Southall v. Anthony — 125 N.Y.S. 1016

Majority

p. 1016

SOUTHALL v. ANTHONY et al.

(Erie County Court.

November 25, 1910.)

Headnote

1. Mortgages (§ 408^[2] )—Equitable Estoppel—Act Making Injury Possible,

Defendants, being owners of mortgaged land, gave their attorney securities, to be sold and with the proceeds to pay off the mortgage. The attorney failed to do this for some two years, putting off defendants by various excuses. At the end of that time, plaintiff, desiring to invest in a mortgage, paid the attorney $2,500, which the attorney deposited to his own credit, and the next day drew his check, which he gave to the mortgagee, and took an assignment of the mortgage to plaintiff. The assignment and the bond and mortgage were delivered to plaintiff and duly re- ■ corded. Shortly thereafter, all the papers were delivered by plaintiff to-the attorney for safe-keeping, and the attorney paid to plaintiff the first six months’ interest on the mortgage. Held, that the act of plaintiff in

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leaving all investigation of tlie mortgage to the attorney was not such negligence as to preclude plaintiff from enforcing the mortgage against the defendants, under the equitable doctrine that he who contributes most to the fraud of a third person must, as between two innocent parties, bear the loss. ■

[Ed. Note.—For other cases, see Mortgages, Dec. Dig. § 408.^[2] ]

2. Mortgages (§ 819*)—Payment—Merger—Evidence.

Held, further, that the natural inference was that it was plaintiff’s money which was paid to the mortgagee for the assignment, and not the money of defendants, so that there was no merger of the mortgage in the fee.

[Ed. Note.—For other cases, see Mortgages,' Dec. Dig. § 319.*]

3. Mortgages (§ 257*)—Assignment—Bona Fides oe Assignment.

Held, also, that plaintiff could not be charged with the knowledge by the attorney of his fraud upon the mortgagors, so as to deprive plaintiff of the rights of a bona fide purchaser.

[Ed. Note.—For other cases, see Mortgages, Cent.'Dig. §§ 682-687; Dec. Dig. § 257.*]

4. Mortgages (§ 257*)—Assignment—Bona Fides oe Assignee.

Held, further, that no knowledge or acts of the mortgagee could affect the bona fides of the plaintiff.

[Ed. Note.—For other cases, see Mortgages, Cent. Dig. §§ 682-687; Dec. Dig. § 257.*]

Action by Edward A. Southall against William M. Anthony, Edith M. Anthony, and others.

Judgment for plaintiff.

Hammond & Hinkley, for plaintiff.

Farrington & Farrington (Frederick Haller, of counsel), for defendants Anthony.

This action is one for the foreclosure of a mortgage. The testimony unfolds a tale of perfidy seldom heard in a court of law. The defendants Anthony, who are now litigating, became the owners of some real estate in this county in April, 1905. This property is incumbered by the $2,500 mortgage in suit, which, prior to April 24, 1909, was owned by Anna Bond Hall, and on that date was past due. In 1907 the Anthonys gave to one Fennelly, a lawyer practicing in the city of Buffalo, an assignment in blank of a certain Lunz mortgage, with directions to sell the same as attorney, pay off the above-mentioned Hall mortgage, and turn over the balance to the Anthonys. Fennelly soon sold the Lunz mortgage for $4,000, but by means of various statements, less calculated to adorn the records of veracity than to allay suspicion and postpone an evil day, managed to keep that fact, as well as the money, concealed from the Anthonys until the early part of the year 1909. Then he stated to Mrs. Anthony, who was often importuning him to pay the Hall mortgage, that it could not be paid until the interest day, on April 24th, and that her money was well invested “in trust funds.” On April 23, 1909, Fennelly, who had been informed by his trusting friend, this plaintiff, that he had some money to invest in a good mortgage, obtained $2,500 from the plaintiff for such

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an investment. The same day Fennelly deposited in the neighborhood of $.3,500 in the Third National Bank, in the city of Buffalo, in his own name. On April 34th Fennelly gave his own check for $3,563.50 on said bank to the mortgagee, Hall, or her husband, and received from the Halls the $2,500 bond and mortgage and an assignment thereof to this plaintiff. This assignment, and the bond, mortgage, and search, were delivered to the plaintiff the next day. The assignment was duly recorded, and soon thereafter all the papers were turned over by the plaintiff to Fennelly for safe-keeping. Plaintiff received the first six months’ interest from Fennelly, and never saw the papers again" until this action was commenced.

The Anthonys are defending1, on the ground that the plaintiff is not the true and lawful owner and holder of the bond and mortgage. So it appears that on April 34, 1909, Fennelly, having had $4,000 of the Anthonys’ money placed in his possession two years before under orders to pay off the Hall mortgage, and also having received $3,500 of the plaintiff’s money the day before, with orders to invest the same in some good mortgage, did pay off the Hall mortgage, and took an assignment thereof to the plaintiff. Being obligated, as above stated, to both the Anthonys and the plaintiff as attorney and agent, he_ elected at some time to become faithless to the Anthonys, and, being changeful in mood, chose to, faithfully perform the work intrusted to him by the plaintiff. What is there in this transaction, or in the fact that the plaintiff received the first six months’ interest from» Fennelly, which manifests unfairness, lack of care, or of diligence in the plaintiff? Is it out of the ordinary course of business for a client to allow his attorney to keep his papers or collect his interest? It is, to be sure, often the case that a client has investigations made by others than his attorney before investing in a mortgage. But the act of leaving all investigation to the attorney as in this case, is conduct by no means so unusual as to warrant any inference that the plaintiff was careless of the rights of the Anthonys, who were obligated to pay the mortgage which was being assigned for full value to the plaintiff.

