Johnson v. Valido Marble Co.

The opinion of tlie court was delivered by MUNSON, J. The complainant’s interest in the premises sought to be foreclosed was derived from one Adams, who held a first mortgage of the property, and obtained a decree thereon, which became absolute. The suit is defended on behalf of the holders of bonds secured by a mortgage subsequent to that of Adams. No question is made but that the complainant obtained by her deed from Adams’ grantee security to the amount of the Adams decree. The claim is that as to the bondholders this demand was satisfied by the payment of insurance money. — 348 — The agreement in the second mortgage to keep the buildings insured for the benefit of the trustees, gave them an equitable lien upon the insurance money as against the Yalido Marble Company. But the complainant would not be affected by the lien thus established unless she knew, or should have known, of the stipulation. The master finds that the complainant had no actual knowledge of the second mortgage nor of the stipulation contained in itj and it is contended in her behalf that the matters that came to her knowledge were not sufficient to charge her with the duty of inquiry. The mortgage to the trustees was duly recorded ; but it is well settled that the record of a subsequent mortgage does not charge a prior mortgagee with knowledge of it. The law does not throw upon a mortgagee the duty of examining the records from time to time to ascertain whether an other has taken security upon the land covered by his mortgage. If the second mortgagee wishes to insure the retention of all the security for the satisfaction of the prior incumbrance, he must bring the knowledge of the second mortgage home to the holder of the first. 1 Jones Mortg. s. 562. But the defendants insist that the complainant’s knowledge of the fact that there were bonds in existence was sufficient to put her upon inquiry, and thus charge her with a knowledge of the mortgage and its contents. The bonds may have contained recitals the knowledge of which would have thus charged the complainant; but we think that information limited to the fact of their existence did not cast upon her the duty of inquiry. Notice of an incumbrance puts one upon inquiry as to the particulars of the indebtedness, but knowledge of the existence of a debt does not put one upon inquiry to ascertain whether it is secured. It is further insisted that the husband of the complainant so far acted as her agent that his knowledge of the equitable lien arising from the stipulation in the second mortgage must be im — 349 — puted to her. The master finds that the husband was 'the agent of the complainant only in such transactions as he was specially authorized to attend to. All the arrangements with Adams, including the provisions for the complainant’s security, were made through one Maynard; but the master further reports that in making the arrangements by which the security of the complainant might be perfected, the complainant’s husband acted as her agent. It is evident from the other findings that tins can refer only to the procurement of the necessary papers. ’ Was the husband’s agency in that matter such as to charge the complainant with his knowledge of the existence of the second mortgage and the insurance clause contained it it? We think not. The existence of that provision in no way touched the completeness of the complainant’s security. No events had yet transpired to make the provision of any importance to her. There was then nothing in existence upon which the lien could attach. We think it cannot be held that it was the duty of the husband, in rendering this service at this time, to call to mind and inform his wife of that provision. The husband is also found to have acted for the complainant in settling with the insurance companies ; but he is found to have acted for the corporation and not for the complainant in the subsequent transactions concerning the money received. We do not think the agency as thus limited by the findings was such as will charge the complainant with her husband’s knowledge. The adjustment of the insurance was a matter that was to be attended to in any event, whether the money was to be held by the complainant in satisfaction of her mortgage, or be suffered to pass into the hands of the mortgagor. The equitable lien had no bearing upon the complainant’s right to make the collection, and therefore it was not the duty of her agent in the matter of the collection to inform her of it. This being the complainant’s situation as regards the equitable lien of the defendants, she could waive her right to retain — 350 — the insurance money without losing her security, unless she was precluded from doing so by the agreement entered into at Albany. The defendants insist that the complainant is bound by that agreement, and that its provisions were such that she could not suffer the insurance money to go into the hands of the corporation without giving priority to the defendants’ security. Among the participants in the Albany meeting were the defendants Reynolds, holders of a large amount of the bonds, and Johnson, the complainant’s husband. It is not necessary to construe the terms of the memorandum then executed, nor consider the effect upon it of the failure of the defendant John B. Reynolds, to discontinue his suits; for the master finds that Johnson had no authority to represent the complainant at that meeting nor in the matters then adjusted, that she had no knowledge of the meeting until sometime after it was held, and was not then informed that it affected her interests. Certainly, if the memorandum itself had been submitted to her inspection, it would not have suggested to her the existence of any equitable lien upon the insurance money. Everything contained in it would have been explained by the fact that the payment of the insurance had been delayed by trustee suits in favor of John B. Reynolds. It is further suggested in behalf of the defendants that the receipt and indorsement of the insurance checks by the complainant, and their deposit to her credit in the ordinary course, operated as a payment of the debt secured, and that in subsequently transferring the money to the corporation by her checks she made a new loan which stands unsecured, or at least subordinate to the defendants’ mortgage. But before this was done the complainant, acting for herself, had agreed with her husband, acting for the corporation and by authority expressly given, that the insurance