Court Opinion

ID: 5548795
Source: CourtListenerOpinion
Date Created: 2022-01-10 21:23:52.015451+00
Date Added: 2024-06-11T08:35:00.172477
License: Public Domain

The Chancellor.
The sale under the decree, in the foreclosure suit, brought by Hoyt upon the first mortgage, was wholly inoperative as to the rights of the assignees of the bond and mortgage executed by Shelton and Smith, which assignees were not parties to that suit. The only right therefore, which A. C. .Stevens acquired under that sale, as against such assignees, was the right to the prior lien upon the premises to the extent of the money due and unpaid upon Hoyt’s mortgage; in the same manner as if Hoyt had assigned that mortgage to him without foreclosure. But as against Shelton and Smith, who were defendants in that suif,*he acquired the equity of redemption which remained in them previous to the master’s sale. And it may be important to ascertain what the equity of redemption thus acquired wasfor the purpose of determining the question, whether the second mortgage ought in equity to be paid out of the surplus proceeds' of a sale of the mortgaged- premises, after satisfying the Hoyt mortgage, or by Shelton and Smith.
So far as the rights of A. C. Stevens are concerned, no question whatever arises as to constructive notice of the assignment of *34the second mortgage. At the time he purchased,', at the master’s sale, he well knew that the second mortgage was not held by Kingman, one of the defendants in that suit, and that the person who owned that mortgage at the time the foreclosure suit was commenced was not a party. For he had himself previously assigned that mortgage to Evans; and the fact that Evans was not a party to the. foreclosure suit appeared upon the face of the decree under which A. C. Stevens purchased. The equity of redemption in the mortgaged premises which remained in Shelton and Smith, previous to the master’s sale, was the right to the surplus value of such premises, after satisfying not merely the first mortgage to Hoyt, but also the second mortgage which then’ belonged to the complainants in this suit. If A. G. Stevens had purchased that equity of redemption under a judgment, against Shelton and Smith, which was subsequent in time to both mortgages, he certainly could not have afterwards taken assignments of the bonds and mortgages and resorted to the personal liability of the mortgagors, upon their respective bonds, before he had exhausted his remedy against the land itself for the payment_ of those debts. And if the mortgagors were compelled to pay the amount of their bonds to any other persons, as the owners of such bonds and mortgages, the mortgagors would, in equity, be entitled to an assignment of the bonds and mortgages to enable them to compel the purchaser of the. equity of redemption to refund the amount, to have it charged on the land upon which such mortgages were liens. (Tice v. Annin, 2 John. Ch. Rep. 128. Heyer v. Pruyn, 7 Paige's Rep. 470.) The legal presumption in such cases is, that the purchaser of a mere equity of redemption only bids to the value of such eqiñty of redemption beyond the amount of the previous specific lien upon the premises. It would therefore be clearly unjust and inequitable to permit him to keep the land, at the price thus bid, and to resort to the personal liability of the mortgagor to satisfy the amount of such specificlien. ,_
So in this case; A. C. Stevens, when he purchased at the master’s sale, knew there-was an outstanding mortgage upon the equity of redemption, and that the purchaser at such sale would only acquire an interest in the premises to the extent of the amount then *35due upon Hoyt’s mortgage, and the right to the equity of redemption, upon paying the amount due upon the second mortgage which was a specific lien on the premises. And if he had subsequently taken an assignment of the second bond' and mortgage, he could not, in equity, have been permitted to resort to the personal liability of the mortgagors, in the first instance, without giving' them the benefit of the specific lien upon the land after satisfying the amount due upon the first mortgage. The case is entirely different where the several incumbrancers, having liens upon the equity of redemption, are all made parties to the foreclosure suit; so as to give to the purchaser under the decree a perfect title, discharged of all equity of redemption in their favor. ■In that case the legal presumption is that the purchaser gives the