Court Opinion

ID: 7047089
Source: CourtListenerOpinion
Date Created: 2022-07-24 06:56:15.368774+00
Date Added: 2024-06-11T16:11:34.700406
License: Public Domain

Dissenting Opinion.
Niblack, J.
I feel constrained to dissent from the conclusion reached in this cause, as well as from some of the reasons upon which the opinion is made to rest. The deci•sion of the cause, as I construe the opinion, turns substantially upon the assumption that at the time Reeves purchased two of the Copeland notes, and received the mortgage securing them from Hayes, there was no law in force in this State authorizing the assignment of a mortgage to be recorded; that for that reason an assignment of the mortgage by Hayes to Reeves would have been unavailing as a means of affording notice to subsequent purchasers,- and that, in consequence, *533Reeves was not guilty of negligence in failing to obtain such an assignment from Hayes.
In the first place, an assignment from Hayes to Reeves would have conferred upon the latter the legal as well as the equitable title to a proportionate interest in the mortgage,"and would, in some respects, at least, have very much strengthened his claim to a share in the benefits of the mortgage.
In the next place, there was nothing decided in the case of Hasselman v. McKernan, 50 Ind. 541, which would have prevented Reeves from taking an assignment of an interest in the mortgage from Hayes, in a separate instrument in writing, executed with such formality as would have admitted it to record, and made the record of it constructive notice as much as the record of the mortgage itself. There has never been any rule of law, or anything in practice, that I am aware of, which has only permitted a mortgage to be assigned by endorsement, and it is only to assignments of mortgages made in that manner that the ease of Hasselman v. McKernan has reference. The record of a mortgage might have been discharged, and the mortgage itself released by a separate instrument in writing. 2 R. S. 1876, p. 334, section 6. Then why might not a mortgage have been assigned in the same way ? I can not agree, therefore, that Reeves did all that he might reasonably have done to make his interest in the mortgage purchased from Hayes a matter of record.
I am furthermore unable to resist the impression that the doctrine of the opinion antagonizes the spirit in which, as well as the purposes for which, our registration laws were enacted, and is, in fact, a departure from long recognized principles touching the subject of notice of secret equities in real estate.
Let me illustrate: Suppose I have negotiated with C. for the purchase of a tract of land, but wish to feel assured that his title is good before accepting a conveyance; I go to the record affording information on that subject and there find that A. had purchased the land which C. is proposing to sell to me from the Government of the United States. Then *534turning to the record of deeds I further find that A. had conveyed the land to B., and that B. had conveyed it to C., in both cases by deeds regular upon their faces. Then suppose that, upon further examination, I find that no liens have been placed on record against the land, and hear of no secret ■outstanding equities in it adverse to C.’s title. . Under such ■circumstances I assume that no one will claim that I would not be safe in accepting a conveyance from C. without further inquiry. And yet if the doctrine of the opinion on the subject of secret equities be sound in principle, and hence, of general application, it would be my duty, in addition to what I may have done as above, to seek out both A. and B., and ascertain whether each had received all the purchase-money to which he was entitled, and whether one or the other or both might not have put some incumbrance on the land which the records of the county did not disclose. As a reason for thus extending and applying the doctrine of the opinion, it might be said that I must take notice of the fact that a vendor of real estate has, under ordinary circumstances, a vendor’s lien for unpaid purchase-money, and that the owner of land may, in many ways, put an incumbrance upon it without making the transaction a matter of record, and that, having notice that such a lien or incumbrance might have attached to or been put upon the land, I must, at my peril, ascertain whether the land is in fact free from all such liens or incumbrances.
This may be regarded by those favoring the conclusion reached in the case as an extreme illustration of the extent to which the doctrine of the opinion might be carried. Concede this to be so, and still I am unable to see any difference in principle between the hypothetical case presented and the inferences we are justified in making from the arguments used in support of the opinion.
If a subsequent purchaser may be put upon his inquiry as to what has become of the notes secured by a mortgage after the satisfaction of the mortgage has been entered in due *535form by the mortgagee simply^ because he is presumed to know that such notes were by law assignable, and may, in consequence, have been assigned to some stranger to the mortgage record, why may he not, for the same reason, be put upon his inquiry as to whether some previous owner may not hold a vendor’s lien, for unpaid purchase-money, or as to whether there may tnot be some outstanding but unrecorded mortgage, or other secret incumbrance upon the land? I confess my inability to answer this question. If we are to be put upon our inquiry in this way as to all kind of secret equities, what becomes of the supposed protecting value of our registry laws? 'Will not confidence in titles to real estate be greatly impaired by such a holding? The doctrine of caveat emptor has a very strong application to sheriff’s sales, and, in most respects, a purchaser of real estate at such a sale, simply takes the place of the execution defendant, and yet this court has decided that such a purchaser is protected against secret trusts of which he had no notice at the-time of his purchase. Milner v. Hyland, 77 Ind. 458.
