Constant v. University of Rochester

Headnote

Mortgage in fact prior in date but subsequent in record to another—Foreclosure of—Mortgagee for valuable consideration, who not entitled to benefit of recording act as being—Purchaser in good faith, notice through attorney having prior knoioledge—Constant v. Am. etc. Home Mission Society, 53 Super. Ct. 170, followed.

Appeal by defendants from judgment entered upon findings.

Action for a foreclosure of a mortgage.

The following opinion was delivered by Ingraham, J., at Special Term:— The questions involved in this case are discussed in the opinion of Judge Freedman in the action of Constant v. 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 February 17, 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 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 lien 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 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 receive 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 January 8, 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 10, 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 the receipt of this money, Dean paid out the whole $27,782.58, either in payment of liens upon the said property, or for his own purposes. So that on January 11, 1884, when the mortgage to the University of Rochester hereinafter mentioned was executed, Deane had received all of the proceeds of the University of Rochester mortgages sent to him for collection, and had disposed of the same for his own purposes. None 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. No 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 simply a payment to Dean on account of such indebtedness, and Dean’s delivery of the mortgage so executed by the Meheens 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 any one 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 attorneys. 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 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 mortgage 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. Delaney v. Sterns, 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 the property, but Dean knew the mortgage he gave them was not a first mortgage.

“ Nor 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. That was paid, not Avith the money of the University of Rochester, but with Dean’s money, and the mortgage was satisfied. The University of Rochester 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.”