Gregory v. Savage

Hinman, O. J. This is a bill for the foreclosure of mortgaged premises. The petitioners are bona fide holders of a note originally secured by the mortgage in question, and the respondent Savage is the bona fide purchaser of the mortgaged property, and the state of Connecticut, which is also made a respondent, is the mortgagee of Savage. Neither of the respondents had any notice that the property was incumbered at the time of taking their conveyances, and the title appeared by the land records to be in Mandeville, from whom the respondent Savage purchased. Thus far the equities of the parties would seem to be balanced. The note, with other notes made at the same time, was executed by John R. Parker for the purchase money of the mortgaged property ; they were payable to Mandeville or order, he being the person of whom this purchase was made; and the mortgage in question was executed by Parker to him to secure their payment. Shortly after this transaction Mandeville transferred the notes with the mortgage to one Brigham, who subsequently transferred the note now held by the petitioners to them. There was no assignment by deed of any interest in the mortgaged property,' either to Brigham or the petitioners, and an examination of the land records, therefore, would have furnished no information on the subject of their being holders of the notes, or having any interest in the mortgaged property. After Mandeville had parted with the notes, Parker, in December, 1858, quitclaimed his equity of redemption to him, and in the — 259 — February following he, Mandeville, sold and conveyed the property to Savage, and Savage mortgaged it to the state. The regular record title is therefore in the respondents, and they, through the respondent Savage, as we suppose, are in possession. On this short view of the case it would seem that the well established equitable principle, that where the equities are balanced the title at law will prevail, would determine the case in the respondents’ favor. But it is claimed that the equities are not equal, because, it is said, the respondent Savage, at the time of his purchase, could have discovered by the record that the property had been mortgaged to secure certain negotiable notes which were not yet due, and might therefore be presumed to be outstanding in the hands of some one, and that it was his duty to protect himself by inquiry before he took his conveyance, and it was laches in him not to inquire. Savage it would seem did know that Mandeville had formerly sold the same property to Parker, and probably knew that Parker had mortgaged it back to secure the purchase money,'and this appeared by the record. It is clear, therefore, that the person most likely to know what had become of the notes was Mandeville, and it appears from the answer, which .is admitted to be true, that Savage did inquire of him if the premises were clear from incumbrance, and Mandeville informed him that they were, and he also informed him that Parker was unable to perform his undertaking for the payment for the premises, and that therefore he had taken back the property and released him from his obligations. In substance this was informing Savage that the notes had been given up or canceled, since in no other, mode could they be effectually released so as to prevent their transfer to a bona fide holder. Now if Mandeville meant to mislead Savage' by giving him this information in such a form as to be literally true, and yet to convey a false impression that Parker’s notes were no longer in existence, and he suppressed the fact that the notes had then been negotiated to bona .fide holders for value, it shows, we think, that any further examination of him would probably have elicited, very little additional information. If Savage was bound therefore to make reasonable inquiry as to whether — 260 — these notes were then outstanding in the hands of third persons, we should be strongly inclined to hold that he did make all the inquiry that under the circumstances ought to 'be required of him. So far as he could know, there was no one who could give him any further information on the subject, and when informed that the property was free from incumbrance, and the undertakings of Parker for the payment for it had been released, he had a right to rely upon the information as given in good faith and correct in fact. But we by no means intend to be understood as holding that he was bound to make the inquiry that it appears he did make. The record title to the property appeared to be in his grantor, Mandeville. He too was the only person at all likely to know whether there was any incumbrance that did not appear upon the record. If he would convey property that he knew was incumbered by a mortgage without disclosing the fact to his grantee, he would not probably be a very reliable person of whom to inquire whether in so doing he was committing a fraud; and such . an inquiry could hardly be required or expected to be made if the grantor was in fact incapable of such an act. We think therefore Savage was justified in relying upon the record, and upon the assurances made to him in his deed, which ought to be as reliable as any parol assurances that could be given. Besides, in disposing of this question of laches, for the purpose of discovering who has the strongest equity, we are inclined to think that the omission of Brigham and of the