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Walworth v. Farmers Loan & Trust Co.

4 Sarat. Ch. Sent. 51 Court N.Y. Ch. Decision date 1846-08-29 English

Contents

Majority

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H. Walworth, Clerk in Chancery v. The Farmers Loan and Trust Company and others.
March 6, 7, 9, 10 ;
August 29, 1846.

Headnote

A mortgage executed to the clerk of a court, for money arising from the sale of lands in partition, invested by him, cannot be discharged, without an order of the court entered in its minutes.
Where the clerk of a court, discharged of record such a mortgage, (executed to him as clerk, but not showing the nature or character of the fund for which it was given,) without any order of the court, and without payment; and one without actual notice of these facts or of the character of the fund, purchased the mortgaged premises on the faith of the clerk’s certificate of satisfaction ; it appearing that the purchaser knew of the mortgage, and it appearing also, that the clerk by law, could and did have for investment, funds from sources other than partition suits; it was held, that the purchaser was put upon inquiry to ascertain to which class of investments the mortgage belonged, and therefore was affected with coustructive notice that it arose from a partition, and that the clerk’s discharge was inoperative without an order of the court.
The statute regulating the entry of mortgage discharges, is to be read in connection with the cotemporary enactment in the partition act, and qualified accordingly.
Where the clerk of a court holding a mortgage, on the application of the mortgagor for a new loan of the same fund on other property, acceded to it, received a new mortgage on such property for the same amount and cancelled the former; held, that the transaction was not a payment of the first mortgage, as between the mortgagor and the owners of the fund.
The bill set forth a mortgage given to the clerk of the court, for a part of a sum paid into court to secure the dower of H. pursuant to a decree, the date and title of which were stated at large ; and that the clerk had no interest in the fund except by his oifice. By the decree read in evidence, it appeared that the suit was in partition. Held, that the bill was sufficient to put in issue the fact, that the money was paid into court in a suit for the partition of lands, as well as the fact that it belonged to the parties therein.
Such proof, though essential as to the mode of discharging a mortgage, does not vary its terms or obligation.
Where the mortgaged premises, were clearly worth more than the debt and costs, and were laid out in city lots, the decree of foreclosure and sale, permitted the owners of the equity of redemption, to direct in what order the lots should be sold.
The bill in this cause was filed July 7, 1843, to foreclose a mortgage executed by S. Jones and J. L. Graham, to John Walworth, clerk in chancery for the first circuit, for $29,000, with
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interest at six per cent., dated April 4, 1835, and conveying eighty-eight lots or parcels of ground in the city of New A ork, lying between the Second Avenue, the East river, Thirty-First street, and the centre of the block above Thirty-Second street.
The hill stated the execution and conditions of the mortgage, the accompanying bond, the death of J, Walworth in August, 1839, and the appointment of the complainant as his successor. That the money loaned on the mortgage was a portion of a sum paid into this court to secure the dower of Mrs. Magdalena Ho-sack, in pursuance of a decree of this court made October 29tb, 1833, in a cause there pending, between Hamilton Wilkes and wife, complainants, and Francis Baretto, Jr. and others, defendants; and that J. Walworth possessed no other right or interest in the money than such as devolved upon him by virtue of his office as clerk. That on the 31st of December, 1836, the mortgagors conveyed the premises with other property to The Farmers Loan and Trust Company in fee, for the expressed consideration of $200,000. The terms of this conveyance were regulated by a deed of trust between the parties, which is stated in the bill, and several questions raised, which are not material to the points decided by the court. The mortgage before mentioned, appeared in the schedule attached to the deed of trust, as one of the incumbrances which the mortgagors were to discharge with the means to be furnished by the Trust Company. The bill then stated, that the sum mentioned in the mortgage, and no part thereof, was ever paid to J. Walworth, or to the complainant. That in violation of his duty, and contrary to law, J. Walworth, on the 12th of April, 1837, executed and acknowledged a certificate of satisfaction or discharge of the mortgage, which was recorded April, 13, 1837. That no order or direction was ever given by the court or the vice-chancellor, for the execution of such discharge or certificate, and it was done without the knowledge, approbation or sanction of the vice-chancellor.
That on the 12th of April, 1837, Jones and Graham executed another bond and mortgage to J. Walworth, clerk, &c., for $29,000, with interest at six per cent., on a small lot, corner of Gold and Fulton streets, and on twenty-eight lots between
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Twenty-Eighth and Twenty-Ninth streets, upon and east of First Avenue, and a tract north of Twenty-Ninth street; both parcels extending to the East river.
That these premises were a more scanty security than those in the first mortgage. That the last mentioned bond and mortgage came to the possession of the complainant as clerk, and no interest having been paid since their date, he, on the 2d of May, 1842, filed a bill to foreclose the mortgage ; obtained a decree of sale October 5, 1842; and the premises were sold by a master, November 7, 1842, yielding the net sum of $21,960, and leaving unpaid on the mortgage debt, $15,578,49.
The bill then stated, that the original mortgage was never in fact paid or satisfied ; that J. Walworth had no power or right to discharge or impair it, and that his certificate of discharge was void and of no force or effect. That the mortgagors are insolvent, and that there is no security for the balance of the debt except the premises in the first mortgage. The bill prayed a foreclosure of that mortgage and a sale of the premises.
