Kirsch v. Tozier — 44 N.Y. St. Rep. 654

Majority

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Theodore Kirsch, by Guardian, et al., Resp’ts, v. Orange L. Tozier et al., App’lts.

(Supreme Court, General Term, Fifth Department,

Filed April 13, 1892.)

Headnote

Trustee—Mortgage—Wrongeul discharge.

A trustee, who held a mortgage for the benefit of minors, obtained title to the mortgaged premises, and satisfied the mortgage. Subsequently he borrowed money of a bank, and gave it a mortgage on the property in question, the bank having no knowledge of the prior mortgage, other than ■a single memorandum in the abstract furnished by the county clerk and which certified it as discharged. In an action by the persons named as .cestuis que trust to reinstate the mortgage for their benefit, Held, that the mortgage should be so reinstated, taking precedence over the one to the bank, it being chargeable with • constructive notice of the irregularity of the discharge by defendant.

Appeal by the defandant, Orange L. Tozier, from a judgment -entered in Wyoming county September 80, 1891, on the report of., a referee, with notice of the intention to bring up for review an -order granting an additional allowance of costs. Appeal, also, by the defendant, the Buffalo Savings Bank, from the judgment.

I. Sam. Johnson, for app’lt, Orange L. Tozier; Spencer Clinton, for app’lt, the Buffalo Savings Bank; F. C. Peck, for resp’ts.

This action was brought to reinstate a mortgage executed by the defendant, Lester H. Tozier and his wife, to the defendant, Orange L. Tozier, which was made in trust for the plaintiffs, Michael Kirsch and Theodore- Kirsch, and for Peter Kirsch, now deceased, minor children of John Kirsch, to set aside a dischargé of such mortgage executed by Orange L. Tozier, and for foreclosure of the mortgage and sale of the mortgaged premises for the benefit of the persons named as cestuis que trust.

The lands in question consist of 102 acres situate in the town of Sheldon, Wyoming county, New York, of which John Kirsch died seized in the year 1872. On the 8th day of January, 1873, the defendant, Orange L. Tozier, was appointed general guardian of the infant children, Michael J., Theodore and Peter Kirsch. At the time of Ins death John Kirsch owed debts which with the incumbrances upon his real estate exceeded the value of both his personal and real property. Orange L. Tozier and Elizabeth Kirsch, the latter the widow of the deceased, were appointed ad ministrators of the estate of John Kirsch. Subsequently to this_

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it was agreed between them and Lester EL Tozier, a son of Orange L. Tozier, that they should purchase the mortgages then existing; on the farm, foreclose them, and procure a title to the land, and. convey the same to Elizabeth Kirsch, who should, in turn, by mortgage thereon, secure Lester EL Tozier the amount paid by him, and give a mortgage upon the farm of $1,000 to these three-children. This arrangement was carried out, except that upon a sale-of the lands, either by direct purchase at the sale or by deed coming immediately from the purchaser, Lester H. Tozier became-the owner for the consideration in all of $1,131.56.

Thereupon it was further arranged between Orange L. Tozier and the widow, Elizabeth Kirsch, that the widow should convey to the then holder of the title, Lester EL Tozier, all her interest in the lands to which she was entitled as widow, and that a mortgage-should be executed by Lester H. Tozier to Orange L. Tozier intrust for the three children in the sum of $1,000, one-third thereof payable to each of the three children when he should arrive at age, with interest in the meantime. Having received the deed from Mrs. Elizabeth Kirsch, Lester H. Tozier and his wife-executed to Orange L. Tozier, in trust for Michael Kirsch, Peter Kirsch and Theodore Kirsch, the mortgage in question, dated the 15th day of October, 1875, expressing a consideration of $1,000, payable as follows : The sum of $333.33 November 13, 1887, the sum of $333,33 March 18, 1891, and the sum of $333.33 October 6, 1892, with interest payable annually from the 1st day of April, 1876. This instrument was delivered to Orange L. Tozier, who caused the same to be recorded in the proper clerk’s office on the 23d day of October, 1875. The mortgagee and trustee paid the interest upon this mortgage to Elizabeth Kirsch, the mother of the children, in pursuance of a previous arrangement, until the spring of 1886, since which time no part of the principal or interest has been paid thereon by the trustee for the benefit of either of the children.

