Court Opinion

ID: 3632979
Source: CourtListenerOpinion
Date Created: 2016-07-06 00:11:59.412611+00
Date Added: 2024-06-11T14:07:42.206447
License: Public Domain

A motion having been made for reargument, the following opinion was given, on denying the motion.
The plaintiff in this cause moves for a reargument on three grounds:
First. That this court erred in holding that the plaintiff took the same position in respect to the mortgage which was the subject of foreclosure in the present action as its assignor, Nott, the mortgagee. Second. That the court should have held, that where the contracts owned by the respondents were assigned, subsequent to the record of the mortgage, the plaintiff has a lien for the purchase-money unpaid at the time of such assignment. Third. That the court committed another error in holding that after Nott had made the assignment, and continued the apparent owner, the assignment being unrecorded *Page 113 
and the respondents having no notice of such assignment, his release from the lien of the mortgage of certain portions of the premises which were primarily liable to pay the debt, was binding on the plaintiff and so discharged the respondents.
Before considering the first proposition, it will be well to recall the exact relations of the parties. Nott held a mortgage upon certain lands to which the mortgagor held the legal title, but which in part had been sold by a valid contract to some of the defendants. The validity of the contract is undisputed, as is also the fact that Nott, the mortgagee, had full notice of the equities of those defendants, and was bound in equity to recognize them.
Starting with this proposition, the counsel for the plaintiff maintains that the plaintiff, if considered as a purchaser of a chose in action without notice, is not bound to recognize the equities to which Nott would have been subject, and again, that it is a purchaser of the legal title to the land, and that it can invoke the rule that the honest purchaser of land for a valuable consideration can shut out any equities which might have existed between the mortgagor as well those whom he represented and the mortgagee.
In urging the first branch of this proposition, he calls our attention to the supposed fact that the case of Bush v.Lathrop (22 N.Y., 535), and cited as authority in one of the opinions disposing of this cause, has been overruled, and with it, that the doctrine on which we relied has fallen. This, however, is an incorrect assumption, for that case has not been overruled as a whole, but only as to one proposition maintained in it. (See Moore v. Metropolitan Bk., 55 N.Y., 41.) It is there stated that several propositions in Bush v. Lathrop
were decided "with perfect accuracy." The special point in respect to which there is a conflict between the two cases is, whether an assignor of a chose in action can set up any equities affecting the title between himself and his assignee, in an action brought by a second assignee. There was no question whatever as to the equities growing out of the chose in action itself, *Page 114 
as between the original parties to it or an assignee of the creditor. On that point the court was careful to avoid all misconstruction in using the following language: "The counsel" (for the defendant) further insists that to apply the same rule (of estoppel) "to non-negotiable choses in action will in effect make them negotiable. Not at all. No one pretends but that the purchaser will take the former, subject to all defences, validas to the original parties, nor that the mere possession is any more evidence of title in the possessor than is that of a horse. In both respects, the difference between these and negotiable instruments is vital." (P. 48.) The court is also careful, on pages 49, 50 of the report, to preserve the force of the cases, decided by the present Court of Appeals, which have followedBush v. Lathrop in the respect referred to — cases of whichSchafer v. Reilly (50 N.Y., 61), is one, and bears closely upon the present discussion. The point in Moore v.Metropolitan Bank is simply whether the law of estoppel is applicable on the question of title as between a first assignee and a remote purchaser of a non-negotiable chose in action. It is held that it is. The rule that the chose in action itself is open to all defences growing out of the original transaction, in the hands of any assignee no matter how remote, remains unshaken, and must continue so until elementary rules of law are overthrown.
The rule laid down by us in the case at bar is distinctly stated and affirmed in Schafer v. Reilly (50 N.Y., 61). It is there said that one who takes an assignment of a mortgage, takes it subject not only to any latent equities that exist in favor of the mortgagor, but also subject to the like equities in favor of third persons. This case emphatically approves of Bush v.Lathrop, so far as it holds this point, and declares its doctrine to be settled law. None of the cases, we repeat, in which the present Court of Appeals have followed that case, are to be regarded as overruled by Moore v. Metropolitan Bank
(supra).
It must accordingly be held to be still the law of this *Page 115 
State, that the purchaser of a non-negotiable chose in action, secured by a mortgage, takes it subject to the latent equities not only of the mortgagor but of third persons.
