#### Gordon and another vs. Mulhare and another.

A mortgagee who has assigned the mortgage note, which was negotiable, to an innocent party, before due, as security for goods sold on the credit of the paper, has no right to enter of record a satisfaction of the mortgage, although the note was given without any consideration; and a court of equity will di- , rect an entry of satisfaction made by him under such circumstances, to be vacated.

In an action by the assignee of such note to have such entry of satisfaction vacated, parol proof of the existence of the debt which the note was transferred to secure, was *held*sufficient, although it appeared that the assignor had given his own notes for the amount of such debt, which were not produced on the trial.

It is not necessary in an action to vacate such entry of satisfaction, that the court, should ascertain or adjudge the amount for which the assignee of the note has a right to resort to the mortgage security. That question may remain until an action is brought to foreclose the mortgage.

APPEAL from the Circuit Court for *Dane*County.

On the 16th of September, 1856, *Mulhare*executed to one *Heeran*a note for $3,000, payable to him or bearer in one year from date, and a mortgage upon land in Dane county to secure its payment. On the 24th of November, 1856, *Heeran,*at the instance of *Mulhare,*entered satisfaction of the mortgage, of record. *Gordon*and *Felloius*filed their bill on the 26th of the same month, against *Mulhare*and *Heeran,*alleging that on the 29th of September previous, said *Heeran*had assigned the note and delivered it with the mortgage to them, to secure them for the sum of $709,69, then due to them from *Heeran,*and the further sum of $1,934,80 for goods which *23*Heeran*then purchased from them and which they sold to him upon the credit of said note, in good faith, in the usual course of business; and praying that the satisfaction of the mortgage entered by *Heeran*might be vacated, and that when the note should become due, the mortgaged premises might, by a proper decree, be directed to be sold for its payment, &c. *Heeran*made default. *Mulhare*answered that he executed the note and mortgage to *Heeran*without any consideration, and when he was intoxicated, and that *Heeran*was to discharge the mortgage when a difficulty between *Mulhare*and his wife should be settled; that at the time *Heeran*discharged the mortgage he had no notice that *Heeran*had ever made any sale or transfer thereof, and he denied all the other allegations in the bill. Replication to the answer. On the hearing, which was in January, 1860, the depositions of one of the plaintiffs and of their clerk, were read, sustaining the allegations in the bill as to the delivery of the note and mortgage to the plaintiffs as security for the debts therein mentioned, and stating also that the debt contracted by *Heeran*at the time he negotiated the note, was still unpaid, and that a small balance of the previous debt remained due. It appeared also from the depositions, that at the time *Heeran*purchased the new bill of goods to the amount of $1,934,80, he gave three notes therefor, payable in three, four and five months from date.

When the depositions were offered in evidence, *Mulhare*moved the court to suppress such parts of them as tended to show any indebtedness of *Heeran*to the complainants,' on the ground that it was shown by the depositions that the indebtedness was evidenced by notes, which were not produced or offered in evidence. The motion was overruled.

*Mulhare*testified that the note and mortgage were given without consideration, as stated in his answer. The judge of the circuit court found the facts to be substantially as stated in the bill, and adjudged that the satisfaction of the mortgage entered by *Heeran*be vacated, but that the plaintiffs were not entitled to a foreclosure of the mortgage in this suit, because the note was not due at the time of filing the bill. *Mulhare*appealed.

*24S. *U.*Pinney, for appellant, argued that parol evidence

argued that parol evidence was not competent to prove tbe indebtedness of *Heeran*to the plaintiffs until tbe absence of tbe notes was satisfactorily accounted for. Tbe presumption is, that these notes were negotiable, and they may have passed into tbe bands of a *Iona fide*purchaser. Tbe best evidence that tbe nature of tbe case admits of must be produced. 1 Greenl. on Ev., §§ 87-8; 8 Monroe, 247; id., 529; 1 Pet., 596; 11 Eos-. ter, 419. It is clear that tbe pledgees could not bold tbe pledge as security for a pre-existing debt *(Stallcer vs. McDonald,*6 Hill, 98); and tbe court should have ascertained by its decree tbe rights of tbe parties in this respect.