The Farmers Loan and Trust Company alone contested the suit By their answer they ignored the source of the fund for which the mortgage was given, and the charge that J. Walworth had no interest in it, save by his office; and they alleged it had been paid off, satisfied and discharged, in his life time.
The answer stated, that the consideration of the deed to them in December, 1836, was $200,000, in their trust certificates, issued and payable to Jones and Graham ; and by the arrangement, the Trust Company was to withhold a sufficient amount of the certificates, until the incumbrances were all discharged and extinguished. That J. Walworth received the whole amount of the mortgage in question, and thereupon discharged it, validly and lawfully. That on receiving evidence of such discharge being given and recorded, they paid over to Jones and Graham, an amount of the certificates equal to the amount due upon the mortgage so discharged, without any notice, intimation or suspicion, that the mortgage had not been fairly and fully paid off and satisfied. They averred that the mortgage was actually paid in money to J. Walworth at the time; and when they paid over
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the certificates to J. and G., they had no knowledge, notice, intimation or suspicion, that there had not been a full and actual payment to J. Walworth, when he satisfied the mortgage. They insisted they were and are bona fide purchasers, without notice. Also that if there were no payment to J. Walworth in money, the new bond and mortgage given to him Were a good payment. And that no order, direction, sanction or approbation, of the vice-chancellor or the court, were necessary, to enable J. Walworth to discharge the mortgage ; and they are ignorant whether there was any such order, (fee. or not. The defendants averred that the lands included in the second mortgage, were when it was given, worth more than those discharged from the first, and were worth more up to December, 1842; and were at the time a full and adequate security for the §29,000. They denied that the second mortgage was executed as security for the same money as was mentioned in the first bond and mortgage. That when the complainant commenced the foreclosure of the second mortgage, he knew all the facts stated in his present bill; and the defendants insisted that by his foreclosure and sale under the second mortgage, without making them parties or claiming against them, he ratified and confirmed the discharge of the original mortgage by John Walworth, as stated in the bill.
A replication was filed, and a great deal of testimony taken, which it is deemed unnecessary to set forth at large. The facts stated in the bill were substantially proved. It appeared by the decree mentioned in the bill, that the suit in which the fund in question was paid into court, was a suit for the partition of the real estate of Henry A. Coster, deceased; and that the fund, after the death of Mrs. Hosack in July, 1841, belonged to the surviving heirs of Mr. Coster. All the testimony on this subject was objected to, on the ground that it was irrelevant to the issue, and tended to alter the mortgage, and add to its terms.
The defendants proved the payment of their certificates to Jones and Graham, on the faith of the discharge of the original mortgage, as stated in their answer; and their entire ignorance of the nature of the fund for which that mortgage was given, and of the circumstances attending the execution of the discharge, and of the second mortgage.
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The result of the testimony on both sides, as to the relative value o the premises mortgaged, in 1835 and 1837 respectively, xvas in the judgment of the court, that in April, 1837, the former were worth more than double the latter, while at the time of the sale of the latter on the foreclosure, the former exceeded it in value about fifty per cent. The relative depreciation being much greater in the property first mortgaged,
In respect of the discharge of the first mortgage by J. Walworth, the evidence was that the mortgagors negotiated with him for a new loan of the same fund on the premises secondly mortgaged, to which he assented on being satisfied by the estimates of competent and experienced men, that those premises were worth $75,000 ; and that he executed and acknowledged the discharge, on receiving the new bond and mortgage, without any cash being paid to him and returned by him.
The proceeding was in entire good faith, and without any suspicion that it was irregular or illegal. There was no order or direction of the court, for the discharge, of the mortgage. Some other facts will be found in the opinion of the court.
W. M. Evarts and J. P. Hall, for the complainant, argued the following points:
I. The bill in this cause is filed to foreclose the equity of redemption of a mortgage to the complainant as clerk of this court, made by the defendants Jones and Graham, to secure a loan to them of $29,000, dated April 11, 1835.
II. The sum so loaned to Jones and Graham, was part of the dower fund of Mrs. Magdalena Hosack, widow of Henry A. Coster, deposited in this court under a decree in the partition suit of Hamilton Wilkes and wife v. Francis Barretto and others. The heirs at law of Henry A. Coster or their assigns, owners of this dower fund, (the dower right having expired by the death of the widow,) bring this suit in the name of the clerk, according to the provision of the statute, and by permission of the court duly obtained upon petition. (2 R. S. 252, § 73, 2d ed.)
III. This mortgage is a valid and subsisting security to the parties whom the complainant represents, for the amount of the
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sum loaned thereon now remaining due to them, and is a lien upon the mortgaged premises prior and superior to any right or lien of the defendants, The Farmers Loan and Trust Company.
IT. The validity of the mortgage is not discharged or impaired in any manner, by the act of John Walworth in executing and delivering the paper, purporting to be a certificate of the payment of such mortgage.
1. This act was unauthorized by any order or direction of this court, or of any officer thereof competent to make such order or give such direction.
2. No clerk of this court, virtute officii, has power of his own motion, to discharge, vary, or impair, the securities for moneys remaining in this court; or in any manner to deal with such securities or moneys, except under the direction of the court itself.- ■
