, if he recovered at all, upon the ground that he was the owner of the property in controversy. The measure of damages, therefore, in all such cases, was the value of the property taken or converted. I think the case, as now presented by the evidence and findings of the learned judge who tried it, was»properly decided by him The defendant’s proceedings were simply to enforce its own right against the mortgagors. By the sale, under the chattel mortgage, the defendant sold only the rights of Cozzens & Co., and of itself in the property, and did not sell the plaintiff’s interest, if any he had therein.

o

The following positions respecting actions of this character are perfectly well established:

First. That a mortgagor of chattels remaining in possession before default, under a clause entitling him to such possession, has an interest in the property which is the subject of levy and sale on execution against such mortgagor.
Second. That although the interest which passed to the purchaser at such sale is only such an interest as the morgagor had, yet parties promoting the sale are not trespassers if the sale is in general terms, without any notice being taken of the existence of the mortgage. So far as this case is concerned, I think it is covered by these propositions (Hathaway v. Brayman, 42 N. Y. 322; Hull v. Carnley, 17 Id. 202; Goulet v. Asseler, 22 Id. 225; Fairbanks v. Phelps, 22 Pick. 535).

The defendant removed the property covered by its mortgage from the premises, and while the property was in its possession, under its mortgage, the plaintiff, on September 24, 1868, assigned to the defendant, in consideration of the sum paid by it, the mortgage which had been executed to him by Cozzens & Co. on October 14, 1867. The defendant retained possession of the property under both mortgages,until November 20,1868, when they sold it at public auction. The sale was made under both mortgages,notice of time and place of sale being published for thirty days in the Omaha newspapers'.

The defendant had taken possession of the chattels under its mortgage, on April 28, 1868, in an action against the lessees to recover such possession, and in such action it was adjudged that the defendant, as mortgagee, was entitled to such possession. The sale was therefore lawful, because it was under a decree of the court, and no right or interest of the plaintiff was sold.

The plaintiff’s counsel here interposes the objection, that, at the time the hotel was furnished, which by the findings appears to have been on or about July 25, 1867, the equitable lien attached, which was prior to the execution of the chattel mortgages. I think the answer to the position is that, strictly speaking, no lien had attached at any time during the proceedings complained of.

“ The elementary rule in the interpretation of air agreement, where the terms are not ambigious or uncertain, excludes all evidence of the language employed by the parties in making the contract, other than is set down in the writing itself.” The lessees, after covenanting to pay the rent, as it shall become due, add, “a lien shall be given by the said lessees to the said lessor to secure the payment thereof on all the furniture tha.tshall be placed in said hotel by said lessees.”

It is plain the parties contemplated some further and other act to perfect the security. The lease and agreement import a covenant to create a lien upon the property by a proper instrument, when it shall have been put upon the premises by the lessees. As soon as the lessees had furnished the hotel and placed the furniture therein, the lessor could have required of them security in proper form upon the furniture, and had they refused, upon request, to give the lien agreed upon, a specific performance would have been decreed.

No proper instrument was at any time executed by the parties to perfect the lien, nor was any specific performance decreed or instituted for that purpose.

The defendant, by taking its second mortgage without notice of plaintiff’s inchoate equitable claim under the lease on the furniture and chattels, to secure the payment of the sum of five thousand nine hundred dollars, theretofore loaned to the lessees, then due and owing, the payment of which by its terms was extended sixty days, containing a covenant that the bank might take possession of the property at its election any time, became a bona fide holder for value and held in priority to plaintiff’s claim under the lease.

The decision of the Court of Appeals (Hale v. Bank of Omaha, 49 N. Y. 626) does not affect the case as now presented. The defendant demurred to the complaint, which contained two counts. The demurrer was general, and there being two distinct and separate counts, it was overruled, the court reversing the-judgment on the ground that the second count was good. The learned judge, however, has put a constrnction upon the true character of the lien contained in the clause in the lease, and is authority on that question.

The fact has been found by the court below, that before the defendant took its mortgage on the 10th of March, 1868, it had no knowledge of the provisions in the lease in plaintiff’s favor in respect of the lien to be given by the lessees. An examination of the testimony on that subject justifies the fact as found.

The assignment of the mortgage to the defendant does not import that the same was made subject to any lien in plaintiff’s favor, and being made subject only to-certain bankrupt proceedings is a strong inference that the lien claimed was waived, and that the mortgage-assigned was a first lien.

The judgment must be affirmed, with costs.

Freedman and Curtis, JJ., concurred.