petitioners at the time the notes were transferred to them respectively, to take deeds of assignment of the mortgaged property, was as great laches, to say the least, as the negligence of Savage in not making inquiry. They could have protected their interests by deeds which would have placed it beyond the power of Mandeville to commit a fraud, and if they relied at all upon the mortgage security we think their only safe course was to do so. Whether the petitioners relied at all upon the mortgage does not appear,.or even that, they knew of its existence at the time the notes were assigned to them. They might have relied entirely upon the personal security of the parties to the — 261 — notes, and the attempt now to avail themselves of the mortgage may be an afterthought; and if so, their equities are obviously inferior to those of the respondents. The negotiability of the notes has been somewhat relied upon as making the petitioners’ case stronger than it would ’ otherwise be, but we think this circumstance does not vary the equities of the case. All choses in action are assignable in equity, and the assignee’s rights will be protected to such • securities, as well as to such as are negotiable at law. We think then that the respondents’ case may fairly rest upon the equitable maxim that where there is equal equity the law will prevail. This is the ground upon which courts ordinarily refuse to interfere against a bona fide purchaser, for a valuable consideration, of a legal estate, without notice of any adverse claim or incumbrance, and this maxim is, in cases of this sort, entitled to peculiar force with us under a recording system founded upon the policy of having the true state of every title to real estate appear upon our records. This policy, remarks Williams, C. J., in North v. Belden, 13 Conn., 380, “ has added greatly to the security of our land titles and has prevented much litigation which would otherwise have arisen ; and our courts have ever considered it their duty to give such a construction to our statutes as will continue this salutary protection.” The petitioners’ claim is the creature of equity. The assignment to them of the notes was in equity a transfer to them of the mortgage given to secure them. But if they had at the time taken a new mortgage to themselves directly to secure the notes, it would have been utterly useless as a security unless they had caused it to be recorded ; and is it so that a mere equitable transfer, not evidenced by any writing whatever, and of which the land records give no notice, is to have an operation which would not be given to a regularly executed deed? This court, in Orvis v. Newell, 17 Conn., 97, held that an intervening incumbrance, implied by equity, but of whicli a subsequent mortgagee had no notice, was of no validity against such mortgagee, and yet the equitable claim in that case appears to have been as strong as that of the petitioners in this. The case of The Quinebaug Bank v. French, — 262 — 17 Conn., 129, is also a strong authority in support of the views here expressed. In that ease there was an assignment under the hand and seal of the mortgagee on the back of the mortgage, deed. The express intention was therefore to uphold it as a continuing security, and there was no intention by any one that it should be given up or abandoned. And yet it was held, in consequence of a quitclaim deed executed at the same time to the mortgagor, and a warranty deed from him to the assignee, that the mortgage was discharged so far as the rights of an attaching- creditor were concerned ; and the case was distinguished from that of Baldwin v. Norton, 2 Conn., 161, which was much relied on by the respondent. “ A release deed,” says Williams, O. J.,in that case, (p. 136,) “ is the ordinary evidence in this state that,the mortgage debt is paid, or the security given up, and, when recorded, it was a declaration to all the world of that fact, and that the- public might safely deal with the mortgagor as if no mortgage had been given; and were we to hold that those who trusted to such record evidence were not safe, vain would be our registry laws, and vain would be further attempts to enforce them.” And again, it is. said in that case, that “ the court proceeds upon the simple ground that ■ the record speaks a language that can not be misunderstood, and shows beyond a doubt that so far as the record speaks the mortgage has ceased to exist.” Again, it is familiar law that a sale of real estate by a trustee to a bona fide purchaser, who has no notice of the trust, if made for a valuable consideration, will be good against the rights of the cestui 'que trust. Now after the assignment of the notes by the mortgagee, Mandeville, to Brigham, without any assignment of the mortgage title by deed, Mandeville became a trustee of this title for the benefit of. Brigham and his assignees. And ho continued to be such trustee, as between himself and the assignees of the notes, as well after he took his release deed from Parker as before. But having united in himself both this mortgage title and the outstanding equity of redemption, so as to appear to be the absolute owner in fee of the land, it is not easy to see why, upon this principle, a bona fide .purchaser from him, without any notice or knowledge of — 263 — any secret lien or mortgage in any one, should not be protected in his purchase, rather than that the estate