Burgess v. Bragaw

Gilpillan, C. J. The plaintiff claims an interest in the real estate through an unrecorded contract in writing, dated May 7,. 1887, between one Hurd, the plaintiff, the two Bushnells, and others, by the terms of which the title to this real estate, purchased by the parties to it, was to be taken, for convenience, in the name of Hurd, who was to hold it in trust for the respective parties, and convey it, when sold by the Bushnells, the profits of the business to be divided between the parties. The title was taken in the name of Hurd. February 21, 1889, he conveyed to the Bushnells.' September 1, 1891, they conveyed to one Bucknell. September 2, 1891, he executed to them his note and mortgage on the real estate for $5,000. September 26, 1891, the Bushnells sold and assigned the note and mortgage to the defendant. The several conveyances and the mortgage and thé assignment of it were all duly recorded. The defendant’s claim rests on the mortgage and assignment, and it is clear enough that under the registry laws it takes precedence of plaintiff’s interest, resting on the unrecorded contract with Hurd and the others, if the defendant stand, in respect to the mortgage and its assign [467] ment to him, in the position of a purchaser in- good faith and for a valuable consideration. The allegation in the answer, that he paid the full amount of the mortgage without notice or knowledge of the unrecorded contract at the time he purchased, brings him within the protection of the statute. Without some notice to suggest the existence of such a contract, it was not his duty to make inquiry in respect to it of any one. In order to made it bad faith in one about to acquire an interest in real estate to do so without inquiring beyond the record, he must at least have notice from the record or otherwise of some fact which suggests an interest in some person other than as shown by the record. But plaintiff claims, upon a ground not involving the operation of the registry law, that the mortgage and assignment are void, or that there is a defense against them that he can avail himself of. That law does not make valid a void instrument. It merely gives instruments preference for whatever they are worth, according to the dates of their records. A void instrument is no better because recorded. The complaint alleges that each of the instruments hereinabove referred to, after the title vested in Hurd, was executed without any consideration, in violation of the trust agreement, and to enable the Bushnells to cheat the plaintiff out of his interest in the réal'estate and continues “that, in pursuance of said scheme and purpose, the said William M. Bushnell and Alvin B. Bushnell, on or about the 26th day of September, 1891, sold and assigned the said mortgage and the said note to the defendant, Abraham Bragaw, and caused the said assignment to be recorded,” etc. The answer alleges, in respect to the assignment, that the defendant paid therefor the full sum of $5,-000, with accrued interest, in good faith, without any other notice of the character of the mortgage or consideration of the note and mortgage than as disclosed by the record. The plaintiff’s argument is that the want of consideration for the note and mortgage constituted a defense as between the mortgagor and mortgagee; that under the decisions of this court holding that a mortgage, though given to secure a negotiable promissory note, is not entitled to any of the immunities peculiar to commercial paper, but is only a chose in action, subject to the disabilities incident to that species of property, the assignee took [468] the assignment subject to that defense, and that in thia action the plaintiff may avail himself of it as a reason for asking that the mortgage be canceled. As a general rule, whatever is a defense as between the mortgagor and mortgagee will be a defense between the mortgagor and an assignee of the mortgagee. But how one not a party to the mortgage, nor claiming under a party, nor interested in the consideration, can make the want of consideration a basis for a claim, is not so clear. Passing that matter, however, was there a want of consideration such as to be a defense to the mortgagor in an action by the assignee to foreclose ? From the allegations quoted from the complaint we infer that the note and mortgage were executed for the purpose of being sold and assigned; that the sale and assignment to defendant were in pursuance of the intention with which they were made. It is true, no consideration was furnished by the payee in the note; probably none was received by the maker. But that is always the case w'here a note is made by an accommodation maker, as, in effect, this note was; not fdV the purpose of taking effect between the maker and payee, but of being negotiable. It is without consideration, and is inoperative between them. Indeed, the transaction is incomplete until the note is negotiated. When negotiated pursuant to the intention with which it is made, the consideration for it is furnished by the transferee, and the note takes effect according to the intention with which it is made. The note is then valid, not on any ground of estoppel, for its validity is not affected by the indorsee’s knowledge that the payee furnished, and the maker received, no consideration. Although the principle is most frequently applied in the case of commercial paper, there is no reason why it should not apply equally to any other obligation executed for the purpose of raising money upon it, and which is actually transferred for that purpose. The plaintiff also stands within the rule that, where one of two innocent persons must suffer from the fraudulent act of a third, he by whose act the third person was enabled to perpetrate the fraud must bear the loss. Had plaintiff and the other parties to the trust agreement recorded it, (and for the omission to do so he is [469] as much responsible as any one,) there' would have been on the record notice that might have made it defendant’s duty to inquire further into the nature of the transaction before purchasing the note and mortgage. (Opinion published 52 N. W. Rep. 45.) Order affirmed.