The Farmers' Loan and Trust Co. v. . Walworth

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HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 443 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. This brings us to the question whether the owners of the first mortgage have done any act by which they have lost the right of resorting to that security. The first or original mortgage was given to secure the payment of a loan, made by the clerk, of moneys which had been paid into court on account of the dower of Mrs. Hosack in certain lands which had been sold in a partition suit. The mortgage was made payable to the clerk, as is usual in such cases; but it was given and received for the benefit of Mrs. Hosack and the persons who would be entitled to the fund on her death. The clerk acted under an authority conferred by law; but the act was done for the owners of the fund, and they were the persons beneficially interested in the mortgage. If the security had failed, the loss would have fallen on them. The second mortgage was upon other property. It was not an additional, but a substituted security: it was to take the place of the first mortgage, which was to be thereby satisfied, and satisfaction was to be, and was in fact entered of record. Such was the arrangement between the clerk and the mortgagors. It was no part of their purpose to do a wrong to the owners of the fund: the lands covered by the second mortgage were deemed an ample security for the debt; and the only object of Jones and Graham in procuring the substitution of securities was, the better to enable them to complete a pending negotiation with the Loan and Trust Company for a loan of two hundred thousand dollars. The lots covered by the original mortgage were included, with others, in a conveyance which Jones and *Page 444 Graham made to the company; and after satisfaction of the original mortgage had been entered of record, and in the belief that it had been legally done, the company lent funds to Jones and Graham to an amount greatly exceeding the amount of the mortgage. Although the clerk in consenting to the substitution of securities made a mistake and exceeded his authority, he was never theless acting for the owners of the fund, and not for himself. It was an act which the fund owners might adopt, and which, when ratified, would completely legalize the substitution of the second mortgage for the first. The first would thereupon be satisfied in law, as well as in form, and the owners of the fund would have the beneficial interest in the new security. But it is said, that when an officer acts under an authority conferred upon him by law, the act cannot be ratified by the person for whose benefit it was done; and we are referred to the case of Wilson v. Tumman, (6 Man. Gran. 236,) in support of that doctrine. The case proves no such thing. The point decided was, that when an officer, under process against A., seizes the goods of B., without any direction or authority from the creditor, the subsequent assent of the creditor to what has been done, without any act on his part, will not charge him with the trespass which was committed by the officer. But although mere assent would not make him a trespasser, his acts might have that effect. Indeed, it was admitted by Baron Parke on the trial of the cause, that the attorney of the creditor, who was also a defendant, would have been liable for the trespass, if the goods had been detained under an authority which he gave for that purpose subsequent to the seizure. And besides; although the creditor was not answerable to the owner of the property for the trespass, that does not prove that the act of the officer was in its nature incapable of ratification, so that nothing could be done to give it effect as between the creditor and the officer. It is undoubtedly a general rule, as was said in that case, that a man cannot adopt an act which was neither done for him, nor in his name. (See Saunderson v. White, 5 B. C. 909; Vere v. Ashby, 10 id 288.) But when an officer executes process in favor of a *Page 445 creditor, although his authority is conferred by law, he acts for, and is the agent of the creditor in such a sense that the act is capable of ratification. I have met with no case which holds a different doctrine. In Armstrong v. Garrow, (6Cowen, 465,) the defendant, as sheriff, had arrested one Mumford on a ca. sa. in favor of the plaintiff, and on receiving the promissory note of a third person for the amount of the debt, had discharged Mumford out of custody. The sheriff had done an illegal act: the note was void in his hands, and he was liable to answer the plaintiff for the escape. Still the plaintiff was willing to accept the note, and demanded it of the sheriff, who refused to give it up. The plaintiff thereupon sued the sheriff for money had and received to his use, and recovered. The sheriff insisted that he could only be made liable in an action for the escape. But the court held, that the plaintiff might affirm the act of the sheriff, consider the execution paid, and call on him for the money. It was further held, that had the note been delivered to the plaintiff, the ratification would have made it a valid security in his hands. And from the note of the learned reporter it seems also to have been considered, that after the plaintiff had recovered against the sheriff on the ground that his act in taking the note had been affirmed, the note would have been valid in the hands of the sheriff. This rests on the principle, that a subsequent ratification is equivalent to an original authority. In Pilkington v. Green, (2 B. P. 151,) the officer arrested Green on process in the nature of a ca. sa. issued by the commissioners of excise, and discharged Green out of custody on receiving promissory notes for the amount of the debt. The commissioners