Court Opinion

ID: 6560472
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:14:59.685281+00
Date Added: 2024-06-11T15:56:30.994840
License: Public Domain

Hallett, C. J.,
dissenting. Mahala and Jesse B. Longan made their negotiable promissory note of date March 5, 1867, payable to J. B. Carpenter six months after date. To secure this note Mahala Longan mortgaged to J. B. Carpenter certain lands in Jefferson county, and the note and mortgage having been assigned to the appellee before the maturity of the note, this bill was filed to foreclose the mortgage.
The defense set up by the appellant in her answer is, that at the time the note and mortgage were given she pledged to J. B. Carpenter certain wheat and flour, and that at the maturity of the note she tendered the amount due upon it at the Colorado National Bank, where it was left for collection, and demanded the note and mortgage, as well as the wheat and flour.
The answer was put in without oath, the verification being waived by the complainant in his bill according to the statute, and therefore evidence is required to support its averments. In the first place it is to be observed, that the evidence does not support the allegation that the appellant gave to J. B. Carpenter the wheat and flour as security for the payment, but shows on the other hand, that this wheat and flour was pledged by William and Jesse B. Longan. It is true that William Longan testifies that the appellant gave the personalty as additional security, but this statement is overborne by the other testimony in the case. Upon the *218whole testimony it appears that William and Jesse B. Longan were the owners of the flour and wheat, and at the time the note was made the property was in the warehouse of Williams & Miller, where it had been placed for safe-keeping. William and J esse B. Longan had previously obtained a loan upon the same property, and as the greater part of the money obtained from Carpenter was to be applied to the payment of this ■ pre-existing indebtedness, the same property was at first offered as security for the note in this case. This security being refused by Carpenter, the mortgage in this case, together with the pledge of the personal property, was offered as security for the note and accepted. Jesse B. Longan testifies that he gave the personalty to Carpenter as security for the note, and that the money was borrowed for himself and his brother. The whole testimony shows that Mahala Longan became a party to the transaction for the purpose of mortgaging her real estate to secure the payment of the money borrowed by her sons, that she was not the owner nor was she in possession of the personal property, and that the latter, if pledged at all, was pledged by the sons and not by the mother. Hence it is not true, as alleged in the answer, that the appellant gave to J. B. Carpenter personal property as security for this note, and the proof failing to support the allegation, the defense must be rejected. G-resley’s Eq. Ev. 232.
Accepting these facts as if they were well pleaded, and assuming, what is by no means clear upon the evidence, that the amount due upon the note was tendered at its maturity, how was the appellant entitled to demand the possession of the personalty upon the payment of the note? Surely upon the extinguishment of the note the property would revert to the pledgors, William and Jesse B. Longan, and the appellant would be no more entitled to the possession then than before the pledge was made.
Again, the rule which makes the assignment of a mort gage subject to the equities existing between the mortgagor and mortgagee is expressly confined to such equities only, and cannot be extended to equities existing between the *219mortgagee and third parties. James v. Morey, 2 Cowen, 297.
In this case the personalty was pledged by Win. and Jesse B. Longan, and whatever their rights against J. B. Carpenter, the appellant is a stranger to them. This doctrine is recognized by the court in this case, but I do not perceive that any attempt has been made to apply it. It is true that there is evidence in the record tending to prove an agreement, respecting the wheat and flour, between the pledgors and the pledgee, to the effect that the property might be sold to the pledgors by the warehousemen and the proceeds applied to the payment of the note, and, also, that some of the property was sold according to this agreement. If J. B. Carpenter was responsible for the money thus received, probably this was a payment upon the note which, according to the view of my brethern, would inure to the benefit of the appellant. But conceding this, the appellant should have set up the payment in her answer. She has pleaded a tender of the whole amount due upon the note, and complains that the pledged property and the note and mortgage were not surrendered to her when the tender was made, and to this defense she must be confined. If, under such an answer, a party may show payment, every other defense is equally open, and the rule which requires correspondence between proof and allegation may as well be annulled.
I come now to consider, whether the innocent holder of negotiable paper secured by mortgage may recover, upon the mortgage the amount due upon the note in his hands, or is limited to the amount which might be recovered by the mortgagee if the suit were instituted by him. Upon this question there is some conflict of opinion, but I think that the weight of authority and the better reason are opposed to the views of my brethren in this case, and therefore I reluctantly proclaim my dissent from the opinion of the court.
