Summary
upholding a prior assignment of a mortgage, even though it was not timely recorded
Summary of this case from Quintero Family Trust v. Onewest BankOpinion
Department Two
Hearing In Bank Denied.
Appeal from a judgment of the Superior Court of Yolo County, and from an order denying a new trial. W. H. Grant, Judge.
COUNSEL:
Moseley, possessing the mortgage and a note, which was a true copy of the note set forth in the mortgage, and selling the same to Sargent, was the presumptive owner and holder of the note and mortgage, and warranted their validity. (Civ. Code, sec. 1774.) The bank, in failing to record the assignment of the mortgage and allowing Moseley to retain the mortgage, was guilty of negligence, and the bank should suffer the loss rather than Sargent. (Civ. Code, sec. 3543; Schultz v. McLean , 93 Cal. 329; Graff v. Middleton , 43 Cal. 341; Harris v. Hillegass , 66 Cal. 79.) There was no delivery of the mortgage, and the transfer to the bank was fraudulent as against subsequent purchasers. (Civ. Code, sec. 3440.) It requires a deed to make a legal assignment. (Young v. Miller, 6 Gray, 152.) An assignment of mortgage may be recorded. (Civ. Code, secs. 858, 1158, 2934.) The first record of a lien has priority over a prior unrecorded lien. (Civ. Code, sec. 1107; Hoag v. Howard , 55 Cal. 564; Dingley v. Bank of Ventura , 57 Cal. 467; Mesick v. Sunderland , 6 Cal. 297; Bird v. Dennison , 7 Cal. 297.) The indorsement of a note carries with it the security only as between the parties to the transaction, but is void as against third persons. (Downing v. Le Du , 82 Cal. 471.) The agreement to purchase the McBride note as security did not create a ien in favor of the bank. (Hitchcock v. Hassett , 71 Cal. 331.) The assignee of a mortgage who first records the assignment gains the better title against any unrecorded instrument if he paid full value for it at the time of taking it. (1 Jones on Mortgages, 2d ed., 476; Purdy v. Huntington , 42 N.Y. 334; 1 Am. Rep. 532; Greene v. Warnick , 64 N.Y. 220; Viele v. Judson , 82 N.Y. 32; Bacon v. Schoonhoven , 87 N.Y. 446; State Bank v. Anderson, 14 Iowa 544; 83 Am. Dec. 390; McClure v. Burris, 16 Iowa 591; Daws v. Craig, 62 Iowa 515; Parmenter v. Oakley, 69 Iowa 388; Connecticut etc. Ins. Co. v. Talbot , 113 Ind. 373, 377; 3 Am. St. Rep. 655; Swartz v. Leist, 13 Ohio St. 419; Boone on Mortgages, sec. 92; 1 Jones on Mortgages, sec. 472; Reeves v. Hayes , 95 Ind. 521; Gregory v. Savage , 32 Conn. 260; McCormick v. Bauer , 122 Ill. 573; Miller v. Hicken , 92 Cal. 232.) The bank is estopped by its silence. (Ayres v. Palmer , 57 Cal. 309.) The acceptance of the new note and new assignment was a novation by the bank, and extinguished the old obligation, and waived all prior assignments. (Civ. Code, secs. 1473, 1530; Merrill v. First Nat. Bank , 94 Cal. 59.) If the note of Sargent was forged, nevertheless the assignment of the mortgage, together with the note therein described, conveyed the whole right to the note and to its security, and he is entitled thereto as against the bank. (Kernohan v. Durham, 48 Ohio St. 1.) Sargent has a perfect equity, and is to be regarded in equity as the owner. (Davis v. Baugh , 59 Cal. 568; Walkerly v. Bacon , 85 Cal. 137.)
Woods & Levinsky, for Appellant.
Frank H. Smith, and W. C. Green, for Respondents.
