Court Opinion

ID: 3320176
Source: CourtListenerOpinion
Date Created: 2016-07-05 17:37:47.115722+00
Date Added: 2024-06-11T12:40:24.841770
License: Public Domain

While I concur in the result reached by the majority of the court so far as the disposition of the case upon the pleadings is concerned, I must, with great deference to the other members of the court, record my dissent with respect to the discussion of the second special defense to the first count, and the legal propositions upon which the case is decided so far as this defense is concerned.
By the pleadings it appears that the defendant owned the property subject to a first mortgage. Contrary to the assumption in the opinion, it does not appear, either expressly or by implication, that the defendant himself gave this mortgage. The defendant, while such owner, gave a second mortgage to the plaintiff to secure the note sued on in the first count of the complaint. Thereafter the defendant parted with his equity. The first mortgagee then brought foreclosure, making the plaintiff, the second mortgagee, a party, but not making the defendant, who had parted with his equity, a party defendant in the foreclosure suit. The present defendant, having parted with his equity of redemption, was not a necessary party in the foreclosure of the first mortgage. Unless he gave the first mortgage, which does not appear, he was not even a proper party. The service of process in the foreclosure suit made the present plaintiff chargeable with notice that the defendant had no legal notice of the pendency of the foreclosure suit in which the interest in *Page 497 
the property being foreclosed, mortgaged by him to the second mortgagee, was liable to be taken away, leaving the defendant still personally liable on the second mortgage note. The answer also alleges that the present plaintiff, who was a defendant as second mortgagee in the foreclosure suit, gave no notice to the present defendant of the pendency of this foreclosure suit, and "either knowingly and wilfully, or by her carelessness and neglect," allowed her second mortgage to be extinguished by her failure to redeem, without giving notice to the defendant of the pendency of the foreclosure.
The trial court sustained the demurrer to the answer upon the ground that these facts did not constitute a defense to the note. With this conclusion I agree. Whether the claim undertaken to be set forth in the second special defense to the first count now under discussion is sound or unsound, it is not, as a matter of pleading, a defense to the note, but is the basis of a counterclaim for damages suffered by the defendant through the negligence of the plaintiff, and should have been pleaded as such. The plaintiff and defendant had made two contracts, one evidenced by the note and one by the conveyance for security. The defendant complained of a violation of an equitable duty under the second contract. One right of action cannot be a bar to another right of action. It may be used by way of counterclaim and is available only in that way.Cooper v. Simpson, 41 Minn. 46, 16 Amer. St. Rep. 667;Taggard v. Curtenius, 15 Wend. (N. Y.) 155. Hence the ruling of the trial court upon the pleadings was right.
The majority opinion goes much further. It assumes that the statement of facts as a defense in bar is proper pleading, and, as is quite unnecessary for the determination of this case, takes the broad ground that, under the circumstances stated, the plaintiff owed no *Page 498 
duty to give notice to the defendant of the pendency of the foreclosure and the danger of loss of the interest in the property mortgaged by him to her to secure the note sued upon, while the plaintiff still continued to look to him for the payment of the note. No authorities are cited in support of this proposition. This is not conclusive, but as I read the cases they point the other way.
The allegation is that the plaintiff wilfully or negligently permitted the loss of the security without notifying the defendant so that the defendant, if he saw fit, could save all or a part of the value of the security furnished by him and standing in the plaintiff's name. The alleged loss to the defendant was $3,000. The plaintiff then held a mortgage title on this land of the value of $3,000. Equity will not permit her to wilfully or negligently suffer this title, vested in her, which represents substantial value to the defendant, to be wiped out without notice to him, and then enforce payment on the note without allowance to the defendant by way of counterclaim for the damages the negligence has caused him. The defendant, having parted with his equity, became a stranger to the title, having first carved out an interest in the property to secure the plaintiff's note. Upon subsequent payment of the note he was entitled to be subrogated to the rights of security which the plaintiff held. If these rights had disappeared through the negligence of the plaintiff, the result is that the security and the note have become dissociated, the security, without fault on the part of the second mortgagor, the present defendant, going to the benefit of the first mortgagee under his foreclosure, and the note remaining in the hands of the second mortgagee as a personal claim in full against the maker.
