Clark v. McNeal — 23 N.Y. St. Rep. 249

Majority

p. 249

Zipporah R. Clark, Resp’t, v. Henry V. McNeal et al., App’lts.^[1]

(Court of Appeals, Second Division,

Filed May 8, 1889.)

Headnote

1. Mortgage—Priority of liens—Bona fide purchaser—When lien OF PREFERRED.

This action was brought to cancel the satisfaction of the plaintiff’s mortgage and establish the lien thereof as prior to that of the defendants. The mortgage was originally given in 1856, by one Miller to one Impson. It was assigned to various parties, and finally, in 1880, to plaintiff. None of the assignments were recorded. In 1878 the lands were conveyed to the defendant, McNeal, and, at his request, and without consideration, and without the knowledge or consent of the assignees of the mortgage, Impson caused the same to be canceled of record. The plaintiff purchased for value and without notice that her mortgage had been canceled, except such as is implied from the record which she did not examine, and upon the assurance from McNeal that it was a first lien. In 1876 the McNeals executed a mortgage to Homer R. & Co., who were notified of the existence of plaintiff’s mortgage, and who thereafter assigned their mortgage to the executors of one De Wint, who accepted the assignment without actual notice of the satisfaction of plaintiff’s mortgage and without examination of the records. Held, that the lien of the plaintiff’s mortgage was prior to that given to Homer R. &Co., before they assigned it to a bona fide purchaser, as they had accepted the latter with actual notice of the existence of the former; after the purchase of the latter mortgage by the executors of De Wint, in good faith and for full value, it became, in their hands, prior in lien to that of the plaintiff’s mortgage, by virtue of the recording act.

2. Title — Purchaser how affected by notice of claim—Bona fide purchaser.

Where one purchases with full notice of the equitable claim of another to the same property, he will not be permitted to protect himself against that claim, but his own title will be postponed and made subservient to it; if, however, he transfers to a bona fide purchaser, the latter not only takes a good title, but can transfer a good title even to one who purchases with notice of the facts, as otherwise the bona fide purchaser could not get the market value of his property. This principle of protection does not, however, extend to one guilty of constructive fraud.

3. Evidence—Competency under—Code Civil Pro., § 829.

The defendants insist that the witnesses McNeal should not have been permitted to testify to conversations between themselves and George W. Townsend, deceased, who was a member of the firm of Homer R. & Co., basing their objection on section 829 of the Code Civil Procedure. Held, that in as much as the plaintiff did not derive her title to her mortgage through the McNeals, and as they were not called in their own behalf, nor in behalf of any person succeeding to their interest, and as the action could not have resulted so as to add to or take away from their liability, the evidence was competent.

Appeal from a judgment of the general term of the second judicial department, affirming a judgment entered upon the decision of the- court on a trial at special term.

This action was commenced to foreclose a mortgage dated and recorded February 21, 1856, given by Jonah Miller to

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Abraham H. Impson to secure the payment of $1,000, in one year, with interest, according to the condition of a bond accompanying the same. Said bond and mortgage were duly assigned, for value, April 30, 1856, by Impson to Matilda C. Durland, April 1, 1861, by the latter to James Durland, and January 30, 1880, by the said James Durland to the plaintiff. None of said assignments were recorded. May 1, 1863, the lands in question were conveyed to Henry Y. McNeal, who, in the deed, assumed and agreed to pay said mortgage, and from the date of his purchase until February 13, 1880, he did pay the interest thereon as it became due to the holder thereof. October 1,1873, McNeal and wife, for value, mortgaged said premises to Joseph Y. Whelan to secure the payment of $2,000 and interest. This, mortgage was duly recorded October 3,1873. Subsequently, Whelan died, and the defendants, Crosby, are his executors.. October 11, 1873, said Impson, at the request of McNeal, but without any consideration, and without the knowledge or consent of the assignees of said Impson mortgage, caused the same to be cancelled of record. The plaintiff purchased for full value, and without notice that her mortgage had been satisfied, except such as is implied from the record, which she did not examine, and upon the assurance from McNeal that it was the first lien upon the lands covered thereby. Prior to January 22, 1876, said Henry Y. McNeal and one William McNeal were copartners, and, as such, were indebted to Homer Ramsdell & Co., a firm composed of Homer Ramsdell and George W. and James A. Townsend, in the sum of $5,000, upon a running account, to secure the payment of which, on that day, they executed to the persons comprising the latter firm, a mortgage covering, with other lands, those described in plaintiff’s mortgage.

