Court Opinion

ID: 5184236
Source: CourtListenerOpinion
Date Created: 2022-01-06 04:46:15.629981+00
Date Added: 2024-06-11T08:26:40.908243
License: Public Domain

Green, J. (dissenting):
In November, 1890, Messrs. Thorne & Angelí, of Buffalo, conveyed to the defendant Weill certain premises situate in said city, and, at the same time, the bond and mortgage described in the complaint were executed and delivered by Weill to Thorne & Angelí, Contemporaneously with the giving of this deed, bond and mortgage, a further written agreement was made between Thorne & Angelí and defendant Weill, whereby it was agreed that should Weill, at any time within two years from its date, decide so to do, he could rescind the transaction and redeed the property to Thorne & Angelí, who agreed to thereupon pay to him all moneys he had paid them, with interest, and all other moneys paid out by him for taxes on the property in question; that thereupon, Weill should be released from all responsibility and liability under thé bond and *108mortgage, and should not be liable under the same after such reconveyance, and that he should be reimbursed and reinstated in his original position. These three instruments were made and executed in November, 1890. In January following’ that date, Thorne & Angelí assigned the bond and mortgage which are the subject of this litigation to the plaintiff bank as a further continuing collateral to other collateral which the bank held for the general debts of Thorne & Angelí to the bank. Within the time specified in the agreement between Weill and Thorne & Angelí, the defendant Weill availed himself of his right to rescind, and' in May, 1892, deeded back the property, was paid the money he had disbursed in the transaction, and was thus reinstated in his original position, pursuant to his agreement. The bank continues to be the owner and holder of the bond and mortgage. Upon default in some of the payments therein agreed to be paid, it brought this action for the foreclosure of the mortgage, and for a deficiency judgment against the defendant Weill, if, upon a sale of the premises, sufficient was not realized to pay the amount of the bond and mortgage.
The facts in this case are undisputed, nor is the general proposition, that the assignee of a bond and mortgage takes them subject to the equities existing between the parties thereto, in any manner controverted by the appellant, but its contention is that this general rule is not applicable to the present case.
The first argument advanced by the appellant in support of its contention is that the contract, in effect, provided that there should be no payment upon the bond and mortgage unless the obligor and mortgagor so elected, and, therefore, that it was a defeasance and impeachment of their terms, and in direct contradiction thereof; that the contract was secret, and the existence thereof concealed from the plaintiff; that such a contract is, in itself, subversive of all equity, and that the promoter of such a contract should not be protected as against an innocent holder of the mortgage security.
An examination of the cases bearing upon this question discloses the fact that a condition analogous to the one here presented exists in each of those cases. The contracts and agreements of the parties therein were secret, and were not disclosed to the purchaser of the security. If they had not been secret and undisclosed to the one dealing with the securities; if they had been included and expressed *109in the securities themselves, then the question which did arise in those cases would necessarily never have arisen, because in such cases the purchasers would have had full notice from the terms of the securities themselves. In those cases, too, the purchasers were bona fide purchasers; they took without notice of the latent equities existing between the original parties to the transactions.
It is true that this plaintiff was not apprised of the contract in question when it was executed, for the reason that there was no intention on the part of either of the parties to that contract that the bond and mortgage in question should be assigned to this plaintiff. It was a contract which, under the established rule of law governing parties to contracts, they had a right to make. It" was not incumbent upon Weill to inform any person that such a contract was in existence. It was, however, incumbent upon this plaintiff, dealing with these non-negotiable instruments, to make inquiry of the one who was bound thereby concerning any latent equities that might exist in his favor against the enforcement thereof. If this bank, when it took the assignment of the bond and mortgage as collateral and continuing security for the debts of Thorne & Angelí, had performed its duty in respect thereto, it would have been protected against such contract and the equity now claimed by the defendant Weill. The bank, upon such inquiry, would have ascertained the existence of the contract; or, if upon inquiry, defendant Weill had denied its existence or disclaimed having any defense to the obligations, the bank would have been protected, and the defendant Weill would have been estopped from relying upon the contract. (Kirby v. Fitzgerald, 31 N. Y. 425; Reeves v. Kimball, 40 id. 311, 312.) The bank, however, made no inquiry of the defendant Weill. There was nothing to show that, from the time of the making of the bond and mortgage to the time of the trial, any officer of the bank ever made inquiry of Weill, or that Weill had seen any officer of the bank relative to the bond or mortgage or to his obligation thereunder. The only evidence of any attempt on the part of the bank to even give notification to the defendant Weill that the bank had become the owner of the bond and mortgage, is found in the testimony of the cashier of the