69 N.J. Eq. 669 | New York Court of Chancery | 1905
The cross-bill of the defendant Abraham Einkelstein is filed to have the mortgage for $5,000 held by him given priority over the mortgage for $9,000 held by the defendant Emmanuel Heilner. Ileilner’s mortgage bears date January 27th, 1900, and was recorded January 29th, 1900. Einkelstein’s mortgage bears date September 26th, 1902, and was recorded on October 7th, 1902.
The facts set forth in the cross-bill upon which FinkelsteiiTs claim of priority is based are as follows:
The defendant Einkelstein, on September 26th, 1902, was the owner of the mortgaged premises, which are situate in Passaic eitjr, in this state. The premises were then subject to complainant’s mortgage for $6,000, which is not called in question in this suit, and a second mortgage originally for $11,000, on which, however, only $9,000 remained unpaid, then held, according to the record, by the defendants' Estella Brumberg and Grace Brumberg, but now held by the defendant Heilner. This mortgage for $9,000 had been originally given on January 27th, 1900, by the defendant Einkelstein and one Eeder to the defendant Solomon J. Brumberg, the father of Estella and Grace, to secure a. part of the purchase price of the conveyance of the property then made by Solomon J. Brumberg to Einkelstein and Eeder. Subsequently Eeder conveyed his interest to Einkelstein, who thereby became the sole owner, subject to the two mortgages above mentioned, on which $6,000 and $9,000 were due respectively. It is important to hold in mind while dealing
July 9th, 1902, a final decree in the above-stated cause was rendered adjudging that the assignment from Brumberg to his daughters was made with intent to hinder, delay and defraud the assignor’s creditors, and that the same should be set aside and declared void against certain creditors, including Heilner and Wolf,-which decree was afterwards affirmed by the appellate division of the said supreme court.'
Dovember 10th, 1903, the bond and mortgage were sold at public auction pursuant to said decree, and were purchased by the defendant Heilner for $4,000, with full notice, however, of the rights and claims of the defendant Einkelstein.
The mortgage of the defendant Einkelstein dated September
The notice of this motion does not specify any technical defects in the cross-bill as a pleading, or that the allegations of the cross-bill are inadequate to present the questions between these two defendants which have been argued. The notice claims that the cross-bill discloses no equity in favor of Einkelstein against Heilner, and does not show that there was a merger effected by the conveyance from Einkelstein to Estella and Grace Brumberg, and shows no facts under which Einkelstein’s mortgage should be made prior to Heilner’s mortgage. Adopting the views of both counsel who have argued this motion, I shall assume that the correct inference from the cross-bill is that Estella and Grace Brumberg, on September 6th, 1902, held under their assignment from their father not only the mortgage for $9,000, but the bond of Einkelstein which accompanied that mortgage and was secured by it, and that, according to the record, they therefore stood as the creditors of Einkelstein upon this bond and mortgage to the extent of $9,000.
My conclusion is that the motion to dismiss this cross-bill should be denied for reasons which I shall endeavor briefly to set forth.
The cross-bill sets up most positively that Einkelstein had nO' notice whatever that Estella and Grace Brumberg were not what the record showed them to be, the tona fide owners of the mortgage debt of Einkelstein for $9,000. It is a well-settled rule that
*674 “the debtor or party liable on an assigned chose in action is not affected by the assignment until he has notice thereof, and consequently he may set up against the claims of the assignee any defence acquired before notice that would avail him against the assignor had there been no assignment. Thus payment by the debtor to the assignor or any compromise or release of the assigned claim by the latter before notice will be valid against the assignee and discharge the debtor.” 2 Am. & Eng. Encyl. L. (2d ed.) 1077, 1099.
The qualification of this principle discussed in and applied to the case of Terney v. Wilson, 45 N. J. Law (16 Vr.) 282, plainly has no application to this present case.
A large part of the argument on behalf of Heilner upon this motion ignores the fact that Einkelstein, in his transaction with Estella and Grace Brumberg, was contracting for the satisfaction of a debt which he (Einkelstein) had a right, under the allegations of the cross-bill, to suppose he still owed to them. The following cases were cited as sustaining the position of counsel for Heilner: Purdy v. Huntington, 42 N. Y. 334; Curtis v. Moore, 152 N. Y. 159; Kamena v. Huelbig, 23 N. J. Eq. (8 C. E. Gr.) 78; Harrison v. New Jersey Railroad and Transportation Co., 19 N. J. Eq. (4 C. E. Gr.) 488. In these cases the courts had to deal with purchasers of mortgages or purchasers of mortgaged premises who relied upon mergers or upon the apparent status of the party with whom they were contracting and from whom they were to receive either the mortgage or the land, as the owner of an outstanding bond and mortgage.
Ho authority has been presented to sustain the proposition that the obligor upon a bond secured by a mortgage may not safely bargain for the extinguishment or the partial payment of his debt without having the bond and mortgage actually produced. The authorities are the other way. The non-production of the bond and mortgage may or may not be a controlling circumstance in determining whether the obligor has acted in good faith. In the case of Kamena v. Huelbig, supra, Chancellor Zabriskie expressed the opinion that under the circumstances proved, one who purchased a bond and mortgage which had already been assigned as collateral received notice from the failure of the mortgagee to produce and deliver the bond and mortgage
In Harrison v. New Jersey Railroad and Transportation Co., supra, a party ^who purchased land from the mortgagor having notice of an uncanceled mortgage relied on the fact that the mortgage without the bond was in the possession of the mortgagor, and he accepted with his deed from the mortgagor this mortgage with the seals removed for cancellation, and thereupon procured the entry of satisfaction on the record. The mere statement of these leading facts makes any further discussion of the case unnecessary.