full value of the property; and the whole proceeds of the sale áre applied to the payment of the incumbrances in the order of their priorities. Whatever remains unpaid, therefore, after thus applying the proceed^ of such sale, is properly chargeable against the mortgagors personally. Even if A. C. Stevens had not guarantied the collection of the bond and mortgage assigned to Evans, I think, as between him and Shelton and Smith, the value of the premises beyond what was due upon the Hoyt mortgage was the primary fund, in equity, for the payment of the mortgage which at the time of such sale belonged to the complainants, and which was in no way barred or affected by such sale.. Independent of the guaranty, therefore, if the subsequent mortgages to Kissam, and to Sherman Stevens as president of the banking association, had not been given, the complainants would have been entitled to a decree for the sale of the mortgaged premises; with directions to the master to apply the net proceeds of such sale as follows: First, to pay to A. C. Stevens, the amount due upon the mortgage to Hoyt, and the interest thereon, and also to pay to him, as the owner of the first incumbrance, his costs in this suit. Secondly, to pay to the complainants out of the proceeds of the sale, as the owners of the second lien upon the premises, the amount of their debt and costs, or so much thereof as the residue of the proceeds of the sale would pay of the same. Thirdly, to pay the surplus proceeds of the sale, if any, to A. C. *36Stevens as the owner of the equity of redemption, by virtue of his purchase under the previous decree to which the owners of the second mortgage were not parties. The, decree which would have been proper, in the case supposed, should also have provided that if the proceeds of the sale were not sufficient to pay the amount of the debt and costs due to the complainants, after paying the costs and expenses of the sale and the amount due to A. C. Stevens for his debt and costs, as before directed, the master should specify the amount of the deficiency in his report; and that Shelton and Smith, the mortgagors in the second mortgage, pay to the complainants the amount of such deficiency with interest.
What, then, is the effect of the guaranty contained in the assignment of the bond and mortgage to Evans? That guaranty was that Evans, or his assignees, should be able to collect the several instalments upon that bond and mortgage which were then unpaid, from time to time as they became due, together with the interest thereon ; either from the proceeds of the mortgaged premises or from the mortgagors or their other property. It could not, therefore, have been the intention of the parties, in case the mortgagedju-emises were insufficient to pay the -whole of this debt, in addition to the previous incumbrance thereon, that the assignee should be at liberty immediately to resort to the guarantor, after exhausting his remedy against the land, subject to the prior lien. Nor can the guaranty be considered as a covenant that the land itself should actually produce sufficient to pay the second mortgage; so as to enable the assignee to take the benefit -of the prior mortgage, which the assignor acquired under the mastér’s sale, to satisfy the amount due upon such junior mortgage, instead of resorting to the personal liability of Shelton and Smith for the deficiency. The only alteration, therefore, which would have been proper in the decree above suggested, on account of this guaranty, if A. C. Stevens had not executed the subsequent mortgages, would have been a further direction, that upon the return of an execution against Shelton and Smith unsatisfied, A.. C. Stevens, as such guarantor, should pay to the complainants so much of the deficiency as remained uncollected from *37time to time, when it should become due and payable according to the terms of the assigned bond and mortgage.
The purchase at the master’s sale by A; C. Stevens, therefore, did not merge the first mortgage, in the equity of redemption which he also acquired by the same purchase. For the intermediate mortgage which was not foreclosed, and the interest of the purchaser to keep the first mortgage and the equity of redemption separate and distinct, so as to compel the complainants to resort to the personal liability of Shelton and Smith, in thefirst place, for any deficiency there might be after paying the first mortgage, would prevent the merger. (Crow v. Tinsley, 6 Dana's R. 402.)