The nature of a mortgage and its relations to the indebtedness it is intended to secure are pretty well understood at *220this day, and do not demand much discussion. In Martin v. Mowlin, 2 Burr, 978, Lord Mansfield said :
“A mortgage is a charge upon the land, and whatever will give the money will carry the estate in the land along with it to every purpose. The estate in the land is the same thing as the money due upon it.”
So, also, Kent, C. J., in Jackson v. Willard, 4 Johns. 43:
“Until foreclosure, or, at least, until possession taken, the mortgage remains in the light of a chose in action. It is but an incident to the debt, and in reason and propriety it cannot and ought not to be detached from its principal. The mortgage interest, as distinct from the debt, is not a fit subject of assignment. It has no determinate value. If it should be assigned, the assignee must hold its interest at the will and disposal of the creditor who holds the bond. Accessorium non ducit sed sequiter principales
To the same effect are all the authorities and no one can now be found to question the doctrine that a mortgage is a !'mere incident to the indebtedness it is intended to secure, ^inseparable from it and incapable of existence without it. It is a truism of the law that a mortgage is a security for indebtedness accompanying the latter through all hands, and ultimately sharing the same fate. This rule which identifies the security with the indebtedness in my opinion •requires, that the remedy upon the security shall be coextensive with the demand. When this is denied the mortgage is divested of its character as a security to the extent of such denial. By the mortgage contract a lien is given upon property for the payment of certain indebtedness, and if the indebtedness be withdrawn from the lien, or if the existence of the lien be denied for causes dehors the mortgage, that instrument is divested of its essential quality in the face of its express provisions. That is no security for indebtedness which will not come up to the point of contributing to its payment, and a mortgage intrinsically good, which falls short of the measure of its principal, is a paradox unknown to the law. To illustrate, let us look for *221a moment at the present case. A negotiable note secured by mortgage was indorsed to appellee before maturity upon a valuable consideration. It does not appear that the pledged property was delivered to appellee, or that he had any knowledge of it, so that no notice need be taken of that feature of the case. Neither law nor equity will deny to the appellee, as a bona fide holder for value, the full amount of the note when that instrument is presented. But it is said, that the action being to foreclose the mortgage, the amount of the note must be diminished by the sum received by the payee or his agents before the assignment to appellee. The mortgage is, in itself, valid and effectual, according to its legal character as a security for the indebtedness evidenced by the note. The note is intrinsically good, and, in the hands of the appellee, constitutes a demana against the appellant, for the amount expressed upon it¿ face. Each instrument is perfect in itself, the one as a demand against appellant, the other as security for thar demand, and yet when united, and a remedy to enforce the lien is sought, the security of the mortgage is denied as to a portiozz of that demand. In other words, the mortgage has ceased to be a security as to part of the indebtedness evidenced by the note, its express provisions to the contrary notwithstaziding. It appears to me that the mortgage having beezz znade as a security for the payment of the note, it ought to stand as a secuzity for the whole note, extingnishable only upon payment of the whole amount recovez’able upon it. Any other view is opposed to the rule which unites the moz-tgage to the indebtedness inseparably and gives thezn a common existence.
In this conziection I will ask attention to the language of the supreme court of Wisconsin upon this subject.
“ The doctrine that an assignee can enforce the mortgage for no znore than is justly and actually due between the mortgagor and the znortgagee had its origin at a time when the practice of giving mortgages as collateral security for the payment of negotiable paper was wholly unknown, and was made to rest upon the ground that such would be the *222rule adopted in a suit at law, upon the covenant or bond to which the mortgage was collateral, and the assignee should stand no better in equity than at law. The' reason of the rule being, that because, in a suit at law for the use of the assignee upon the bond or covenant to collect the debt, a recovery cannot be had for a greater sum than is actually due from the mortgagor to the mortgagee, and therefore no more shall be recovered in equity in an action to foreclose the mortgage, or that the parties as to rights and remedies shall stand upon the same footing in both courts; it follows, as a logical conclusion, that when the nature of the instrument evidencing the debt and the circumstances of the transfer are such, that in a suit at law upon it against the mortgager the assignee can enforce its payment regardless of any equities existing between the mortgagor and mortgagee. he should have the same rights and remedy in equitv. The reason of the rule ceasing in the case of negotiable securities transferred before maturity and without notice, the rule also ceases. The debt is the principal thing, the mortgage the incident, the transfer of the debt carries with it the mortgage. It is the debt which gives character to the mortgage and fixes the rights and remedies of the parties under it, and not the mortgage which determines the nature of the debt.” Croft v. Bunster, 9 Wis. 509. See, also, Dutton v. Joes, 5 Mich. 519; Reeves v. Scully, Walker’s Ch. 248.
