Warner v. Blakeman

By the Court, Morgan, J. The plaintiffs are judgment creditors of Sandford Turner and Robert Turner, and the — 512 — defendant Blakeman went into possession of certain lands which he purchased of Bobert Turner, upon which the judgment was a lien, and which probably once belonged to Bobert and Sandford, although the case does not in express terms so find. It would appear from the pleadings and evidence, as'well as the findings of fact by the referee, that Blakeman, before the commencement of this suit, conveyed or contracted away the premises in question, in different parcels, to Daniel P. Price, to Bichard Brooks, and to James Bright and Andrew Wylie, who are in possession and are made parties defendants. The premises consist of what was once a valuable factory and site; but the factory was burned down, and the value of lands is estimated at the present time at only $1200. Blake-man went into possession under a warranty deed from Bobert Turner and wife, November 18,1854, expressed to be for the consideration of $2000; but he took the conveyance subject to a mortgage executed to Eben Blakeman, April 3, 1848, (by Bobert and Sandford Turner,) principal, $1200; also to a mortgage executed (by Bobert Turner) to Hiram Whedon, April 30, 1853, of $3000, covering the same premises. On the 17th February, 1854, this $3000 mortgage was formally assigned by Whedon to Blakeman, expressed to be in consideration of $1000; and on the 16th day of December, 1854, he commenced a foreclosure of it by advertisement under the statute, claiming that there was due thereon and unpaid the sum of $2626.25; and on the 17th day of March, 1855, the premises were bid in by Blakeman for $800. Notices of this foreclosure were duly served upon the plaintiffs. One object of the complaint is to set aside this sale and cancel the mortgage, on the ground that it was satisfied before foreclosure, and that the foreclosure was a fraud upon the judgment creditors of Bobert Turner. It is also claimed in the complaint that the $1200 mortgage has been paid and satisfied, and the complaint also seeks to cancel that. The — 513 — complaint also seeks to set aside the conveyances and contracts of Blakeman to the defendants Price, Brooks, and Bright and Wylie. Price purchased half an acre for $800, and received a warranty deed from Blakeman and wife, February 11, 1856. It would appear that he paid down $150, and to secure the balance executed back a mortgage for $650. How much remained unpaid at the time of the commencement of this suit does not appear. And on the 12th day of February, 1856, Blakeman conveyed to Bichard Brooks by warranty deed half an acre of the premises for the consideration of $300. It would appear that he paid Blakeman $50 down, at the time, and to secure the balance gave his mortgage to Blakeman for $250. And it is stated in the complaint that Blakeman, after the foreclosure of the $3000 mortgage, sold the residue of the premises to James Bright and Andrew Wylie, by a written contract of sale. The price is not stated, although it is stated that a portion of the consideration remains unpaid. It further appears that they went into possession under the contract of sale, and will be entitled to a deed on payment of the balance of the purchase price. These defendants all join in the answer, and attempt to sustain the statute foreclosure of the $3000 mortgage, although Bright and Wylie deny that they are entitled to a deed. (Probably they have one.) Price,’ Brooks, Bright and Wylie admit that they purchased separate parcels of said premises from Blakeman and wife, as set forth in the complaint, but aver that they made such purchase in good faith and for sufficient consideration, and that Blakeman conveyed to each of them a complete and perfect title to said premises. It is not alleged in the complaint, nor is it found by the referee, that they had notice of the facts which are relied upon to avoid the statute foreclosure of the $3000 mortgage. The referee, however, ordered judgment for the plaintiffs, directing these conveyances to be set aside, and they are adjudged and decreed to be null and void. The judgment also — 514 — sets aside the $3000 mortgage and the $1200 mortgage, and all the proceedings upon the statute foreclosure, but does not interfere with the deed from Bobert Turner to Blakeman, of November 18, 1854. Without doubt, the facts found by the referee fully justified the conclusion that, as to creditors having a lien on the premises, the $3000 mortgage was functus officio, and that its subsequent foreclosure by Blakeman was a fraud upon creditors who had intermediate liens. And as the plaintiffs have no knowledge of the facts which rendered it inoperative at the time of the statute foreclosure, they