The counsel of the plaintiff, however, maintains that if it be conceded that this doctrine applies to the debt, it does not apply to the mortgage. His argument is, that the mortgage itself creates a legal estate in the land, and that so far as the land is concerned, an assignee of a mortgage is a purchaser of the legal estate for a valuable consideration, and entitled to exclude the equities. There is thus, according to this proposition, one rule for the land and another for the debt. If the debt were collected by action for its amount the equities would be let in; if it were collected by foreclosure of the mortgage they would be shut out. This, if true, is certainly an extraordinary proposition. It is very comprehensive in its nature, for it would exclude the equities of the mortgagor as well as the latent equities of third persons. Under our compound system of foreclosure and of obtaining a personal judgment for the deficiency, there would be one rule for the first branch of the case and an entirely different one for the last.
None of the cases cited by the counsel, on this motion for reargument, sustain his proposition as being part of our law. They have all been examined, and it is unnecessary to consider them in detail. The point is really decided against him inSchafer v. Reilly (supra). The contest in that case concerned the right to surplus moneys after a foreclosure, and was in substance a question as to the title to land, the money standing, under the doctrine of equitable conversion, in the place of land. It appeared that there was a second mortgage, of a fictitious nature, made by one John Reilly to Peter Reilly, on which nothing had been advanced, and which was of course incapable of enforcement by Peter. This was assigned to one Catherine M. Burchard, who paid a valuable consideration, acting in good faith, and upon an affidavit by the mortgagor, that Peter Reilly had advanced to him the whole amount of the principal without abatement, *Page 116 
that the whole sum remained unpaid, and that there was no off-set, defence or counter-claim to the mortgage. The mortgage was dated and executed anterior to the claim of one Griffin, who had acquired, subsequently, a mechanic's lien upon the land, but before Mrs. Burchard became assignee. Of his rights at that time she was ignorant. The question was, who had, under these circumstances, the better right to the surplus moneys, considered as land. The court held that, notwithstanding the mortgage was, on its face, executed prior to the mechanic's lien, it might be shown by Griffin that his lien was in existence when Mrs. Burchard advanced her money, and that his right could not be affected by the mortgage. The court there broadly applied the rule, that if Griffin's claim was an equitable one and latent, it could still be set up by him against the assignee. The estoppel against John Reilly, caused by his affidavit, had no effect upon the rights of Griffin. The court rested this decision on the ground that though Griffin's right might be a latent equity, yet the assignee must take the mortgage considered as an interest in the land, and not merely the debt, subject to the equity. The same class of cases that were relied upon by the plaintiff's counsel in the argument of the present motion were cited to the court, as showing that the assignee of the mortgage was a purchaser for value. Their application to the subject in hand was denied, and the rule of Lord THURLOW, in Davies v. Austen (1 Ves., 247), was pronounced to be the principle governing the case. "A purchaser of a chose in action must always abide by the case of the person from whom he buys." (Schafer v. Reilly,50 N Y, 67, 68.) This was the precise ground on which the case at bar was rested.
The plaintiff is mistaken in the supposition that the present case is one merely of notice of equitable rights on the part of third parties to Nott, the mortgagee, and, accordingly, that it is not bound by the notice under the ordinary doctrines applied to the purchaser in good faith, and for a valuable consideration, acquiring title to lands. On the *Page 117 
contrary, the difficulty is that Nott took his mortgage, subject to the older and better title of the contractees. To their estate his mortgage never attached in equity. The land belonged to them in equity, and the most that Nott could acquire under any circumstances, as against them, was a lien for the unpaid purchase-money. This is not an interest in the land but only in the money, and to be obtained by an assignee of Nott in no manner, except by due notice of the mortgage and assignment given to the contractees. The plaintiff simply acquired Nott's rights, and stood in his place according to Schafer v. Reilly