Section 5 of the act of May 4th, 1852, concerning mortgages, which was in force when the satisfaction of the mortgage in controversy in this case was entered, provided that every mortgagee of lands whose mortgage had been recorded, and who had received full payment of his mortgage, should, at the request of the mortgagor, enter satisfaction on the margin, or other proper place in the record of such mortgage, which should operate as a complete release and discharge thereof. 2 R. S. 1876, p. 334.
It will be observed that this statute enjoined primarily, and in a literal sense exclusively, upon the mortgagee, the duty of entering satisfaction on the mortgage record where full payment was made, and it is only by a liberal construction of the statute that it can be held that any one else could take the place of the mortgagee in entering satisfaction of the mortgage. I submit, therefore, that when Wilson found, on examination, that Hayes had entered, satisfaction of the Copeland mortgage *536on the mortgage record, he had the right to assume, in the absence of actual notice to the contrary, that the entry of satisfaction had been entered in good faith, and by competent authority, and to act upon that assumption. It is only where the discharge upon the mortgage record has been entered by some person other than the mortgagee, that the subsequent purchaser is put upon his inquiry as to the authority of the person who entered the discharge. 2 Jones Mort., section 957.
In the old case of McCormick v. Digby, cited in the opinion, this court said that “After a mortgagee has assigned the mortgage, he can not discharge any part of the premises from the mortgage,” and that case has been cited approvingly, and "followed, by Hilliard on Mortgages, and Washburn on Real Property, and perhaps other text-writers.
Jones on Mortgages, at section 814, asserts a similar doctrine, but with more elaboration, adding that an entry of satisfaction by a mortgagee, after he has parted with his interest in the mortgage, will be vacated by a court of equity.
As a general and as an abstract proposition, these authorities state the law correctly. A mortgagee, after he has assigned the mortgage, has neither the legal nor the moral right to discharge the mortgage, whether of record or otherwise. It is conceded that if he shall assume to discharge the mortgage after the assignment, his entry of satisfaction will be vacated, provided the rights of innocent third parties will not be thereby injuriously affected.
I have no right to receive payment of a note executed to me after I have assigned it. Yet, if I receive the money due upon it from the maker before he has notice of the assignment, he will be protected. I have no right, either legal or moral, to make a fraudulent conveyance of my land to the injury of my creditors, but if I shall make such a conveyance, and the land shall come into the hands of an innocent purchaser, my creditors can not have the conveyance set aside. I am utterly without authority to make a second conveyance of land which I have once owned, yet if I shall make *537such a conveyance to an innocent purchaser, that is to say, to a purchaser without notice, either actual or constructive, of the fii’st conveyance, he will hold the land to the-exclusion of the first grantee.
I am, therefore, not contending for the application of any new principle to this case. I am only insisting that principles, generally and thoroughly recognized as governing analogous cases, shall be applied to transactions concerning the discharge of mortgages, or' the release of mortgaged lands.
Thomas on Mortgages, at page 142, states, in a nut-shell, the doctrine I am seeking to maintain, as follows: “ If a mortgage is discharged upon the record by a person who appears by the record to be the owner of it, even though it h.as actually been assigned, it will operate to cancel the mortgage as against subsequent purchasers and mortgagees in good faith and without notice, but as to all other persons, the validity of the mortgage will not be impaired.”
Jones on Mortgages, at section 472, states the rule to be that “ The registration laws and the doctrines of priority by record generally extend to assignments of mortgages as well. The assignment is invalid against subsequent purchasers without notice unless it is recorded. Consequently if a mortgagee transfers the note secured by the mortgage, or makes a formal assignment of the mortgage which is not recorded, and afterwards enters a satisfaction of the mortgage upon the record, * * the mortgage ceases to be a lien, as against one who purchases the property in good faith and without notice.” See, also, section 878. The same author, at section 791, says that “The assignee of a mortgage, as a practical matter, should always give notice of the assignment to the holder of the equity of redemption, so as to surely protect himself against payments which may be made in good faith to the assignor. The recording of the assignment is not of itself such notice of the assignment as will afford such protection.”