The indorsement and delivery of the note carried with it the mortgage, and the right to foreclose it. (Civ. Code, sec. 2936; Ord v. McKee , 5 Cal. 515; Storch v. McCain , 85 Cal. 304; Preston v. Morris Case & Co ., 42 Iowa 549.) The delivery to Sargent of the genuine mortgage was ineffectual to transfer the genuine note, and without the genuine note the mortgage is of no value and has no assignable quality. (Polhemus v. Trainer , 30 Cal. 686; Brown v. Witts , 57 Cal. 304; Kellogg v. Smith , 26 N.Y. 18.) A note secured by mortgage has all the characteristics and privileges of commercial paper. (Kellogg v. Smith, supra ; Clasey v. Sigg, 51 Iowa 371; Lewis v. Kirk, 28 Kan. 501; 42 Am. Rep. 173; Briggs v. Rice , 130 Mass. 50; Miller v. Larned , 103 Ill. 575; Logan v. Smith , 62 Mo. 455; McCracken v. German Fire Ins. Co ., 43 Md 471; Walker v. Kee , 14 S.C. 142.) A mortgage is not negotiable paper, and, when separated from the debt it was given to secure, has no commercial existence or value. (Logan v. Smith , 62 Mo. 459.) The holder of the genuine note may subject the land to the lien of the mortgage. (Salem Bank v. Gloucester Bank , 17 Mass. 1; 9 Am. Dec. 111; Tabor v. Foy, 56 Iowa 540; Citizens' State Bank v. Adams , 91 Ind. 280; Colson v. Arnot , 57 N.Y. 253; 15 Am. Rep. 496; Woodruff v. Munroe , 33 Md. 146; Buckley v. Second Nat. Bank , 35 N. J. L. 400; 10 Am. St. Rep. 249; Palm v. Watt, 7 Hun, 317; Randolph on Commercial Paper, sec. 1777, and notes.) The bank, having no actual notice of Sargent's claim, is entitled to recover the full amount of its indebtedness. (Citizens' State Bank v. Adams, supra ; Clasey v. Sigg, supra; Colebrooke on Collateral Securities, sec. 90; Miller v. Hicken , 92 Cal. 233.)
JUDGES: McFarland, J. Henshaw, J., and Temple, J., concurred.
OPINION
McFARLAND, Judge
The plaintiff Adler, being the owner of certain premises upon which there was a mortgage executed by a former owner, and being desirous of paying the amount of the mortgage, discovered that there were hostile claimants of the ownership of said mortgage. Thereupon he brought this action to have it determined to whom the amount of money due upon the mortgage should be paid, and deposited said money in court. He made Sidney Newell, R. C. Sargent, Francis Cogswell, and the Bank of Lodi defendants. The action was dismissed as to Newell; and Cogswell having filed a disclaimer, the contest was between the defendants Sargent and the Bank of Lodi. The court found in favor of the Bank of Lodi, and judgment was rendered that the money be paid to said bank. Sargent appeals from the judgment, and from an order denying his motion for a new trial.
The mortgage in question was executed on October 4, 1890, by A. H. McBride to J. F. Moseley, to secure a promissory note of that date made by McBride to Moseley, or order, for seven thousand dollars, payable "one year with privilege of two years after date." On the note was written, "Secured by mortgage." The other facts found by the court, and necessary to be noticed, are (briefly) these: In December, 1890, the said Moseley indorsed said note in blank, and delivered it to Guy W. Currier, cashier of said Bank of Lodi, "for the use and benefit of said bank and not otherwise," and also a written assignment of said mortgage; but he did not deliver the said mortgage to the bank until after the commencement of this action. The note and assignment remained in the possession of the bank continuously from that time until the commencement of this action as collateral security for moneys loaned by said bank to said Moseley. During all of that time Moseley was largely indebted to the bank; and at the commencement of the action he was thus indebted in an amount greater than the amount due on said mortgage. But the said assignment was not recorded. In April, 1891, Moseley made a copy of the note, and forged the name of McBride thereto, and indorsed and transferred the same with an assignment of the mortgage and the genuine mortgage itself to said defendant Newell. Afterward, on August 17, 1891, he made a second copy of said note, and forged the name of McBride thereto, and having by some means obtained possession of the mortgage from Newell, he indorsed the second copy and delivered it, together with the mortgage and also a written assignment of the mortgage, to the defendant Sargent, who paid Moseley therefor the full amount due upon the note. The assignment of the mortgage had in it this language: "Together with the note therein described, and the money [41 P. 800] due and to grow due thereon, with interest." This assignment was recorded in the recorder's office of the county where the premises are situated on August 19, 1891. Sargent had no knowledge that the note had been transferred or the mortgage assigned to any other person; and supposed that the copy which he received was the genuine note referred to in the mortgage. He also made due inquiries, and found that the mortgage stood in Moseley's name on the records. In December, 1891, Moseley, being indebted to the bank in the sum of eleven thousand six hundred and thirty-seven dollars and thirty-one cents, gave his note for that amount indorsed by Francis Cogswell; and the said McBride note not being considered sufficient security, Moseley was requested to furnish more collateral, which he promised to do; and on the following day he sent to Cogswell an assignment of a forged note and mortgage of one Clark for twenty-three thousand one hundred and sixty-eight dollars. In this assignment he also included an assignment of the McBride note and mortgage which the bank already held; but this was not done at the bank's request, as the bank deemed its title perfect. This last assignment was, however, afterward recorded on June 30, 1892. Cogswell was cashier of the bank, and took said note and assignment for the bank, and never had any interest in the same.