should, be transferred to a class of assignees, who, however just may have been their claims as between themselves and their assignors, had still omitted to obtain the ordinary and usual evidence of having an interest in land, by omitting to obtain the legal title to the mortgaged premises and causing it to be spread upon the records. The advantage which the holder of the legal title obtajns against others having the same equitable interest is very well illustrated by the case of Osgood v. The Thompson Bank, 30 Conn., 27. In that case there were several notes secured by the same conveyance of the legal title to land, and these notes were subsequently assigned to different persons, with an assurance to each assignee, made at the time of each assignment, that the note assigned was so secured ; still, this court held that one of these assignees, having procured a conveyance of this legal title to himself and having no notice at the time of the other notes similarly secured, was authorized to hold the land or the avails of it as a security for the payment in full of his note, to the exclusion of the others having claims secured by the same conveyance. There is also a case in 22d Texas Rep., 464, which seems to be almost identical with the case under consideration. It is the case of Henderson v. Pilgrim, in which it was held that under their statute an assignment of a mortgage should be recorded as an agreement relating to land, and, if it was recorded, a bona fide purchaser of the mortgagor, who at the time receives a release and discharge from the mortgagee, holds clear of the mortgage notwithstanding a previous assignment of which he had no notice ; and the case is put upon the ground that the assignee of the debt and mortgage has but an equitable estate that can not be preferred to that of the releasee without notice. And why should it not be so ? The assignee of the debt, by omitting to take a conveyance of the land and ' causing it to be recorded, has put it in the power of the original parties to the mortgage, by uniting the mortgage title with the equity of redemption, to commit a fraud upon an innocent purchaser. And of the two innocent parties, one of whom must suffer, it would seem — 264 — to work the less injustice that the loss should fall upon him who by his omission to perfect his assignment has left it in the power of others to commit the fraud. It is true that in equity the union of the legal and equitable interests in the mortgagee does not always operate as a merger of the estates. But as a general rule such is the operation of this union, and it must be made to appear that the party has some beneficial interest in keeping the estates distinct in order to prevent a merger. Lockwood v. Sturdevant, 6 Conn., 374. Such being the general rule, and the cases where it has not been applied being but exceptions to it, the presumption of course is, that the general rule is applicable where no equitable circumstances which ought to prevent it are .known to exist. May not a bona fide purchaser act upon this presumption In Bassett v. Mason, 18 Conn., 131, this principle was acted upon, and controlled the decision of the case. It was there held that by' the union of the estates of the mortgagor and the mortgagee in the mortgagee, the mortgage debt was satisfied and can-celled. And it was said in that case that as a general rule such union operates as a satisfaction of the mortgage. If such is the general rule, then the presumption must be in such cases that the land was taken in satisfaction of the debt, and this presumption in the case under consideration was strengthened by the assurance of Mandeville that he had taken back the property because the former purchaser, Parker, was unable to perform his undertakings, that is, was unable to pay the notes, one of which is the one now attempted to be enforced as an incumbrance upon this property, and therefore he had released him from those undertakings and had taken back the property. Under such circumstances, to require of a purchaser that he should, before trusting to such appearances thus confirmed, look up the maker of the notes in order to inquire of him what had become of them, would be to require a degree of diligence on the part of the purchaser which we think would seldom be practiced. Had he been inquired of he could only have said that, although he had not considered it important enough to take back his notes, he had still given up his purchase, and released his equity of redemp — 265 — tion in satisfaction of the notes; and this would have brought the inquiry back to Mandeville, who, as we have seen, did inform the purchaser in substance that the notes were extinguished. If, as Judge Church remarks in Bassett v. Mason, the general rule is that the union of the mortgagor’s title with that of the mortgagee operates as a satisfaction of the debt, then, as has been already said, the presumption must be that the debt is paid or satisfied in some way. And may not a party always act safely upon a legal presumption, unless there is something in the circumstances of the particular case to raise a suspicion that in that instance the presumption was not true in fact ? There were no such suspicious circumstances in this case, and we are therefore satisfied that the petitioners’ bill ought not* to be granted ; and so we advise the superior court. In this opinion the other judges concurred.