Anderson v. Baumgartner

Richardson, Judge, delivered the opinion of the court. The doctrine is well settled that the transfer of a debt carries with it in equity the mortgage security; and if several [87] notes secured in the same mortgage are assigned to different persons, as a general rule the holder of each note will acquire by the assignment an equitable interest in the mortgage. (Keyes v. Wood, 21 Verm. 331; 1 Hilliard on Mortg. chap. 11; Thayer v. Campbell, 9 Mo. 277.) The security is only an incident to the debt; and, if the principal be assigned and there be no agreement to- the contrary, the mortgage will pass with it. The interest however which the assignee acquires in the mortgage is purely equitable, and will be controlled by the considerations that operate on courts of equity in adjusting conflicting equities between different parties. It will give way to a superior equity and may be lost by the negligence of the party asserting it. The assignment of the debt will be effectual to transfer the security as between the assignee and the parties to the mortgage, but it may be inoperative for that purpose when the rights of innocent purchasers intervene, who have been misled by the improper representations of the assignee, or lulled into security by his silence when it was his duty to speak. It appears that when Christy purchased the notes which he holds, he was told by Moore that all the other notes had been paid; and when Michael applied to Moore, who then held the Christy notes, for information on the subject, with the view of purchasing under the junior deed, he was likewise told that all the notes had been paid except those now in Christy’s hands. If Christy and Michael did not know that the plaintiff held any of the notes, to whom else could they apply for information except to Moore ? How were they to know of the plaintiff’s dormant equity ? Michael, then, having been informed by Moore that the notes which the plaintiff has had been paid, had every reason to act on the information, and no ordinary diligence could have apprised him of the plaintiff’s claim. "When Anderson came to sell under the second encumbrance, in which he had united in himself the double interest of trustee and beneficiary, the evidence shows that there was inquiry as to the amount due under the first deed. Common justice to the bidders required him to [88] give such information as be bad, and, claiming an interest in the first deed, which was not a matter of record or necessarily known to any person present, it was his duty to make it known. Dr. Carpenter, a witness introduced by the plaintiff, testified that he bought the property at the sale; that Mr. Anderson made a statement at the sale in relation to the deed of trust to Moore and the interest notes, but did not speak of having any of the notes in his possession. He further stated, on cross-examination, that the unpaid interest notes were said to be in Christy’s hands, and that plaintiff referred him to Christy for the amount due; and though in his re-examination by the plaintiff he broke somewhat the force of this statement by the qualification that upon reflection he was not certain “ whether Anderson said where the notes were,” it does not seem that Mr. Anderson advised any person at the sale of the existence of the seven notes, or that he had any interest in the first encumbrance. It is true that Michael was not at the sale, but Dr. Carpenter states that Anderson requested him to surrrender his bid to Michael, and that, in consideration of five hundred dollars paid to him by Anderson, and the agreement of Michael to indemnify him against a security debt of one thousand dollars, he substituted Michael in his place. The plaintiff now asserts that he had in his possession, at the time of the sale under the second deed, seven of the notes secured by the first, and seeks to have the property purchased at his own sale subjected to the payment of these notes. The evidence shows that Michael had every reason to believe that the seven notes had been paid ; and the question now is, shall the plaintiff lose his lien, or shall Michael’s property, purchased without notice of the lien, be subjected to it ? If the plaintiff had used proper diligence at or before the sale in making known his silent claim, the purchaser would have bought with his eyes open and the property would have remained charged with the lien ; but his negligence misled others, and his equity must yield to the better right of the innocent purchaser. It is said that the first encumbrance was duly recorded, and that all persons [89] were bound to take notice of it. This is true; but of what was the registry notice ? The defendants were presumed to know that there was a prior encumbrance; but, as the mortgagee himself said that the seven notes in question were paid, and the plaintiff at his sale, under the second deed, did not disclose his interest, though th.e notes were in his possession, the defendants reasonably inferred that they had been paid as they matured. The plaintiff conducted the sale ; the amount due on the first encumbrance was the subject of conversation; and he could not have forgotten his own debt, if he intended to assert it against the property; and a word from him in season would have avoided this whole controversy. All the judges concurring, the judgment will be reversed.