On the 3d day of September, 1883, Lester H. Tozier and his-wife executed and delivered a deed of the farm to Orange L. Tozier at a consideration, as expressed in the deed, of $4,000, and the record title of such farm has since been in Orange L. Tozier. After acquiring this title, and on the 19th day of February, 1886, Orange L. Tozier executed and acknowledged a discharge of the-mortgage, and caused the same to be recorded in the proper-clerk’s office on the 9th day of March, 1886. On the 27th day of January, 1886, before the execution of such discharge, Orange L. Tozier applied to the defendant, The Buffalo Savings Bank, for a loan of $2,000 upon this farm, which application was granted on the 1st day of February, 1886, and on an examination of the title of such farm, submitted to the officers of the bank, there was an abstract certified by the proper clerk of Wyoming-county to the effect that Orange L. Tozier appeared to be the-owner of the farm. On such abstract a memorandum of the mortgage sought by this action to be reinstated described the. mortgage simply as being given for $1,000 and interest, having written across the face of the memorandum as follows:

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“ Discharged March 9, 1886.

“ E. M. Jennings, Olerh."

The defendant, The Buffalo Savings Bank, at the time of taking its mortgage and advancing the money thereon, had not, either through any of its officers or attorneys, any knowledge or notice •of the existence of this mortgage now sought to be reinstated in this action, except the memorandum on the abstract of title of its discharge, and the constructive notice given by the record of such mortgage.

Under these facts, we think the learned referee was correct in granting to the plaintiffs the relief sought by this action. By the terms of this trust mortgage there was disclosed by the record thereof in the county clerk’s office a notice to all persons, that it had been executed for the benefit of the three minor children of. John M. Kirsch, deceased. That this trust, or this trust power, 2 R. S., 729, § 58, was valid admits of no doubt; for the beneficiaries were minors. Its execution or non-execution did not •depend on the will of the mortgagee; on the contrary his obligation was imperative, and imposed a duty on him the performance of which may be enforced in equity, for the benefit of the parties interested. 2 R. S., 734, § 96. It was not competent for Orange L. Tozier to repudiate the trust; on the contrary he was bound to •carry the same out faithfully. After the mortgage had once taken effect, it became irrevocable and its operation could not be affected by any subsequent act of the mortgagee, by way of repudiation, iti discharging the lands from the lien of the mortgage, or in any other way impairing the rights of his wards. Wallace v. Berdell, 97 N. Y., 25 . The question, therefore, as against the appellant, -Orange L. Tozier, is not difficult of solution upon the merits of the transaction.

A point, however, is made by his learned counsel, that the remedy adopted in this case was not the correct one; that the plaintiff should have made a demand upon the trustee that he foreclose the mortgage, or failing in that, that he-should be called to an account, and should be required to pay only the difference between the sum that he had apparently deprived the cestuis que trust of, and the actual moneys expended by him in their behalf. But wre cannot follow their lead in the direction of this argument. It would be an expr&ssion of a fatuous confidence to expect that this trustee, after having discharged of record the mortgage which he held in trust for infants, thus violating to the full extent of his ability the trust imposed in him, should himself be entrusted by the court with the duty of restoring the mortgage to its proper record, and of vindicating the integrity of the trust which lie had so wantonly violated. The case must, therefore, be treated in respect to the remedy on the theory that the trustee has no disposition, and under the circumstances no power, to repair the injury to his wards which,he has deliberately wrought, and the case "must be permitted to proceed against him in invitum.