are not concluded by it, but may, at any time within six years after the discovery of the fraud, institute a suit to set aside the sale. But the necessity which they are under to come into a court of equity to set aside the sale, presupposes that the sale is valid until it is set aside. (21 How. U. S. Rep. 497, Catron, J.) There is no defect in the chain of title as it appears upon the record. But outside of.the record, it appears that the mortgage, which was foreclosed, was subject to a condition which rendered it inoperative as against judgment creditors and subsequent purchasers without notice. The parties to the mortgage cannot complain, as they consented that it might be held as security for Turner’s indebtedness to ^alternan. They would be estopped from complaining of the foreclosure, if they had assented to it, with a knowledge of all the circumstances. The referee, however, must have decided that subsequent purchasers in good faith could not claim protection under such a foreclosure, but that they stood in the shoes of Blake-man and must abide by his title; not, however, because the defect in his title was matter of record, for it was not, but because the mortgage was defunct as a security when the sale took place. In my opinion, the proposition of the learned referee cannot be sustained. There was at least an apparent authority — 515 — for the foreclosure and sale. The mortgage was kept on foot by the parties to it, so that as to them, subsequent purchasers would have acquired a good title. By the foreclosure in this case, the plaintiffs’ lien upon the equity of redemption was cut off at law so far as the record spoke; and there is no reason why this court should disturb a subsequent bona fide purchaser, because it is made to appear that the claim, secured by the mortgage, was in fact satisfied before the foreclosure. A subsequent purchaser has at least as strong a claim upon the equity of the court as the judgment creditor has by his general lien. The lien of the judgment is general and not specific, and is not even notice to a prior purchaser so as to overreach payments subsequent to the judgment. (Moyer v. Hinman, 13 N. Y. Rep. 180.) But it is notice to subsequent purchasers, and although not a specific lien, may be enforced by execution. Here, however, the judgment lien is cut off by the record; for when we look at that, we find that a foreclosure and sale, regular in form, has taken place by which the creditors are barred of all equity of redemption. Bor a regular foreclosure by advertisement, and the sale made in pursuance thereof to a bona fide purchaser, is equivalent to a sale under a decree in equity, and is an entire bar of all claim of any person having a lien by judgment subsequent to the mortgage, who shall have been served with notice of sale. (2 R. S. 546, § 8, as amended in 1844, ch. 346, § 4.) And the affidavits of such foreclosure, sale and notice, are presumptive evidence of the facts therein contained. (§ 12.) And it is further provided, that when the mortgagee or his assigns are the purchasers, these affidavits shall be evidence of the sale and foreclosure of the equity of redeption, in the same manner and with the like effect as a conveyance executed by the mortgagee upon such sale to a third person. (§ 4.) The record title in this case was therefore perfect, and in a suit at law would enable the defendants Brooks, Price, Bright and Wylie to recover the premises against all — 516 — the parties to the statute foreclosure who had been served with notice. The affidavits are a statute conveyance, (27 Barb. 503,) and when they perform that office, the jDurchaser can no more impeach them, by paroi evidence, than he could a conveyance by deed. (Bronson, Ch. J., in Arnot v. McClure, 4 Denio, 45.) But it is said the mortgagor and those claiming under him may impeach the sale. (Id. 44.)' This can only mean that the mortgagor and those claiming under him may controvert the facts stated in the affidavits of sale. But here is no contradiction of any of the facts stated in these affidavits. Blakeman, it is true, claimed that there was a certain sum due upon the mortgage. But the proof is not offered to show that he did not claim it. It goes further, and shows that such claim was fraudulent as to the plaintiffs. So the case comes to this: that the statute conveyance is sufficient in form to pass a good title as against these plaintiffs; but outside of this is a matter which, when brought to the attention of the court, renders the sale fraudulent as to the plaintiffs. What is this outside matter, more than what appears in the case of a voluntary conveyance given to defraud creditors, or a conveyance by executors in fraud of an estate. Bona fide purchasers in all such