plaintiff, who testified: “ Sometime after the assignment of this mortgage to the bank I notified the defendant, Mr. Louis Weill, that such assignment had been made. *110I cannot tell you the date or how long it was after the assignment was made; I have no copy of the letter. The notice, however, was by letter to Mr. Weill, written by me, and it was a few days, certainly within a month or two, after the transfer was made.” “ I have no letter file of that letter sent to Mr. Weill. I did not look for such a letter.” The appellant, however, claims that the payment of interest which became due by the terms of the bond and mortgage in May, 1891, shows that Weill then knew of the transfer to the bank. It appears that, when the payment of interest became due, Weill sent a clerk to pay the same; that the clerk went to Thorne & Angell’s office to make such payment; and that Weill’s clerk, with a clerk from Thorne & Angell’s, went to the bank of the plaintiff. This is the evidence of the plaintiff’s cashier respecting what took place at that time : “ The first payment of interest that was made upon this bond and mortgage was made to me and in the presence of a representative of Mr. Weill who came down with Thorne & Angell’s clerk, and I endorsed it on the bond. The payment was made May 1, 1891. The endorsement which shows here on the bond rejDresents that payment, and is in my handwriting, and was written by me at the. time the payment was made. The Bcmh did not receive the money ¡ the money went to Thorne & AngellP This is the only evidence concerning that payment, and the only evidence of any transaction between Weill and this bank respecting the bond and mortgage. The payment referred to was the only one ever made upon the bond and mortgage by Weill, or any one, although other payments thereon became due previously to the commencement of this foreclosure action. It appears, therefore, that the only payment on the bond and mortgage was made, not to the bank as the owner and holder of the bond and mortgage, but, with the consent of the bank, to Thorne & Angelí. So, it would seem, the bank itself considered Thorne & Angelí entitled to the payment thereunder. This, coupled with the fact that the bank made no inquiry of Weill, preceding the assignment of the bond and mortgage to it, tends very strongly to show that the bank did not, in taking the bond and mortgage, rely upon the personal liability of Weill, but considered them as merely an incidental collateral in connection with other collaterals which the bank held for the general debts of Thorne & Angelí to the bank.
*111It does appear from the testimony of Weill that, at the time of the final transaction with Thorne & Angelí, he had been informed in some way that the bank held this bond and mortgage. He did know that, when the interest was paid, the bond and mortgage were at the bank, and he knew, also, that the money then paid thereon was credited to Thorne & Angelí and not to the bank. It is not claimed that Weill ever had any notice of the assignment until long after it was made. Weill never was informed of the conditions or terms under which the assignment Avas made to the bank, nor did he know that the bank ever made any advancements to Thorne & Angelí upon the faith of such securities. If the duty to inform the bank of the collateral agreement rested upon any one, it was upon Thorne & Angelí, and Weill may have well inferred that Avhen Thorne & Angelí made the transfer to the bank they informed it of the collateral agreement, and that the bank held the bond and mortgage subject to such agreement. However that may be, I am of the opinion that Weill’s equity was preserved to him by this collateral agreement, valid between the original parties to the transaction, and that the bank took only the title which the mortgagee could, by assignment, give, and that Avas the title to a bond and mortgage subject to the existing equity and rights of the maker. (Stevenson Brewing Co. v. Iba, 155 N. Y. 224.)
The bank took the bond and mortgage for what it aauis worth and without inquiry of Weill, and his communication after that to the bank as to his rights under the collateral agreement could in no way have helped the bank, and his silence in no Avay prejudiced the bank as to the transaction between it and Thorne & Angelí, which had been consummated long before Weill knew of it.
In further support of its contention, the appellant asserts that the so-called equities of the defendant Weill are not inherent in the bond and mortgage transferred to the plaintiff. It has been sIioavu that the deed, bond and mortgage and contract Avere contemporaneous. The contract in question was a part of the original transaction itself The premises were purchased, the deed accepted and the bond and mortgage given upon the conditions expressed in the contract in question. It may fairly be assumed that neither the deed, nor the bond and mortgage, would have been executed, except upon the conditions expressed in the contemporaneous agreement. *112This was made the basis of the sale and purchase of the premises, and was the incentive to, and condition of, executing the bond and mortgage in question. It cannot be separated from these instruments ; it is a part of them. Thorne & Angelí could not have separated this contract from the bond and mortgage, had they attempted to enforce the latter. During the life of the contract, it would have been a complete defense in the hands of this defendant against the mortgagees and obligees in the bond and mortgage. Thorne & Angelí could not, by making an assignment during the life of that contract, vest their assignee with, nor confer upon it, a better title than they themselves had, but the assignee of the bond and mortgage took them subject to all the equities existing between the original parties thereto.
