Court Opinion

ID: 6581372
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:38:33.733636+00
Date Added: 2024-06-11T15:57:17.789562
License: Public Domain

The opinion of the court was delivered by
Veazey, J.
When Colby, of the firm of Colby, Gay <fc Orcutt, sold his third interest to his partners, Gay & Orcutt, the latter gave a mortgage to Colby and Blake, (Blake having formerly been a partner in the business with Colby and Gay, and had sold his interest to Orcutt), conditioned that “ Gay and Orcutt, their heirs, etc., should pay or cause to be paid, and save the said Colby and Blake, or either of them, harmless from all liability of any kind or description, from any debts or liabilities of the late firm of Colby, Gay & Blake, and the firm of Colby, Gay & Orcutt; and should also pay to said Colby the balance which should be due him on the purchase of said property, by deed dated February 29th, *881876.” At that time, Gay and Orcutt gave Colby seven notes for the purchase price; six of them have been paid, and the orator holds the other.
The defendant had furnished the several firms with money, including the last one, Gay & Orcutt; and in May, 1877, more than a year after said mortgage to Colby & Blake was executed, took a mortgage of Gay & Orcutt, of the premises in question, and other partnership property, conditioned for the payment to the defendant of all debts and demands, of every kind and character then due, or that might thereafter become due from them.
At that time, they were indebted to the defendant for a considerable amount, including what they had assumed of the indebtedness of the former firms, and wanted further accommodations for the purposes of their business, which consisted of the manufacture and sale of lumber, and was a continuation of the same business as that of the former firms. Under these circumstances, and for the purposes expressed in the condition, the defendant’s mortgage was executed. Gay & Orcutt afterwards failed, and are insolvent.
It is established by the evidence, that before the defendant bank took said mortgage, its president, Judge Poland, who was the only officer of the bank that had to do with this transaction, examined the record of the mortgage to Colby & Blake, which may be termed the orator’s, mortgage ; and then inquired of Colby and Orcutt whether anything was due to Colby for the purchase money, and was informed by both of them, that “ it was all paid.” The defendant had no information whatever, that any notes were ever given for the purchase price, until this suit was brought. Orcutt was a resident of Vermont, and was the manager of the business of Gay & Orcutt; Mr. Gay being a resident of Connecticut. At the time of said inquiry, Blake lived in California. There is nothing in the evidence to show that either Blake or Gay had any knowledge upon the subject of inquiry by the president of the defendant bank; and the fair and legal inference from the evidence, showing their situation, and their attitude to these mortgages, and to the business and property of said firm, is, that neither of them could have given any information upon the point of inquiry; and no claim is made in argument, that they could ; or that the defend*89ant was guilty of any laches in not extending its inquiries to these parties.
The question is, which of these two mortgages shall prevail, as between each other, being upon the same property. The orator claims that the defendant did learn that there had been something due to Colby on the purchase price, because Orcutt and Colby informed its president that “ it was all paid ” ; and that having learned there once was a debt, it took the mortgage at the same peril as though the former mortgage had specified the notes that evidenced the debt.
An examination of the authorities indicates that no state has adopted a more liberal rule than that adopted in Vermont, in behalf of mortgagees, as to the effect of a condition of a mortgage made in general terms, as to the description of the debt intended to be secured.
The late Chief Justice Redfield, in Seymour v. Darrow et al., 31 Vt. 133, after an extended discussion of the subject, in the light of authorities of other states and of England, says: “All that is now required in this State is that the extent of the mortgage should be described in general terms, ‘ as all I now owe or may hereafter owe the mortgagee.’ . . . Those interested must then make their inquiries in the proper quarter.”
But in this State, as well as elsewhere, all the cases holding-even this liberal view, recognize as the learned Chief Justice did in that case, that there is a limit to the inquiry that need be made by a subsequent incumbrancer, where the description is general, and does not specify anything as evidence of the debt, or indicate that it exists, or is to exist in any form of specification. He is, however, put on inquiry by such a mortgage. In Judge Poland’s dissenting opinion, in Seymour v. Darrow, he says : “ When a man has no certain knowledge of a fact, but is only put on inquiry, he is held to have notice of all such facts as reasonable diligence in prosecuting his inquiry in the proper direction would bring to his knowledge.” Jones, in his treatise on Mortgages, vol. 1, s. 596, says: “ A party wilfully closing his eyes against the lights, to which his attention has been directed, and which, if followed, would lead to a knowledge of all the facts, is chargeable with *90notice of every fact that he could have obtained, by the exercise of reasonable diligence.'1'’ In defining constructive notice, in section 591, the same author uses the term, “ ordinary diligence.” In Blaisdell v. Stevens, 16 Vt. 179, and in Stafford v. Ballou, 17 Vt. 329, the term, “ reasonable inquiry,” is the one used, to denote the measure of inquiry a party is bound to make, when put upon inquiry.
The orator’s mortgage was conditioned to secure the payment of the partnership debts of both the former firms, of which Colby had been a partner; and “ also pay to said Colby the balance which should be due him on the purchase money,” etc. It omits all statement about notes given for the purchase price, and the language implies that the purchase price, in addition to the debts assumed, was undetermined. It might be much, or little, or nothing, so far as could be inferred from the mortgage, according as those old debts should count up. With notice of such a mortgage, the defendant, holding the paper of the old firms, and being solicited to supply money to Colby’s former partner^, to enable them to go on with the same business, which it was naturally expected would enable them to pay the debts of Colby, as a former partner, to the defendant, and to pay other creditors, made the inquiry of both Orcutt and Colby, the mortgagor and mortgagee, situated as described, and received the reply as above stated ; and neither of them informed the defendant, that any notes were ever given. In reliance upon that information the defendant took a mortgage, and continued to advance money on the strength of its security. With no mention of any form of indebtedness, and with only such mention of any indebtedness as this orator’s mortgage contained, what further inquiry should be required, to constitute reasonable diligence ? It is even difficult to conceive where else the defendant could have gone for information. It would be difficult to lay down a general rule, as to what would constitute reasonable in-, quiry; and courts have not attempted it. It must vary with the circumstances of each case.
Where the form or specification of the obligation intended to be secured is described, or referred to ; or where the description indicates that the debt is specified in some written form, or is of *91such a character that it is practicable to be pursued by inquiry, beyond the parties to the mortgage, and the facts as to its payment determined, the authorities indicate that a purchaser or subsequent incumbrancer proceeds at his peril. The parties to the mortgage have furnished him the means of finding out the facts ; therefore, he must find them out. But such is not this case; Here the parties gave no clue to any discovery attainable beyond themselves. Under such circumstances, it seems to us, that inquiry of those parties is the use of that degree of diligence which the law requires; and- that, in view of the facts alluded to, the defendant’s mortgage should prevail.
This determination of the question discussed renders it unnecessary to look into -the evidence objected to, and pass upon its admissibility, as the case turns upon evidence about which no question as to admissibility has been raised.
Neither is it necessary to examine the view of the defendant, that even if it cannot stand upon its mortgage, yet it is entitled to have the partnership property first applied to pay the partnership debts. The orator denies that the rule ^applies in this case, Colby having sold his interest in the partnership property; and cites, Case, Receiver v. Beauregard et al., 99 U. S. Rep. 119; s. c. 7 Reporter, 481.
Under the stipulation filed, the foregoing views entitle the defendant to a decree of foreclosure upon his cross-bill.
The decree of the Court of Chancery, dismissing the orator’s bill, is affirmed ; and the cause is remanded, with directions to enter a decree for the'defendant on the cross-bill, for the amount found due by the master.