cases are entitled to protection. It is not an answer to say that Blakeman took no valid title under the mortgage foreclosure, as against the judgment creditors. His title was not absolutely void, but it must be considered good as to the mortgagor who assented to it. In Jackson v. Henry, (10 John. 185,) the power of sale in a mortgage was shown to be void, on account of usury in the original debt, (the statute declaring the usurious security utterly void,) yet it was decided that a foreclosure and sale under the statute could not be defeated in that way, to the prejudice of a bona fide purchaser. The referee probably relied upon the cases of Wood v. Colvin, (2 Hill, 566,) and Cameron v. Irwin, (5 id. 272.) In the first of these cases, Judge Bronson expressed an — 517 — opinion that a bona fide purchaser would not be protected when the sale was made upon a judgment that was satisfied. This was asserted upon the technical theory that there is no longer any power to sell, yet he admits that if there has been some fault on the part of the judgment debtor, he may be estopped afterwards from alleging the payment to defeat the title of the purchaser. In the case before him, there was no bona fide purchaser, and what is said about the rights of bona fide purchasers in certain cases does not control this court, as authority. But the case of Cameron v. Erwin is entitled to a more critical examination. It was there said, by Oowen, J., (although not necessary to the decision of the question before the court,) that payment of a mortgage extinguishes the power of sale contained in it, and if a statute foreclosure afterwards takes place, even a bona fide purchaser at the sale will acquire no title. The point actually decided was, that the assignee of the mortgage, when he became the purchaser at the sale, acquired no title. This proposition is doubtless correct, for the simple reason that the assignee is in no better position than his assignor, and must abide by his title. At least, he is liable to all the equities of the mortgagor, though it would seem that he is not to be affected by mere outside equities residing in third persons, of which he has no notice. (2 John. Ch. R. 441, 479. 2 Cowen, 246, 298. 4 Seld. 273, Johnson, J.) But it is said by Cowen, J. in Cameron v. Irwin, that payment extinguishes the power of sale, and the case becomes the same as if none had ever been inserted in the mortgage, and that the mortgage “ ceases to operate either at law or in equity, and the whole title reverts in the mortgagor.” * * * “ To call it a mortgage would be an abuse of the word. It is no more than a blank. It cannot be that a naked foreclosure by advertisement shall take away a man’s farm.” All this would be the undeniable conclusion, if the mortgagor was in a position to dispute the sale. It certainly is not true, when the — 518 — mortgagor looks on, and without objection, sees his farm sold to a bona fide purchaser under a written power of sale in a mortgage which he knows is satisfied. Nor can the mortgagor be heard to allege payment of the mortgage when he has consented to its foreclosure. If, however, the foreclosure takes place without notice to him, or without his fault, after payment of the mortgage debt, the rule would doubtless be applied as rigidly as contended for by the learned judge in Cameron v. Irwin. The statute regulating such sales has however been careful to require notice to be given to the mortgagor, and to all persons having any subsequent title to or lien upon the mortgaged premises. The object of the statute is apparent. And I think that after due notice to claimants, as required by statute, they cannot be heard to contest a regular sale, as against bona fide purchasers of the mortgaged premises. If they have any claim in equity superior to the title of the mortgage, which would invalidate the proceedings, they are in duty bound to assert it before the premises are conveyed to a bona fide purchaser. Unless we require them to speak when called upon by this notice, and assert their claims, the notice itself would be an idle ceremony, and no one would dare to bid at the sale. We must therefore hold that persons thus having notice are estopped at law from disputing the validity of the mortgage as against bona fide purchasers. And it follows that notwithstanding the mortgage has been in fact paid, the mortgagor, having due notice of the foreclosure, cannot after-wards upset the title of a bona fide purchaser at the sale, by proving payment of the mortgage debt. To allow him to do this, would be a fraud upon subsequent purchasers, who had bought the mortgaged premises upon the faith of the mortgage and the default of the mortgagor to assert his claim. It is not a good answer to say that these