The appellant further insists that the equities are clearly with the bank in the transaction under consideration. The bank is seeking to enforce the obligation against Weill. There is no evidence of fraud nor deceit, nor of an intention to deceive any one in the inception and execution of this contract. The bond and mortgage were not given with a view of obtaining a loan or credit from this or any other bank, nor of being used as collateral security for the indebtedness of Thorne & Angelí to this bank. No fraud nor deception was intended or practiced. The parties had a right to make this contract. It was a contract authorized by the law, and the parties thereto had a right to contract with reference to the existing law, and to rely upon the same in the enforcement of the terms and conditions of the contract. There is nothing to show that the defendant Weill was unwilling at any and all times, if called upon, to disclose the terms of that agreement. He certainly could not have been required to voluntarily go to this plaintiff and inform it of his agreement with Thorne & Angelí. Before the assignment of the bond and mortgage to plaintiff he had no knowledge of any transactions or dealings between the bank and Thorne & Angelí, nor that the bank contemplated taking these obligations as collateral securities for the indebtedness of Thorne & Angelí. The obligation and duty rested upon the bank, when it contemplated dealing with these non-negotiable instruments, to make inquiry of Weill and ascertain whether he claimed any defense thereto. (Reeves v. Kimball and Kirby v. Fitzgerald, ante.) The inquiry, to have been effective, *113should have been made preceding the taking of the assignment. The plaintiff does not pretend that it gave any notice by letter or otherwise of its intention to take an assignment of the bond and mortgage; the only notification it ever gave to Weill was after the assignment had been executed and delivered to it, and then only in the manner disclosed by the evidence of the cashier of the plaintiff, to which I have heretofore called attention. It would seem that it is the bank that has been negligent, and that it has failed to take the ordinary and customary mode for its protection.
Another reason assigned by the appellant as precluding the defendant from asserting his equity as a defense to this action is that when the defendant Weill reconveyed the property to Thorne & Angelí under the contract in question and received back the cash payment, he then knew that the bond and mortgage were held by the bank, and that his surrender of the property should have been made to the assignee instead of the mortgagee, or should have included both, and that he should then have applied to the bank for the discharge of the bond and mortgage. The election of Weill to rescind was within the time provided by the contract. Thorne & Angelí recognized the conditions and covenants of that contract, and did the only thing possible to .fulfill the terms of the same, and that was repayment of the money to Mr. Weill upon his demand and upon the reconveyance of the land to them and assumption of the bond and mortgage by them, pursuant to their agreement that defendant Weill should be relieved from all liability thereunder and reinstated in his original position. At the time of the latter transaction, it appears, the bond and mortgage had been assigned to the bank, and, therefore, it was impossible for the original contractors, Thorne & Angelí, to cancel or surrender the same at the time of this reconveyance of the land. The bank was in no wise a party to this transaction, nor were its rights affected or changed thereby; its lien upon the land under the mortgage held by it remained undisturbed, and has been protected by the judgment herein, directing an enforcement thereof, by a sale of the mortgaged premises. The bank was not a party to the original contract, neither was it a party to the transaction by which the terms of the contract were fulfilled. No consideration passed to Weill from the bank or from Thorne & *114Angelí constituting any agreement or claim against Weill which should inure to the benefit of the bank.
Thorne & Angelí recognized as a valid and subsisting claim the •contract made with Weill, and fulfilled the covenants and conditions therein contained to be performed by them. Of this the bank could not complain, for, in taking the bond and mortgage, it took the same subject to this contract and subject to all the defenses, legal aud equitable, which the mortgagor had against the enforcement of it by the assignor at the time of the assignment. (Hill v. Hoole, 116 N. Y. 302; Bennett v. Bates, 94 id. 354, 363; Stevenson Brewing Co. v. Iba, 155 id. 224.)
“ The principle is settled beyond peradventure that an assignee of a mortgage must take it subject to the equities attending the original transaction. If the mortgagee himself cannot enforce it, then the assignee has no greater rights. The true test is to inquine, what can the mortgagee do by way of enforcement of it against the property mortgaged, and what he can do the assignee can do, and no more. As a purchaser of a chose in action he must always abide the case of the person from whom he buys, and he stands entirely in the place of the latter.” (Crane v. Turner, 67 N. Y. 439, 440; Gray v. Green, 77 id. 619.)
s‘ And the rule is too well settled to require amplification of. the reasons upon which such rule is founded, that an assignee of a mortgage takes it subject to the equities between the original parties to it. The assignee steps into the place, in that respect, of the mortgagee.” (Frear v. Sweet, 118 N. Y. 462; Owen v. Evans, 134 id. 514; Rapps v. Gottlieb, 142 id. 164; Fairbanks v. Sargent, 104 id. 116, 117; Ingraham v. Disborough, 47 id. 421; Schafer v. Reilly, 50 id. 67.)
