Case ID: ny-super-ct_53/html/0170-01.html
Source: Caselaw Access Project
Author: {"author": "Freedman, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

MARY T. CONSTANT as Executrix, and S. VICTOR CONSTANT, et al., as Executors of SAMUEL S. CONSTANT, Deceased v. THE AMERICAN BAPTIST HOME MISSION SOCIETY, Impleaded, &c.
    
      Mortgagee for valuable consideration, who not—Purchaser in good faith, notice to attorney having prior Tcnoioledge.—Equitable estoppel.—Mortgage in fact prior in date but subsequent in record to another, complaint and foreclosure of, form of, and party to.
    
    1. Mortgagee for valuable consideration, who not. The attorney for defendant, who had been allowed by it to retain in his possession for re-investment, moneys paid to him on the payment and satisfaction of mortgages held by it, procured third parties to execute to it their bonds secured by their mortgages on certain real estate, and deliver the same to him; the amount of such bonds and mortgages, by arrangement between the third parties' and the attorney, was to be paid by the attorney applying the same to the payment of certain bonds theretofore made by them to the plaintiff secured by their mortgages on the same real estate, two of which mortgages were not recorded ; nothing was paid by defendant at the time of the transaction or at any time afterwards, nothing was paid to any third parties, and nothing was paid to the plaintiff, nor were the bonds and mortgages to the plaintiff over paid or satisfied.
    
      Meld, that as against the plaintiff, the relation between the defendant and its attorney was that of debtor and creditor ; and that the taking of the bonds and mortgages by defendant for the antecedent debt of its attorney did not constitute it a mortgage for a valuable consideration within the meaning of the statute.
    
      2. Purchaser in good faith. Notice to attorney having prior knowledge. The attorney for the defendant was the attorney for the plaintiff through whom the transaction between .the plaintiff and the third parties above mentioned, and resulting in the bonds and mortgages to the plaintiff above mentioned, was had, and who was intrusted with the recording of the mortgages; but at the time of the transaction resulting in the bonds and mortgages to defendant, a statement was prepared by one of the employes of the attorney, under his direction, for the purpose of ascertaining the precise amount to be credited to the third parties upon the basis that the amounts of such bonds and mortgages were to be treated as loans from defendant, which showed the amount due plaintiff* of which statement defendant’s attorney had personal knowledge before the delivery to defendant of the bonds and mortgages made to it.
    
      Held, that such notice to the attorney was notice to the defendant of the existence of the prior mortgages to plaintiffs, of the amount due them, and of its rights thereto.
    8. Equitable estoppel cannot arise out of matters, from the existence of which no loss ensues. Although the plaintiff, at the several times above referred, was a member of the finance committee, and chairman of the executive board of defendant, and conceding that he knew of the attorney’s intention to give defendant the mortgages which were turned over, and that it was his duty to prevent the attorney from acting as he did ; yet the attorney being at the time heavily embarrassed, and shortly after making an assignment,
    
      Held, that the plaintiff’s not preventing the attorney from acting as he did, and permitting the defendant to receive the mortgages, would not have equitably estopped him from enforcing against the defendant the mortgages held by him, for it lost nothing by receiving the mortgages; its loss was complete when it satisfied its previous mortgages without compelling its attorney to pay over the proceeds to it.
    
      4. Nor from a loss not arising from an act done, or induced to be done by act, assertion or silence of the one sought to be estopped. The defendant foreclosed the mortgages made to it, purchased at the sale, and made a contract to finish the buildings. All this was done when plaintiff was no longer an officer, nor even a member of the defendant, and while defendant was, as above held, chargeable in law with notice of plaintiffs’ right.
    
      He Id, that no estoppel arose in equity out of these matters, as against the plaintiff.
    5. Mortgage in fact prior in date but subsequent in record to another; complaint inforeclosure of, form of, and parties to action. The holder of the mortgage prior in record may be made a party defendant, and it may be alleged generally, that he has, or claims to have some lien or interest upon the|mortgaged premises, or some part thereof, which, if any, is subsequent to the lien of plaintiffs’ mortgage. No special allegations are necessary.
    
      At Special Term, before Freedman, J.
    
      Decided April 21, 1886.
    Trial of three foreclosure actions.
    The facts appear in the opinion. '
    
      Thornall, Squires & Constant, for plaintiffs.
    
      JE. S. Clinch, for defendant.
   Freedman, J.

The three bonds and mortgages upon which the actions are brought, were duly executed and acknowledged by Elizabeth Meehen and Hugh Meehen, her husband, to secure the payment of the sums named therein. These sums they received as loans from Mr. Samuel S. Constant, through Mr. Deane, who acted as Mr. Constant’s attorney and counsel in the transaction. The date of the first bond and mortgage is October 2, 1882, and the other two are dated February If, 1883. The papers were duly delivered to Mr. Deane who handed the bonds over to Mr. Constant and retained the mortgages for record. This in law constituted a complete delivery to Mr. Constant, and thereupon Mr. Constant’s right to enforce the same became fixed. If he is to be deprived of it, it must be done by reason of something which occurred afterwards. There is no evidence that he ever received payment.

