Case Name: BROWN v. JOHNSTON
Court: New York Court of Common Pleas
Jurisdiction: New York
Decision Date: 1879-04
Citations: 7 Abb. N. Cas. 188
Docket Number: 
Parties: BROWN v. JOHNSTON.
Judges: 
Reporter: Abbott's New Cases
Volume: 7
Pages: 188–194

Head Matter:
BROWN v. JOHNSTON.
N. Y. Common Pleas ;
Special Term, April, 1879.
Mortgages.—Assignment.—Recording Act.—Estoppel.
An assignment of a bond and mortgage, recorded by the assignor, but never delivered to nor accepted by the assignee, has no legal inception in favor of such assignee, as against a subsequent bona fide assignee for value of the same assignor.
If the money paid by a bona fide assignee of a mortgage which had been previously assigned, is invested in other property, which is subsequently conveyed to the first assignee, the doctrine of equitable estoppel applies, to prevent the latter from claiming the mortgage.
A second assignment of a mortgage to a bona fide purchaser, after a previous assignment to a third person, lacking delivery, acceptance, and consideration, but recorded, is entitled to the superior equity.
The statutory notice by record is intended only for a bona fide purchaser or incumbrancer.
Trial by the court.
This was an action by William B. Brown against Harrison Johnston and William M. Gawtry, to have an assignment of a bond and mortgage declared void, and for an injunction against the defendant, Johnston, and that the plaintiff be adjudged and declared to be the true owner of the mortgage.
The defendant, Johnston, a resident of Columbus, Miss., and the other defendant, Gawtry, a resident of New York city, were friends pf long standing, and for many years had had business dealings with each other, and Gawtry was believed by Johnston to be a man of large wealth, and had his entire confidence.
In 1865 Johnston began to remit large sums of money to the firm of which Gawtry was a member. This money was held by the firm under an agreement that it should be repaid at any time upon notice and demand, and in the meantime should bear interest at five per cent. The firm used the money in purchasing business paper, making such purchases at their own risk, and paying Johnston interest upon the whole amount every six months. In February, 1867, Gawtry’s firm was dissolved, and thereupon the whole of the money, amounting to $190,000, was transferred to Gawtry, who afterwards organized á new firm and transferred $54,500 of this money for use in its business, for which amount he allowed Johnston seven per cent, interest, but continued to use the remainder as he saw fit, informing Johnston of its use, but accounting to him for it in gross, and being fully authorized by him to exercise his own discretion as to its employment.
In 1869 Gawtry was in bad health; and thinking to secure Johnston as to a part of his indebtedness, in case of his death or any disaster, he executed several instruments purporting to be assignments to the latter of several purchase-money bonds and mortgages which he had taken to himself. Among these was a mortgage for $15,000, given by one Thatcher M. Adams, of property in Westchester county. Upon the execution of the assignment of this mortgage Gawtry sent it with the mortgage to Westchester -county to be recorded, with directions that they should be returned to him, which was done, and he notified Johnston of the assignment, but never showed or delivered it to him, but kept it in his possession. Adams, the mortgagor, was-never-notified of this assignment until October, 1878, but continued until then to pay interest every six months to Gawtry, as the sole owner thereof, who receipted for the same in his own name.
This assignment was made as a' collateral security for $15,000 of the indebtedness, and notin pursuance of any arrangement, agreement or understanding, but simply of Gawtry’s own motion ; was not an investment of $15,000 of Johnston’s money, and was never accepted by Johnston as a payment of any of Gawtry’s indebtedness to him. After the assignment Gawtry paid Johnston interest at the rate of seven per cent, on the amount of money represented by the mortgages of which he had executed assignments, but always paid the interest in gross, and was looked upon by Johnston as his debtor to the full amount of his original indebtedness, and was permitted by Johnston to do with all the securities as he saw fit.
In February, 1876, when the bond and mortgage became due, Gawtry called for its payment, and Adams applied to the agents in New York, of the plaintiff, who resided in England, for the latter to take the mortgage, which was done, and the plaintiff’s agents paid Gawtry the full amount of the mortgage, with interest, and the latter executed an assignment thereof in his own name to the plaintiff, and delivered the same, together with the bond and mortgage, to the plaintiff’s agents, who had it recorded in New*York county, where the land then was, under the act of 1873 making that part of Westchester county a part of New York city.
. Gawtry thereafter assigned to Johnston a mortgage for $15,000 .on some other lots, to take the place, as collateral security, of the Adams mortgage; and used the money which he had received from the plaintiff in the construction of eight houses upon the lots so mortgaged, which houses were afterwards, in a settlement. between them, conveyed to Johnston, who had been informed of the change of mortgage and had acquiesced therein.
In September, 1876, Gawtry delivered to Johnston certain bonds and mortgages amounting to $70,000 in all, among which were two mortgages which had been made by Gawtry in favor of Johnston, and recorded in 1869, about the time of the execution of the assignment of the Adams mortgage; and Johnston for the first time received any bonds and mortgages as a payment on account 'of Gawtry’s indebtedness to him.
In May, 1877, Gawtry and Johnston came to a full settlement of their account, and the former was debited with the full amount of his original indebtedness, less $5,000, which had been paid in cash, and turned over to Johnston as a payment thereon mortgages and property, including the $70,000 of mortgages, and property to the value of $101,000, in which were included the eight houses constructed with the money paid by the plaintiff to Gawtry, who gave his notes for the balance of his indebtedness. At the time of this settlement Johnston made no claim to the Adams mortgage, but the $15,000 which it had represented was included in the amount with which Gawtry was debited, and for which the settlement was made.
Adams continued to pay interest to the plaintiff upon the bond and mortgage, and neither he nor the plaintiff had any knowledge or information of the ex istence of any assignment to the defendant, Johnston, until during the month of October, 1878, when the latter notified them thereof, and claimed the bond and mortgage.
