United States Nat. Bank v. Holton

BROWN, J. This lawsuit is a result of the perfidy of one Holton and of the negligence of one William Yaetz, the defendant and cross-complainant. Yaetz bargained with Holton for the sale and transfer of the mortgage mentioned in our statement of the case. Holton executed an assignment purporting to transfer the mortgage, describing the same as bearing date June 17, 1911, instead of December 30, 1909, the date of the mortgage. However, the assignment refers to the book of mortgages and the page thereof where the mortgage was recorded. A blank form of assignment was used, and in filling it out the words “interest to date” were inserted where the word “note” should have been written. The assignment was placed on record in accordance with the provisions of Sections 9879 and 9880, Or. L. 1. In the early case of Mathews v. Eddy, 4 Or. 225, it was held that a clerical error in the description of a tract of land will not vitiate a deed, where the intention of the parties can be ascertained with certainty from the instrument, when considered in connection with the situation, of the parties and the subject matter. To the same effect are Raymond v. Coffey, 5 Or. 132; Moreland v. Brady, 8 Or. 313 (34 Am. Rep. 581). 2. Notwithstanding the fact that Vaetz failed to obtain, and Holton did not deliver, the mortgage assigned, or the negotiable promissory note secured thereby, the assignment was good as between Yaetz and Holton. — 426 — 3. The promissory note, at the time of the assignment of the mortgage, was held by the plaintiff as collateral security for a loan to Holton. On July 7, 1911, upon the payment of his indebtedness to the bank, Holton received the note and mortgage and retained the same for about two months, when he again assigned and delivered the same to the plaintiff bank as security for a loan. These instruments were never in the possession of Vaetz. It is a presumption of law, satisfactory until overcome: “That things in possession of a person are owned by him; that a person is the owner of property from exercising acts of ownership over it or from common reputation of his ownership”: Section 799, Or. L., paragraphs 11 and 12. Holton, in pledging the securities, committed a wrong that must fall upon one of two persons. The law protects the one who is guilty of the least negligence. The parties here are not equally faultless and do not stand in equal right. Vaetz negligently permitted the mortgagee to retain control and possession of the mortgage and negotiable promissory note secured by it. The presumption of law arising from the fact that the note and mortgage were in Holton’s possession at the time the bank took them again on September 18, 1911, was strengthened by the further fact that he was the payee named in the note. Vaetz’s negligence permitted Holton to deceive the plaintiff. As appears from our statement, Holton delivered to Vaetz what seems from the record to be a negotiable promissory note for the sum of $2,400, payable to the order of Frank Holton, dated December 30, 1910, and bearing interest at the rate of 7 per cent per annum. This note is not a duplicate of the mort — 427 — gage note, it having been made a year later and drawing a lesser rate of interest than the mortgage note. This was the note that Yaetz accepted from Holton, instead of the note described in the mortgage. From Vaetz’s own testimony, though he is a victim he is not faultless. In permitting Holton to retain that negotiable promissory note and the mortgage securing it, he empowered him to obtain money from the bank, while without the custody of the note and mortgage Holton would not have been enabled to defraud the plaintiff. “It is not often that the question of priority of rights under different assignments of the same mortgage can arise, because an assignment is generally accompanied by a delivery of the note or bond secured by the mortgage, and of the mortgage itself; and except under peculiar circumstances a person acting in good faith would not take a mere written transfer of the mortgage title without delivery of these. The fact that the assignor did not have these papers to deliver would be enough ordinarily to put the purchaser on his guard, even if it would not amount to notice to him of prior assignment. At any rate, the absence of these papers would be enough to put in doubt his good faith in taking the assignment, and would make him chargeable with notice of any defect there may be in the assignor’s title”: Jones on Mortgages (6 ed.), § 483. Justice Deady said: “As between different assignees of the same mortgage, the question of priority could not well arise, because an assignment without the delivery of the note and mortgage, except under peculiar circumstances, could hardly be considered as made or accepted in good