afterwards sanctioned what had been done; and on that ground the notes were held to be valid in the hands of the officer. The case of Sugars v.Brinkworth, (4 Camp. 46,) affirms the same principle. (Seealso Corning v. Sutherland, 3 Hill, 552.) There are undoubtedly many other cases which have gone upon the ground that an act done under an authority conferred by law might be adopted by the person for whose benefit it was done. Indeed, I doubt whether the principle has ever before been questioned; and I *Page 446 think it quite safe to conclude, that the acts of the clerk in relation to the two mortgages in question were of such a nature that they might be ratified by the persons interested in the fund If the act of the clerk was of such a nature that it might be adopted and made their own by the persons interested in the fund, it is a point almost too plain for discussion that it was in fact ratified. Let us see what was done. In 1842, Mrs. Hosack having previously died, the owners of the fund were desirous of taking the money out of court, and for that purpose propose to call in the loan which had been made to Jones and Graham. They learned from the clerk and the public records every thing which was necessary to enable them to act with a just regard to their own interest. They knew that the first mortgage had been discharged, and that the second had been taken as a substitute for it. They knew also that Jones and Graham had become insolvent; and from that fact they inferred, as well they might, that Jones and Graham had parted with the property covered by the first mortgage to some one; and if they had looked at the public records, they would have found the conveyance to the Loan and Trust Company. There was clearly enough to put them upon inquiry, and they were, I think, chargeable with notice of that conveyance. It is enough, however, for the present, to say, that they had actual knowledge of every thing which had taken place between the clerk and Jones and Graham; and that they had good reason to believe, and did in fact believe, that some third party then owned the lands which were covered by the first mortgage. They knew, or were bound to know, that they had not a shadow of title to both of the mortgages: that if they asserted their right to the first, they could have no right to the second; and if they took the second, they could have no further claim upon the first. The alternative was thus fairly presented, whether they would disaffirm the act of the clerk, and take the first mortgage; or whether they would adopt his act, and take the second. They elected to take the second mortgage; and did take and foreclose it, and put in their pockets the money produced by the sale of the property. They had no color of title *Page 447 to that mortgage, except upon the ground of adopting the act of the clerk in taking it; and it can hardly be doubted that there was a complete ratification. It is true that the owners of the fund had the secret intention of falling back upon the first mortgage, if the foreclosure of the second should not produce enough to pay the debt. They intended to adopt the act of the clerk so far as it was beneficial to themselves, and to reject the residue. That, the law would not permit them to do. They had no choice but to take the whole, or none; and when they confirmed the agency in part, they ratified the whole transaction. By foreclosing the second mortgage, they confirmed the discharge of the first. This principle is so just in itself, and is so firmly settled, that I need do no more than refer to one or two books where many of the authorities are collected. (Story, Agency, § 250; Paley,Agency, 172, Dunlap's ed.) It would be strange indeed if the law would permit them to have the second mortgage, to which they have no title whatever except by affirming the act of the clerk, and yet allow them to reject that part of his act which induced the giving of that mortgage. As the owners of the fund have, with their eyes open, agreed to the satisfaction of the mortgage which they are now attempting to foreclose, it cannot be very important to inquire whether they acted wisely or not, or whether they will be gainers or losers by the decision which they made. Nor is it important to know whether the Trust Company is better or worse off than it would have been had the owners of the fund disaffirmed the agency, and foreclosed the first mortgage. But as the owners of the fund think it hard that they should be held to the election which they made, I will briefly inquire how the case would stand without any special regard to the doctrine of ratification. And in the first place, the owners of the fund had no right to both mortgages. Although Jones and Graham were bound to pay the debt, they were under no obligation to give additional security for the payment; and they never gave any. They executed a new security as a substitute for the first, and on the condition that the first should be discharged. The owners *Page 448 of the fund had no right to the new security, except upon the terms on which it was made and offered to them. If they took it, they, by that act, plainly consented to the discharge of the first mortgage. If, on the other hand, they determined to keep the first security, they could have no title to the second, because they would not assent to the terms on which it was offered to them. I am not aware of any rule, either of law or of equity, which will permit a creditor to accept a pledge or other security for his debt, and yet repudiate the condition on which the security was given. Debtors have rights as well as creditors. The case is still stronger in favor of the Trust Company, who are bona fide purchasers from Jones and Graham. Clearly the owners of the fund had no title to both mortgages; and yet the decree which has been made goes upon the ground