Many of the cases bearing upon this question have been collated .and commented upon in a recent case (Roosevelt v. Land & River Improvement Company, 11 Misc. Rep. 604), and the conclusion from .such review and discussion is thus expressed : “ The rule is thus established that when one takes an assignment of a mortgage he takes it .subject to all equities that existed in favor of the mortgagor, or in favor of third persons,'unless the person seeking to enforce the ■equity has been estopped from asserting his title against a bona fide purchaser for value without notice.”
*115The appellant, while conceding that the rule is thus established by the cases cited, still insists that there are exceptions to the rule, and that those exceptions are as firmly established as the rule itself; and its chief reliance for such contention is McNeil v. Tenth National Bank (46 N. Y. 325); Moore v. Metropolitan National Bank (55 id. 41), and Fairbanks v. Sargent (supra). In the case last cited the learned court reasserts the rule in these words: “ It is undoubtedly the general rule that the assignee of a chose in action takes it subject to all the equities existing against it in the hands of his assignor, and can acquire no greater right or interest therein than belonged to his transferor.” This is asserted without qualification or modification. In the course of the opinion, however, the court, in referring to the case of Bush v. Lathrop (22 N. Y. 535) uses this languge: “ Bush v. Lathrop has been criticised in subsequent cases, and so far modified as to exclude from the operation of the principles there laid down the case of a purchase in good faith of a non-negotiable instrument from an assignee of the real owner, upon whom he has by assignment conferred the apparent absolute ownership, when such purchase has been made in reliance upon the title apparently acquired by such assignee.” It will be readily observed that this modification has no reference to such a case as the one under review, but deals with the question raised against the real owner of the chose in action, and one who has derived title from the assignee of the owner, and rests upon the ground of estoppel as against the real owner of the chose in action, who has, by his act, invested another with the apparent ownership of his property, and by reason thereof is estopped from disputing the title of one who thereafter acquires it in good faith from such assignee of the real owner.
The other two cases above referred to were considered in the case of Davis v. Bechstein (69 N. Y. 440). That action was brought to have a bond and mortgage on lands belonging to the plaintiff set aside and canceled. The bond and mortgage were executed by the plaintiff and her husband to Lawrence A. Riley, and delivered to him as an accommodation, to be used as collateral security for the payment of a note which he contemplated getting discounted, and under an agreement with him that he should not have the same recorded. Riley failed to procure the discount. The plaintiff *116requested the return of the bond and mortgage. Riley promised to return the same from time to time, but failed to do so. He had the mortgage recorded, and assigned the bond and mortgage, for a valuable consideration to the defendant Bechstein. The latter had no notice of the agreement under which the bond and mortgage were delivered to Riley. A judgment was entered in favor of the plaintiff declaring the bond and mortgage in suit void, and directing the defendant. Bechstein to surrender and deliver up the same. Chief Justice Church, delivering the opinion of the court, says: “Neither the decision in McNeil v. The Tenth National Bank (46 N. Y. 325) nor in Moore v. Metropolitan National Bank (55 N. Y. 41) affect the question involved in this case. Those cases hold that the owner of a chose in action is estopped from asserting his title against a bona fide purchaser for value, who purchased upon the faith of an apparent absolute ownership by assignment, conferred by the owner upon the assignee and seller, but neither of them intimated an intention to interfere with the well-settled principle that a purchaser of a chose in action, takes it subject to the equities between the original parties, and that the assignor can give no better title than he himself has. * * * At the time Riley transferred the bond and mortgage to the defendant Bechstein, as between him and the plaintiff, the mortgagor, he had no title or interest which he could transfer. The mortgage was executed and delivered to him as an accommodation, to be used as collateral security for the payment of a note of §2,000, which he contemplated getting discounted at the New York National Exchange Bank and under an agreement not to have it recorded. He failed to procure the discount, and the plaintiff repeatedly requested the return of the bond and mortgage, and Riley promised to return the same from time to time. It is very clear that the bond and mortgage in his hands were of no value and that he could not have enforced them, and the defendant, when lie purchased, occupied no better position. Riley could not sell any better title than" he had, which was none, and the defendant could not acquire by the purchase from him any better title.” (See, also, Rapps v. Gottlieb, 142 N. Y. 164; Trustees of Union College v. Wheeler, 61 id. 113, 114.)
A careful examination of this case convinces me that it comes within the rule herein stated and forms no exception thereto. The *117judgment herein is in accordance with, and iustiñed hy, such rule, and should be affirmed,' with costs.
So much of the judgment as is appealed from reversed and a new trial ordered, with costs to the appellant to abide the event.