At section 820 it is further said, that “An assignment by *538transfer of the debt only is effectual between the parties. The mortgage passes as an incident to the note. No assignment of the mortgage is necessary as between the parties, or as against the mortgagor or others having actual notice of the transfer of the notes. The mortgagor is bound to take notice of such an assignment upon the discharge of his debt, because proper diligence on his part demands that he should require the production of the notes before paying. But if the mortgagee, while the notes are in the hands of the assignee, cancels the mortgage on receiving payment from the mortgagor, who then makes conveyance or a new mortgage to another person, who acts in good faith and in ignorance of the fact that the original mortgage had not been paid to the proper party, such purchaser or subsequent mortgagee has the better title. Such subsequent purchaser or mortgagee is not bound to take notice of an assignment by transfer of the notes alone.”
At section 967 it is still further asserted, that “ If the giving up of the mortgage notes, or a formal discharge of the mortgage, has been obtained by fraudulent means, this is no payment %nd discharge of the mortgage. In such case a subsequent mortgagee, whose rights existed at the time of such discharge, can not object to the prior mortgagee being restored to his rights. And so also the mortgage will be reinstated, not only as against the mortgagor, but against one who has purchased from him with notice of the mortgage, or without giving any new consideration, and in whose favor no new rights have intervened since the release. Of course the mortgage can not be restored as against one who has in good faith purchased the property after the cancellation, or has advanced money upon it upon the faith of a clear record title. The mortgage can not be restored when the rights of innocent third persons will be affected.”
In the case of Bank of State v. Anderson, 14 Iowa, 544, commented on in the opinion, the facts were that Anderson mortgaged his real estate to one Mobley to secure certain negotiable notes. Before the notes became due Mobley sold *539and transferred them to the bank, but did not assign the mortgage. After this Anderson paid these notes to Mobley by conveying to him the mortgaged lands. Mobley thereupon, in his own name, by a proper writing upon the margin of the record, entered satisfaction of the mortgage.
Afterwards Mobley borrowed money of the Artisan’s Bank of New York and secured its repayment by a mortgage on the same lands. Before taking this mortgage from Mobley the last named bank had the title examined by a competent attorney who reported that the lands had no incumbrance upon them. The Indiana Bank had no knowledge of the entry of satisfaction by Mobley and did not consent to it. The Artisan’s Bank acted in good faith and had no notice that the mortgage executed by Anderson had not been paid to the proper person.
Upon these facts it was held that the second mortgage had priority. But the opinion says that this case is confessedly against the weight of authority. By whom is it so confessed ? Certainly not by the Supreme Court of Iowa, for as stated in the •opinion that court has followed that case in two later cases.
In the recent case of Ogle v. Turpin, 102 Ill. 148, the court stated the law to be that where a mortgagee, after an assignment of his notes secured by his mortgage, acquires the equity of redemption, and enters a formal release of the mortgage upon the record, a party taking a mortgage from him on the same premises, without notice of the assignment of the notes, will acquire a lion superior to that of the holder of the assigned notes; also that as there is no presumption of law that the payee of. notes secured by mortgage has transferred the notes before purchasing the equity of redemption from the mortgagor, a person taking a mortgage from the payee will not be held chargeable with notice that the notes secured in the first mortgage have been assigned, but he may rely upon the record as showing title in his mortgagor.