It appears, however, that Deane caused only the first mortgage to be recorded, that the other two were never recorded, and that he had authority to determine whether or not they should be recorded. Although in the matters stated he acted as the attorney and counsel of Mr. Constant, he was at the same time extensively engaged in real estate speculations on his own account, from some of which Mr. Constant indirectly received some benefit. Mr. Deane loaned Mr. Constant’s money to the Meehens to be used in the erection of buildings, and the mortgages taken were temporary or so-called builders’ mortgages, which were intended to be paid off and to be replaced by others of larger amounts whenever the buildings were so far advanced that a permanent loan could be obtained on them. This accounts for Mr. Deane’s failure to record two of the mortgages referred to. But whatever the reason, was, no person could take advantage of it as against Mr. Constant except a subsequent purchaser or mortgagee in good faith and for a valuable consideration whose conveyance or mortgage was first duly recorded.

On or about September 13,1883, the Meehens executed a bond and mortgage to the American Baptist Home Mission Society upon the property covered by Mr. Constant’s recorded mortgage. On January 11, 1884, they executed mortgages to the same society upon the property covered by Mr. Constant’s unrecorded mortgages. The execution of these three mortgages, with the bonds belonging thereto, was procured by Mr. Deane, who sent the bonds to the society at once, -and the mortgages as soon as they were recorded. The main question, therefore, is whether, as against Mr. Constant, the said society is a subsequent mortgagee in good faith and for a valuable consideration whose mortgage was first duly recorded.

As to Mr. Constant’s recorded mortgage, this question must be at once decided in the negative. Some independent considerations of an alleged equitable character which are claimed to affect the enforcement of this mortgage just as much as they are claimed to affect the enforcement of the unrecorded mortgages, I shall hereafter consider. As to Mr. Constant’s unrecorded mortgages, it becomes important to notice the relation which Mr. Deane occupied toward the society. He was a member of the executive board from May, 1878, to May, 1885, a member of the finance committee from June, 1878, to May, 1884, and the counsel of the society from September 13, 1880, to June, 1884. As such counsel it was his duty to examine titles on investments made by the society. In the regular course of events, therefore, Mr. Deane would have examined the title of the Meehens, and, if found all right- he would have procured the money from the society. He would then have used so much of it as was necessary to pay Mr. Constant and satisfy his mortgages, and paid the residue over to the Meehens. But all which was done was that under date of January 11, 1884. A statement was prepared for Mr. Deane by Mr. Squires, who attended to that kind of business for him, which showed the amount due to Mr. Constant on his unrecorded mortgages, that the Meehens gave a receipt for the amount as per statement,” i. e.,—for so much money not received by them, but to be used to satisfy Mr. Constant’s. mortgages, that satisfaction pieces were prepared, and that thereupon the Meehen bonds and mortgages were sent by Mr. Deane to the society, the bonds at once, and the mortgages when recorded. Nothing was paid to the Meehens, nothing was paid to Mr. Constant, and nothing was paid by the society at the time or at any time afterwards. The satisfaction pieces were not executed ; Mr. Constant was not even informed of the matter. For months afterwards he kept inquiring of Mr. Deane whether the latter had not yet found anything for the mortgages. „

The explanation for all this is, that for a long time prior thereto the society had intrusted Mr. Deane with the investment of its funds, and its committees had not exercised that supervision over his acts which should have been exercised, so that Mr. Deane could and did invest the funds of the society pretty much as he pleased. When a mortgage, which the society held, was paid to Mr. Deane, and this happened quite frequently, he applied to the society for a satisfaction piece, and the paper was executed by some of the officers of the society and handed to him, together with the bond and mortgage, for delivery to the party entitled thereto, but the amount received by him remained in his hands until he saw fit to reinvest it and return a bond and mortgage for it. It was for funds thus chargeable to him for reimbursement, and which had been in his hands for some time, that he undertook to turn into the society the bonds and mortgages referred to. He was at the time heavily embarrassed in his real estate speculations, and without doubt sent to the society the said bonds and mortgages in order to stave off investigation. A few months thereafter he failed and made an assignment for the benefit of his creditors.

Under these circumstances it is difficult to see how the society can claim the benefit of the recording act. As against Mr. Constant, the relation between Mr. Deane and the society was that of debtor and creditor. The taking of the bonds and mortgages for the antecedent debt of Deane, did not constitute it a mortgagee for a valuable consideration within the meaning of the statute (Rev. Stat. [6 ed.] Vol. II., p. 1138, §1), for it parted with nothing on the faith of the mortgages (DeLancey v. Stearns, 66 N. Y. 157 ; The Bank for Savings v. Frank, 45 Super. Ct. 404). Nor was there any representation made that the mortgages were first mortgages.