faith”: Oregon & Wash. Trust Inv. Co. v. Shaw, 5 Sawy. 336 (18 Fed. Cas. 766, No. 10,556). — 428 — 4. The debt in the instant case, as we have seen, was evidenced by a negotiable promissory note. The mortgage was made and executed to secure the payment of the indebtedness of $2,400, according to the tenor of the note. The lawful assignment of such a note carries with it the mortgage. As stated by Justice McBride in Kaiser v. Idleman, 57 Or. 228 (108 Pac. 193, 195, 28 L. R. A. (N. S.) 169): “The note being by the law-merchant readily transferable by indorsement and delivery, the courts, to facilitate the transaction of business, have held that, for certain purposes, the mortgage is an incident of the note, and passes with it.” In Bamberger v. Geiser, 24 Or. 206 (33 Pac. 609, 610), Justice Lord wrote that— “It is a familiar principle that where a debt is secured by mortgage, the debt is the principal and the mortgage is the incident, and that an assignment of the debt is an assignment of the mortgage. Here there was a written assignment of a negotiable note before maturity, and a delivery of the mortgage. “The assignment of the note carried the mortgage, as the former is the principal and the latter the incident." To similar effect are Roberts v. Sutherlin, 4 Or. 219; Barringer v. Loder, 47 Or. 223 (81 Pac. 778); Roth v. Troutdale Land Co., 83 Or. 507 (162 Pac. 1069). In the case of Reeves v. Hayes, 95 Ind. 524, 525, Chief Justice Elliott said: “Promissory notes are articles of commerce, and pass from hand to hand by barter and sale. The transfer of a note carries the mortgage, for the former is the principal and the latter the incident. This is in accordance with the universal rule that the grant of the principal thing carries all the incidents. — 429 — Matthews v. Wallwyn, 4 Ves. 118; Jackson v. Blodget, 5 Cow. 202; Green v. Hart, 1 Johns. 580; Johnson v. Hart, 3 Johns. Cas. 322. In Hubbard v. Harrison, 38 Ind. 323, it was said: ‘The assignment of a mortgage, independent of the debt which it is given to secure, is an unmeaning ceremony.’ It has always been the law of this state that the assignment of the note carries the mortgage: Blair v. Bass, 4 Blackf. 539. In Hough v. Osborne, 7 Ind. 140, the court said: ‘The only thing easily perceivable as to the transfer of the mortgage security without the notes, was its futility’: Garrett v. Puckett, 15 Ind. 485; Gower v. Howe, 20 Ind. 396. “The assignment of a note negotiable by the law-merchant carries the mortgage security, and in the hands of a bona fide holder the security is protected to the same extent as the note itself: Gabbert v. Schwartz, 69 Ind. 450; Bayless v. Glenn, 72 Ind. 5; Carpenter v. Longan, 16 Wall. 271 [21 L. Ed. 313; see, also, Rose’s U. S. Notes]; 1 Dan. Neg. Inst. 834; Clemens Corp., § 158." The case of Barringer v. Loder, 47 Or. 223 (81 Pac. 778), is in point, and construes and applies Section 9884, Or. L.; the same being Laws of 1889, page 38, entitled, “An Act to provide for the discharge of mortgages upon affidavit,” and Sections 9879, 9880, and 9885, Or. L., adopted in 1895, page 55, being “An Act to provide for the transfer and satisfaction of mortgages upon real estate and the recording thereof. ” The facts in Barringer v. Loder, 47 Or. 223 (81 Pac. 778), are as follows: One Hayden purchased from William Barringer realty situate in Clackamas County, receiving a deed therefor. He paid part of the purchase price in money and in payment of the balance delivered to Barringer a joint and several promissory note executed by himself and wife, payable to the order of Barringer three years after date. They also executed and delivered to Barringer their — 430 — mortgage upon the premises to secure the payment of the note. Later Barringer and wife separated, and in the division of the property this note and mortgage were to become the individual property of the wife. The note was accordingly indorsed by Barringer, and both instruments delivered to Mrs. Barringer. Thereafter, Barringer negotiated a sale of the note and mortgage to Loder, claiming that the note and mortgage had been lost and that for this reason he was unable to produce and deliver them to Loder. Acting upon this information, Loder went to the records and found the title of the mortgage to be in Barringer. An assignment was drawn as provided by said Sections 9879 and 9880, Or. L., executed by Barringer, who covenanted that he was the owner of the mortgage thereby assigned. Loder paid Barringer the purchase price and recorded his assignment. Loder also collected the amount due on the mortgage and satisfied the same of record. Justice Wolverton in rendering the opinion of this court, said: “The cardinal question presented here is, who acquired the better title to the note and mortgage in suit, the plaintiff or Loder? * * “The