In respect to the appeal taken by the Buffalo Savings Bank, a •different question is presented. The provision for the payment

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-of the principal of the trust mortgage was sufficient, in our judgment, to put any person examining the records upon inquiry, and •on such inquiry the fact would have been easily ascertained, even though imperfectly disclosed in the mortgage itself, that the minors would arrive at their majority, respectively, at the very ■dates when these several sums of principal were made payable. The learned referee has charged this appellant with such constructive notice of the terms of this trust mortgage, and with constructive notice of the irregularity of its discharge, placing his decision mainly upon the case of McPherson v. Rollins, 107 N. Y., 316 ; 12 St. Rep., 488 . In that case, a person, for the purpose of making a provision for his daughter and two grandchildren, conveyed to his daughter certain lands, and received from her a mortgage back thereon which stated that it was given as security, among other things, for the payment to him, or to the general guardian of the plaintiff in that action, one of the grand-daughters, of the sum of fifty dollars annually, for the benefit of-that plaintiff until she should arrive at the age of fifteen years, and thereafter the sum of one hundred dollars until she should arrive at the age •of twenty-one years. Both instruments were recorded. The mortgagee thereafter, and without consideration, executed a certificate of the satisfaction of the mortgage, which was recorded, .and a memorandum was made in the margin of- the record of the mortgage to the effect that is was discharged of record. Subsequently the lands were-conveyed for a full and valuable consideration to a grantee who had no actual notice of the execution -of the trust mortgage. In an action to foreclose that mortgage, which had actually been discharged, it was held that a valid and irrevocable trust was created by it, and as the same had in no way been renounced by the cestui que trust, the discharge was in con • travention of the trust and consequently void. It was there further held that the grantee -was chargeable writh notice that the plaintiff had a beneficiary interest under the mortgage, and the ■satisfaction thereof was an act, not in the execution of the trust, but beyond the power of the trustee to perform.

Danforth, J., in delivering the opinion of the court, said: “ The important inquiry before the referee was whether the defendants had any notice, actual or constructive, of the plaintiff’s rights, or of the character in which Deming held the mortgage. His finding that they had no actual notice reduces our inquiry to the effect of the recording act As intending purchasers, they must be presumed to investigate the title and to examine ever) deed or instrument forming a part of it, especially if recorded. They must, therefore, be deemed to have known every fact disclosed, Acer v. Westcott, 46 N. Y., 384 , and every other fact which an inquiry suggested by those records would have led up to. Thus they are plainly chargeable with notice of the mortgage and of all the facts of which the mortgage could inform them.”

The last named cause was tried before the venerable jurist, the late Addison Gardiner, and was the last important case decided by him; and of his opinion, then delivered, which has been fur

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nished to us and upon which his decision in that case was affirmed by this court, it is not too much to say that in grasp of facts and of law, and in its vigorous judicial style, it shows no-diminution of those rare judicial powers exhibited by him in his-first opinion, delivered thirty-five years before, contained in the.first appeal in the first volume of the Court of Appeals Reports. Inasmuch as that opinion has never found its way into the reports, and as it expresses accurately our views of the case now before us, a quotation from it may not be deemed out of place. Judge Gardiner said: “ The next important question presented is whether these defendants had, at the time of their purchase, constructive notice; or what is the same in effect, notice to put them on inquiry as to the trust in question. The leading purpose of the recording acts, it is supposed, was to enable purchasers of real estate, and those having liens upon it, to protect themselves, and the public against the frauds of previous owners and the-claims of subsequent purchasers and incumbrancers, by spreading; upon the records of the appropriate county a statement of their respective claims or their discharge, which should constitute a notice to all persons obtaining, or seeking to obtain an interest in the lands designated of the matters contained in such statement. These acts, as construed by our courts, require due vigilance upon the part of those giving this notice and of those affected by it. The one must record his claim and the other search for it with all reasonable expedition and thoroughness. Heilbrun v. Hammond, 13 Hun, 479 ; Viele v.Judson, 82 N.Y., 32 , and cases; Ely v. Scofield, 3 5 Barb., 330 . In the case last cited, the mortgage had been assigned but the assignment was not recorded; then the mortgage was discharged by the only person apparently authorized to secure payment, and the discharge duly recorded ; due search disclosing no defect in the title, a purchaser in good faith relying upon the discharge was protected against the claim of the assignee and the lien of the mortgagee. In Viele v. Judson, supra, the assignment was first-recorded and the mortgagee subsequently executed a discharge which was’ also recorded; the purchasers relied upon the discharge without search for the assignment; held, that the record which showed the discharge showed also its invalidity. The same doctrine for like reasons is affirmed in 13 Hun. In view of these decisions what is the situation of these parties ? Thera ortgage of the 14th of July was duly recorded with the deed to-which it referred, and through which the Rollins derived title to these premises. The mortgage declared the trust, the power of the trustee, the age of the cestui que trust, and, consequently, the inability of the trustee to discharge the investment in their favor and that of the infants to sanction such change even if desirable ?n (Citing authorities.) “ Having given public notice of the claim of their children on the records in the clerk’s office, those who acted in their behalf had done all in their power to protect their interest and secure the public against the fraud of former owners and mortgagees. The Rollins, on the other hand, had concluded their purchase without causing a personal examination to be made.. They undoubtedly, believed they had secured a good title, a be

