Syracuse Savings Bank v. Merrick

Stover, J.: This appeal involves the construction of the acts with reference to the recording of conveyances of real estate in order to determine the priority of liens, the action being one for the foreclosure of a mortgage. On August 2,1895, George B. Warner was the owner of the bond ■and mortgage in question, and on that day assigned the same to one Tolman as collateral security for a note made by himself and .another. The assignment to Tolman was recorded on November 12, 1902. On the 16th day of May, 1900, Warner execúted a •second assignment of tlie same bond and mortgage to the defendant Salt Springs National Bank, to secure the sum of $1,000 which was duly recorded on May 20, 1901. The mortgage was delivered to the bank at the time of the assignment, but the bond was not delivered. The transaction by which the transfer was made [583] involved the transfer of a number of other securities, some twenty-six in number, and upon their delivery to. the defendant bank the attorney discovered that the bond in question and one or two others were not in the package delivered. The attention of Warner was called to the fact, and Warner answered that they were at his office and he would furnish them. Warner also made a statement to the bank at the time of the assignment that, he was the then owner of the bond and mortgage, and had been for some time past, and other statements as to their validity, freedom from usury, etc., the statement reciting that the representations contained were made for the purpose of having the bank discount the note and accept the assignment. The trial court found that the bank was a purchaser in good faith and for value of the mortgage, and adjudged that the assignment to the Salt Springs National Bank was entitled to priority over the assignment of the bond and mortgage to Tolman, and that the interest of said bank to any surplus arising from the sale was prior and paramount to that of Tolman. It is urgued on behalf of the appellants that the Recording Act (1 R. S. 756, § 1, revised by Real Prop. Law [Laws of 1896, chap. 547], § 241) does not apply, inasmuch as the non-production of the bond was notice to the bank of the rights of Tolman, and that the inquiries made by the bank were not sufficient to relieve it from the presumption of notice. The case of Kellogg v. Smith (26 N. Y. 18) is relied upon as an authority for the proposition that a party receiving an assignment is -bound to have the bond produced, or take the assignment at his own risk. The case of Kellogg v. Smith (supra) cannot be taken as authority for the broad proposition. In that case the mortgage contained a covenant that it should not be assigned without the consent of, or notice to, the mortgagor. It was assigned without such consent or notice, and subsequently the mortgagee again assigned to a person who learned by inquiry that the mortgagor had not received notice of the previous transfer. The second assignment was recorded, the first was not; and it was held that the first assignee obtained title to the securities. Neither the bond nor mortgage was delivered to the second assignee. In the discussion of Bacon v. Van Schoonhoven (87 N. Y. at p. 451) the cases of Brown v. Blydenburgh (7 id. 141) and Kellogg v [584] Smith (supra) are discussed, and the court there states that the hold* ing in these cases is, that the fact that the mortgagee does not produce the bond is a circumstance which should put the mortgagor upon inquiry. It is said in Campbell v. Vedder (3 Keyes, 174) that a “ subsequent purchaser, in good faith,” in the recording act, as to the case then under discussion, being a case arising upon failure of an assignee to record his assignment of a mortgage, “ means a purchaser of the mortgage assigned, not a purchaser of the premises.” And so we come to the proposition that a subsequent purchaser, in good faith and for value, may rely upon the record as to the title of his assignor. Following the contention of the appellants further, that the facts in this case do not show a purchaser in good faith, we are inclined to adopt the finding of the trial court in that particular. Good faith becomes a question of fact where usual care is exercised in transactions. In this case the facts are undisputed* substantially, that the respondent bank made inquiry as to the bond, obtained a full statement with reference to its ownership, and relied upon the apparent record title to the mortgage. It would be idle to say that the statute protects assignees in goqd faith of mortgages, if, in addition to the record title and good faith, it is still required that the bond should be actually produced upon a transfer, for then the protection depends upon the production of the bond, and not upon either the record or good faith; and the record of title to a mortgage would not be such protection as the statute clearly intended to extend to subsequent purchasers. We cannot say that the trial court has drawn a wrong inference as to good faith from the testimony in this action and, it not clearly appearing that this finding is erroneous, we do not feel called upon to challenge it. There can be no question as to the proposition for which the appellants strongly contend, -that the bond is the evidence of the debt, and that the mortgage is security as an incident thereto. Upon legal principle, and in the absence of statutory regulation, the assignment of the mortgage without the bond would convey nothing to a purchaser. But the title may be transferred by assignment, and equities may have to be dealt with in a variety of forms. If necessary to adjust equities that may arise the security may be separated from the debt, and such disposition made of each as shall subserve the equities of the case. The power of the Legislature by [585] the recording act to separate the mortgage interest in the land and transfer it to a subsequent assignee as a distinct thing from the mortgage debt, as evidenced by the bond or other instrument, in the hands of the first assignee, to be enforced as he may be able to enforce it without the mortgage security, is unquestionable. The Legislature has undertaken to regulate transfers of interests in real estate, and has provided that a mortgage, although it may have no validity without an accompanying debt, shall be recorded in order to protect its owner against intervening equities, and that the assignment of this mortgage, if its owner desires to be protected, shall be put of record so that people exercising ordinary care and acting in good faith may be able to deal upon the strength of the record, as the owner of the security sees fit to leave it or make it; and this protection goes not only to the equities that may intervene with reference to the estate or title to the land itself, but attaches to the assignment or transfer which may be and is in some instances a mere chattel interest. We think the judgment of the trial court was warranted, and the judgment should be affirmed. All concurred, except McLennan, P. J., who dissented.