3. The statutes of this state respecting the court of chancery, the powers and duties of the clerks thereof, and the custody, control, and management of the funds therein, confer no such power upon the clerks of this court; but impose the whole power, trust, and responsibility of the custody, control, and management of such funds, upon the court itself. (2 R. S. 99 to 101, 2d ed.)
4. The provisions of the statute respecting suits in partition, confer but very limited powers, and impose very limited duties, upon the clerks of courts, into which moneys or securities, under proceedings in such suits, may be brought, in respect of such moneys or securities. These provisions clearly exclude any inference of such authority to the clerk, as was exercised in this case. (2 R. S. 249, 253, §§ 51, 68 to 70, 71, 72.)
5. The statute respecting suits in partition, distinctly provides, in respect of investments of moneys brought into court in such suits, that “ no such security, bond, mortgage, or other evidence of such investment, shall be discharged, transferred or impaired by any act of the clerk, without the order of the court, entered in the minutes thereof.” (Id. § 72.)
6. This section of the statute is not merely prohibitory of certain acts of the clerk, but renders them, if committed or at
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tempted, entirely inoperative upon the security, which survives unaffected, by such acts. ( 14 Mass. 322 ; 5 John. 327 ; 3 Wheat. 204 ; 4 Peters, 437.)
7. But if the provisions of the statute are merely prohibitory upon the clerk, then his acts in contravention of its absolute terms, are equally void. ( 14 John. 273 , 290 ; 8 Paige, 527; 7 Barn. & Cress. 12 ; 7 Wend. 152 ; 2 R. S. 582, §§ 45, 46, 2d ed.)
V. The certificate of John Walworth was not true in fact; the mortgage mentioned in it was not, at the date of the certificate, and never since, has been paid. The transaction was a mere attempt on the part of the clerk and the mortgagors, to substitute for the investment of the money in court, another and inferior security, with no motive of safety or other advantage to the fund, and solely for the accommodation and benefit of the mortgagors.
The act of the clerk was one, which not only was not, but never could have been authorized or approved by the court; an act which contravenes not only the letter of the statute, but exhibits in a most flagrant aspect, the mischiefs which its provisions were so carefully framed to protect.
Yl. The defendants, The Farmers Loan and Trust Company, stand in no better condition in respect of the complainant’s equity, than Messrs. Jones and Graham.
1. They are subsequent mortgagees, with actual notice of this mortgage, and an express acknowledgment of its superior lien.
2. The first parcel of their bonds, was advanced to Jones and Graham, in reliance upon the covenant of the latter, that out of them or their proceeds, they (Jones and Graham,) would pay off this and other incumbrances. The second parcel was advanced upon the representation of Jones and Graham, that they had done so. For this breach of covenant and false representation, they are confined to a personal remedy against Jones and Graham.
3. The Farmers Loan and Trust Company were affected with notice of the peculiar character of this security, and if they have acted upon insufficient evidence of its payment or satisfaction) they must bear the consequences of their own error. (1 Cowen, 622; 7 Conn. 333 ; 1 Paige, 461; 7 ibid. 421 ; 9 ibid. 317; 10
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John. 374 ; 5 Price, 306 ; Sugden on Vend. Ch. 17; 1 Story’s Eq. Jur. 389, 390.)
VII. The parties in interest, (the actual complainants in this suit,) have not in any manner waived or impaired their right to enforce the mortgage now sought to be foreclosed.
1. John Walworth never acted by any agency or authority derived from them, and they are not bound by his acts, admissions or acquiescence.
2. Since (by permission of the court,) they have resumed the control of their property, which had been confided to the court of chancery, they have sought to realise the same from the securities which were delivered to them by the court, as the representatives of their fund, in the order which the settled doctrines of this court sanction.
3. The second mortgage, an undoubted security as against Jones and Graham, was on property in which no other parties were interested, and this they first exhausted, and have thereby relieved the property on which The Farmers Loan and Trust Company had a subsequent lien, from their own prior lien to the extent of the value of their second security.
VIII. The master’s sale of the property included in the second mortgage, is conclusive of its value, and the subsequent sale confirms its entire fairness as a criterion of value.
IX. The complainant is entitled to the usual decree of sale to satisfy the balance of the mortgage debt not paid out of the proceeds of the second mortgage ; i. e., the deficiency reported by the master in the former suit, with interest from its date, and the costs of the present suit.
T. Fessenden and H. Ketchum for the defendants, The Farmers Loan and Trust Company, argued the following points:—
First. The provision in the latter part of section 72 (70) of the partition act, (2 Rev. Statutes, 2d ed. page 252,) is directory ; or, if not, does not apply to innocent third parties without notice. The execution, acknowledgment, and record, of the satisfaction piece, is, so far as it relates to the defendants, The Farmers Loan and Trust Company, a valid discharge of the first mortgage, although it were given by the mortgagee John Wal
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worth, in violation of his duty as clerk. (Dwarris on Stat. 689, 690, 713, 716.)
Second. The bill does not allege that the moneys loaned on the mortgage, were paid into court in a partition suit. The alle- , gation in the bill, that those moneys were part of a sum of money paid into court to secure Mrs. Hosack’s dower, in pursuance of a decree in a suit in chancery, in which it sufficiently names the complainants and the defendants, does not authorize any proof to be given that such suit was a suit in partition ; and, much less, does it authorize any such proof to be given, or proof even that said moneys were paid into court in said suit, extrinsic the bond and mortgage. (7 Paige, 489 to 491; Greenleaf’s Evidence, 315, 319, 320 and notes; 1 Gow’s R. 74; 1 Sand. Ch. R. 34 ; Cowen & Hill’s Notes to Phill. Ev. 938 to 1003.)