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lief induced mainly by their confidence in those with whom they dealt, and partially confirmed by a defective search, procured by Mr. Janes and shown to them, in which the Gray and Stevens mortgages of the 14th of July Were omitted as though never executed or recorded. Such an omission from a paper purporting to give a history of matters affecting the title to lands, gathered from the records, was erroneous and misleading. It seems in this case to have been exceptional also, since a subsequent mortgage to one Allen, although discharged, is noted and the facts stated as they should be. The notion that a discharge expunges the mortgage and leave the record tabula rasa is absurd. The record always remains, but whether as evidence of an existing lien or not will depend upon the character of the certificate and the authority of the person assuming to execute it. In this case, the whole record, if diligently examined, would disclose the trust, the age of the beneficiaries, and that Deming as their trustee could not discharge the lien of the mortgage to the prejudice of minor children; while he possessed full power in that respect as to his own annuity.

“ As in Viele v. Judson, supra, the record which showed the discharge, if followed out, would prove its invalidity. The records invited investigation, the discharge pointed directly to the record of the mortgage, book and page ; and that record in turn by the memorandum upon it referred back to the certificate.' The inquirers had only to read and learn all that was necessary for their protection. The defendants failed to do this ; and between these, parties, both innocent, which shall suffer ? The daughters, who used every measure permitted by law, with more than ordinary diligence, to apprise these purchasers of the trust in their favor; or the defendants, who neglected all the usual precautions, and risked their investment upon such outside information as could be obtained without expense or trouble?”

We think, therefore, that the referee did well to follow the decision of McPherson v. Rollins, and that such authority, under the facts disclosed, leads to an affirmance of the judgment entered upon his report.

In respect to the appeal by the defendant, Orange L. Tozier, from the order granting an additional allowance of costs under § 3253 of the Code of Civil Procedure, on the ground that the case was difficult and extraordinary, it appears from the referee's report that the value of the subject-matter involved in this action was $1,323,being the amount due on the mortgage, and that, consequently, the amount of one hundred dollars was slightly excessive of the limitation of five per cent imposed by the statute. It was the duty, we think, of the appellant’s counsel to raise this question at the special term, which he failed to do. It appears by the order entered that the only objection made to the application for an additional allowance of costs was that the plaintiffs were not entitled to any additional allowance. A rigid application of the rule would lead us to an affirmance of this order, upon the ground that the act of the appellants at the special term probably led the court into the error of allowing too much under this

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section of the Code. But our modification of the order ought not, under the circumstances, to affect the question of costs of this-appeal. This order is modified by allowing, instead of one hundred dollars, the sum of sixty-six dollars and fifteen cents, and as. so modified, affirmed.

Judgment and order appealed from affirmed, with costs, except, the order for an additional allowance of costs is modified so as to-reduce such allowance from one hundred dollars to sixty-six dollars and fifteen cents.

Dwight, P. J., and Lewis, J. concur.