Constant v. University of Rochester — 10 N.Y. St. Rep. 446

Majority

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Mary T. Constant et al., as Executors, etc., Resp’ts, v. The University of Rochester, Impleaded, etc., App’lt.

(New York Superior Court, General Term,

Filed, December 31, 1886.)

Headnote

1. Mortgage—Foreclosure—Who a bona elde holder.

An action was brought to foreclose a mortgage, which was given by Mrs. Meehen and husband, to secure the payment of a certain bond, executed February 17,1883. The bond was delivered to the obligee, but the mortgage was delivered to one Dean, his agent, who did not record it, but retained it till the trial of this action. On January 8,1884, the defendant university being owner of certain mortgages sent them with properly executed satisfaction pieces to the said Dean, as attorney of the university, for collection, and. for a reinvestment of the proceeds in other mortgages. Dean satisfied two of said mortgages, received the proceeds and disposed of the same for his own purposes. The next day Dean procured the Meehens to execute two mortgages to the university to take the place of the two mortgages, which had been paid the day before, and the proceeds of which he had used. ÜSTo money was paid to the Meehens by Dean at the time of the execution of these mortgages, and Dean delivered the mortgages so executed by the Meehens on the same property to the university, _ At the time of the execution, etc., of said mortgages the Meehens were indebted to Dean in an amount largely in excess of the mortgages. Held, that the university was not a bona fide holder of the bond and mortgage for value; that a party taking a conveyance of land as security for an unsettled account or for an existing indebtedness is not a bona fide holder for value.

2. Same—Constructive notice of unrecorded mortgage.

Dean did not state to the university that the mortgages given were first mortgages, and they did not have the records examined for prior liens. Held, that the university had constructive notice of the mortgage in suit through the knowledge of Dean, who was its agent.

3. Same—Unrecorded mortgage can be enforced, when.

The bond in suit was in the possession of the obligee and entitled him to receive the amount due. It was a valid existing obligation of the Meehens, and could be enforced against the land described in the mortgage, unless some other party acquired a prior lien or interest under the recording act.

4. Same—Burden of proving discharge.

The burden was on the university to prove that Dean did discharge the mortgage either on receiving the amount due on the bond, or that acting for the obligee he Satisfied and discharged it.

The plaintiffs sued to foreclose a mortgage for $6,000, made by Elizabeth Meehen and Hugh Meehen to their testator on February 17, 1883, covering premises on the east side of Lexington avenue, north of One Hundred and Eighth street, in the city of New York, joining the university of Rochester, as a subsequent incumbrancer.

The university answered that on January 10, 1884, the

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Meehens mortgaged the premises to it for $9,000; that on January eleven its mortgage was recorded; that the plaintiffs’ testator had notice of it, and that the university, as a part of consideration for its mortgage, furnished a large sum of money to apply upon a ground mortgage, including the premises in question, and was a lien prior to the plaintiffs’ mortgage.

The university further answered that it had foreclosed its mortgage and become the purchaser of the property, and it is alleged that until the commencement of this action it had no notice of the plaintiffs' mortgage which was not recorded.

It further answered that at the time of the execution by the Meehens of the mortgage to it, the debt secured by the plaintiffs’ mortgage was paid.

The plaintiffs’ mortgage and the bond which it secured were duly executed by the Meehens and by them delivered to Dean & Chamberlain, who acted as Mr. Constant’s lawyers. They turned over to him the bond, retaining the mortgage, but, instead of putting it on record, kept it in their own possession.

Dean also acted for the university in investing and keeping invested a sum of $50,000, of which Dean had made a subscription to the university. Part of that amount was represented by the two One Hundred and Seventh street mortgages of the university, amounting together to $18,000.

Prior to January 10, 1884, the university sent those mortgages to Dean with satisfaction pieces and instructions to re-invest the amount.