(supra). (See, also, Andrews v. Torrey, 1 McCarter [N.J.], 355.) The cases of Jackson v. Van Valkenburgh (8 Cow., 260);Jackson v. Henry (10 J.R., 185); Varick v. Briggs (6 Paige, 323); Fort v. Burch (5 Den., 187), and others cited by the appellant, have no application to the case at bar. Those and others of the same nature are either cases of title obtained by fraud, or involve the effect of notice under the recording acts, or are instances of mortgages accompanying negotiable notes, and declared to partake of the character of the note. They are noticed and distinguished in Schafer v. Reilly (supra), and it is unnecessary to spend time upon them. It should be added that, under the rules of equity jurisprudence, it is essential that one who claims to exclude an earlier equity must show that he is not only a purchaser, but has acquired the legal estate. What evidence was there, in the case at bar, that the plaintiff had acquired the legal estate? The complaint merely alleges an assignment of the debt and mortgage in writing. The referee only finds an assignment in writing. There is not a word anywhere concerning the acquisition of the mortgage by a deed or other instrument under seal. If the mortgagee had the "legal" estate, he did not transfer it by such an instrument as the law requires to transfer a freehold estate in land. The plaintiff was, undoubtedly, the equitable owner, by force of the assignment of the bond and the mortgage accompanying it, but that was not enough. The legal title must pass. (Peabody *Page 118 
v. Fenton, 3 Barb. Ch., 451.) The authorities, to the effect that a deed or other mode of conveyance is necessary to pass the legal estate, strongly preponderate. (Den v. Dimon, 5 Halst. [N.J.], 156; Warden v. Adams, 15 Mass., 233; Jackson
v. Myers, 11 Wend., 533, 539; Morrison v. Mendenhall,18 Minn., 232; Cottrell v. Adams, 2 Bissell, 351; Olds v.Cummings, 31 Ill., 188; Partridge v. Partridge, 38 Penn. St., 78; Graham v. Newman, 21 Ala., 497; Lyford v. Ross,33 Me., 197, Smith v. Kelley, 27 id., 237; Givan v. Tout,
7 Blackf., 210; 2 Washburn on Real Property [3d ed.], page 113, paragraphs 12 and 16, and cases cited.) Such cases as Green v.Hart (1 J.R., 590); Jackson v. Blodget (5 Cow., 202), andJackson v. Willard (4 J.R., 43), do not affect this question, as the matter of passing the legal title to the mortgage was not in controversy. Johnson v. Hart (3 J. Cas., 322), only decides that by the transfer of the debt an equitable title to the mortgage passes.
It is, however, not our intention to hold that the legal estate, under the present law of this State, ever does or can pass from the mortgagee to the assignee. On the other hand, it is now settled law that the mortgage is but a lien upon the land. The mortgagor, both in law and equity, is regarded as the owner of the fee, and the mortgage is a mere chose in action, a security of a personal nature. An assignment of a mortgage, in this view, cannot pass the title. (Jackson v. Myers, 11 Wend., 533, 539; Kortright v. Cady, 21 N.Y., 343; Trimm v.Marsh, 54 id., 599, 604; Stoddard v. Hart, 23 id., 559, 560; Power v. Lester, id., 527.) Rules, owing their existence to a contrast between law and equity, and giving the later holder of a legal title a preference over an earlier holder of an equitable title, are not to be applied to a state of the law so entirely different from that which prevailed when the law of mortgages first originated. In other words, the power of a vendee of land to convey to a second purchaser, so as to shut out the equities between himself and the original vendor, is not to be referred to for the purpose *Page 119 
of ascertaining the capacity of a mortgagee when he makes an assignment of the mortgage to shut out the equities between himself and the mortgagor, and those whom the mortgagor represents. If that rule were ever a part of the law of mortgages, the development of that branch of jurisprudence in this State demands that it should be discarded.
Second. There is no good reason why the second point raised by the plaintiff's counsel should be again argued before us. He has shown no good reason for the proposition that conceding, as we now must, that the plaintiff simply acquired Nott's rights, the assignees of the purchasers under the contracts were bound to take notice of the assignment of the mortgage to the plaintiff after its record. His sole argument is by way of analogy to the case of a conveyance of land and a mortgage back for the purchase-money. The rule that, when a mortgagor subsequently conveys, the record of the assignment of the mortgage is notice to the purchaser from the mortgagor, is claimed, by this asserted analogy, to be applicable to this case.
This is but a new instance of the wisdom of Lord MANSFIELD'S aphorism, that "nothing is so apt to confound as a simile." There is no real analogy between the two cases. In the case of the mortgage for the purchase-money, the mortgagor has the legal title, conferring upon him all the rights of owner, subject to the lien of the mortgage. He may bring ejectment, maintain trespass, and generally appear to the world in the character of proprietor. When a purchaser takes such a title, good policy dictates that he should be required to examine the record, and if he fail to do so, he should sustain the consequences of his neglect. There is no such policy in the case of a mere assignment of a contract. The interest of the contractee is but temporary and provisional, and preparatory to the acquisition of the formal title. There is no good reason why the policy of the recording act should be extended by judicial construction to such cases. It would be an intolerable burden if on every assignment of a contract *Page 120 
it should be necessary to search the title. It might as well be said that the assignee of the vendor should inquire whether the contractor had made an assignment, as the lien of the respective parties is mutual. We shall not be the first to announce a rule so inconvenient in practice, so burdensome in its effects, and so contrary, as we think, to the general understanding of the profession.