Another consideration of great weight ought not to pass unnoticed. It is conceded that the appellee may recover in an action at law, upon this note, that portion of his demand which is denied to him in this proceeding. It was said by Hosmer, C. J., in Clark v. Beach, 6 Conn. 159: “ The equitable doctrine concerning the rights of mortgagor and mortgagee has gradually been naturalized in the common-law code, and by the adoption of principles long established in chancery, and tenaciously adhered to, the suitors are not driven from one bar by increased litigation and expense to obtain infallible relief at another.”
The policy of the law here defined has not, I think, been *223heeded in. this case. The appellant is protected from the payment of a portion of the appellee’s demand, to which she must hereafter respond in a court of law, while the appellee is driven from this bar by increased litigation and expense to obtain infallible relief at another. The case of Olds v. Cummings, 31 Ill. 188, is the authority upon which the decision of this court is based, and that case is grounded upon the assumption that a foreclosure suit is brought upon a mortgage only. The court in that case say:
“The note itself, though secured by a mortgage, is still commercial paper, and when the remedy is sought upon that, all the rights incident to commercial paper will be enforced in the courts of law. But when the remedy is sought through the medium of the mortgage, when that is the foundation of the suit, and the note is merely used as an incident to ascertain the amount due upon the mortgage, then the courts of equity to which resort is had must pause and look deeper into the transaction, and see if there be any equitable reason why it should not be enforced.”
Upon this I submit that a foreclosure is founded upon the indebtedness as well as the mortgage. A court of equity will not, and in the nature of things cannot, permit a mortgagee to recover unless he is the holder of the indebtedness secured by the mortgage. 1 Hill, on Mort., ch. 11, § 5.
Whether the proceeding be at law or in equity, the indebtedness is the principal thing, for both remedies are designed to enforce payment of the money. I concede that the remedy at law is upon the note alone, but it is equally plain that the suit. in equity is founded upon the note and mortgage, and that each is essential to the right of recovery. The indebtedness is the incumbrance and the mortgage is the means by which the incumbrance is attached to the estate. If either be removed, there is nothing remaining upon which the court can act. In a proceeding to foreclose a mortgage it is the duty of the court to ascertain the amount of the indebtedness, as well as to enforce the lien upon the mortgaged property for its payment, and while, the mortgage will show the lien it is rarely evidence of the *224indebtedness. Sometimes a covenant for the payment of the money is inserted in the mortgage, but usually a bond, note or other separate instrument is executed for the purpose of showing the amount of the indebtedness. Where the indebtedness is evidenced by a separate instrument a court of equity isas m uch bound to give effect to that instrument as to the mortgage. In this case the note is evidence of the amount of the indebtedness just as the mortgage is evidence of a lien upon certain property for the payment of that indebtedness, and the court is bound to give effect to the first as well as the second. The note is the legal and unquestionable evidence of the indebtedness as the mortgage is evidence of the lien, and each according to its office determines the rights of the parties. It is impossible to say that there is any thing due upon the mortgage disconnected from the note for the reason that the note alone determines the amount of the indebtedness.
The supreme court of Illinois say that the notéis “merely used as an incident to ascertain the amount due upon the mortgage,” but it is'plain that no such use was made of the note in that case. The note called for the amount expressed upon its face, but the court refused to recognize the demand. The mortgage referred to the note as the standard of indebtedness, but the court rejected the note in violation of the express language of the mortgage. And this was done for the avowed purpose of protecting the mortgagor from making payment to the innocent holder of negotiable paper. I am not able to perceive that the former occupies a higher position in a court of equity than the latter, or that there is any reason for setting aside the rules of law applicable to commercial paper in cases of this kind.
The opinion of that court as well as that announced by this court is open to other criticism, but I think that I have shown that the ruling of the district court was correct, and that the decree of that court should be affirmed.