Deane represented the Meehens. He secured for them a loan on the One Hundred and Seventh street property, receiving on account $27,782.58. But the incumbrances on the property amounted to more than $40,000. To carry through the transaction he used the satisfaction pieces he held of the university’s mortgages. It took more than the entire amount received to discharge liens upon the One Hundred and Seventh street property so that nothing remained which could be applied on the university’s mortgages.

On the idea that those mortgages would be paid, a statement was made up by Dean in which Mr. Constant was charged with $6,000, as paid to him. Meehens gave a receipt for the amount (“as per statement”). For Ms mortgage a satisfaction piece was prepared to be executed by him. It turned out that no money was received by Mr. Constant nor by Dean, which' could not go to Mr„ Constant.

The satisfaction piece was never executed; no part of Ms mortgage was paid. Dean, who was a trustee of the

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university, and its lawyer, in obtaining its mortgage in question, knew all about the Constant mortgage; he knew that it was not recorded; it was by his direction that it had been kept from record. The satisfaction of the university’s One Hundred and Seventh street mortgages made him debtor to it for the $18,000. With the expectation, apparently, of paying Mr. Constant his mortgage he procured the Meehens to execute the university mortgage on the property in question, and sent it to the university on account of his $18,000 indebtedness.

The action was tried at special term before Ingraham, J., who wrote the following opinion:

The .questions involved in this case are discussed in the opinion of Judge Freedman in the action of Constant against the American Baptist Home Missionary Society, and I concur in the views therein expressed.

The mortgage to foreclose, which this action was brought, was given to secure the payment of a bond executed on the 17th of February, 1883, by Elizabeth Meehen and her husband. The bond was' delivered to Mr. Constant, the obligee, and retained by him, and the mortgage was retained by Mr. Dean, who had acted, and was acting, as attorney for Mr. Constant, and remained in his possession, or the possession of his assignee, until the trial of this action.

There was no evidence that the bond and mortgage was not given for full value, nor is any fact shown that would impair its validity prior to the execution of the mortgage hereafter mentioned to the university of Rochester. The bond was the obligation, and was in the possession of Constant. That entitled him to receive the amount due. The mortgage was security'for its payment, and until the bond was discharged, either by payment, or in some other Way, it was a valid, existing obligation of the Meehens, and could be enforced against the land described unless some other party acquired a prior hen or interest in the property under the recording act.

It must, therefore, be conceded on the evidence, that the bond was valid, and subsisting at the time of the execution of the bond and mortgage to the University of Rochester, and in order to impair its validity, or make it subject to the mortgage of the University of Rochester, the burden of proof is on the University of Rochester to show that the bond was either paid, or discharged, or that the University of Rochester acquired some right which would give the mortgages held by it, priority over the Constant mortgage.

Assuming that Dean had authority from Constant to re

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ceive the amount due on the bond, and to satisfy and discharge the mortgage, the burden is on the University of Rochester to prove such payment, or that acting for Constant he did satisfy and discharge the mortgages.

It appears that prior to the 8th of January, 1884, the University of Rochester, being the owner of three mortgages on premises on Lexington avenue, at Dean’s request, sent them with properly executed satisfaction pieces to Dean, as the attorney of the University, for collection, and for a reinvestment of the proceeds, in other mortgages. On January tenth, Dean satisfied two of the mortgages sent to him, and on that day, the owner of the mortgaged premises made a loan on the premises,, covered by the University of Rochester mortgage, with other premises, $30,000 of such loan being then paid. The amount of the incumbrances on the property mortgaged to secure the loan of $30,000, and including the University of Rochester mortgages, was upwards of $40,000, and but $30,000 was received on the loan. Of that $30,000, $27,782.58 was paid to the mortgagor, and by the mortgagor paid to Dean. On the same day and the day after receipt of this money, Dean paid out the whole of $27,782.58, either in payment of liens upon the said property, or for his own purposes. So that on the 11th of January, 1884, when the mortgage to the University of Rochester, hereinafter-mentioned, was executed, Dean had received all the proceeds of the University of Rochester mortgages sent to him for collection, and had disposed of the same for his own purposes. Wone of it remained as a fund in his hands, to be reinvested on account of the University.