Upon examining the provisions of the revised statutes, I think there is very little doubt that the vice chancellor is right as to the effect of the recording of the assignments of the mortgage to Kingman, as constructive notice to Kissam, and to the banking association, as mortgagees of the premises after the sale by the master. Previous to the revised statutes it had been decided, by the court for the correction of errors, in the case of James v. Morey, (2 Cow. Rep. 246,) that actual notice of the assignment of a mortgage was necessary to invalidate payments subsequently made to the assignor, by the mortgagor or his representatives. But it was also decided, in that case, that the recording acts did not apply to the assignment of a mortgage; and that no notice of the assignment, either actual or constructive, was necessary to protect the assignee of the mortgage against a subsequent assignee, or against other persons claiming under the assignor. In other words, that as between the assignee of a mortgage and subsequent assignees or purchasers from the assignor thereof, the rights of the parties depended upon the rule of law as it existed previous to the recording acts. That rule was that the first grantee, or assignee, of an interest in real estate, was entitled to a preference, whether the subsequent assignee, or purchaser, had or had not notice of the prior assignment or grant. The revised statutes, however, extended the beneficial provisions of the recording acts to the case of the assignment of a mortgage; by declaring that the term purchaser, as used in the chapter of the revised statutes relative to the proof and recording *38of conveyances of real estate, &c. should be construed to embrace every person to whom any estate or interest in real estate should be conveyed for a valuable consideration, and also to embrace every assignee of a mortgage, or lease, or other conditional estate; and that the term conveyance, as there used, should be construed to embrace every instrument in writing by which any estate, or interest., in real estate-was created, aliened, mortgaged or assigned, or by which the title to any real estate might be affected in law or equity, with two or three specified exceptions. (1 R. S. 762, § 37, 38.) And to show that the intention was to include assignments of mortgages within the general provisions of that chapter, requiring such conveyances to be recorded in order to make them constructive notice, it is only necessary to refer to the note of the revisers to the 41st section; where they say distinctly that assignments of mortgages will be included in the term conveyance as previously defined.
What notice, then, would the mortgagees of A. C. Stevens have had of the legal and equitable rights of the complainants, if they had searched the records at the time of taking their respective mortgages, in 1838; for the purpose of ascertaining what title he obtained under the master’s deed? They would have found that Hoyt’s mortgagors had conveyed to Shelton and Smith, who had afterwards mortgaged the premises to Kingman, who was one of the parties to the foreclosure suit. And if the assignment from him to A. C. Stevens had not been upon record, they would have been authorized to presume that Kingman was still the owner of the mortgage given to him by Shelton and Smith; and that his interest in the premises as such mortgagee had been foreclosed by a decree to which he was a party. Although A. C. Stevens, the purchaser, who had actual notice of the several assignments by which Evans became the owner of that mortgage before the commencement of the foreclosure suit, would not have been protected against the lien of that mortgage in the case supposed, yet his subsequent mortgagees, who had advanced their money and scrip upon the faith of the security upon the land, and without any notice, either actual or constructive, of the rights of the complainants, would have been *39protected against this intermediate incumbrance which had not in fact been foreclosed. But they were bound to look further than the mere record of 'the mortgage to Kingman, to see whether he was still the owner of that mortgage at the time of the commencement of the foreclosure suit of Hoyt, and of the filing of the notice of lis pendens. And if they had done so they w'ould have ascertained the fact that the second mortgage did not belong to a party to the foreclosure suit; and that the only interest A. C. Stevens had in the premises which was paramount to that incumbrance, was the interest which the complainant in the suit had, at the time of the sale under the decree, as the owner of the first mortgage. They, cannot, therefore, be considered as bona fide mortgagees, as against the complainants as the owners of the second lien upon the mortgaged premises, beyond the amount actually due upon the mortgage to Hoyt.
The order appealed from was clearly erroneous, in directing that the proceedings in this suit should be suspended until the complainants should have exhausted their remedy at law upon the bond of Shelton and Smith. And although the appellants were not entitled to have the bill dismissed, they are entitled to have the proper decree made, without further delay, to ascertain the rights of the several parties, in order that the mortgaged premises may be sold and the proceeds thereof applied accordingly. The complainants’ bill is properly framed for that purpose; as this is a bill for a foreclosure and sale of the equity of redemption in the mortgaged premises, to satisfy the several incumbrances thereon according to their respective priorities, and is not a mere bill to redeem. In England, the court does not decree a sale of mortgaged premises, but merely allows the second incumbrancer to,file a bill to redeem from the first incumbrance, and that the junior incumbrancers may redeem both of the prior ones, or be foreclosed. And the complainant there, is in all cases, required to offer to redeem the first incumbrance. But here, where the puisne creditor has the right to a sale of the estate to satisfy his debt, after applying so much of the proceeds of the sale as may be necessary to pay the debt and costs of the prior incumbrancer, he is not required to offer to pay the first *40incumbrance. All that the prior incumbrancer has a right to ask, even where he is in possession under his incumbrance, is that he shall not be subjected to useless costs, when the proceeds of the sale will not probably be sufficient to pay the amount of his debt, with interest, and the costs of foreclosure.
