Deuster v. McCamus

By the Court, Paine, J. We may say at the outset of this case, that we do not think any equitable rights which might be claimed by Houghton & Co., growing out of their mortgage on a portion of the lands in controversy, can be set up by this plaintiff to defeat any equitable rights which the defendant would otherwise have. Houghton & Co. are not parties to this suit, and their equities cannot be adjusted here. It cannot be assumed, in their absence, that they will ever have occasion to assert the equities which the plaintiff here seeks to set up for them ; and if they do, they must do it for their own benefit. It cannot be used by the plaintiff, in a proceeding to which they are not parties, for his own benefit merely, to defeat an equity which the defendant would have against him. This, then, would leave the case as follows: Cramer held a mortgage, which was an existing incumbrance on a tract of sixty acres. Van Valkenberg & Co. held a subsequent mortgage on the north twenty acres of the same tract. There was about $400 due on the Cramer mortgage; and Bodden, the mortgagor, wishing to pay Cramer, obtained the money of Deuster, the plaintiff, paid it to Cramer, and had the mortgage assigned by Cramer to the plaintiff as his security for the loan. At the same time he procured Cramer to release the south forty acres, Deuster being willing to take the mortgage after such release, it being then an incumbrance only on the north twenty, the same covered by the Van Valkenberg mortgage. Deuster has now brought this suit to enforce the collection of the amount due on the Cramer mortgage, out of the north twenty acres; and the defendant, who was a purchaser at a foreclosure sale under the Van Valkenberg mortgage, sets up the foregoing facts as a defense, claiming that the effect [311] of the release of the south, forty,>by Cramer----that being greater value than tbe amount due on his mortgage — was extinguish its lieu on the north twenty, to which alone the owners of the subsequent incumbrance could resort to secure their debt. It is well settled that equity will not permit a prior mortgagee, knowing that portions of the mortgaged premises have been subsequently conveyed or incumbered by the mortgagor, to deal with him arbitrarily, to the prejudice of the interests of such subsequent incumbrancers or purchasers, by releasing those parts of the land on which he has the only lien, and attempting to enforce his entire claim out of those portions in which such others had become interested. The following cases establish this proposition: Stevens vs. Cooper, 1 Johnson’s Ch. R, 425; Guion vs. Knapp, 6 Paige, 35; Patty vs. Pease et al., 8 id., 277 ; Parkman vs. Welch, 19 Pick., 231. The principle which, it would seem, is to be extracted from these decisions, is, that such effect should be given _ to any such acts on the part of a prior mortgagee, as natural justice and the due protection of subsequent parties in interest require to be given. If these require that the lien of his mortgage upon those parts in which they are interested, should be held to be extinguished, then it will be so held. If they can be protected without that, then he may still enforce his mortgage against the remaining portions of the land,-so far as he can be allowed to do so consistently with their protection. In the case of an absolute purchaser from the mortgagor, if the mortgagee, knowing of such purchase, should release to the mortgagor a portion of the land the title to which still remained in him, of greater value than the amount due on the mortgage, then the lien of the mortgage should be held to be absolutely extinguished upon that part owned by such subsequent purchaser; because his purchase being-absolute, he would have an equitable right to hold his land without its being sold at all, if the balance was sufficient to pay the debt. And the mortgagee ought not to be allowed to defeat that right Such was the case of Guion vs. Knapp, before cited. [312] w^ere Person subsequently interested was inter-only as a subsequent mortgagee, it would seem that the same conclusion ought not to follow. In such case, even though the prior mortgagee should release all that portion of the land not covered by the second mortgage, the second mortgagee would have no right to insist that the lien of the first mortgage should be held to be extinguished as to that portion covered by the second, provided such portion was sufficient to pay them both or more than enough to pay the second. The only interest which such subsequent mortgagee has being a security for his debt, he is fully protected when he is allowed to be first satisfied out of the proceeds of that part of the land covered by his mortgage. Beyond that he has no right to insist that the first mortgagee may not deal with the mortgagor in any way he pleases. And this doctrine would have been applicable to this case. Eor at the time of the release by Cramer of the south forty .acres, the interest of Yan Yalkenberg & Co. in the north twenty was merely that of subsequent mortgagees. The effect of the release, therefore, would have been to give them a priority over the Cramer mortgage, that being all that would have been necessary for their complete protection. And this was substantially the decision of the court below; or he allowed the plaintiff to redeem from the prior mortgage sale, and dismissed the complaint on his refusal to do so. We should be prepared, therefore, to affirm the judgment, except for one reason. We find no proof that Cramer, at the time of the release of the south forty acres, had any knowledge of the existence of the Yan Yalkenberg mortgage on the north twenty. It is true that mortgage was recorded, but the authoj-ities cited by the counsel for the respondent seem to sustain the position, that the record of a subsequent mortgage is no notice to a prior mortgagee, so as to bind him by the equities of such subsequent mortgagee. To bind him he must have actual notice, or sufficient to put him on inquiry. The record is notice merely to subsequent purchasers or incumbrancers, and is not constructive notice to a prior mortgagee. This point is quite fully discussed in Stuyvesant vs. Hone et al., 1 Sandf. Ch. R.. 419; and the [313] conclusions of the assistant vice chancellor as to the result of the authorities,- seem to us to be well founded. For reason, therefore, that there is no allegation or proof that Cramer had any notice of the equities growing out of the Yan Valkenberg mortgage, we are compelled to reverse the decision of the circuit court, and direct a judgment of foreclosure and sale to be entered in favor of the plaintiff. For the plaintiff stands in Cramer’s place. If Cramer could enforce the mortgage against the remainder of the land, his assignee may do the same. The proof entirely failed to establish the allegation as to fraud, conspiracy and want of consideration. The judgment is reversed, with costs, and the cause remanded, with directions to enter judgment in accordance with this opinion.