I am unable to subscribe to a doctrine that involves such a result, and the correct disposition of this case *Page 499 
does not require such a decision. The opinion seems to admit, in substance, that such is the rule in the case of a pledge, but that the present situation is not analogous to that of pledge, and that the rule does not apply in the case of a real estate mortgage. I do not see any difference so far as this distinction is urged. In both cases the security in the hands of the creditor is held in trust for the payment of the debt. That there is no such distinction, seems to have been held in New LondonBank v. Lee, 11 Conn. 112.
I admit that it was not the duty of the plaintiff to protect the defendant against the extinguishment of the security of the second mortgage note. I do not admit that she could wilfully or negligently permit this to be done without notice to her mortgagor, who otherwise, to her knowledge had no notice that such extinguishment would take place, so that he might protect himself if he saw fit.
A mortgagor has a perfect right to convey his equity of redemption, and, having done so, has the right to have the mortgaged property applied to the payment of the mortgage debt, so far as necessary for his protection against personal liability for the debt secured. 2 Jones on Mortgages (7th Ed.) §§ 676, 678a. In TownsendSavings Bank v. Munson, 47 Conn. 390, Munson mortgaged sufficient land to a bank to secure payment of his note and afterward conveyed the equity to Wood; upon his assumption of the note the bank released its claim on part of the security. The court held that there remained in Munson the right to have both the note and Wood's agreement protected by that security, and said (p. 399): "If the bank compels him to pay the note, it must restore the security to him; unless it is able to do this it must content itself with the proceeds of the land retained." In Worcester Mechanics Savings Bank v.Thayer, 136 Mass. 459, our case of Townsend Savings *Page 500 Bank v. Munson, supra, is cited with approval. The rule above stated is adopted, and it is held that the assumption of the mortgage by the purchaser of the equity does not affect the mortgagor's rights and that the fact that the mortgagee released in good faith will not protect him. In other words, the mortgagor is under no obligation to make any indemnity contract with his vendee, as is suggested in the majority opinion. This does not affect his rights against his mortgagee. The court in that case said (p. 463): "While there is a difference between a contract that the assignee of the equity shall actually pay the mortgage debt, and a contract that the estate shall remain charged with the debt, so that the assignee must necessarily pay it if he would protect his property, in either case the mortgagor is entitled to the benefit of this security." See also North Avenue SavingsBank v. Hayes, 188 Mass. 135, 137, 74 N.E. 311. Of course, a mere transfer of the equity leaves the land charged with the debt. In 2 Jones on Mortgages (7th Ed.) § 879, it is said: "After a mortgagor has sold his equity of redemption he has the same right as any third person to purchase and take an assignment of the mortgage, and upon payment of a prior incumbrance he is entitled to be subrogated to the rights of the holder of such incumbrance; and this right of subrogation is not defeated by his having taken a second mortgage as security for the payment of the original mortgage debt. If the mortgagee, with knowledge of the mortgagor's right to have the property applied to the payment of the mortgage debt, does anything to impair this right, as, for instance, if he releases a portion of the mortgaged premises, he must suffer the loss himself, by being deprived to that extent of his right of recourse to the mortgagor, who, in such case, stands in the position of a surety." See Hart v. Chase, 46 Conn. 207.
The mortgagor in such case, having ceased to be interested *Page 501 
as owner, in the land he mortgaged, is entitled, upon payment of his note, to have returned to him the security he placed in plaintiff's hands; that the security was created by deed rather than delivery of physical possession can make no difference. If the plaintiff by her act, whether in good faith or not, without the consent of the defendant, has become unable to turn back the security received, the plaintiff must, by way of counterclaim or set-off, allow as against the amount due on the note the damage caused the defendant by her inability to turn back the security. If the plaintiff would have been liable in the way stated upon a voluntary release without defendant's consent, she cannot be permitted to work the same result by wilfulness or negligence. She is equally liable when, having notice herself that the security is in danger from foreclosure of a prior mortgage, and being chargeable with notice that the defendant is not a party to the foreclosure suit, she wilfully or negligently fails to give the defendant notice of the pending foreclosure.