But the society is not even a mortgagee in good faith, for, under the circumstances of this case, the society as principal must be deemed to have had the same knowledge concerning the rights of Mr. Constant which Mr. Deane possessed as its attorney. Whatever benefit the society might claim under other circumstances under the rule as laid down by me in Dillon v. Sixth Ave. R. R. Co. (48 Super. Ct. 283; affirmed 97 N. Y. 627), cannot be accorded to it by reason of the fact that, contemporaneously with the execution of the bonds and mortgages by the Meehens to the society, and for the purpose of ascertaining the precise amount to be paid or credited to the Meehens upon the basis, that the amounts of said bonds and mortgages were to be treated as loans from the society, Mr. Deane procured Mr. Squires to make out the statement which showed the amount due to Mr. Constant. Now, it may well be that Mr. Deane personally did not see this statement until the day after the loan to the Meehens was closed between them and Mr. Squires on paper. But this is immaterial, because Squires acted for Deane, and the whole transaction remained a transaction on paper, the Meehens receiving nothing, Constant receiving nothing, and the society parting with nothing, and because Deane, beyond doubt, had personal knowledge of the whole transaction and of the contents of the statement, before the bonds and mortgages were transmitted to, and received by the society. The information thus obtained by Mr. Deane was, therefore, information acquired by him in the very course of the business of the society and as its attorney. The result is, that upon this point, the case falls within the rule as stated in Bank of the United States v. Davis (2 Hill, 451); Ingalls v. Morgan (10 N. Y. 178) ; Dillon v. Anderson (43 Ib. 231); The Distilled Spirits (11 Wall. 356) ; The Bank for Savings v. Frank (45 Super. Ct. 404); Kendall v. Mebur (45 Ib. 542 ; affirmed 46 Ib. 544, and 87 N. Y. 1). Moreover, at that very time Mr. Deane was not only the attorney of the society, but also a member of its executive board and of its finance committee.

There remain to be noticed the considerations of an equitable character to which I referred in the beginning, and on account of which it is claimed Mr. Constant and his executors are estopped from enforcing their mortgages against the society. They rest on the fact that Mr. Constant, at the times hereinbefore referred to, was a member of the finance committee of the society, and chairman of its executive board, and upon this it is claimed that it was his duty to prevent Mr. Deane from acting as he did. The answer to all this is that Mr. Constant’s rights had accrued before any wrong was perpetrated upon the society, and that, even if he had known of the intention of Mr. Deane to give to the society the mortgages which were turned over, and had acted, as the society claims he should have acted, the society would not have received the mortgages at all, and Mr. Deane would have remained indebted to the society precisely as he then was. The position of the society would not have been improved in the least by such action, and consequently it was not harmed by Mr. Constant’s omission to act. Its loss was complete when it released previous mortgages without compelling Mr. Deane to pay over the proceeds collected by him. The only risk Constant did run, was as to his unrecorded mortgages, and that was the penalty imposed by the recording act in favor of subsequent purchasers or mortgagees in good faith and for a valuable consideration, whose conveyances or mortgages might have been first duly recorded.

An equity is also claimed to arise from the fact that the society foreclosed its mortgages, purchased at the foreclosure sale, and made a contract to finish the buildings. There is nothing in this claim. These things were done when Mr. Constant was no longer an officer, nor even a member, of the society, and while the society stood, for the reasons hereinbefore stated, chargeable in law with notice of Mr. Constant’s rights, even if the contracts were not made after the filing of the notices of the pendency of the present actions. As to the form of the complaints, I see no reason to change the views expressed by me on the trial. There is no statute, rule or practice requiring that the complaint for the foreclosure of a mortgage shall contain special allegations as to defendants who are, or claim to be, subsequent lienors, and there is no difference in method between the foreclosure of an unrecorded, and that of a recorded, mortgage, except that under rule 63 an unrecorded mortgage must be filed with the clerk before the execution of the sheriff's or referee’s deed on a sale under the judgment of foreclosure. As both the plaintiffs and the society claim under mortgages executed by the Meehens, and the mortgages of the plaintiffs are first in date, the controversy does not present a question of paramount title, but only the question whether plaintiffs’ mortgages are really what they purport to be, viz. : first hens.

The plaintiffs are entitled to the usual judgment of foreclosure and sale, with costs, and an allowance in each of the three actions. Except as to matters peculiar to the actions when separately considered, the findings to be handed up for signature should be as they were proposed by the plaintiffs and corrected by me in Action No. 1, with the addition of a further finding, which seems to have been overlooked, showing breach of the condition of the mortgage, viz. : non-payment and the amount due.