In Purdy v. Huntington, supra, the purchaser of mortgaged premises from the mortgagee, who in fact had assigned his mortgage, was not allowed the benefit of a merger. Plainly no merger in fact occurred, as the court found. The purchaser made no inquiry, and hence was denied the protection of a bona fide purchaser (at p. 339).
Curtis v. Moore, supra, followed Purdy v. Huntington, undqr a very similar state of facts. The rights passed on were those of a purchaser, not those of a debtor who has undertaken to pay his debt or to rearrange the terms of his obligation, contracting in good faith with his creditor after an assignment of the debt or obligation had been made, of which, however, lie had no notice.
But it'is quite unnecessary to discuss any of these cases in detail, because they do not touch the case presented by this cross-bill in any'way whatever. "We are not discussing the question what notice Einkelstein must he charged with as the purchaser of a bond and mortgage, or as the purchaser ■ of land charged with a bond and mortgage if a merger has not in fact taken place. The sole question is, what notice must be imputed to Einkelstein. in making' this bargain with Estella and Grace Brumberg, whom he supposed in good faith to be his creditors, which bargain involved the satisfaction of his debt.
The non-production of the bond and mortgage by Grace and
A very little reflection will show that the non-production of the bond and mortgage is naturally and necessarily far less significant of an outstanding hostile title in cases where the mortgagor is contracting for the payment, compromise or readjustment of his debt than in cases where a stranger to the assignee is purchasing the mortgaged land or the mortgage itself. In the latter class of cases, to which the cases cited above all belong, the assignee may have no possible opportunity to give actual notice to the party who afterwards claims' to have bought in ignorance of his rights. But in the former class of cases the assignee—the outstanding claimant—has ample opportunity to give such notice. The present case sharply illustrates this im
It would, in my opinion, be very unwise to impose upon a mortgagor a rule requiring him to have the bond and mortgage produced before him every time he makes a payment or enters into a contract affecting the mortgage debt in order to protect some possible unknown holder of the bond and mortgage who has, by refraining from giving notice, concealed the fact that he had become entitled to receive the mortgage debt.
Where a party is buying the mortgage or buying the land it is incumbent upon him to make inquiries, and oftentimes, in respect of most important elements of the transaction, he buys at his peril. Where a mortgagor pays his debt he has no concern about the title to tire land, nor does he concern himself about the apparent status of the' mortgage, on the record or otherwise 'so long as the fact of payment is established. Where the mortgagor conveys the land in payment of the mortgage debt, the deed may very properly recite that the conveyance effects such payment, and in such case the mortgage may be left uncanceled of record as a part of the title, while the bond, being dead in law, is disregarded.
I think that the correct conclusion is that if the defendant proves the allegations of his cross-bill ho 'is entitled to have enforced, so far as is equitable, the rights which he obtained
The nature and extent of the relief to which the defendant Einkelstein will he entitled in case he proves his cross-bill are matters left entirely open for determination upon the final hearing of the cause. It is enough for present purposes to reach the conclusion that in. such ease Einkelstein will be entitled to some affirmative relief as against Heilner.
Although it is not alleged that Einkelstein surrendered possession of the premises when he conveyed them to Estella and Grace Brumberg, I shall, in accordance with the arguments made on both sides of this motion, infer that fact from the allegations of the cross-bill. It is not specified in the notice of this motion, nor has it been claimed by counsel for Heilner on the argument, that such was not the ease. It would seem that if Einkelstein is found to have made an honest bargain with, his creditors for the satisfaction of his debt that he is entitled as against the actual holder of that debt by a concealed assignment who failed to notify him (Einkelstein) of his (the assignee’s) rights to have the bargain enforced, at least so far as is necessary to secure complete indemnification. If Einkelstein’s bond is good against him in the hands of Heilner, -at least he (Einkelstein) would have an equitable right, it seems to me, in the case stated to have the rental value of the premises which he gave up deducted from the amount which Heilner has a right to recover from him (Einkelstein) or to collect out of the mortgaged premises before Einkelstein’s mortgage is paid. In reliance upon the apparent situation Einkelstein has lost this rental value which otherwise would be in his pocket, and could be applied by him to the reduction of Heilner’s claim.
Whether the contract between Einkelstein and Estella and Grace Brumberg must stand in equity as a bona fide payment of the $9,000 mortgage and a release of the land therefrom, so as to put Einkelstein’s mortgage for $5,000 next to the first mortgage, as counsel for Einkelstein has strenuously insisted, will be left at present an entirely open question. The argument on behalf of Einkelstein is based partly upon general principles of law and equity relating to the rights of debtors’ to pay their
There is perhaps another possibility in regard to the character of the relief to which the defendant Einkelstein may be entitled. It may be that a state of facts will be established by the proofs which will raise the question whether the equity of Einkelstein to be recognized and enforced in this case is not to have the transactions which resulted in the exchange of his equity for a mortgage of $5,000 and the giving of a mortgage of $2,000 to the defendant Isidor Bloch entirely set aside upon terms and under conditions which will also indemnify Einkelstein against loss and place him in the same position which he occupied before these transactions took place.