Third. If, under said allegation in the bill, proof extrinsic the bond and mortgage is authorized, not only that the moneys loaned on the same, constituting the subject matter of that contract of loan, which contract is reduced to writing in the bond and mortgage, were paid into court in the suit in chancery; but also that such suit was for the partition of lands, (whilst the bond and mortgage speak of the moneys only as money in general, and say nothing about the suit or its purpose,) in order to destroy the effect of the discharge of the mortgage, the complainant has not given such extrinsic proof, legal in other respects ; although the answer to the allegation in the bill was such as to throw the burthen of such proof on him. ( 24 Wend. 35 .)
Fourth. The bond and mortgage in suit in this cause have been paid. (Refers to the testimony.)
Fifth. The bill does not allege, and so does not authorize any proof, that any one, other than the clerk in chancery, has any interest in the bond and mortgage. The taking of the second bond and mortgage by John Walworth, clerk, to secure the new loan of $29,000 to Jones and Graham, to enable them to raise money to pay off the former bond and mortgage, and thus receiving payment of the latter, is to be regarded as the act of Hiram Walworth, clerk, the successor of John, and the present complainant. (1 Story’s Eq. Jur. § 346,400; 2M. & K. 474 to
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480; 1 Bro. C. C. 1; 16 Ves. 512; Livermore on Ag. 44, 45 to 48.) If the present complainant, with a full knowledge of all the facts, has ratified and affirmed the acts of John, by proceeding to foreclose the second bond and mortgage, and applying the proceeds thereof, as stated in the bill: if the bill alleges. sufficient to authorize proof that any particular person or persons, viz. the parties named in the bill to the suit in chancery therein mentioned, are interested as cestui qui trusts in the first bond and mortgage, still the conduct of their trustees is their conduct; or, if not, their agent, with a full knowledge of all the facts, proceeded to foreclose the second bond and mortgage, and apply the proceeds, as mentioned in the bill, and thus ratified and affirmed such acts of John Walworth, (1 Story’s Eq. Jur. § 333, 384, 385; 4 Paige, 94, and 537, 540.)
Sixth. Had the complainant, upon the facts being ascertained, disregarded the second bond' and mortgage,; and proceeded, according to the order which had been obtained from the Vice-Chancellor,"to foreclose the first mortgage, (the one now in suit,) before proceeding to foreclose the second mortgage, and made The Farmers Loan and Trust Company defendants in the first, it is manifest, that had he been able to sustain such suit to foreclose the first mortgage, and to obtain a sale of the lots it covered to satisfy his demands at all, it would, under the facts disclosed in this case, have been upon the condition that the second bond and mortgage should be assigned to The Farmers Loan and Trust Company. It being now too late for the company to obtain any part of the property covered by the second mortgage, in consequence of the acts of the complainant or his cestui que trusts, by their solicitor and agent, in order to obtain both the bonds and mortgages, as security for their claim, in violation of the intentions and understanding of John Walworth, as well as Jones and Graham; to grant the prayer of their present bill, would be contrary to all equity and justice.
Seventh. The discharge of the first mortgage, and the certificate of the register, that the lots covered by the mortgage were wholly unincumbered by any instrument on record in his office, certainly left the mortgage in the same situation, as it respects The Farmers Loan and Trust Company, as if it had never been
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recorded at all; more especially, as it is impossible to ascertain, from such mortgage itself, or the original record thereof, that the money it was given to secure, had ever been paid into court in a partition suit. Hence, the holding back by the company of $75,000 of the consideration they agreed to give for the lots, until such discharge was furnished, and then faying over the same to Graham, put them in the situation, at the time of such payment, to the extent of $75,000, of a bona fide purchaser, without any constructive notice of the mortgage ; and that they had not any actual notice or suspicion, when they paid over the $75,000, that such mortgage had not been lawfully discharged, or was an incumbrance on the premises granted and conveyed thereby, originally; is stated in the answer, and made out by the proof. The provision of the revised statutes, mentioned in the first point, as it respects innocent third parties, is at least to be construed strictly; and there is no provision in the section of the revised statutes referred to, affecting the record of a mortgage covered by s.uch section, or repealing any part of the recording act, as it respects a bona fide purchaser, without notice. (2 R. S. 72, 73, § 5, 6, 7 ; 1 ibid. 752, § 37 ; 9 Paige, 132, 136 ; ibid. 418 ; 1 Story’s Eq. Jur.. § 333, 384, 385.)
Eighth. If the mortgage has not yet been discharged, in pursuance of an order of the court, the court is now at liberty to make an order for its discharge, or confirming the discharge already made ; and under the strong equities in favor of The Farmers Loan and Trust Company, disclosed by this case,will now make that order, at least so far as it regards the company, and the interest they have in the land described in the mortgage.
Ninth. The bill, as to the company, ought to be dismissed with costs.
Tenth. If not, at least the decree ought to be, that, out of the proceeds of the premises, covered by the first mortgage, The Farmers Loan and Trust Company be first paid the $75,000, and interest; or, if not, at least be paid, first, the present fair cash value of the premises, covered by the second mortgage, (less the value of any permanent improvements which have been made thereon since the sale of those premises under the foreclosure, and the taxes and assessments on the same which were paid
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at the sale, or have been paid since, with interest from the times of the payment thereof;) and, in either case, their costs in this suit to be taxed; and the amount decreed to complainant out of the residue, ought to be limited to his principal, $29,000, and the interest thereon, at the rate of six per cent per annum unpaid, and costs to be taxed.