The sole question which such a contractee has to ask is, to whom shall I pay my debt? When he assigns his contract, the assignee has to settle the same proposition. He should be placed, accordingly, in the same position as any other debtor whose indebtedness has been assigned. Let the purchaser of the vendor's rights give notice of his claim. Until that is done, the debtor or his assignee may assume that the former state of things continues, and may pay the original creditor (vendor). It is unnecessary to pursue this subject further, as we should but again go over ground that has been sufficiently reviewed in our former opinions.
Third. If the views already stated are sound, they are fatal to the plaintiff's case; and it would be of no value to grant a reargument, if the judgment should be necessarily affirmed for these reasons, even though we may have committed an error as to the effect of the releases. It is, however, proper to say that nothing has been urged by the plaintiff tending to raise any question as to the soundness of the opinions already given upon this branch of the case.
The counsel for the plaintiff is mistaken in the supposition that our opinion on this question had any thing to do with the recording acts. It was rested solely on the general doctrines of law, as modified by equity, and would have been equally applicable in England, where no general recording act prevails. The point of our decision was, that when the plaintiff took its assignment it stood in the exact position of Nott, and was bound by his acts toward the property embraced within the mortgage.
The counsel admits that if an assignment is made, and no notice is given to the mortgagor, any payments that he may *Page 121 
make to the mortgagee must be credited to his account; and, by parity of reasoning, he must concede that any dealings transacted between them in good faith must be upheld. He, however, insists that this does not apply to any dealings by the mortgagee after the assignment with third persons, and that the purchasers are third persons. With due deference, this is begging the whole question. These purchasers under the contracts are, in a broad sense, the mortgagors. The mortgage, by a rule of law, was made to include them, because it was executed by one who held the legal title, in trust, for them. It was a mortgage by a trustee of a formal trust, binding on them because he was their representative, as the holder of the legal title, and, in all good sense and logic, so far as it binds them, they are the mortgagors. When Nott prejudiced their interests, by releasing a portion of the land, which ought primarily to pay the debt, from the lien of the mortgage, he did an act injurious to them as mortgagors. The plaintiff, by not giving notice to the purchasers of its rights, left it in the power of Nott to deal with them as though he were still owner; and it must accordingly be bound by his release, in the same way as it would be bound to creditpayments to the purchasers which they had made, in good faith, to Nott. This same point was distinctly presented in Stocks v.Dobson (4 De G., M. . G., 11). In this case, an assignee of a judgment gave no notice of the assignment to the debtor, and it did not appear that he had the means of ascertaining his residence. The assignor then, by reason of some arrangements with the debtor, released to him all claims, including this judgment. The release was held to be binding upon the assignor. The court, after stating the rule that payments made to the assignor, under such circumstances, are binding upon the assignee, said: "Thus the case stands considered as a question of payment. * * * I see no substantial ground of distinction between actual payment and a release to the debtor, founded upon a fair and bona fide
arrangement." (P. 13; see, also, Loomis v. Loomis, supra;Jones v. Smith, 22 Mich., 360; Huntington v. Potter, 32 *Page 122 
Barb., 300; Hodgdon v. Naglee, 5 Watts  Serg., 217; Ryal
v. Rowles, 1 Ves. Sen., 267.) The principle of this rule must necessarily extend to all dealings and acts, on the part of the assignor, toward those persons whose rights and interest are embraced within the mortgage. It is not contended here that the doctrine will extend to third persons in the correct sense of that expression; that is, to persons whose rights are external to the mortgage; but its scope is extensive enough to include all those persons who either executed the mortgage directly, by their own act, or indirectly, through trustees holding the legal title. The interests of such persons are within the purview of the mortgage; they are not junior incumbrancers, like younger mortgagees or judgment creditors. They are, in the broad sense of the term, mortgagors, and fall within the principle that, until notice of the assignment, the rights and interests of the mortgagor are in no wise affected by it. (Loomis v. Loomis,26 Vt., 198; Comstock v. Farnum, 2 Mass., 96; Martin v.Sedgwick, 9 Beav., 333; Thompson v. Speirs, 13 Sim., 469;Waldron v. Sloper, 1 Drew., 193; Ex parte Boulton, 1 De G. J., 163; Foster v. Cockerell, 3 C.  F., 456.)
Some explanation should be made of our reasons for so extended a discussion of the grounds for denying a motion for reargument. The whole subject was discussed at length by the appellant's counsel, in making his motion; and, though that discussion may not have been, in all respects, regular, in view of the earnestness with which our former opinions were combated, and the importance of the questions involved, we have thought it proper to restate our conclusions in the form of a specific consideration of his argument.
The motion for reargument is denied.
All concur.
Motion denied. *Page 123