St. Andrew's Church v. Tompkins — 7 Johns. Ch. 14

Majority

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St. Andrew’s Church against Tompkins and the Bank of the United States.

Headnote

A prior mortgagee is not allowed to enlarge his demand beyond what appears upon the record, in consequence of a separate agreement between him and the mortgagor, to the prejudice of a second mortgagee, who had no notice or information at the time he took his mortgage, of the agreement between the mortgagor and the first mortgagee, by which the latter claimed interest, when the bond and mortgage were, on the face of them, without interest.

THE defendant, T., on the 1st oí May, 1815, purchased 94 acres of land, in Richmond county, subject to three several leases, each for 21 years, on three several parcels of the said land, and which parcels amounted in the whole to 46 acres. To secure parts of the purchase money, he gave to the plaintiffs three several bonds, payable 1st of May, 1822, 1st of May, 1825, and 1st of May, 1826, without interest, and a mortgage upon the whole, to secure the same, and also a bond, payable 1st of May, 1825, with

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interest; and for non-payment of interest on the last bond, the bill was filed to foreclose the mortgage. It was agreed, in writing, at the time of the purchase, that the plaintiffs should receive the rents on the three leases as a substitute for interest on the three bonds, which were payable on the face of them without interest, and which leases would severally expire at the times limited for the payment of those three bonds. The defendant, T., afterwards, on the 26th of September, 1817, mortgaged the 94 acres to the Bank of the United States. The bank bad no information or notice of the existence of the leases, or of the reservation of the rents, or of the assignment of the leases to the plaintiffs, and appropriation of the rents thereof to the payment of interest on the bonds. There was nothing said in the bonds or mortgages concerning the leases or rents, and the leases were not on record, nor the assignment of them, or the agreement to appropriate the rents to the plaintiffs. The lessees were in possession of the lands leased, and paid the rents regularly to the plaintiffs, from May, 1815, until the 18th of September, 1819, when they surrendered their leases to the defendant, T., without the assent or knowledge of the plaintiffs; and the defendant, T., continued to pay the stipulated rents to the plaintiffs, until very lately. The Bank of the United States had no knowledge of the surrender of the leases, or any knowledge on the subject of the leases, until recently.

It was agreed that the whole of the bonds, with the costs of foreclosure, should be satisfied by a sale of the mortgaged premises, and that the premises would not, probably, be sufficient to pay the Bank of the United States, after the prior incumbrances were satisfied.

The question submitted for the direction of the Master, in computing the amount due to the plaintiffs, was, whether they were entitled, as against the Bank of the United States, to be allowed interest, remaining unpaid on the three bonds, payable without interest, in consideration of

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the arrangement relative to the rents; and whether, in resPect t0 two bonds not due, any larger sums ought to be allowed than would, at lawful interest, produce, at the times those bonds would become due, the principal sums therein mentioned.

«7. Wallis, for the plaintiffs.

J. L. Lawrence, for the defendants.

The Bank is not chargeable with notice of the leases, or of the agreement of the mortgagor to apply the rents to the plaintiffs as a substitue for interest. Notice that the estate, or part of it, was in possession of a tenant, has been considered as notice of the lease and its contents. In Taylor v. Stibbert, (2 Vesey, Jun. 437.) Lord Rosslyn held it to be a rule in equity, that whosoever purchases an estate from the owner, with information that it was in possession of tenants, is bound to inquire into the estates of those tenants, and is bound by the leases they hold. The rule was cited and approved of by Lord Erskine, in 13 Vesey, 120. But the Bank had no notice of the existence of the leases; and the question here is, whether the Bank are bound to allow the prior mortgagee to enlarge his demand beyond what it appears upon record, when they had no other information at the time they took their mortgage, than what the plaintiffs had disclosed upon record. There is no sound reason why the plaintiffs should take their intermediate interest out of the mortgaged premises, to the prejudice, and probably at the expense of the defendants, any more than that they should enlarge the principal of the debt, in conformity to some private agreement between them and the mortgagor. It is the policy of the registry act, that a subsequent incumbrancer should be able to ascertain with certainty the extent of the prior incumbrance ; and if moneys not mentioned in the bond or

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mortgage can be covered by them, when the rights of a subsequent mortgagee are interposed, and to whom no fraud or negligence is to be imputed, and who is not chargeable with any notice, actual or constructive, it would go to weaken, very essentially, the value of mortgage security.

The master, therefore, can only compute interest on the bond without interest, which is now due, from the 1st of May last, when it became due; and on. the other two bonds, which are without interest, and not yet due, the amount of principal must be computed, subject to the usual discount or rebate of interest, in like manner as trustees under the insolvent debtor or absconding debtor acts (1 N. R. L. 162. 468.) are directed to allow, of debts not due, and not upon interest.

Order accordingly.