It is the claim of the defendants Anthony that it is as likely that Fennelly was using their money as the plaintiff’s to pay off' the Hall mortgage, and the claim of the plaintiff is exactly opposite. The true state of affairs as to this is impossible of determination absolutely or otherwise than by inference. Fennelly had obtained the Anthony $4,000 two years before and had not properly accounted for it. He had obtained the plaintiff’s $3,500 on April 33d, had deposited a similar amount in a local bank on the same day, and on the 24th had checked out $2,562.50 to pay off the Hall mortgage. Whose money did he use? To be sure, I cannot bring myself to a conclusion entirely free from doubt as to this question; but the natural inference deducible from the facts disclosed, in my judgment, is that the mortgage was purchased with plaintiff’s money.

Besides carelessness in the plaintiff, it is urged by defendants, among other points, that the plaintiff, in acquiring the bond and mortgage, got stolen property, and. that the mortgage was paid off with the

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Anthony money by her agent, and therefore became merged. These ■claims are answered by the statement that I find it to have been the plaintiff’s money which was used, that Fennelly was acting for the plaintiff as "well as Mrs. Anthony, and that he took the assignment to the plaintiff as his agent, paying full consideration.

In the matter of the purchase and assignment of this mortgage, the defendants urge that the fraudulent—if not criminal—acts of Fennelly were the acts of his principal, the plaintiff. However, in fact, Fennelly was plaintiff’s agent merely to do just what he did —namely, to buy a mortgage. He was not deputized to defraud any one. Put the situation in a worse aspect as to the plaintiff, South-all. Suppose—with knowledge that Fennelly had the Anthonys’ money for the purpose of .paying off the Hall mortgage—Southall had himself paid the Halls full value for the mortgage and taken an assignment to himself. Would that act have been at all in fraud of the Anthonys? Would it have prevented them from paying off thé mortgage, or impaired any of their rights in the slightest particular? I cannot see that it would. The Anthonys must look to Fennelly for restitution, however dismal the outlook may be.

So it seems to me that, when this transaction was completed, whatever may have been the desires or plans of the Anthonys, the Hall mortgage had become assigned to the plaintiff, and not merged, and that the attorney for both the plaintiff and Mrs. Anthony had not only earned title to “the short and ugly word,” but had put himself into a position such that he might need to know the meaning of section 1290 of our Penal Law (Consol. Laws, c. 40) with relation to the Anthony $4,000, not the Hall bond and mortgage.

The defendants urge, too, that Fennelly may have forged some part of the assignment to the plaintiff, and that the Halls had knowledge that the Anthonys desired to pay off their mortgage and had furnished Fennelly with money for that purpose. There is no proof of any forging, and whatever the Halls may have done or known cannot be attributed to this plaintiff, or be of any value now to the Anthonys.

The defendants invoke the rule that, where one of two innocent persons must suffer from the fraudulent acts of a third, equity will place the loss upon the person whose acts contributed most to permitting the fraud to be perpetrated. The defendant cites Yeoman v. McClenahan, 190 N. Y. 121 , 82 N. E. 1086 , as an authority. As considered relevant to the above rule and to the Yeom'an and similar cases, it appears that the Anthonys and the plaintiff each employed Fennelly and intrusted their money to him, and that when he paid off the Hall mortgage and obtained an assignment to the plaintiff he was still the agent of Mrs. Anthony and the plaintiff as to two separate transactions. But the plaintiff neither did nor omitted anything which injured the Anthonys, and I find that plaintiff's money was used to buy the Hall mortgage. These parties, in these transactions, acted perhaps not so carefully as a cautious business man would have acted; but I cannot hold Southall to have been .fatally incautious, each being the client of a fully trusted attorney. Both

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were in jeopardy. The one is fortunate enough to escape; the others, whom the faithless attorney chose to defraud, must suffer.

Counsel have cited many cases touching on various legal principles, some of them helpful to me in disposing of this case; but I fail to find any citation of authority fully in point. We have‘here disclosed a melancholy state of affairs, a situation wherein it is clear that neither the plaintiff nor the Anthonys, but Fennelly alone, should be brought to account. Unless he can be compelled to pay, loss must come to the Anthonys, reputable people, entirely innocent of wrong. The real culprit, so far as I know, is at present beyond the reach of the law. To my mind it is simply this: Fennelly either had already appropriated the Anthony $4,000, or, having a choice of victims, he chose the Anthonys. I cannot see it otherwise.

Judgment ordered for the plaintiff for the relief demanded in the complaint, with costs. .Charles A. White, referee to sell. Present findings.

Cases cited

Yeoman v. McClenahan 190 N. Y. 121 N.Y. 1907-12-03 p. 1019