McIlvain v. Mutual Assurance Co.

Mr. Justice Sterrett delivered the opinion of the court, March 1st 1880. Palmer, the assignor of the plaintiff in error, with actual as well as constructive notice of the mortgage previously given by Power to the Pennsylvania Company, contracted to erect a building on one of the mortgaged lots, and proceeded immediately to fulfil his contract. When the building was up and in process of completion, the mortgage was assigned to the, defendant in error, who three days thereafter recorded the assignment, and released from the [34] lien of the mortgage a lot thirty feet front, adjoining the one on which the new building was erected. This was done without any notice or knowledge of Palmer’s contract or lien thereunder other than what might be inferred from a knowledge of the fact that the work of completing the building was then progressing. It was alleged by Palmer that about three months thereafter on being informed of the release, he gave notice of his lien on the corner lot, and warned the Mutual Assurance Co. not to release any part of the premises. This was denied by the company, but the verdict establishes the fact that the notice was given. Afterwards, in April 1876, the company released another lot, forty, feet front, adjoining the one first released. Palmer completed the building, filed his lien, and under proceedings thereon purchased the property at sheriff’s sale, and as terre-tenant defended against the scire facias in this case. The principal question is, whether the occupation of the lot by Palmer as contractor for erection of the building, coupled with the fact that he was actually at work completing the same when the mortgage was assigned and the first lot released, was such notice to the company of his lien as gave him an equitable right to insist on a reduction of the mortgage-debt proportionate to the value of the lot so released. The court held that these facts were not notice, and did not impose on the company the duty of inquiring as to the existence of a lien in favor of the contractor. In this there was no error. While such facts would be sufficient to put a purchaser on inquiry, they impose no such duty on a mortgagee. The maxim caveat emptor applies to the former, but not to the latter. The purchaser must satisfy himself that the vendor is seised in his own right of the interest he proposes to convey, for while the legal title may be in him, there may be an equity in another affecting it in his hands. Actual knowledge of its existence is not necessary to charge a purchaser with an outstanding equity. It is enough if he is cognisant of such facts and circumstances, indicating an equity in another, as would prompt a prudent man to inquiry; and if inquiry thus becomes a duty and its performance be neglected, he is properly held to have known such facts as it would have brought to light. But the owner of a mortgage or other real estate security, in assigning or releasing the same, is dealing with his own property, and has a right to do as he pleases, provided he does not violate the maxim, sic wtere tuo ut alieno non Icedas. A mortgagee, for example, may at the request of the mortgagor release part or the whole of the mortgaged premises without inquiring whether a junior encumbrance has intervened. It is the duty of the latter, if he intends to claim an equity through the prior encumbrance, to give the holder notice, so that he may act with his own understandingly; and if he fails to do so the consequences of his neglect must be visited on [35] himself. "While the law makes it the duty of every man to so deal with his own as not to injure another unnecessarily, it imposes on the latter a greater obligation to take care of his own property than it does on a stranger to take care of it for him. To hol'd otherwise, would compel the senior encumbrancer to do for the holder of the junior security what in equity and good conscience he ought to do for himself. The doctrine is one of equity jurisprudence, and not of positive law, and hence to affect the conscience of the former lie should have actual and not merely constructive notice of the equity claimed by the latter: Taylor’s Exr’s v. Maris, 5 Rawle 51; James v. Brown et al., 11 Mich. Rep. 25; Ward’s Exr’s v. Hague, 25 N. J. Eq. 379; and Cheesebrough v. Millard, 1 Johns. Ch. 409. The case first cited decides that the owner of a judgment-lien on lands, a portion of which is covered by a subsequent mortgage, does not, by releasing part of the land, impair his right to be paid out of the remainder, including the portion embraced in the mortgage, unless, prior to the release, the mortgagee has distinctly notified him of his mortgage, and cautioned him against doing any act by which his security might be impaired ; and that the record of the mortgage is not such notice. In that case, Mr. Justice Sergeant said: “It was the duty of the defendant, if she meant to gain an equity, to notify the plaintiff distinctly of her position, and caution him not to do an act by which her security might be diminished.” The same general doctrine is ably maintained in Ward v. Hague, supra, in which it was held that the mere fact of the building being in progress, and so known to the holder of a prior mortgage when he released part of tile promises, was insufficient to entitle the holder of a building-lion to demand a reduction of the mortgage security. The chancellor, in his opinion said : “ Whether the lien claimant in such a case as this would be entitled to the equity hero set up must depend on something more than the mere fact that when the release was made the building was in progress and the releasing creditor know it.” The ground of the equity referred to is so familiar that it is unnecessary to do more than refer to the cases above cited. It is contended that the company, by releasing the lot contemporaneously with the recording of the assignment, deprived Palmer of the opportunity of giving any other notice than that afforded by the occupancy and unfinished condition of the building. In the absence of actual notice the mortgagee was not bound, as we have seen, to wait and inquire whether there was a junior lien that might be prejudiced by the release. When Palmer contracted to put up the building he had actual as well as constructive notice of the mortgage, and if he intended to affect the mortgagee with an equity in favor of himself it was his duty to notify him not to [36] release. If he had done so the equity thus asserted might perhaps have followed the mortgage in the hands of the assignee. But, while Palmer acquired no equity by reason of the release of the first lot, the jury has found that it was otherwise as to the second lot; that the assignee of the mortgage had notice of his lien on the corner lot, and was warned not to release to his prejudice. It is contended, in view of the facts so found, that the mortgage-debt should be reduced in the proportion of the value of the forty feet front released to that of the seventy feet then bound by the mortgage, and not to that of the one hundred feet front originally bound thereby ; and that an erroneous basis .of calculation was sanctioned by the court. The first lot, as we have seen, was released without previous notice of Palmer’s lien. This left the remaining seventy feet front bound by the mortgage, and thus the matter stood when notice •not to release was given by him. So far as the mortgage security was then concerned it was precisely the same, in effect, as if it had been originally taken on the seventy instead of one hundred feet front. The assignee of the mortgage, in disregard of the notice, released forty feet or four-sevenths of the land covered by the mortgage. Assuming the land to be of uniform value per foot front, Palmer acquired an equity to claim a reduction of four-sevenths instead of four-tenths of the mortgage-debt. There appears to be no error except in the basis of calculation submitted to the jury, and the fifth assignment alone is sustained. Judgment reversed and a venire facias de novo awarded.