The circumstance that the fund loaned to Jones and Graham by the clerk of the court in 1835, was paid into court in a suit for the partition of lands, is one of essential importance to the complainant. The defendants objected to any proof of that fact being given, because it is not alleged in the bill. The statement in the bill is, that this fund was a part of a sum of money paid into court to secure the dower of Mrs. Magdalena Hosack, in pursuance of a decree of this court made by the Vice Chancellor of the first circuit, on the 29th of October, 1833, in a suit then pending, (the title of which is set forth at large;) and that the mortgagee had no other right or interest in that money, than such as devolved upon him by virtue of his office as clerk of the court. By reference to the decree, which is a record of the court, it appears that the suit in which it was entered, was a suit for partition ; and that the fund paid into court, belonged to the respective parties therein, subject to the life interest of Mrs. Hosack in the same.

It would, no doubt, have been well for the pleader to have alleged distinctly, that the money was paid into court in a partition suit. But I am upon the whole, satisfied that the statement should be held sufficient to put the matter in issue. It is an averment in effect, that there was such a suit and decree, and that the fund came to the clerk from that source; and it is followed by the charge that the clerk had no power to deal with it as he did. The character of the suit, and the use to be made of the fund while in court, so far as they were material, being shown by the decree thus cited, are in substance made a part of the case, and with reasonable certainty brought to the notice of the defendants.

It is also objected, that the bill does not allege, and so does

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not authorize any proof, that any one, other than the clerk in chancery, has any interest in the mortgage in question,

What I have already repeated from the bill, answers this objection. It alleges that the clerk had no right or interest in the fund loaned, except by virtue of his office, as the depositary of the same in the suit before mentioned, and the decree shows to whom it belonged. It was not essential to the complainant's case, to state who the parties in interest were, so long as by the statute, they were not to be parties to the suit. If their action in respect of the substituted security, became material to the defence, it was competent for the defendants to set it up and prove the facts; as they have actually done by their answer and testimony.

The complainant’s evidence, to the effect that the moneys loaned were paid into court, in a particular suit, being a suit for partition, is said to be proof extrinsic the bond and mortgage, and in effect varying their terms and obligation ; and that it is therefore incompetent evidence.

The cases cited, of an attempt to show by parol that a promise in writing to pay absolutely, was in fact a promise to pay out of a particular fund, and to prove that a mortgage by its terms payable unconditionally, was not to be paid unless certain stipulations by parol were performed ; are not at all analogous to the question made by the complainant. He does not seek to add to or to detract from the force of the bond and mortgage. Whether the money came from a partition, or a creditor’s suit; or to whomsoever it belonged ; the extent of the lien of a bond and mortgage to the clerk, the time and manner of payment, and the place where and the person to whom it was to be paid, must be controlled by their written terms. The obligations of this bond and mortgage were no greater, if as is alleged, the fund came from a partition suit. The only difference claimed by the complainant, is in the mode of discharging the mortgage from the record; that whereas in an ordinary instance, a simple voluntary certificate of the mortgagee is sufficient, in the case of the clerk, an order of the court was required for effecting such a discharge. This, I think, does not affect the contract into which the borrower enters on executing a bond and mortgage

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like those in question. It goes merely to the form of the evidence which he shall receive to show that his contract is performed.