Plaintiff thereupon brought this action.
Douglass Campbell, for the plaintiff.
There was no consideration for the assignment from Gantry to Johnson (Rupp v. Blanchard, 34 Barb. 627 ; Kingston Bank v. Gay, 19 Id. 459). Payment to one having the bond and mortgage is good (Williams v. Woller, 2 Sandf. Ch. 325; Megary v. Funtis, 5 Id. 325). Gawtry’s acts were ratified by Johnston (Howard v. Duncan, 3 Lans. 174; 46 Me. 176 ; 33 Conn. 95 ; 4 Allen, 447 ; 32 Ill. 387; 7 Humph. 224; 1 Wait’s Actions and Defenses, 234, and cases cited). There was no delivery of the assignment to Johnston. Putting it on record is not enough. There must be acceptance (Jackson v. Phipps, 12 Johns. 418 ; Elmy v. Metcalf, 1 Den. 327). A deed absolute on its face may be shown to have been executed only as collateral security (46 N. Y. 607).
Frederick Bwarts, for defendant, Johnston.
As to delivery, see Fisher v. Hall, 41 N. Y. 416; Ford v. James, 2 Abb. Ct. App. Dec. 159; Schroeder v. Gurney, 73 N. Y. 430; Barto v. Tompkins County Nat. Bk., 15 Hun, 11; Patterson v. Snell, 67 Me. 559; Gage v. Gage, 36 Mich. 229; Thatcher v. St. Andrew’s Church, 37 Id. 264; Roosevelt v. Carow, 6 Barb. 190; McLean v. Button, 19 Id. 450; Brown v. Austen, 35 Id. 341; Brackett v. Barney, 28 N. Y. 333; Stanton v. Miller, 58 Id. 192; rev’g 1 Supm. Ct. (T. & C.) 23; Cocks v. Barker, 49 N. Y. 107; Shrader v. Bonker, 65 Barb. 608; Dietz v. Farish, 44 Super. Ct. (J. & S.) 190; Macaulay v. Porter, 71 N. Y. 173; Spencer v. Carr, 45 Id. 406; Campbell v. Thomas, 42 Wisc. 437; Cannon v. Cannon, 26 N. J. Eq. 316; Newton v. Bealer, 41 Iowa, 334; Steele v. Miller, 40 Id. 402; Stiles v. Probst, 69 Ill. 382; Duer v. James, 42 Md. 492; Bell v. Farmers’ Bank, 11 Bush (Ky.) 34; Kille v. Ege, 79 Penn. St. 15.
As to effect of recording mortgages and assignments of mortgages, see Greene v. Warnick, 64 N. Y. 220; 4 Hun, 703; St. John v. Spaulding, 1 Supm. Ct. (T. & C.) 483; Goelet v. McManus, 1 Hun, 306; Greene v. Deal, 4 Id. 703; Lane v. Nickerson, 17 Id. 148; Cary v. White, 52 N. Y. 138; Ayrault v. Murphy, 57 Id. 203; Crane v. Turner, 67 Id. 437; affi’g 7 Hun, 357.

Opinion:
Larremore, J.
This is not a difficult case to dispose of, or one requiring further examination. I still retain the same impression that I had at the close of the testimony. It is evident that the relations between Johnston and Gawtry were of a very intimate and confidential character, prior to the assignment of the Adams mortgage. Money was loaned by the one to the other without any promise or expectation of having security, and the security subsequently given was entirely at the suggestion of Mr. Gawtry himself, for the protection of his friend, who had intrusted him with so large an amount of money. The mortgage given by Mr. Adams was a purchase-money mortgage of property conveyed to him by Gawtry, and did not come from the ad vanees made by Johnston. It was included among the mortgages that were assigned by Gawtry to Johnston for the latter's protection, in case of any sudden emergency. The assignment of Johnston was put upon record, but was never delivered and never accepted by him. Therefore, as between him and innocent third parties, it had no legal inception. There was no delivery at the time when the plaintiff parted with his money in the purchase of the mortgage in question. Mr. Adams stands before the court as an innocent party who, without notice, had procured an assignment of this mortgage. The plaintiff, Mr. Brown, stands in the same position. He comes before the court and asks to have this first assignment removed as a cloud upon his title. It is evident that Mr. Johnston knew nothing of his assignment until long after the assignment of the mortgage to Mr. Brown, and only knew of it then when he was told. I think the correspondence between the parties explains the whole matter, and shows that Mr. Gawtry was making these assignments merely as collateral security, for Mr. Johnston's benefit, in case of any misfortune that might happen. It is the mission of equity, where the law is defective, to correct it, and, it seems to me, this is a proper case for the application of the rule.
Where a party, in good faith, and without knowledge of another's claim, has, for a valuable consideration, acquired title to the thing in dispute, his right should be sustained. If there is any loss resulting from Mr. Johnston's excessive confidence in Mr. Gawtry, Mr. Johnston shoúld be the one to bear it.
I cannot see that there is any ground upon which the court can be asked to sustain the first assignment. The money has been paid by the plaintiff, and the evidence shows that the proceeds of the $15,000 were invested in other property which was subsequently conveyed to Mr. Johnston. That testimony is undis puted. That being so, then the doctrine of equitable estoppel applies.
The first assignment lacked the three elements necessary to give it validity, namely: delivery, acceptance and consideration ; and plaintiff's assignment intervening these, is entitled to the superior equity.
As to the statutory notice by record, that is intended for a bona fide purchaser or incumbrancer acting in good faith, and I cannot hold, under the state of facts before me, that Mr. Johnston is either. I think the rule of superior equity is in favor of the plaintiff, and that he should have the relief asked for in his complaint.