This mortgage was recorded January 26, 1876, and before the same was given, said Homer Ramsdell and Gerge W. Townsend were each notified that the mortgage held by plaintiff was a subsisting and first lien upon the lands described therein. Subsequently, James A. Townsend retired from said firm, and assigned his interest in said mortgage-to his co-partners, who thereupon organized a new firm under the same firm name, and, as such, held and owned said mortgage. Said assignment was dated February 4, 1876, and was recorded February 2, 1877. On the 1st of February, 1877, said Homer Ramsdell and George W. Townsend, for full value, assigned their bond and mortgage to James. Mackin and others, as executors of one De Wint, and guaranteed the payment thereof. " Said executors accepted said assignment, which was recorded February 2, 1877, without, actual notice of the satisfaction of plaintiff’s mortgage, and without examination of the records in the county clerk’s-■office. Before the commencement of this action, the sur

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viving executors of De Wint commenced an action, to which the plaintiff herein was not made a party, to foreclose their mortgage, and the usual judgment of foreclosure was, without the knowledge of the plaintiff, perfected therein on the 20th of June, 1881, with the ordinary provision for judgment for deficiency against said Henry V. McNeal, William McNeal and Homer Ramsdell, individually, and against the executors, as such, of said George W. Townsend, who had, in the meantime, died. This action was commenced May 12, 1881, against all of the present defendants, except Homer Ramsdell, the executors of George W. Townsend, James A. P. Ramsdell and William E. Carvey, to cancel the satisfaction of plaintiff’s mortgage, and to establish the lien thereof as prior to that of the defendants. A notice of pendency was filed therein May 14, 1881. Said action resulted in a decree that the lien of the mortgage held by the executors of De Wint, was prior to that of plaintiff’s mortgage, but that the lien of the mortgage held by the executors of Whelan, was “ subject and subsequent to the lien of plaintiff’s mortgage, and prior to the lien” of any defendant in the action; that the satisfaction of plaintiff’s mortgage was null and void, and that the same should be cancelled of record. The complaint was dismissed as to the executors of De Wint. The plaintiff appealed from that part of the judgment, which dismissed her complaint, but the general term affirmed it. Upon a further appeal, however, the court of appeals modified the judgment by directing that the plaintiff, upon paying the amount due to the executors of De Wint on their judgment of foreclosure, and the costs of this action, should be subrogated to all their rights under said judgment, bond, mortgage, and the guaranty of Homer Ramsdell & Co., and directing said executors “on said payment being made within ninety days,” to assign to the plaintiff their judgment, bond, mortgage and guaranty.

Thereupon, the plaintiff paid the costs and tendered the remainder required to be paid, but the executors of DeWint declined to accept such payment, or to make the transfer, because, pending said appeals their decree of foreclosure had been enforced by a sale, and the said Homer Ramsdell and the executors of his deceased partner had paid, in accordance with said guaranty, the amount remaining unpaid upon said bond, mortgage and judgment. At said sale, the premises described in plaintiff’s mortgage were struck off to one James A. P. Ramsdell for the sum of fifty dollars, but he was not present at the sale and neither authorized nor paid said bid, which was made by the direction of said guarantors and for their benefit. The referee who conducted the sale, without receiving the amount of said bid from anyone, executed a deed to said James A. P. Ramsdell, who subsequently conveyed said premises to the defendant William E. Carvey. The negotiations which led to such purchase by Carvey were had by him with the representa

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tives of said guarantors, who received the consideration therefor, and indemnified said Garvey from loss by reason of the claim of the plaintiff. Prior to said purchase, Garvey was fully informed of the pendency of this action and of the existence of plaintiff’s mortgage and of her claim to priority.

The plaintiff having filed a supplemental complaint with proper allegations, making Ramsdell, Townsend’s executors and Garvey parties, the action was tried and the court at special term _ found, among others, the foregoing facts, and as a conclusion of law that the mortgage of the plaintiff was a valid and subsisting lien upon the lands in question, prior to the interest of any of the defendants, and that she was entitled to judgment of foreclosure and sale against all of the defendants. Judgment was entered accordingly, which upon appeal was affirmed by the general term.

E. Countryman, for app’lts; Henry Bacon, for resp’t.

The lien of plaintiff’s mortgage was prior to that of the mortgage of Ramsdell & Co., before they assigned it to a bona fide purchaser, because they accepted the latter with actual notice of the existence of the former. But after the purchase of the Ramsdell mortgage by the executors of DeWint, in good faith and for full value, it became, in their hands, prior in lien to that of plaintiff’s mortgage, owing to the protection afforded by the recording act.

