D'Oyly v. Capp

Paterson, J. March 1, 1890, the defendants, J. B. and A. B. Capp, were indebted to the plaintiff in the sum of eleven thousand dollars, and on that day executed and delivered to him their promissory note for the sum of two thousand five hundred dollars, secured by a mortgage on certain real property. The mortgage provided that it should stand as security for the payment of said two thousand five hundred dollars, and “of such additional sums as may be loaned by said mortgagee to said mortgagor before the discharge hereof and the interest thereon; each additional loan to be evidenced by the promissory note of said mortgagor.” On March 10, 1890, the Capps gave another note to the plaintiff for five thousand dollars, which recited that it was given to evidence advances made in accordance with the’mortgage, and on the same day executed and delivered another note for the balance of the eleven thousand dollars they were owing plaintiff (three thousand five hundred dollars), which contains the same recital. All of these notes came due on March 1, 1891. On December 21, 1891, the defendant Houghton filed in the recorder’s office of Santa Clara County, where the mortgaged property is situated, a transcript of a deficiency judgment on foreclosure, docketed in the superior court of Monterey Comity on that day. Appellant Houghton contends that his judgment is supe [156] rior to the lien of the mortgage for the payment of the five-thousand-dollar and three-thousand-five-huudred-dollar notes. His claim is, as we understand it, that as neither the five-thousand-dollar nor the three-thousand-five-hundred-dollar note represented an additional sum, advanced by the mortgagee to the mortgagor after the execution of the mortgage, they can-hot be included in the amount for which the mortgage was given as security. We do not think there is any merit in the contention. The mortgage, it is true, ought to have stated the true consideration for which it was given; “but the omission to disclose the real transaction on the face of the mortgage will not make it invalid, unless some one has been prejudiced by the misrepresentation.” (Collins v. Carlile, 13 Ill. 259.) Where the mortgage is given in good faith to secure a present indebtedness and future advance, whether the true object be stated in the mortgage or not, it is valid as between the parties and as against any subsequent lienholder not prejudiced by the misstatement. (Hendrix v. Gore, 8 Or. 408.) In Bell v. Fleming, 12 N. J. Eq. 16, the court said: “It was insisted as an objection to its validity that this mortgage was false on its face; that while it purports to be a security for a debt of one hundred thousand dollars actually due, the debt really existing was but little over one third of that amount. In Shirras v. Caig it was part of the argument of counsel that the mortgage untruly recited the whole transaction, and that the mortgage was made only to cover future contingent responsibilities. Chief Justice Marshall in his opinion says: ‘It is true the real transaction does not appear on the face of the mortgage. The deed purports to secure a debt of thirty thousand pounds, six shillings sterling, due to all the mortgagees. It was really intended to secure different sums due at the time from particular mortgagees, advances afterwards to be made, and liabilities to be incurred to an uncertain amount. It is not to be denied that a deed which misrepresents the transaction it recites, and the consideration on which it is executed, is liable to suspicion. It must sustain a rigorous examination. It is certainly always advisable fairly and plainly to state the truth; but if upon investigation the real transaction shall appear fair, though somewhat [157] variant from that which is described, it would seem to be unjust and unprecedented to deprive the person claiming under the deed of his real equitable rights, unless it be in favor of a person who has been in fact injured and deceived by the misrepresentations/ .... The encumbrance can never stand for a larger amount than the record calls for.....If the transaction is a fair one, there can be no objection to state it as it really exists.....The bona fides of the transaction is apparent from the manner and promptness with which the advances were made. There is no one before the court who makes any complaint that he has been misled or been placed in a worse position in consequence of the character of the mortgage.” The mortgage must always give the requisite information so that a junior creditor may by inspection of the record, and by the exercise of common prudence and ordinary diligence, ascertain with certainty the extent of the encumbrance. When this is done, although the instrument may not truthfully state its object on its face, if the transaction is otherwise fair, there is nothing inequitable in enforcing it. (Bank v. Finch, 3 Barb. Ch. 303; 49 Am. Dec. 175; Craig v. Tappin, 2 Sand. Ch. 78; Hall v. Crouse, 13 Hun, 560.) For the reasons given, the variance between the allegations and the proof is immaterial. The judgment is affirmed. Harrison, J., and Garoutte J.. concurred.