I will therefore assume that the bill is sufficient in form and allegation, to support the case which the complainant makes the basis of the relief he solicits.

The next inquiry is, has the complainant established his case by proof?

The testimony is sufficient to show that the money loaned to Jones and Graham on this mortgage in 1835, was a part of the fund paid into court in the suit stated in the bill. The receipt given by Graham, in connection with the other circumstances, shows that fact presumptively; and in the absence of any rebutting testimony on the part of the defendants, it sustains the allegation. I have no doubt that the receipt is competent evidence, both as an official act of the clerk in the line of his duty, and as a part of the res gestee between himself and the mortgagors on making the loan. The check given by the clerk, would have been equally obnoxious to the objection that it was res inter alios acta:

The facts in regard to the discharge of the first mortgage, the execution of the second for the same amount and for the same fund, the conveyance to The Farmers Loan and Trust Company, and their agreement thereupon; are not disputed. It is also proved, that there was no order of the court authorizing the discharge of the first mortgage, or the receiving of the second in its stead.

The important question in the cause, is on the effect of the discharge of the first mortgage, executed by the then clerk of the court, in April, 1837.

I do not deem it necessary to discuss the proposition of the complainant’s counsel, that the clerk in no case has the power to discharge a mortgage which he has taken as clerk, without the direction of the court itself.

The seventieth section of the statute relative to the partition of lands, directs that all investments and re-investments of the moneys brought into court under the provisions of that statute, shall be made in the public stocks of the United States, or of this

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state, or on bond and mortgage upon unincumbered real estate, of at least double the value of such investment; “ and no such security¡ bond, mortgage, or other evidence of such investment, shall be discharged, transferred or impaired, by any act of the clerk, without the order of the court entered in the minutes thereof” (2 Rev. Stat. 328, § 70.)

This is a plain, direct and positive enactment; and there is nothing in its terms, or in the subject matter of the statute, which warrants me in emasculating' it and destroying its force, by adopting the too fashionable construction, that it is merely directory.

By proceedings in partition, the immovable estate of widows and children, (to say nothing of adults,) is disposed of irrecoverably, without their assent, and the proceeds are brought into the courts of law and equity in which the suits happen to be pending, there to be kept and invested until the disability of the owners shall cease, or on some other contingency the court shall order the fund to be paid out. It is not only proper, but essentially just, that both the legislature and the courts, should adopt and vigilantly enforce, all prudent and reasonable safeguards for the safe keeping and preservation of property, thus as it were, violently converted from a fixed and indestructible character, to one in which it is liable to so many accidents and losses.

It is clear that the clerk in this instance acted without authority, and the statute declares that such act, shall not discharge or impair the mortgage.

The discharge was nevertheless entered upon the record, and the mortgage was thereby apparently satisfied and its lien effaced.

Were the defendants, who thereupon advanced their trust certificates, protected by the discharge thus executed and recorded?

It is contended on their behalf, that there was an actual payment and satisfaction of the mortgage by Jones and Graham, and that the court will now make the proper order for entering satisfaction of record. The complainant’s counsel conceded that the clerk, of necessity, was clothed with power to receive pay

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ment of these securities, but denied that there had been any actual payment of the mortgage.

As to the fact of payment, I agree fully with the complainant. The forms and the language used, are nothing to the purpose ; and even more circuitous and imposing forms, could not have changed the character of the transaction. It was in substance, the substitution of other property as security for the debt, in the place of that mortgaged; and to effect that object, the original mortgage was cancelled, and a new one executed in its stead on the substituted property.

The transaction was conducted fairly and in good faith, beyond all doubt; and no party to it, I presume, imagined it possible that the substituted security would ever prove inadequate. But its legal effect and character cannot be influenced by these considerations. It was not a payment of the original mortgage.

The Farmers Loan and Trust Company insist, that if the discharge were unauthorized and made without actual payment, they are nevertheless protected by it, because they are bona fide purchasers without notice of any of the equities now set up to defeat its operation. The mortgage itself gave them no information that the money secured to be paid, was a fund in the mortgagee’s hands as clerk, much less that it had been paid into court in a partition suit; and they advanced the consideration for the lands in question, on the faith of the discharge of the mortgage. And further, that the discharge, being executed by the proper party in due form, was rightfully recorded, and purchasers relying upon such record are protected by the recording acts. This defence involves several propositions, which 1 will proceed to consider.

1. As to the notice which the defendants had by the mortgage itself.

It may not be very material, but in fact these parties had notice not merely from the record. They had actual notice of the existence of the mortgage, and that it was unpaid. By their arrangement with Jones and Graham, they were to furnish the means for its actual payment. The mortgage by its terms gave Biotice to all the world, that the money secured,, was a fund held

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by the mortgagee as clerk of the court of chancery. It describes the mortgagee by his name of office, and although it does not express that it is made to him as clerk in chancery, it expresses the same thing by his official name and by its limitation of the estate, as well as the payment of the money, to his succes sors, instead of his personal representatives.