Upon the former appeal, this court sought to protect the equity of plaintiff as against Ramsdell & Co., by permitting her to acquire the rights which the executors of DeWint had obtained by their purchase, including the guaranty contained in the assignment of the Ramsdell mortgage. Clark v. Mackin, 95 N Y., 346 . Prior to the-judgment of this court, however, the land in question had been sold under the decree based upon the Ramsdell mortgage, and Ramsdell & Co. had discharged their guaranty by payment of the deficiency. Otherwise, the plaintiff' could have acquired the Ramsdell mortgage, and could have been subrogated to the rights of the holders thereof. If a sale had then been made, she would have been entitled to have her mortgage first paid out of the proceeds, and after application of the residue upon the other mortgage, could have collected from Ramsdell & Co. any deficiency then remaining. In order to accomplish the same result in the only way then available, a supplemental complaint was-filed, and the parties who were necessary, owing to the change of circumstances, were brought in. Upon the trial of the new issues, the court found that Ramsdell & Co. were virtually the purchasers at the foreclosure'sale, and that the defendant Garvey took title from their representative, upon being indemnified by them against loss by reason of plaintiff’s claim to priority, of which claim he-

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was fully informed. The situation is, therefore, the same as if Eamsdell & Co. now owned the premises through a purchase in their own names under the decree of foreclosure. The question presented is, whether such a purchase by them, under all the circumstances, would give them a title free from the lien of plaintiff’s mortgage. The appellants claim that it would, upon the ground that a purchase from one who is protected by the recording act against a prior unrecorded mortgage, is himself protected, even if he had actual notice at ‘the time of his purchase.

It is clear that a sale to any one except Eamsdell & Co., or their representative, would have destroyed the lien of plaintiff’s mortgage. But a sale to Eamsdell & Co., or to one who purchased for them, would not have this effect. As the lien of their mortgage, while they held it, was subject to that of the plaintiffs, so their title acquired under that mortgage would be subject to the same lien. By selling the mortgage they did not destroy plaintiff’s equity, but simply prevented her from asserting it against a bona fide purchaser. If they had afterward bought the mortgage, the equity would have at once re-attached, and when they bought the land upon a sale under the mortgage, the equity of plaintiff’s lien forthwith revived.

It is a familiar principle that where one purchases with full notice of the equitable claim of another to the same property, he will not be permitted to protect himself against that claim, but his own title will be postponed and made subservient to it. This is upon the ground that he is guilty of constructive fraud. If, however, he transfers to a bona fide purchaser, the latter not only takes a good title, but can transfer a good title even to one who purchases with notice of the facts, as otherwise the bona fid& purchaser could not get the market value of his property. To this general rule, however, there is an exception. The principle of protection does not extend to the one guilty of the constructive fraud, even if he purchases from a bona fide purchaser.

The role as stated in Story’s Equity Jurisprudence (section 410) is “that it is wholly immaterial of what nature the equity is, whether it is a lien, or an incumbrance, or a trust, or any other claim; for a bona fide purchaser of an estate, for a valuable consideration, purges away the equity from the estate, in the hands of all persons who may derive title under it, with the exception of the original party whose conscience stands bound by the violation of his trust and meditated fraud. But if the estate becomes revested in him, the original equity will reattach to it in his hands.”

The rule and the exception are laid down in Pomeroy’s Equity Jurisprudence (section 754) as follows: “If the title to land, having passed through successive grantees, and

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subject in the hands of each to prior outstanding equities, comes to a purchaser for value and without notice, it is at •once freed from these equities; he obtains a valid title, and, with a single exception, the full power of disposition. This exception is that such a title cannot be conveyed, free from the prior equities, back to a former owner who was charged with notice.”

The authorities are uniform upon the subject so far, at .least, as they apply to the facts of this case. Schutt v. Large, 6 Barb., 373 , 380; Ely v. Wilcox, 26 Wis., 91 ; Church v. Ruland, 64 Pa., 432 ; Quinn v. Fuller, 7 Cush., 224 ; Kost v. Bender, 25 Mich., 515 ; Daniels on Neg. Inst., § 805.

The appellants insist that the witnesses McNeal should not have been permitted to testify to conversations between themselves and George W. Townsend, deceased, upon the ground that such evidence was inadmissible under section 829 of the Code of Civil Procedure.

We think the evidence was competent. The plaintiff did not derive her title to the mortgage through either of the McNeals. Neither of them ever owned it. They were not •called in their own behalf, nor in behalf of a person who had succeeded to their interest. The action could not have .so resulted as to add to or take from their liability. One of them was not a party to the action and the other interposed no defense.

The judgment should be affirmed, with costs.

All concur, except Brown, J., not sitting.