*Smith*& Keyes, for respondents.

November 19.

*By the Court,*

Cole, J.

It seems to us very clear that *Heeran*bad no right to satisfy and discharge of record tbe mortgage mentioned in tbe pleadings in this case. He bad already transferred and assigned that mortgage and tbe accompanying note, for a good and valuable consideration, to tbe respondents, to secure tbe payment of tbe debt be owed them. Tbe note and mortgage were not due, and there was nothing to show that they were not executed to secure a *Iona fide*indebtedness from *Mulhare*to *Heeran.*And tbe evidence incontestably proves that *Heeran*obtained from tbe respondents nearly two thousand dollars’ worth of merchandize upon tbe strength of these securities, at tbe time-be assigned and pledged them. Why, then, could not tbe respondents bold tbe note and mortgage to secure tbe payment of tbe amount advanced upon tbe strength of these securities, thus pledged before maturity for value and without any notice to tbe respondents of tbe character or purposes for which tbe note and mortgage were made ? Assume that tbe respondents had no right to bold tbe note and mortgage, under tbe circumstances, to secure tbe payment of any pre-existing indebtedness from *Heeran,*still in law and equity could they not bold them for tbe then contracted indebtedness for which tbe securities were thus pledged ? It seems to us there can be no kind of doubt about tbe right of tbe respondents to bold tbe mortgage and note for this purpose.. *25Wbat if tbe note and mortgage were executed under tbe circumstances and for tbe object stated by *Mulhare*in bis answer and testimony ? Suppose *Heeran*paid no value for tbem, and as between bim and *Mulhare*a court of equity would decree tbem to be delivered up and cancelled. Can a court of equity do tbis after tbe securities bave passed into tbe bands of innocent *Iona fide*holders for value before maturity, wbo bave made advances and sold merchandize upon tbe faitb and credit of these very obligations ? Clearly not. *Mulhare*gave tbe note and mortgage voluntarily. He clothed *Heeran*apparently with a good title to tbem. Tbe respondent sold goods to bim upon tbe supposition that be owned tbem. And if either party must suffer loss from *Heeran’s*fraud, equity requires that it should fall upon tbe appellant rather than tbe respondents, certainly to tbe amount of tbe debt contracted when these securities were pledged.

Tbe counsel for tbe appellant contended that tbe circuit court erred in admitting evidence to prove tbe amount of tbe debt contracted at tbe time tbe mortgage was pledged and assigned, and insisted that tbe debt could only bave been proven by tbe production of tbe notes themselves. We do not so understand it. Tbis was a proceeding to bave tbe satisfaction of tbe mortgage, which bad been entered of record, vacated and set aside. That satisfaction bad been entered by *Heeran*without any authority whatever. Tbe respondents were entitled to bave tbis discharge vacated and tbe mortgage declared a valid lien upon tbe mortgaged premises, upon showing tbe nature and character of their interest in it. They certainly could prove by parol tbe whole transaction, and tbe indebtedness for which tbe mortgage and note were pledged as security. When they came to foreclose tbe mortgage, it would be necessary to produce tbe notes or satisfactorily account for tbem. But they clearly established their interest in the mortgage, and their right to bave tbe discharge vacated. And it was not necessary to produce tbe notes for tbis purpose. There was ample evi-' dence that' tbe notes belonged to respondents, and there was no testimony to tbe contrary.

*26^ WaS ^ur^er insiste(l that the circuit court should, in proceeding, have adjudged that the mortgage was a lien only to the extent of the debt contracted at the time it was assigned and pledged. But it is manifest that it was not necessary to go into that matter in this case. When the mortgage is foreclosed, if ever it shall be, we presume the court will do right between all the parties, and give judgment of foreclosure only for the amount for which the respondents are entitled in equity to hold it as security.

The judgment of the circuit court is affirmed.