The order appealed from must therefore be reversed. And a decretal order must be entered referring it to one of the masters of this court to compute and ascertain the amount due to the complainants upon their bond and mortgage; stating the amount due and payable, and the amount to become due hereafter, with interest thereon to the date of his report. The master must also compute the amount due to the defendant A. C. Stevens as the purchaser of the interest of Hoyt in the mortgage executed by Kingman and Welty to him; and in ascertaining that amount he must credit A. C. Stevens with the amount remaining unpaid at the time of the decree of foreclosure in the suit of Hoyt, and the subsequent interest, and must charge him with the rents and profits of the mortgaged premises from the time he took possession thereof under the master’s deed, after deducting taxes, assessments, and repairs. (7 Dana’s Rep. 70. Lloyd & Goold’s Rep. Temp. Sugden, 246. 2 Sum. Rep. 143.) The decree must also direct the master to ascertain and compute the amount due and to become due, for principal and interest, on the mortgage given by A. C. Stevens to Kissam, and also upon the one given to Sherman Stevens as president of the Merchants’ Exchange Bank of Buffalo; and to ascertain who is the holder or owner of those mortgages. The decree must then direct that upon the coming in and confirmation of the master’s report, the mortgaged premises be sold, by a master, in the usual form. And out of the net proceeds of the sale the master must pay the amount reported due to the defendant A. C. Stevens, as follows : first, to the holder of the mortgage given to Kissam, so much as may be reported due upon that mortgage, if the sum reported due to A. C. Stevens as the purchaser, of the interest of Hoyt, is sufficient for that purpose; secondly, to the holder of the mortgage to Sherman Stevens as president, the amount reported due thereon, if the amount due to A. C. Stevens is sufficient for that *41purpose; and thirdly, to A. C. Stevens the balance, if any, of the amount reported due to him. Out of the proceeds of the sale the master must next pay to the solicitor of the defendant Sherman Stevens, as president of the banking association, his costs of this suit to be taxed; not including, however, any costs upon this appeal. And out of the proceeds of the sale, he must next pay the amount reported due to the complainants, together with their costs in this suit to be taxed, exclusive of their costs upon this appeal. If any thing 'remains of such proceeds, he must then pay the balance, if any, which remains unpaid to the holders of the Kissam and Sherman Stevens mortgages. respectively; and must pay the residue of such proceeds to A. C. Stevens, or his solicitor, as the owner of the equity of redemption in the mortgaged premises. The decree will also direct that if the proceeds of the sale shall not be sufficient, in the order of payment herein directed, to pay and satisfy the amount due to the complainants with interest and costs, that the master specify the amount of such deficiency in his report; stating therein the amount of such deficiency which has then become due and payable, and the amount which is thereafter to. become due, separately; and that the defendants Shelton and Smith pay such deficiency as shall then have become due, together with the interest thereon from the date of the master’s report of the sale, immediately, and that the complainants have execution therefor. The decree must further direct that upon the return of the execution against Shelton and Smith, for such deficiency, unsatisfied, the defendant A. C. Stevens, as the guarantor of the collection of the bond and mortgage of Shelton and Smith, pay to the complainants the amount of the deficiency, then due and páyáble, which shall remain uncollected, and that they have execution therefor against him. And as to the amount of such deficiency which shall not have become due and payable at the date of the master’s report of the sale, the complainants must have liberty to apply for further directions, for the payment thereof by Shelton and Smith, or by A. C. Stevens, as shall be equitable and just, after the saíne shall have become due and payable.