appellants base the right of Loder to rely upon the record and their right to discharge by payment to him upon Sections 5362 and 5363 of B. & C. Comp. (Sections 9879 and 9880, Or. L.); it being insisted that a mortgage cannot be otherwise assigned or transferred than as by these sections prescribed. The first section provides, in effect, that mortgages may be assigned or transferred by an assignment in writing, executed and acknowledged with the same formalities as deeds and mortgages, etc., and the second that every assignment of a mortgage shall be recorded at full length, and reference shall be made to the book aud page containing such assignment upon the margin of the mortgage record. The — 431 — word ‘may’ where appearing in the former section, it is urged, should he construed as mandatory, and to mean ‘shall’ or ‘must,’ thus precluding and invalidating any other form of assignment. These sections were enacted in 1895, with two others, one being Section 5368 of the Code (9885 Or. L.), and the other the emergency clause, which latter shows why the act was adopted: Laws 1895, pp. 55, 56, §§ 62, 63, 64. It was because it had been determined, among other things, by the decisions of this court, that there were no provisions in the statute for the recording of assignments of mortgages. Section 5368 of the Code (§ 9885, Or. L.) provides that no mortgage upon real estate shall be satisfied or released so as to free the property from the lien of the mortgage except by the person appearing upon the records to be the owner thereof, and that a satisfaction or release of such mortgage by a party so appearing to be the owner or holder should operate to free the property of the lien so far as it affects subsequent purchasers and indorsees for value, without notice. Prior to the enactment of this statute there existed another, being Section 5367, B. & C. Comp. (§ 9884, Or. L.), adopted in 1889 (Laws 1889, p. 38, §§ 1, 2, 3), which provides, in effect, that whenever a promissory note secured by a mortgage on real property shall be transferred by indorsement, without formal assignment, and such mortgage shall have been duly recorded, the same, upon payment of the note, may be discharged of record by the owner or holder of the note making and filing with the recorder or county clerk, as the case may be, a certificate, duly verified by his oath, declaring, in substance, that he is the owner and holder of the note secured by the mortgage by indorsement, and that said note has been fully paid, and by proving the fact to the satisfaction of the recorder or clerk and delivering the note to that officer. Further provision is made for recording the certificate and note and making a notation thereof upon the recorded mortgage, which entry, it is declared, shall have the effect of a deed of release of — 432 — the mortgage. The act of 1895 makes no express repeal of this statute, and it must remain operative, unless the provisions of the former are repugnant thereto; but we take it that there was no design to repeal it, and this is evidenced by the use of the word ‘may’ in Section 5362 (9879) and the emergency clause to which attention has been called. “When these statutes were enacted, an indorsement of a note had been long recognized as carrying with it the mortgage given to secure its payment, as the latter was regarded but an incident to the debt: Roberts v. Sutherlin, 4 Or. 219; Bamberger v. Geiser, 24 Or. 204 (33 Pac. 609). The act of 1889 is in express recognition of this manner of assignment, and it provides an appropriate method of satisfying the mortgage of record by the assignee or indorsee of the note. When the legislature came to the enactment of the subsequent statute, it very properly used the word ‘may’ with reference to an assignment by separate writing, still recognizing the right, as it had formerly done, to assign by indorsement of the note. When it comes to the manner of recording the assignment, the word ‘shall’ is used. Why use the word ‘may’ in one section and ‘shall’ in the succeeding one? The relationship indicates an intendment that there should be a distinction in their application in practice, and this is re-enforced by the legislative declaration that the act of 1895 was adopted because there existed no statute for the recording of assignments of mortgages. Assignments in the method designated then could be made before the statute as well as by assignment of the note, and the act simply prescribes that this may still be done by that method, but that such assignments shall be recorded in the manner pointed out.” No single fact is decisive of this case. This is a suit in equity. We have considered all the facts relating to the subject matter of the suit, the situation of the parties, their means of knowledge, the circumstances existing, the failure to require delivery of — 433 — the negotiable promissory note assigned, together with the mortgage securing it, likewise, the neglect to examine the registry records; the doctrine of priorities; and after deliberation upon all this we find that equity is upon the side of the plaintiff and that it should prevail. 