In the State of Kansas the registration laws, including a provision for discharging mortgages after they have been re*540corded, are very similar to ours. The Supreme Court of that State in the case of Lewis v. Kirk, 28 Kan. 497, also, very recently decided and involving the validity of the release of a mortgage by the mortgagee, after he had transferred the note by endorsement and the mortgage by delivery, reviewed some of its earlier decisions bearing on the same general subject in connection with the registration laws and other kindred statutes of the State. The concluding part of the opinion in that case is as follows:
“Under these statutes we think it is perfectly safe for any person who has no notice of outstanding equities to purchase real estate which the records of the county apparently show is free and clear from all incumbrances. * * * If the-mortgage has been recorded and then has been regularly released on the margin of the record thereof by the mortgagee, then we think that any person, if he does it in good faith, may purchase the property in like manner freed from all liens and equities existing in favor of the holder of the mortgage; or in other words, and to state the proposition more succinctly, a purchaser in good faith of real estate may always rely upon the public records, subject only to the equities of persons in open, visible and exclusive possession of the property. A purchaser in good faith of real estate is never bound to take notice of secret equities, liens, interests, trusts or incumbrances, which can not be discovered from an inspection of the public records, or can not be ascertained by inquiries from the parties in possession. He may always rely upon the public records and such inquiries as they suggest, and such inquiries as are proper of the parties in possession; and if from all these the title appears to be clear, he will then obtain a good title, although there may be some outstanding-equity or lien in favor of some other person. * * * Where a real-estate mortgage is executed to secure the payment of a negotiable promissory note, such mortgage will so far partake of the negotiable character of the note that whenever' the note is transferred by endorsement before due so as to *541free it from-all equities existing in favor of the maker of the note, or prior endorsers, the mortgage will also be freed from such equities. But until the mortgage is recorded, such transfer will not prevent a third person, who has no notice of the mortgage or transfer, from purchasing the mortgaged property and thereby obtaining a full and absolute title to the property, free and clear from the mortgage lien. But when the mortgage is recorded, its negotiable character is then extended even to bona fide purchasers of the property, and it retains such character contemporaneously with the existence of the note to which it is an incident until the note is satisfied, or until the mortgage is released of record by the mortgagee, or his attorney, assignee, or personal representative; and that when the mortgage is so released it then loses its negotiable character to the extent that any third person who may then purchase the property in good faith will obtain the full, complete and absolute title thereto, freed from all equities, liens, interests, trusts or incumbrances existing in favor of any holder of the note and mortgage, whether the note is satisfied or not.” See, also, Burton v. Reagan, 75 Ind. 77. Other extracts of the same import might be given, and numerous other authorities holding substantially the same doctrine might be cited, but I deem it unnecessary to add anything further in that respect.
I think most of the cases which seemingly hold a contrary doctrine will, upon a careful examination, be found to have reference only to the mutual relations existing between the parties to an assigned mortgage, and not to the rights of subsequent purchasers and subsequent mortgagees in good faith and without notice.
Of this latter class are the cases of Carpenter v. Longan, 16 Wall. 271, and Gabbert v. Schwartz, 69 Ind. 450. Section 814 of Jones on Mortgages, supra, rests mainly, if not entirely, on that class of cases.
I can not see that the cases of Wolcott v. Winchester, 15 *542Gray, 461, and Bayless v. Glenn, 72 Ind. 5, have any practical application to this case in any respect.
One paragraph of the syllabus of the case of Trustees, etc., v. Wheeler, 61 N. Y. 88, to which reference is made in the opinion, is as follows: “ It seems that a release, executed by the mortgagee after assignment, to one acting in good faith and without notice of the assignment, is valid, and as effective to work such discharge as if executed by the assignee.”
As to the case of Lapping v. Duffy, 47 Ind. 51, I need only say at the present hearing that it was made sufficiently distinguishable from a case like the one at bar by what was said in the case of Ayers v. Hays, supra, which this court now refuses to follow.
The case of Dixon v. Hunter, referred to in the opinion, was not a parallel case with this in one essential respect, at least, and that is, in that case there was a formal assignment of the mortgage accompanying the transfer of the mortgage debt.
Although the transfer of a debt secured by a mortgage carries the mortgage “security with it without an assignment of the mortgage, still, in such a ease, the legal title remains in the mortgagee, and it is only through a court of equity, or a court possessing equity jurisdiction, that the security afforded by the mortgage can be made fully available to theassignee of the debt.
When a mortgagee transfers the mortgage debt, but fails to assign the mortgage, he becomes the trustee of the holder of the debt, and the value of the mortgage to the holder as a security must necessarily very much depend, as in cases of other trusteeships, upon the good faith as well as the business capacity of the mortgagee.
When, therefore, any one purchases a debt secured by a mortgage, and fails to take with the transfer of the debt to him an assignment of the mortgage, he must be presumed to know that his interest in the mortgage, as a security, constitutes only a secret equity, which may be wholly lost or destroyed by the bad faith, mismanagement or mistake of the-*543mortgagee, and these contingencies ought to be taken into consideration by the purchaser in estimating the value of the mortgage debt.
Filed March 25, 1884.
For the reasons given I can not escape the conclusion that Wilson is entitled to priority over the holders of the unpaid Copeland notes, and that, consequently, the judgment below ought to be affirmed.