statutory proceedings are not in court, and that the mortgagor is not required to contest them. The notice of such proceedings, with a claim — 519 — against him for a certain amount due upon the mortgage, at least imposes upon him the duty of notifying purchasers at the sale, of his claim, or the duty of silence afterwards. If he will not speak when duty toward others requires it, he will not be permitted to speak afterwards, when his interest prompts him to it. It cannot therefore be said that the title of the purchaser is absolutely void, because the mortgage was satisfied before the foreclosure. The parties to the power of sale, after it is extinguished by payment of the mortgage, still hold it out to the world as a valid power, and consent that the mortgaged premises may be sold under it. As to them, it will be held valid by way of estoppel, as was admitted by the judge who delivered the opinion in Wood v. Colvin. (See 12 Barb. 20, 21, Willard, J.; S. C., 5 Selden, 45.) Chief Justice Spencer, in Anderson v. Roberts, (18 John. 527,) says : " Ho deed can be pronounced in a legal sense utterly void, which is valid as to some persons but may be avoided at the election of others. (And see authorities cited by him.) The decisions in 2 Selden, 147 and 449, are not opposed to this view of the case. The question then is narrowed down to one between two innocent parties, who have been defrauded by keeping the mortgage along as a valid security after it was paid. Although the plaintiffs were notified of the sale, they were ignorant of the fraud. As to them the sale was fraudulent and void; but the court will not disturb the title of a bona fide purchaser, in favor of the claim of a junior creditor to upset the sale on the ground of fraud. The defendants Brooks, Price, Bright and Wylie purchased of the fraudulent grantee under the mortgage, and the fraudulent conveyance not being absolutely void, but only voidable at the instance of the party aggrieved, they are entitled to protection as bona fide purchasers, so far as they have paid the purchase money. (14 John. 407. 10 id. 185. 18 id. 515. And see 39 Maine Rep. 467.) The plaintiffs, not having sold the premises under their — 520 — execution, but having a new lien, are not in a condition to contest the equities of the subsequent purchasers from the fraudulent grantee. If these plaintiffs had sold under their execution against the mortgagor before the subsequent conveyance from the fraudulent grantee, they might have prevailed instead of the defendants, for the reason that when two persons have equal equities, the maxim applies, qui prior est in tempore potior est injure. (18 John. 515, 532.) Although this might depend upon the priority of conveyances as recorded. (9 Paige, 132.) If the case stopped here the judgment might be modified by turning Blakeman into a trustee, and requiring him to account to these creditors for the proceeds of the sale to Price, Brooks, Bright and Wylie. (1 Paige, 147. Story’s Eq. Jur. 395, § 1265.) The next question is as to the $1200 mortgage. If that was in fact paid, then there is no difficulty in sustaining the judgment so' far as it requires its cancellation. But if it has not been paid, or even if it was satisfied by the conveyance of the mortgaged premises to Blakeman, the amount due upon it at. the time is a valid lien upon the premises as to these plaintiffs, and must be allowed to him. Whether it is regarded as a lien, or whether as a mere lien it is extinguished by his purchase of the equity of redemption of the mortgagor, the same result follows. The lien in one case, or the consideration of the purchase in the other case, to the extent of the lien, entitle him to protection against judgment creditors, who became such after the execution of the mortgage. Blakeman may doubtless be treated as a mortgagee in possession, and after retaining sufficient to pay the mortgage debt, he might be required to account to the creditors for the proceeds of the premises beyond that amount. The question then ^becomes an important one, whether the $1200 mortgage was paid by the mortgagor, .except by way of purchase of the mortgaged premises. — 521 — As to the indorsements upon this mortgage of $741 which had "been paid "before the plaintiffs’ judgment, the arrangement of February 17,1854, to cancel them and apply the payments to the purchase of a farm in Cazenovia, was inoperative as to the plaintiffs. The learned referee was doubtless right in holding that the lien of the mortgage, as to this $741, could not be revived by the agreement of the mortgagor and the mortgagee, as to third persons who held bona fide incumbrances upon the mortgaged premises. (Marvin v. Vedder, 5 Cowen, 671.) It is more difficult to see how the balance