Smith v. Stevens

49 Conn. 181 | Conn. | 1881

Granger, J.

(After stating the facts.) The case turns wholly upon the effect of the release given by Day of the mortgage security so far as it covered the $5,000 of the mortgage debt held at the time by the respondent Stevens. We need not consider the effect of the mistake made by Day in releasing to Stevens, Ross & Leavitt, the original mortgagors, instead of to the Hartford Lumber Company, who then owned the equity of- redemption; for if the release would otherwise have been good a court of equity would correct that mistake. The rights of the petitioners as the holders of $20,000 of the mortgage debt under a transfer from Swift are the same that his were, and we may consider the case as standing between Swift and Stevens. Thus regarding it let us see what were their rights and how they were affected by the release made by Day.

The mortgage was given by Stevens, Ross & Leavitt to Day to secure sundry notes made by them, amounting in the aggregate to $25,000. These notes were payable to their own order and were by them endorsed and delivered with the mortgage to Day. Immediately after the delivery of the notes and mortgage Day delivered two of the notes, amounting to $5,000, for a valuable consideration to Stevens, who has ever since held them. A transfer of a mortgage debt of course carries with it an equitable title to the mortgage security, and where a part of such a debt is assigned it carries with it a proportionate part of the security. Keys v. Wood, 21 Verm., 332. Stevens thus became the owner of these notes and of one fifth of the mortgage security. His title was complete.

Two months and a half later Swift purchased for a valuable consideration' the remaining $20,000 of the mortgage notes. He took them in trust for certain purposes, but this does not affect the case. He may be regarded as standing for the purpose of the present question as if he had been an ordinary purchaser. How what did he take, so far as the security is concerned? The law gave him an equitable right to four fifths of the security. But here was an express conveyance of the mortgage interest, and it was of precisely the same extent with the interest that would have passed to him by act of law without a conveyance. The interest conveyed is thus described in the instrument:— “ Such a proportionate interest in said mortgage and the real estate thereby conveyed as the above described notes, amounting to the principal sum of twenty thousand dollars, bear to the entire indebtedness secured by and described in .said mortgage.” Here there is no conflict between his rights and those of Stevens, nor any foundation for one. The right of Stevens to his one fifth, and of Swift to his four fifths of the mortgage, were each complete and the two rights could stand together.

But now comes in the first incident of the case that raises any question. Swift required of Day, as a condition of his taking the $20,000 of notes, that he should release the mortgage so far as it covered the other $5,000 of notes. His object was to increase the security for the notes which he held by giving them the benefit of the whole of the security and not of four fifths of it merely. There was nothing in the fact that his conveyance of the interest in the mortgage was limited to four fifths of it that necessarily prevented his getting the benefit of the entire mortgage if-the other $5,000 of notes should be put out of the way. The reduction of a mortgage debt always increases the security for the remainder. If the express conveyance could not be enlarged, yet the law itself would enlarge the right of' the unpaid $20,000 of notes to the benefit of the mortgage. The object aimed at was therefore one that was lawful in itself and easy of accomplishment if there were no rights of other parties to be affected. But here the rights of Stevens as holder of the $5,000 of notes stood in the way, and could be got out of the way only by the application of an equitable estoppel growing out of his conduct in the matter. Let us now look at this conduct.

It is found that “at the time of the execution of the release by Dajr, Stevens knew of it and objected to it, but did not afterwards take any steps to annul the deed nor any action in relation thereto, and never notified Swift of his claims under the mortgage, although he knew that the release was made for the purpose of having Swift purchase the notes and mortgage.” And the petitioners claim that in thus standing by and seeing Swift purchase the notes and pay for them, in the belief that there was no outstanding interest in any third person in the $5,000 notes, he has in equity waived whatever rights he had in the security as against Swift, and is now equitably estopped from setting up those rights.

If Stevens had been present during the negotiation between Day and Swift, as it does not appear that he was, and had stood by in silence while Swift was purchasing the notes and mortgage in the belief that the lien of the $5,000 notes was discharged, it would seem as if, upon well settled rules, he ought not now to be allowed to set up his claim to the lien to the injury of Swift. His rights, though not otherwise affected, would be postponed to those of Swift. It is not clear however that in his absence from the place of the negotiation, and with merely a knowledge that Day was about to make the release, he was bound to do more than object to his making it. He of course had no power except by an injunction to stop him from doing it. It can hardly be claimed that he was bound to resort to that measure. His simple remedy was to notify Swift, and if that had been done the release would have been harmless* so far as he himself was concerned. This course as a matter of common fairness we think he ought to have taken, and we are not prepared to say that equity would ndt have required it of him.

But without deciding precisely what effect should be given in equity to Stevens’s conduct, we think that Swift himself was guilty of a want of care that must be regarded as equally, if not in a greater degree, the cause of his loss. He must be regarded as cognizant of all the incidents of the transaction that by reasonable inquiry he could have ascertained. Among these was the fact that the release was made and put upon record by Day wholly without the knowledge of the releasees, Stevens, Ross & Leavitt, except so far as Stevens had known of his purpose to make it, as of course he must have done in objecting to it. Indeed it does not appear that Stevens knew, until some time after, that Day had actually, in spite of his objection, made the release. The release having thus been put upon record without" the knowledge of the releasees was of course inoperative until accepted by them. It does not appear that they ever did accept it. The objection to it made by Stevens would go to show that he, as one of the releasees, would never have accepted it. His interest was directly the other way, while the other releasees, having parted with all their interest in the equity of redemption, had no interest whatever in' accepting it. Indeed their interest was also the other way. If the $5,000 notes were outstanding they might have them to pay, being their own notes, and it was for their interest that they should be paid out of the mortgaged property, in which they had no longer an interest, rather than out of their own means.

It is to be observed that Swift took the $20,000 notes immediately on the execution and recording of the release, without waiting to ascertain whether it was accepted by the releasees, while he must have known that their interest might be against the acceptance and at the most could not be in favor of it. The mischief then was really done before the point was reached where the conduct of Stevens could be regarded as open to criticism. Again, Swift could have ascertained the facts with regard to the outstanding $5,000 notes by a little inquiry easily made. He seems to have taken it for granted that those notes still remained in Day’s hands and under his control. But if he had required an explicit statement from Day on the subject he would probably have been correctly informed by him. It does not appear that inquiry was made. If Day still owned the notes he could have produced them, and his failure to produce them upon inquiry made would have been abundant notice to Swift that the notes had been negotiated to a third party, who of course was entitled to the benefit of the mortgage. Indeed the defeasance of the mortgage, which he must have received into his hands from Day, showed that the $5,000 was in two notes, one for $4,000 payable in four years from date and one for $1,000 payable five years from date. There was therefore no room for the presumption, hardly for the possibility, that they had been paid. The other notes, falling due earlier, would have been paid if any had been. Indeed the requirement that the mortgage should be discharged as to these notes showed that Swift supposed they had not been paid. And the mortgage showed too that the notes were payable to the order of the makers, making the indorsee who should hold them as much within the very terms of the mortgage as the original mortgagee. In these circumstances for Swift to take the $20,000 notes without inquiring after the $5,000 notes, was a want of care on his part that far exceeds the apparent want of fair dealing on the part of Stevens. We are clear therefore that he can -not stand for a moment on the claim that he has been injured by the unfair conduct of Stevens, but must look upon his loss as brought upon him by his own-carelessness.

We think the court below committed no error in dismissing the bill.

In this opinion the other judges concurred.