We think the General Term made a proper disposition of this case. The transfer of the note by Williams to the defendant bank operated as a payment pro tanto of the mortgage so long as the note remained in the hands of a
third party, and in such condition that the mortgagee could not produce and deliver it up on the trial of the foreclosure action. This principle is decided in Battle v. Coit (26 N.Y. 404" court="NY" date_filed="1863-03-05" href="https://app.midpage.ai/document/battle-v--coit-3594030?utm_source=webapp" opinion_id="3594030">26 N.Y. 404). The bank upon taking the note took no interest in or right to the bond and mortgage. The mortgage was not given to secure the payment of the note, and a transfer of the note to the bank did not operate as an assignment pro tanto of the mortgage. The case is not within the principle that the assignee of a debt secured by a mortgage is entitled to the benefit of that security, although ignorant of its existence at the time of the assignment of such debt. The debt in this case which was secured by the mortgage was never assigned to the bank. There was an original debt due from McDowell, the mortgagor, which was thus secured, but the note which he subsequently gave to the mortgagee, and which when paid was to operate as a payment protanto upon the mortgage, was not the debt which was secured by that mortgage, but was a simple promise in writing to pay a certain sum of money which when paid was to operate as a payment on the mortgage. The disposition made by the General Term provides for a deduction from the full amount otherwise due on the mortgage of the amount of this note, because it is in the hands of the bank and the bank has a judgment upon it and the mortgagee is thus unable to surrender it, and, as between the maker of the note and the mortgagee, the note operates as a payment pro tanto. If there is any surplus after paying the amount due on the mortgage, less the amount of the note, that surplus is to be applied, under the decision of the General Term and with the consent of the mortgagor, to the payment of his note in judgment in the hands of the bank. This is all that the bank has any right to demand, and the judgment must, therefore, be affirmed, with costs.
All concur
Judgment affirmed.