was paid. One way in which it is suggested that payment took place, was the assignment of the insurance policy as collateral security, and the receipt by Blakeman of the insurance money after the destruction of the factory by fire. By a receipt of March 1, 1854, Robert Turner certifies that all this insurance money was applied toward the purchase price of the Cazenovia farm, which Turner bought of Blakeman, and that the indorsements which Turner paid to apply on this mortgage had been diverted to the same object, “ which will leave the mortgage all clear from any indorsement, and all due to Eben Blakeman or his heirs or assigns.” If the insurance money had been actually applied prior to this time to pay the mortgage, it must be regarded as satisfied as to these creditors. This receipt would seem to refer to the transaction of February 17, 1854. In that transaction, as found by the referee, the insurance money is stated at $2138, and was actually applied as stated in the receipt. (11th finding.) The indorsements on the $1200 mortgage, amounting to $740, were also taken off from the mortgage and applied in the same way, “ leaving (says the referee) the full face of the $1200 mortgage due as by this agreement.” There is some contradiction, but more confusion, in the evidence, as to the actual application of this insurance money to pay the $1200 mortgage. It would seem that the policy was assigned to Blakeman as collateral security to pay the — 522 — mortgage, and that when the transaction of February 17, 1854, took place, the money had not been received by Blake-man. It was therefore competent for the parties to direct the application of the money, when received, to another purpose. And I am not satisfied from the evidence that there was any new arrangement after February 17, 1854, by which any portion of this insurance money was withdrawn from the purchase price of the Cazenovia farm and applied upon the mortgage. At all events, the referee does not find, as a matter of fact, that the insurance money was ever applied to pay this mortgage; and we ought not therefore to assume it upon contradictory evidence. The conclusion of the referee in his seventh finding of law is, that as the bond and mortgage was surrendered to Turner “to be used by him as his own in raising money or in securing debts, and the bond still being held by Turner, opens a door through which the intervening judgment creditors enter with a paramount lien.” The only facts found by the referee upon which this proposition is based, are that “in the fall of 1854 Blakeman der livered this $3000 mortgage to Bobert Turner, with an assignment executed by him on the back of it, with a blank left for the name of the assignee, for the purpose of enabling Turner to use it as his own in obtaining or in securing debts owing by him; and Turner endeavored to use it for that purpose, but without success; and the $1200 mortgage and the bond accompanying the same, toere at the same time delivered by Blakeman to Turner for a like purpose.” (15th finding of fact.) And “ after these mortgages were delivered and in his hands, Blakeman, in seeking to obtain a title to the premises, obtained from Bobert Turner and wife the deed before mentioned, which was executed to Blakeman on the 18th day of November, 1854, and received by Blakeman on condition that it would give him a good title,” (16th finding of factbut that after his return from the clerk’s office to get it recorded, Blakeman was reminded of the plaintiff’s judgment, “and having received a redelivery of the two — 523 — mortgages from Turner, leaving the hand given with the $1200 mortgage in his hands, procured an acknowledgment on the 27th day of November, 1854, from Whedon, of the assignment to him” of the $3000 mortgage, got it recorded and commenced a foreclosure on the latter. (17th and 18th findings of fact.) The defendants’ counsel requested the referee to find, among other things, that Robert' Turner was indebted to Blakeman at the time of the purchase of said premises, on the foreclosure, about $1570, which is now unpaid. The referee refused to find it, although he leaves us in doubt whether he would not have found it, if he had thought it important. It is therefore impossible to determine from the findings of fact that this $1200 mortgage was ever surrendered up to Turner because it was paid and satisfied. It would be consistent with the relation of the parties to each other to suppose that the object was to enable Turner to raise money on the $3000 mortgage to pay the mortgage debt and other demands which it seems Blakeman held against him at the time. It would be unnecessary to negotiate the $1200 mortgage if Turner could have obtained a loan upon the $3000 mortgage; but it would be