Chafee Land Co. v. Sumption

Siebecker, J. There is no dispute in the facts. The appellants Sumption and Knappen acquired by transfer, in due course and for value, the two notes in question. The [411] question is, As such holders of these notes are they entitled to share pro rata in the mortgage security, or are their claims thereto upon these notes subject and subordinate to the claim of plaintiff upon its note? By-an oral agreement plaintiff and Eby agreed that in case of the foreclosure of this mortgage to secure payment on these notes the plaintiff should have priority in the security over the notes transferred to Eby and McGrath, representing the $2 per acre consideration paid by Clark for the land over and above the $8 per acre received by the plaintiff. The general rule in this state is that the transfer of these notes carried with it an interest in the security. Franke v. Neisler, 97 Wis. 364, 72 N. W. 887. The trial court held that although the assignment of the notes in due course for value to Sumption and Kmappen cut off .all defenses to the validity of the notes, it did not do so as to the interest in the security, and that the law merchant has no application to the assignment of the security; .that though the appellants are innocent holders of the notes for value, they acquired no greater or superior rights in the security than their assignor had at the time of the assignment, and hence their interest in the security is subject to the same defenses that existed against the security in the hands of the prior owners of the security. This conclusion runs counter to the law in this state. It was held in Croft v. Bunster, 9 Wis. 503, that the mortgage, in case of a transfer of notes secured thereby, passes as an incident to the note, and “It is the debt which "gives character to the mortgage, and fixes the rights and remedies of the parties under it, and not the mortgage which determines the nature of the debt.” The rights and remedies of the assignee under a mortgage were held to be co-extensive with those he has under the instrument evidencing the debt. Cornell v. Hichens, 11 Wis. 353; Andrews v. Hart, 17 Wis. 297. In W. W. Kimball Co. v. Mellon, 80 Wis. 133, 48 N. W. 1100, it was held: “The principle is that where the security passes to the [412] holder of a negotiable promissory note transferred before due, as an incident to the note, nothing is a defense to the security which would not in law be a defense to the note,” citing. There is nothing in the notes and mortgage transferred to appellants or in the indorsement without recourse to charge them with notice of any defense against the notes nor to put them on inquiry in reference thereto. In the Kimball Case it is declared that “Although the security may be mentioned in the note, that does not make it necessary for the purchaser to examine into the history of the security,” citing. It necessarily follows that the appellants are entitled to the rights and remedies accorded in the law to holders in due course and for a valuable consideration of negotiable notes, and the court erred in receiving evidence of the parol agreement between plaintiff and Eby to ..the effect that plaintiff should have a prior, superior right to the proceeds realized on foreclosure sale of the mortgaged premises to the rights therein. This evidence in effect varied and contradicted the notes, and mortgage. Hackley Nat. Bank v. Barry, 139 Wis. 96, 120 N. W. 275. Appellants are entitled to judgment awarding them a .pro raía interest in the proceeds realized on the mortgage security. By the Court. — That part of the judgment appealed from is reversed, and the cause remanded to the circuit court with direction to award judgment as. indicated in the opinion.