money should be taken by the conxpany for use in the erection of new buildings ; and what was done must be considered in connection with this fact. The insurance was payable — 351 — to tlie complainant and the checks for it would, in the regular course of business, be made payable to her order, and her endorsement would thus become necessary to enable the company to receive the money. This would not operate as a payment of the complainant’s mortgage in the. absence of any intention on the part of the parties to the- mortgage that it should so operate; certainly not in the face of their actual agreement to the contrary. The deposit to the complainant’s credit of the checks so endorsed, and the subsequent transfer of the funds to the company by checks signed by her in blank, were without her knowledge ; and inasmuch as the entire proceeding by wdiieh she was put in the position of collecting the checks and afterwards transferring the avails to the company was without her authority, we do not see that the case stands differently from what it would if the checks had been deposited to the credit of the company when she delivered them properly endorsed to its agent. Our attention has thus far been directed to that part of the complainant’s demand which represents the Adams decree. It is now necessary to consider the situation of that portion of her claim which had its origin outside of the decree. The three thousand dollars advanced towards the payment of the execution was afterwards repaid from the insurance money ; and under the views above stated as to the complainant’s relation to the equitable lien of the defendants, it is unnecessary to consider the status of this amount in regard to security and priority. But the ten thousand dollars subsequently advanced, for which the complainant seeks to sustain her lien, embraced a sum in excess of the amount of the Adams decree, and as to this sum further examination is necessary. The execution was a lien superior to the defendants’ security. It was paid before levy because of the arrangements entered into by the complainant with the Valido Marble Company and with Adams. It was understood that the complainant should — 352 — advance money sufficient to. redeem the property from both liens, and hold the property as security for the entire disbursement. The two liens amounted to more than the sums advanced. The mortgage indebtedness was not paid until after the decree of foreclosure had become absolute. The defendants, having taken their conveyance while the proceedings were pending, were bound by the decree. 2 Jones Mortg. s. 1411. Kopper v. Dyer, 59 Vt. 477, 489. But for the complainant’s understanding with Adams, the defendants would thus have lost all hold upon the property. No other right can have been left them than a right to compel the complainant to carry out her arrangement with Adams and the company, and recover the title. But she could not be compelled to carry out the arrangement without having the full benefit for which she had stipulated — security for both the sums advanced. She completed the payment to Adams as agreed, and obtained the title thereby, and afterwards conveyed the property to the company, conditioned upon the payment of the sums advanced. The defendants must now stand upon this conveyance; but they cannot stand upon it without recognizing the complainant’s right to a repayment of the sums advanced for the satisfaction of prior securities under the agreement by which she procured the title. The complainant is entitled to a decree in accordance with the foregoing views, unless the findings of the master are vitiated by the consideration of improper evidence received against objection. The testimony of the complainant’s husband was received as to transactions in which he was not her agent; and if objection was made upon that ground its admission was improper. It is insisted that the first objection noted to the husband’s testimony was an objection of this character. We think it cannot upon any fair construction be so held. The complainant claimed to have dealt with the witness as the general manager of the Yalido Marble Company, and the objection was evidently directed — 353 — against any proof of liis acts in behalf of the company without proof of his authority. The probability that an objection to the husband’s competency would be mad.e' is perhaps the strongest argument in favor of the claim that this was intended to be such. But the defendants, for obvious reasons, wished to stand, and were standing, upon the ground that the complainant’s husband was her agent in all matters; and the course of the-objections as set forth in the exceptions reported fairly indicate that counsel proposed to assume that the fact of his general agency was already established by an expression to that effect in the complainant’s own testimony. This affords an explanation of what might otherwise be considered an incomprehensible oversight on the part of counsel. Johnson’s testimony that the money drawn from the bank was used for the benefit of the company was properly received. A check may be, the best evidence of its contents; but the expenditure of its avails may be shown without producing or accounting for it. The question here was not, to whgm was the check made payable, but for whom was the money expended. The check might have been payable to Johnson personally, and yet the funds have been used for the company. Johnson was the treasurer and general manager of the company, but the defendants claimed that in receiving the insurance checks from his wife he was acting as her agent. It was therefore proper for the complainant to meet this claim with the testimony of Johnson that he received the checks as the treasurer and agent of the company. Defendants’ counsel cite Farmers etc. Bank v. Champlain Transportation Co. 23 Vt. 206, in support of their objection to this evidence. But the two eases are not alike. There it was sought to charge the person to whom the package was delivered with having received it in a certain capacity, by evidence of the mental purpose of the person who deliv — 354 — ered it, in no way expressed or made known to the other. Here the person receiving the checks testified to the capacity in which he received them; and there being evidence of a previous arrangement for the delivery of -the checks for a certain purpose, his testimony was no more than that he received the checks in accordance with that arrangement. Decree reversed and cause remanded with mandate.