It would thus appear that at this time the relation that existed between Dean and the University of Rochester was one simply of debtor and creditor. Dean was indebted to the University of Rochester for the proceeds of the mortgages, and if the University of Rochester had then demanded the return of its money, there would have been no property upon which it would have had a lien, and its remedy would have been an action against Dean for the money received by him for its benefit. The relation of debtor and creditor thus existing, Dean procured the Meehens to execute two mortgages to the University of Rochester, to take the place of the two mortgages which had been paid the day before, and the proceeds of which he had used. Wo money was paid to the Meehens by Dean at the time of the execution of these mortgages, and if it may be assumed that the Meehens were then indebted to Dean in an amount largely in excess of the mortgages then executed, the executions of such mortgages would be a to

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Dean on account of such indebtedness, and Dean’s delivery of the mortgage so executed by the Meehens to the University of Rochester, would be simply in payment of the indebtedness then existing, of Dean to the University of Rochester.

No money was paid by the University of Rochester to Dean or anyone else, on the faith of these particular mortgages, and there is no evidence that the university was informed that the mortgages were first liens on the property. No money was paid to Constant, nor to Dean as Constant’s agent, to discharge the bond, nor was he informed at the time of the condition'of affairs, or that Dean had had executed the University of Rochester mortgages on the premises covered by his mortgages.

Under such circumstances, I do not see how it can be said that the Constant bond was paid either to Constant himself, or to Dean as his attorney. The fact that a statement was made which would show that out of the amount of the $9,000 loan when Dean paid it, the Constant mortgage should be satisfied with the interest thereon and the' balance credited to Meehen on J. H. Dean’s ledger, cannot be held to be a payment of the Constant mortgage. The receipt of Meehen is simply a receipt for the balance after the Constant mortgages were paid, and as before stated, it appears from the evidence that they never had been paid.

Nor do I think that the University of Rochester can be said to be a bona fide holder of the bond and mortgage for value so as to entitle them to the protection of the recording act. As before stated, when the last mortgage was executed by Meehen, Dean was then a debtor to the University of Rochester and Meehen was a debtor of Dean’s. In payment of such indebtedness, Meehen executed, at Dean’s request, the mortgage, and Dean, to pay his indebtedness to the University of Rochester, turned over the mortgages to it.

It is well settled in this state that a party taking a conveyance of land as security for an unsettled account, or for an existing indebtedness, is not a bona fide holder for value. De Lancey v. Stearns, 66 N. Y., 160 .

Nor can the University of Rochester be said to have received its mortgage without notice of the Constant mortgages. Dean did not state to the university that the mortgage given to it was a first mortgage. There was no examination by the university of the records for prior liens. The matter was left to Dean, and in the course of his business for the university, the knowledge of the Constant mortgage was communicated to him. The university probably relied on Dean to give them a first mortgage on

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the property, but Dean knew the mortgage he gave them, was not a first mortgage.

Ebr do I think plaintiff is entitled to be subrogated to the $1,000, paid by Dean, to satisfy the proportion of the Hoffman mortgage on the premises in question. The money was paid, not with the money of the University of Bochester, but with Dean’s money, and the mortgage was satisfied. The University of Bochester could be subrogated, to Dean’s rights only, it having paid nothing on account of the mortgage. As between Dean and Constant, Dean, could not claim to maintain the lien as against Constant’s mortgage, because Dean was largely indebted to Constant, and there was no intention of keeping the mortgage alive.

I think the plaintiff is entitled to the usual judgment, directing the foreclosure and sale of the premises in question, and judgment is ordered accordingly, with costs.

Findings and judgment settled on two days’ notice.

Thornall, Squires & Constant, for respt’s; Martin W. Corlee, for app’it.

Judgment affirmed on tne opinions at special term of Judge Ingraham below, and of Judge Freedman in a suit by the same plaintiffs against the American Baptist Home Mission Society.