Thus the defendants were in point of law informed, that the mortgage belonged to the clerk of the court of chancery, by virtue of his office. They had no actual notice of the nature, origin, or ownership of the fund ; but they are chargeable with knowledge of the law ; and thereby they had notice, that among the various sources from which the clerk might receive moneys for investment, suits in partition was a prominent one, and that by the statute regulating those suits, a mortgage given for money thus derived, could not be discharged without an order of the court entered in its minutes.

The defendants therefore, knew that this mortgage was an investment held by the clerk of the court; and that the clerk by law was made the holder of some investments, which he could not discharge, suo motu. and which could only be lawfully discharged by the court.

Then when the clerk’s certificate, discharging this mortgage, was presented to them, (or, which is not different, the register’s certificate that a satisfaction piece, entitling the mortgage to be satisfied of record, was filed with him,) had the defendants a right to assume that the clerk’s discharge was sufficient; or were they bound, before acting upon it, to ascertain, either that the 'mortgage did not fall within that class of investments which the court alone could discharge, or that there had been an actual satisfaction by the payment of the money to the clerk 1

I am persuaded that it was their duty to have ascertained these things, and that they were put upon inquiry as to the true character of this investment, and are affected by it as if they had had actual notice. Knowing (in legal contemplation,) that the clerk was by law the depositary of two or more classes of investments, as to one of which he could not give a discharge ; the defendants were not authorized to assume, that an investment respecting which they were dealing, did not belong to the

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latter class ; and if they have dealt with it on that assumption, and it turn out to be erroneous, they are affected with notice of the true character of the instrument, precisely as if they had pursued the inquiry which their knowledge of those classes pointed out to them, and had actually learned to which it belonged.

The general doctrine of constructive notice, as held in courts of equity, is so familiar that I need not repeat it. Its application depends upon circumstances which are seldom alike in any two cases.

I will illustrate my idea of the notice to these defendants, by supposing the case of a will, by which a variety of stocks are bequeathed to the executor in trust for the testator’s son and daughter, a specific part for each ; and the will provides, that the stocks set apart for his daughter shall not be sold or transferred, except by order of the court of chancery. A broker purchases of the trustee, a portion of the stocks set apart for the daughter, and pays its full value, without being aware that it is a portion of those stocks, although he is acquainted with the fact, that the trustee holds two kinds of stocks, one of which he cannot sell without the order of some court. There is no doubt that such a purchaser might be compelled by the daughter to restore the stock bought under such circumstances.

When a party is informed that some one of many investments held by a trustee, is inalienable, he deals at his peril, if he choose to deal with such trustee for any one of the investments, without first ascertaining that it is not the one which the trustee cannot transfer.

The defendants must be deemed to have had notice of the fact, that the fund loaned on the mortgage in question, was paid into court in a partition suit, and that the order of the court was indispensable for its discharge.

This being so, it needs no argument to show that the defendants could not rely upon the deputy register’s certificate, that there was lodged with him a satisfaction piece entitling the mortgage to be cancelled of record. The deputy might or might not know the law respecting partition investments; and his opinion of the' validity of a satisfaction piece not yet recorded.

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was a poor substitute for a certified copy of an order of the court directing a discharge to be executed.

The statute regulating the entry of mortgage discharges, on which the defendants also rely, must be read in connection with the provision in the partition act, which was enacted at the same time. In that connection, it provides that a recorded mortgage, given to the clerk of a court for money paid to him in a partition suit, shall be discharged on the record, upon a certificate signed by the mortgagee or his successors, pursuant to the order of the court, and duly acknowledged or proved.

The defendants under the circumstances of this case, are not protected by the recording of the discharge and the entry of satisfaction on the record of the mortgage; and the complainant, the successor of the mortgagee, has a right, in behalf of those interested in the fund, to foreclose the mortgage, unless the subsequent events ought to preclude him from enforcing it.

It is claimed by the defendants, that the complainant, by proceeding to foreclose the substituted mortgage, and applying the proceeds of the sale of the lands thereby mortgaged, has, with a full knowledge of the facts, ratified and confirmed the acts of his predecessor in discharging the first mortgage and substituting the second. And that the parties interested in the fund, participated in such ratification and affirmance. That if the complainant, on ascertaining the facts, had disregarded the second mortgage, and proceeded to foreclose the first, making The Farmers Loan and Trust Company parties to the suit; then, on his claim being sustained, and a sale of the lots in the first mortgage decreed, it would have been made a part of the decree that he should assign the second mortgage to those defendants. But by pursuing the course they did, designing to obtain both mortgages as security for the loan, in violation of the intentions and understanding of the mortgagors and mortgagee, the complainant and the owners of the fund, have precluded the defendants from obtaining any of the property covered by the second mortgage ; and it would be contrary to all equity and justice now to permit them to sell the lands included in the first mortgage.