Appellant contends that some of the findings of fact are not sustained by the evidence; but this contention cannot be sustained. There was a fair amount of evidence tending to prove each fact found.
The transcript shows over forty exceptions to rulings of the court in relation to the admissibility of evidence; but, as these exceptions are not much pressed in the briefs, we will pass this part of the case with the remark that none of said rulings about the correctness of which there can be any doubt are of importance enough to work a reversal of the case.
The real question in the case, and one that is elaborately and ably argued, is whether, under the facts found, the court correctly awarded the mortgage money to the bank. It is contended that the title of the bank is invalid, because there was no delivery to it of the mortgage -- that is, the paper on which the contract of mortgage was written. But the bank had the note to secure which the mortgage was executed, and "the assignment of a debt secured by mortgage carries with it the security." (Civ. Code, sec. 2936.) Appellant contends that such assignment is good only "as between the parties," and void as to certain third persons -- subsequent purchasers in good faith, etc. But transactions good between the parties thereto are good as against all others, unless there be some law to the contrary. Now, the general law which governs the point in question is, that the assignment of the debt carries the mortgage; and, unless there be some other law to the contrary, one in possession of a mere instrument of mortgage, which purports on its face to be security for a certain note, is bound to know that if the note had been assigned to another the mortgage is of no legal value to him.
The only other law that can be plausibly invoked is to be found in the recordation laws. These are purely statutory; and whoever founds a right upon them must point out the statutory language which gives him such right. Some of the argument of counsel for appellant would be very forcible if addressed to the question, What ought the law about the recordation of assignments of mortgages to be? It might be well, perhaps, if recording of, or the failure to record, had the same effect upon such assignments as upon grants, mortgages, etc., but such is not the provision of the code. The contention of appellant is, that the (so-called) assignment to him on August 17, 1891, and recorded two days afterward, is paramount to the prior indorsement and transfer of the note and assignment of the mortgage to respondent, because the latter was not recorded. But, in the first place, there was no valid assignment to appellant, because the note to which the mortgage was an incident had already been assigned to, and was in the possession of, the respondent, who had also a written assignment of the mortgage, if that were necessary to give any further validity to the transaction. And, in the second place, section 1107 of the Civil Code, relied on by appellant, applies only to grants of real estate. The language is: "Every grant of an estate in real property" is conclusive, etc., except as against one who, in good faith, acquires a title or lien "by an instrument that is first duly recorded." But an assignment of a mortgage is not a "grant of an estate in real property." A mortgage itself is not such a grant, although it is specially provided that mortgages of real property may be "recorded in like manner and with like effect as grants thereof." (Civ. Code, sec. 2952.) The provision about the recordation of an assignment of a mortgage is in section 2934; and the provision is that "such record operates as notice to all persons subsequently deriving title to the mortgage from the assignor." There is no provision as to prior assignees, or that the recordation should have "like effect" as recordations of grants. Probably the legislature did not intend to hamper too greatly the transfer and exchange of debts and obligations secured by mortgages, which are usually in the shape of negotiable paper; but, whatever the reason, we must observe the language of the code.
We see nothing in the point that respondent waived all prior rights by receiving the note and assignment made by Moseley on December 30, 1891. The second assignment of the McBride mortgage was, without the request or desire of respondent, included by Moseley in an assignment which he sent of the forged Clark note and mortgage. If this was of any consequence, it was, in law, nothing more than a further assurance, and its acceptance by respondent was in no sense a waiver of its existing title. Neither is it of any importance that appellant got possession of the mortgage; for, b eing a mere incident to the debt, it belongs [41 P. 801] to the holder of the note, and could be foreclosed only by the latter. In Ord v. McKee , 5 Cal. 515, the note had been made to Ord, and the mortgage to secure it had been made to McKee, and the court said: "Nor can his right of action be defeated on the ground that the mortgage to secure the payment of the note was made to McKee, and not to himself. A mortgage is a mere incident to the debt which it secures, and follows the transfer of a note with the full effect of a regular assignment. Ord, having the right to the note, had undoubtedly a right to foreclose the mortgage."
We see no reason to disturb the judgment. The appellant, Sargent, has no doubt suffered great loss; but that is usually the case where a man, though careful and prudent, has been deceived by a forgery.
The judgment and order appealed from are affirmed.