5. Plaintiff alleged that on the thirtieth day of December, 1909, defendant, Ada E. Nickles, was the owner in fee simple of the real property mortgaged to Frank Holton. Defendant Yaetz admitted that allegation in his answer, and in his cross-complaint likewise alleged that Ada E. Nickles was the owner in fee simple of said real property. Upon cross-examination Mrs. Nickles testified, in substance, that the real property which she mortgaged to Holton was Holton’s property, but that record title was in her. It appears from the record that she signed a number of notes for him that were secured by mortgages on other property. She testified that— There was “quite a bit of property; quite a few mortgages signed. I don’t know how many. I could not say. * * The property was his. Whenever he asked me to sign a note on a piece of property of his own I did it for him.” From her testimony, Mrs. Nickles appears to have been a dummy for Holton. Regardless of the nature of the title Mrs. Nickles had to the real property mortgaged by her, she does not seem to have been divested of that title at the time of the trial. We have searched the record in vain for the purpose of ascertaining what right or claim Jean C. Holton may have had to the premises. There is' nothing in the record, by way of allegation in the pleadings, or proof by evidence, to show that Ada E. Nickles and H. T.' J. Nickles, her husband, or any other per — 434 — son, sold or conveyed the real property covered by the mortgage to Jean C. Holton, or that she has any interest in the subject matter of the litigation. The same may be said concerning the right and title of The Pacific Northwest Adjustment Company. 6. The court found that Jean C. Holton duly conveyed said real property to the defendant The Pacific Northwest Adjustment Company, and that the defendant company is now.the owner in fee simple of said real property and is entitled to any over-plus of moneys realized on sale under execution in this suit, after payment of the sum of $1,726 with interest, costs, and attorney’s fees. This finding is neither supported by the pleadings nor borne out by the evidence. The only testimony given upon the trial tending to show title to the property is that of Mrs. Nickles. We have already referred to the pleadings. If Jean C. Holton or the Pacific Northwest Adjustment Company had a bona fide interest in that real property, it was a matter for them to allege and prove affirmatively: Bailey v. Hickey, ante, p. 251 (195 Pac. 372), and Oregon cases there collected. The court erred in finding that the Nickles conveyed to Jean C. Holton the lands described in the mortgage, and in finding that defendant Holton conveyed the lands to the Pacific Northwest Adjustment Company. The court erred in finding or decreeing that said adjustment company has any interest in said real property, or is entitled to the’ overplus of moneys, or any money, realized on sale under execution in this suit. A court of equity, like a jury, is confined to the record for evidence upon which to ground the finrHng of a fact. A legitimate conclusion of law must be based upon a fact legally found. A decree based — 435 — upon facts and conclusions of law not sustained by the evidence or record, cannot stand. The defendant and cross-complainant, William Yaetz, is entitled to a judgment decreeing- him to be the owner of that certain note and mortgage held and foreclosed in this, suit, subject to the rights of plaintiff, and that said note and mortgage constitute a lien on said property in his favor, for the difference between the amount adjudged to be due plaintiff, together with its costs and disbursements, including attorney’s fees, and the amount due on the said promissory note and mortgage; and he is further entitled to an order of this court adjudging and decreeing that said mortgage lien be foreclosed and that the real property be sold, subject to the rights aforesaid of plaintiff or its successor in interest, to satisfy the amount of his said lien, together with costs and disbursements, including his attorney’s fees. Further relief cannot be granted to defendant and cross-complainant in this proceeding. The only judgment for costs on appeal in this case will be entered here in favor of defendant and cross-complainant William Vaetz and against the Pacific Northwest Adjustment Company. The decree of the lower court will be modified so as to accord with our views herein expressed. Modified. Burnett, C. J., and Johns and Bean, JJ., concur.