First, as to the ratification of the acts of the former clerk.

The second mortgage, when the owners of the fund became

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entitled to receive it, was a valid lien upon the lands conveyed by it, and one which Jones and Graham could not contest, even if such owners had then asserted that they could enforce the first mortgage also ; because Jones and Graham were personally liable for the debt, and could not say to the mortgagee, “ yon must first resort to the original security and sell the lands which we have conveyed to others, on the faith of that security being discharged.”

If the complainant at that time, had filed a bill to foreclose the original mortgage, The Farmers Loan and Trust Company would have interposed, and with great force have contended, that he should first proceed on the second mortgage, so as to exonerate, if possible, the lands which they had purchased in good faith of Jones and Graham. Equity would have sustained this ground, and required the complainant to exhaust his remedy on the substituted mortgage, in the first instance. The complainant, then, has done precisely what equity would have compelled him to do, for the protection of The Farmers Loan and Trust Company ; and his conduct cannot be deemed an election to affirm the discharge of the first security. It is only an election to affirm as to the mortgagors, for the benefit of those defendants, the pledge of further security for the debt.

To my mind, it presents the case of a creditor having two mortgages, each on a different farm, for the same debt, and the mortgagor having sold one of the farms and received the price, the mortgagee, in order to collect his debt, begins by foreclosing his mortgage on the farm which the debtor still owns.

It was undoubtedly competent for the complainant to have stated this whole case, including both mortgages, in one bill, and asked for a decree to sell first the property which was last mortgaged. But such a course would have been injudicious, unless it was very certain that the lots in the second mortgage would not pay the debt; because that mortgage, by itself, could be enforced without litigation, and it might reasonably be expected that the attempt to enforce the first mortgage would be strenuously resisted.

Second. I am at a loss to perceive what difference the course pursued, made to the prejudice of the defendants. Perhaps they

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assume that delay would have been occasioned by the attempted foreclosure of the first mortgage ; and during the interval, real estate would have advanced in price, so that the loss to them would have been much less than it is now likely to be. 1 do not think I can properly found my judgment on such an hypothesis. I must set out with the position that the first mortgage was valid, and the complainant in due course, would have obtained a decree of sale under it, as he in fact did, under the substituted mortgage. In that event, he would have sold in the fall of 1842, the 88 lots embraced in the original mortgage, (or as many of them as would have paid the debt,) instead of selling the lots mortgaged in 1837. Now what difference could it make to these defendants, whether the one tract or the other, was sold on the 31st October, 1842 ? The complainant had a right to sell one or the other, and no matter which was sold, any rise in the value of the other would enure to the defendants benefit.

The effect of the testimony as to the relative values, in the fall of 1842, of the property included in the two mortgages is, that the lots in the first mortgage were then more depressed than those in the second mortgage, in comparison with the value of both in 1845 ; and that if the 88 lots had been sold on a foreclosure, in the fall of 1842, or even in the fall of 1843, they would not have brought enough to pay the mortgage debt, nor any more than was realised from the sale under the second mortgage. So that if there has been any difference occasioned by the course actually pursued, it has been in favor of the defendants.

These grounds of defence to the suit are not sustained. And what I have said, disposes of the defendant’s claim, to have $75,000 paid to them first, out of the proceeds of the sale ; or to be first paid the present value of the lots which were included in the second mortgage. They have no priority for the former, and they have received the benefit of the latter, in the sale made on the 31st of October, 1842.

The complainant is entitled to a decree of sale. The interest on the first mortgage is to be computed at six per cent, and the proceeds of the sale under the second mortgage, after deducting

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the costs of the foreclosure, are to be applied at the date when, they were received, to the extinguishment of the principal and interest then due.

The complain&nts are entitled to their costs of suit out of the fund.

As the mortgaged premises are worth far more than the debt and costs, and they are laid out in lots, the defendants may direct what portion of the premises shall be first sold by the master,[1]

(a) (a) This decree was affirmed by the supreme court in equity, in November, 1847, before Hurlbut, M'Coun, and Mason, Justices. The defendants appealed to the court of appeals, where the decree was reversed by five judges against two, in December, 1848, on the sole ground, that by foreclosing the mortgage given to the clerk, in April, 1837, the parties entitled to the fund, had ratified what had been done by the clerk in discharging the original mortgage. The judgment of the Assistant Vice-Chancellor, on all the points mentioned in the syllabus at the beginning of the case, was upheld by the court of appeals ; as appears by the following extract from the leading opinion there delivered : “ Bronson, J.—We are, I believe, all agreed, that the clerk had no authority, without an order of the court of chancery, to take a new mortgage as a substitute for the first, and discharge the first; and that the persons interested in that mortgage, had the right to treat it as a valid and subsisting security, notwithstanding the satisfaction which had been entered of record. And this right might be exercised, not only against the mortgagors, but against the loan and trust company, although the company had advanced its funds on the faith of the supposed satisfaction.”

Cases cited