necessary, perhaps, for him to show that the prior $1200 mortgage was not in the way. Quite likely it was to be canceled in that event. Having failed in obtaining a loan, there does not seem to be any legal obstacle in the way of his redelivering both mortgages to Blakeman. And although the referee has not found upon the question,. he might perhaps find that Blakeman took back the mortgages and concluded to take back the mortgaged premises in consideration of $2000, and that part of the consideration was this very $1200 mortgage. The bond in that case would be retained by the mortgagor; and this circumstance would be no evidence of the invalidity of the mortgage, which was retained, perhaps, to protect his title, and which he would have a right to use for that purpose to the extent of what was actually — 524 — due upon it, after deducting the $740 indorsements. (7 Paige, 509, 511. 2 Allen [Mass.] 390.) The referee finds that Blakeman himself was not informed of the agreement under which the $3000 mortgage was executed. The condition of the mortgage was to pay that sum, and the agreement that it was intended as security for advances, &o. was never put upon record. He seems to have taken it to secure $1000, and to have taken it in good faith for that purpose. He undertook to hold it as security for other moneys which Turner owed him, and to foreclose it-to protect his title. This he could not do. (3 Barb. Ch. Rep. 293.) While, therefore, subsequent bona fide purchasers at the sale must be protected against the claim of intermediate creditors, he is in the position of an assignee of the mortgage, and took nothing by his foreclosure, as to these plaintiffs, except the naked title. But he is entitled to protection so far as the consideration of the deed from Turner and wife to him was made up from the moneys due and unpaid on the $1200 mortgage. But we have not the facts before us upon which it would be safe to give a final judgment in this action. The plaintiffs are doubtless entitled to follow the subsequent conveyances to the extent of the unpaid purchase money, if they succeed in showing that the $1200 mortgage is satisfied ; or to a portion of it, if they succeed in reducing the $1200 mortgage below the value of the premises. If I am right in these views, it follows that the judgment must be reversed, and the cause sent back to the referee for further examination. It will be necessary for the referee to ascertain whether or not the $1200 was in fact paid or satisfied before the purchase of the mortgaged premises by Blake-man, and if not, how much remained due and unpaid at that time. He must also ascertain and determine what amount remained due and unpaid by the defendants Price, Brooks, Bright and Wylie, respectively, on their several purchases from Blakeman, at the time of the commencement of this action; provided it shall appear, as we have assumed, that they pur — 525 — chased in good faith, and without knowledge or notice of the facts which rendered the foreclosure of the $3000 mortgage fraudulent as to these plaintiffs. And the plaintiffs will be entitled to a judgment declaring the foreclosure of the $3000 mortgage by Blakeman fraudulent as to them, and requiring Blakeman to account for the proceeds of the mortgaged premises and to assign to a receiver to be appointed, any securities which he may have for the unpaid purchase moneys growing out of the subsequent sales by him of the mortgaged premises. And the subsequent purchasers must account to the receiver for all moneys which were unpaid at the time of the commencement of this suit. [Oneida General Term, January 7, 1862. Allen, MulUn, Morgan and Sacón, Justices.] And after deducting the amount, if any, which shall be found due and unpaid to Blakeman upon the $1200 mortgage, the balance only can be recovered by the plaintiffs, to apply upon these judgments. But if these plaintiffs are satisfied with a judgment requiring Blakeman to account for the proceeds of the sales of the mortgaged premises, judgment might be entered accordingly, and then he must be required to pay over to the receiver the gross avails of such sales, less the amount which may be found due upon the $1200 mortgage. The defendant Blake-man may perhaps be charged with costs; although this is not a matter of course, unless the referee is satisfied, upon the evidence, that he knew that the $3000 mortgage was satisfied when he foreclosed it. If he knowingly undertook to use it to perpetrate a fraud upon these creditors, he ought to bear the expense of the litigation. Ho costs should be charged to the other defendants, as the case now appears. The costs of this appeal should abide the event. Bacon, J. concurred. Mullin, J. dissented. Judgment reversed, and new trial granted,