Bacon v. Van Schoonhoven

Learned, P. J.: A mortgagee may discharge the land from the lien of the mortgage by executing a quit claim deed to the mortgagor. That is the usual course, when a part only of the land is to be released. Let us suppose then that Owens, under circumstances similar to those stated in this case, had executed, to Gxadus D. Smith, a release of a part of the land, which release was recorded; and that, thereupon, Van Schoonhoven had lent Smith money, and had taken and recorded a mortgage, in good faith, on the land so released. Van Schoonhoven would have been a “purchaser,” under the recording act, because he would have been a person to whom an interest in real estate would have been conveyed for a [161] valuable consideration. (1 R. S., 762, § 37.) The assignments of the mortgage from Owens to William C. Smith, and from William C. Smith to the plaintiff, were “ conveyances,” under the recording act, because they were instruments by which an interest in real estate was aliened, or by which the title to real estate was affected. (§ 38.) These conveyances were not recorded until February 9, 1877. While, in the supposed case, Van Schoonhoven’s mortgage wordd have been recorded February 9, 1876. Van Schoonhoven, therefore, would have been a subsequent purchaser of the land, whose conveyance would have been first duly recorded. And the assignments of the Owens mortgage would have been void as to him. (1 R. S., 756, § 1.) In the present case, however, instead of executing a quit claim of the whole, or a part, of the mortgaged premises, the mortgagee executed to the mortgagor a “ satisfaction piece ” of the mortgage. (1 R. S., 761, §§ 28, 29.) This is a simple mode of reconveying, or releasing, the land from the lien of the mortgage. It is a “conveyance” under the recording act; for by it an interest in real estate is aliened, and the title to real estate is affected in law and in equity. (§ 38, ut supra.) It operates to transfer back to the mortgagor the mortgage interest held by the mortgagee. And, therefore, the “ satisfaction piece ” must be treated like a quit claim or release to the mortgagor. Then we have, in the present case, a conveyance from Owens to Gradus D. Smith, of an interest in real estate ; a subsequent conveyance, by Gradus D. Smith to Van Schoonhoven, of an interest in the same real estate for a valuable consideration. And Van Schoonhoven is a purchaser in good faith, and records his conveyance at once, February 9, 1876. We have the further fact that Owens had, however, previously conveyed his interest in the real estate to William C. Smith, who had also previously conveyed to the plaintiff. - But neither of these conveyances had been recorded when Van Schoonhoven recorded his. As to him, therefore, they were void. (Vanderkemp v. Shelton, 11 Paige, 28; Belden v. Meeker, 2 Lans., 470; S. C., 47 N. Y., 307.) Unless this view is correct, it is impossible that a mortgage should ever be discharged of record, so that a person could safely deal with the original mortgagor. If a satisfaction, executed by [162] the mortgagee, who, so far as the record shows, is still the holder of the mortgage, does not relieve the land from the lien, as regards 'subsequent bona fide purchasers for value, how can the land ever be relieved from the apparent lien ? . The mortgage may even be in fact paid, but it will be impossible to put on the record any evidence of this fact, on which a purchaser can rely, ilq can never be certain that the person who executed the satisfaction had not previously assigned the mortgage. But again, suppose Gradus Smith had executed, not a mortgage, but a deed to Owens ; and Owens had conveyed to William C. Smith, and William C. Smith to the plaintiff; and that these last two conveyances had not been recorded. Then if Owens had conveyed back to Gradus Smith, and Gradus Smith had mortgaged to Van Schoonhoven, in good faith, and for a valuable consideration ; and Van Schoonhoven had recorded his mortgage, is there any doubt that it would have had priority over the unrecorded titles of the plaintiff ? And where is the essential difference in the cases ? The plaintiff insists, however, on another point. Van Schoonhoven, when about to make the loan, examined the records and found the mortgage to Owens. He told Gradus Smith that he would not loan him the money, unless the Owens mortgage were .satisfied. Gradus Smith procured the satisfaction piece, and delivered it, with his bond and mortgage, to Van Schoonhoven ; .and Van Schoonhoven had both satisfaction piece and mortgage recorded together. The plaintiff, therefore, insists that, when Van Schoonhoven took his mortgage, the Owens mortgage was not, in fact, canceled of record. But there is no doubt that Van Schoonhoven was a purchaser in good faith. Ho believed that the Owens mortgage was paid, having agreed to loan, only on condition that the Owens mortgage was paid. And then, receiving satisfactory evidence that it had been paid, before he parted with his money, he was a purchaser in good faith and for a valuable consideration under section 1, above cited. For he had in his possession what was, in effect, a reconveyance to Gradus Smith from the only person who, on the record, had the incumbrance. Being, therefore, such a purchaser, and having recorded his conveyance, he is protected against the unrecorded convey [163] anees from Owens to William C. Smith, and from William C. Smith to the plaintiff. (§ 1, ut supra.) On principles of equity Van Schoonhoven should be protected. He did everything in his power to ascertain whether, or not, the mortgage was paid. While, on the contrary, the neglect of the plaintiff to record the two assignments was that which enabled Owens to give the satisfaction piece, and thus to defraud Van Schoonhoven ; if his mortgage is to be postponed to hers. The plaintiff objects that the bond and mortgage was not produced to Van Schoonhoven. There was no reason for their production. A bond and mortgage, which have been paid, need not be returned to the mortgagor. They are of no value. And Van Schoonhoven had reason to believe that these were paid. There is a further complication arising from the Carpenter mort.gage, executed and recorded after the Owens mortgage, and before that of Van Schoonhoven, known by Van Schoonhoven to be a lien, and since purchased by him. In the view above taken, the Owens mortgage .is prior to the Carpenter mortgage; the Carpenter mortgage is prior to the Van Schoonhoven mortgage ; and the Van Schoonhoven mortgage is prior to the Owens mortgage. The equitable rule, in such a case, is this. From the avails of the sale there must be set apart the amount of the Owens mort.gage. That amount, or so much thereof as may be necessary therefor, is to be applied on the Van Schoonhoven mortgage, and the balance thereof, if any, on the Owens mortgage. The residue of the avails, after thus setting apart the amount of the Owens mortgage, is to be applied, first on the Carpenter mortgage, and next on the balance remaining on the Van Schoonhoven mortgage; .and, lastly, the surplus is to' be applied on the Owens mortgage. In the present case this rule is equivalent to paying the Carpenter and the Van Schoonhoven mortgages before that of Owens. If, however, the Owens mortgage had been larger than the Van Schoonhoven mortgage, the importance of those special provisions would have appeared, j Van Schoonhoven would be entitled to his costs of the action, and of this appeal, to be paid first after the referee’s fees and expenses. The plaintiff would be entitled to her costs of the action, not of the [164] appeal, to be paid after the payment of the Carpenter and Van Schoonhoven mortgages. This appeal is from the decision, without the making of any ease. ^ We should be disposed to modify the judgment in accordance with these views, without granting a new trial, if it were not for one fact. The mortgage of Van Schoonhoven covers other property .J The plaintiff may 'perhaps have a right to insist that this other property shall be first applied to the payment of the Van Schoonhoven mortgage ; or may even have a right of subrogation against such other property, since, in our view of the case,, the plaintiff, as to the Van Schoonhoven mortgage, is a subsequent incumbrancer on one parcel of land, while he has a lien on the other land also. ;~What equities there may be in respect to that other land, who is the owner and the like, we cannot here determine. 'ft,. And, therefore, we think that there should be a new trial, and that the costs of the appeal should abide the final judgment of the court. ' Present — Learned, P. J., and Boardman, J. Bocees, J., taking no part. Judgment reversed, new trial granted*, costs of appeal to abide final judgment of court.