Executors of Swartz v. Leist

Scott, J. A mortgage of real estate is regarded, in equity, as-a mere security for the performance of its condition of de-feasance. If that condition be the payment of a debt, the security is regarded as an incident belonging to the debt, and the equitable right to the benefit of the security, passes, by the legal transfer of the debt, to the assignee, unless the agreement of the parties to the transfer be otherwise. And so, if the debt be evidenced by several promissory notes, the legal transfer of a portion of the notes carries with it such proportionate interest in the security as the notes transferred would be entitled to in the hands of the assignor. If the notes all stand upon the same footing, the assignee of a part of them is entitled to a pro rata participation in the benefit of the security. In the case before us, Swartz, by becoming the legal owner of one of the notes protected by the mortgage, acquired an interest in the security which it afforded, in the absence of any special agreement to the contrary. And this interest, he might assert, as against both mortgagor and mortgagee, sc — 424 — long as the security subsisted. Under these circumstances, it can not be doubted that the release of the mortgage by Little was wrongful. It was a fraud upon the rights of Swartz And those rights would remain unaffected as against all parties participating in, or cognizant of, the fraud. But the question in this case is, whether the rights of Swartz were such that they can be asserted against a bona fide purchaser from the mortgagor, who, without notice of the lien claimed by Swartz, has parted with his money, relying upon a statutory discharge of the mortgage, which he found executed by the mortgagee, and properly entered upon the record. The rights of Swartz were, as we have said, purely equitable. No title to,- or estate in, the mortgaged premises had been conveyed to him. A legal title to lands can not, either at common law, or under our statutes, pass, by the sale and delivery of a promissory note. The legal title to the conditional estate, granted by the mortgage, remained in the mortgagee as fully after the transfer of the note as before. True, he may have held it as a trustee, in part, for the benefit of Swartz. But a trust of this kind, not apparent on the face of the mortgage deed, evidenced by no record, and unknown to the world, can not affect the rights of bona fide purchasers, who, in ignorance of its existence, confide in the acts of the mortgagee falling within the apparent scope of his powers as the legal owner of the mortgage. As against such parties, the discharge must operate to cancel the record of the mortgage, and thereby extinguish its lien. The equities of a bona fide purchaser, in such a case, are certainly as strong as those which arise from a latent trust; and when they are accompanied by the legal title, must, for that reason, prevail. But the parties here are not equally faultless, and do not stand in equali juré. Swartz negligently or confidingly permitted Little, the mortgagee, to retain the legal title conveyed by the mortgage, and the power of control over it. Little had thus the legal power; and, ostensibly, a perfect right to discharge and release it. Leist, the purchaser, having no reason to suspect fraud, was justified in regarding the — 425 — release legally made, by .one who was ostensibly the proper party, as an effectual discharge of the lien. And, as between these parties, he who unwisely reposed confidence in Little, and gave him the power to defraud, should suffer the consequences. The statute of March 12,1836, provides “ That when the mortgagee of any' property within this state shall have received payment of the money due to him and secured by the mortgage, and shall have entered, or may hereafter enter satisfaction, or a receipt for the same, either on the mortgage, or on the record of the mortgage, such satisfaction or receipt, so recorded, shall operate and be taken to release the said mortgage to -whoever may be entitled to a release.” 1 S. & C. St. 471. It is claimed that the release entered on the record, in this case, was inoperative, under this statute, because the note held by Swartz had not matured at the time, and was therefore not “ due,” within the meaning of the statute; and for the farther reason, that “payment of the money ” was not in fact, “ received.” This statute was intended to facilitate the discharge of mortgage liens. - It is remedial in its character, and should be liberally construed. The word “ due,” as a synonym for owing or owed, may well be regarded as applicable, in this statute, to all debts contracted and subsisting, whether evidenced by .notes which have reached maturity, or otherwise. Such use of the word is by no means unfrequent in the statute book, and in popular language. And as to the want of actual payment — so far as respects the lien of the mortgage, the mortgagee is clearly estopped by his recorded release, from denying, as against subsequent purchasers in good faith, the payment thus evidenced by his own act. And this estoppel must be equally effective against the holder of a latent equity, arising from contract with the mortgagee. A recent case in New York (Ely v. Scofield, 35 Barb. S. C. Rep. 330) is closely in point. In that case, a bond and mortgage were assigned by the administrator of the mort — 426 — gagee. The administrator, afterward, by mistake, discharged the mortgage without receiving payment of the debt, and the discharge was duly recorded. The premises covered by the mortgage were subsequently sold and conveyed to a bona fide purchaser, without notice. Upon suit brought by the as-signee to foreclose the mortgage, it was held, that the administrator, being ostensibly the proper person to acknowledge satisfaction of the mortgage, the effect of its discharge by him, when properly recorded, was to cancel the record of the mortgage, as against subsequent purchasers and mortgage.es, in good faith, without notice. The plaintiffs’ demurrer was properly overruled by the district court, and the judgment of that court is affirmed. Sutliee, O.J., and Peck, Gholson and Brinkerhoee, JJ., concurred.