that they have such a right, and that, after having foreclosed one mortgage, they may resort to the other. It is impossible, I think, that such a decree can stand. But it is said, that had there been an attempt to foreclose the first mortgage, the Trust Company would have insisted, and equity would have decreed, that the owners of the fund should first exhaust their remedy under the second mortgage, and thus exonerate, in whole or in part, the lands which the company had purchased from Jones and Graham: that by resorting to the second mortgage in the first instance, the owners of the fund have done no more than equity would have compelled them to do, and that the company can sustain no damage. This argument is open to several objections. In the first place, at assumes that the owners of the fund had two securities, and a right to resort to both of them, when such is not the fact. They had title to only one security, with an election between two as to which they would take. In the next place, the argument assumes that the company would have insisted that the second mortgage should be first foreclosed, when there is nothing to show that they would have made any such claim. I think the company would have reasoned differently, and said, "We cannot prevent the foreclosure of the first mortgage, and will not attempt it: if we are thus deprived of the property *Page 449 which we purchased from Jones and Graham on the faith that the first mortgage was satisfied, we shall have a clear equitable claim to the use of the second mortgage for our indemnity, and equity will decree us such right: that will be just as between us and Jones and Graham; it will leave to the owners of the fund all the security which they ever had a right to claim; and no wrong will be done to any one." Thus they might, and undoubtedly would have reasoned, if they had followed their own interest. There is no foundation, therefore, for the argument, that the owners of the fund have done only what equity would have compelled them to do had they resorted to the original mortgage in the first instance. The company would not have asked such a decree; or at any rate, no one can undertake to affirm that they would have done it. If the owners of the fund had wished to know what the company would say on a bill filed to foreclose the original mortgage in the first instance, they should have filed such a bill, and made the company a party, and thus allowed them to answer for themselves. As that was not done, the owners of the fund can have no right now to guess what the company would have done under such circumstances, and build up a claim upon that foundation. And finally, the course which the owners of the fund have pursued, and are now pursuing, will give them more than their just rights, and will do it at the expense of the Trust Company. The sale on the foreclosure of the second mortgage took place in October, 1842. Had the first mortgage, instead of the second, been foreclosed at that time, I do not understand from any of the witnesses that the property would have brought enough to pay the debt. The assistant vice chancellor states the effect of the evidence to be, that on a sale in the fall of' 42, the lands included in the first mortgage would not have brought any more than was realized from the sale under the second mortgage. Assuming that the lands conveyed by the two mortgages would at that time have sold for equal sums of money, let us see how the case stands. The owners of the fund have got already — not the whole debt — but all that they ever had a right to claim beyond the personal obligation of the mortgagors. *Page 450 They have had their election between the two mortgages; and as it turns out, the choice was not a bad one; for they have got as much by taking the second as they would have obtained by taking the first. And further, had they elected to take the first mortgage, they would have got no more than they have got now; and they would then have had no color of title to the second mortgage. The Trust Company would in that case have had a plain equity to use that mortgage for their benefit; and thus they would have got a lien upon as much property in value, as they would have lost by the foreclosure of the first mortgage. In short, whatever election between the two mortgages the owners of the fund might have made, the Trust Company would have remained unharmed. But how is it now? After the owners of the fund had got all which they had any right to claim from their land security, and had left the Trust Company nothing more than its just rights, they filed this bill, and have obtained a decree charging the lands conveyed to the company with the payment of more than eighteen thousand dollars. I can see no just foundation for such a decree, nor for any decree, against the company. It is possible that the lands covered by the first mortgage would have brought more on a sale in the fall of '42, than was realized from the sale under the second mortgage. But it is evident from the nature of the case as detailed by the witnesses, that it is now utterly impossible to determine, with any degree of accuracy, what the lands in the first mortgage would have brought at that time. There can at the most be nothing better than mere conjecture, without any such certainty as is necessary for the basis of a judicial determination. In any view which I have been able to take of the case, we are brought to the same conclusion. I am of opinion that the decrees of the court of chancery and the supreme court should be reversed; that the bill should be dismissed; and that the Trust Company should have costs in the courts below. It is not usual to give costs in this court on the reversal of a decree. RUGGLES, J. delivered an opinion in favor of reversing the decree, concurring substantially in the views of BRONSON, J *Page 451