Opinion
7 Div. 577.
June 18, 1925. Rehearing Denied October 22, 1925.
Appeal from Circuit Court, Calhoun County; R. B. Carr, Judge.
R. T. Goodwyn, of Montgomery, and Rutherford Lapsley, C. H. Young, and Merrill Allen, all of Anniston, for appellants.
An instrument, to be negotiable, must be an unconditional promise to pay a sum certain in money, and payable to order or bearer. Code 1923, § 9029; Weinstein Bros. v. Citizens' Bank, 13 Ala. App. 552, 69 So. 972. Subsequent purchasers of the mortgaged premises have a right to rely upon the recitals of the record of the previous mortgage, and have no notice of anything not contained in the record. If the record does not show the note secured to be negotiable, subsequent purchasers have the right to rely upon a satisfaction made by the original mortgagee. 19 R. C. L. 286; Vann v. Marbury, 100 Ala. 438, 14 So. 273, 23 L.R.A. 325, 46 Am. St. Rep. 70; Hand v. Kemp, 207 Ala. 309, 92 So. 897; Arnold Co. v. Pinckard Lay, 16 Ala. App. 390, 80 So. 164; Ex parte Pinckard Lay, 202 Ala. 699, 80 So. 894; Ogle v. Turpin, 102 Ill. 148.
S.W. Tate, of Anniston, for appellee.
If the note is negotiable, and negotiated before maturity, the assignee alone can collect. Respondent took in subordination to complainant's right, although there is no record of the prior assignment. Barbour Son v. Washington F. M. Ins. Co., 60 Ala. 433; Sherrill v. M. M. Bank, 195 Ala. 175, 70 So. 723; Drinkall v. Movius, 11 N.D. 10, 88 N.W. 724, 57 L.R.A. 341, 95 Am. St. Rep. 693; Wilson v. Campbell, 110 Mich. 580, 68 N.W. 278, 35 L.R.A. 544; Hollinshead v. Globe Inv. Co., 8 N.D. 35, 77 N.W. 89, 42 L.R.A. 659; Marling v. Nommensen, 127 Wis. 363, 106 N.W. 844, 5 L.R.A. (N.S.) 412, 115 Am. St. Rep. 1017, 7 Ann. Cas. 364; Snead v. Barclift, 2 Ala. App. 297, 56 So. 595; Capital City Ins. Co. v. Quinn, 73 Ala. 558. Where a note, transferred as collateral security, is secured by a mortgage, such mortgage follows the note. Thompson v. Maddux, 117 Ala. 468, 23 So. 157; Davies v. Simpson, 201 Ala. 616, 79 So. 48.
The case made by the record is briefly this: A mortgage was given upon lands to secure an indebtedness evidenced by a negotiable promissory note. The mortgagee, for value and before maturity, assigned the note to a holder in due course. After the maturity of the note, and without payment of same, the mortgagee entered satisfaction of the mortgage upon the record thereof. Thereafter the mortgagor executed to a third person a mortgage to secure a loan. This second mortgagee had no notice of the assignment of the former mortgage note, nor that it was still outstanding. No written assignment of the former mortgage was made and recorded.
The mortgage of record expressed the consideration thus:
"To secure an indebtedness of two thousand dollars and other contingent sums owing by myself, Mrs. B. J. Calhoun, widow, to J. H. Wilson, which are evidenced by my promissory notes of even date herewith payable on the 1st day of October, 1920."
The question is: Who has the superior lien upon the land? The general rule is that the proper party to enter satisfaction of a mortgage upon the record is the mortgagee, the person shown by the record to be entitled to receive payment; that an assignment of the mortgage will not be presumed; and that a subsequent bona fide purchaser from the mortgagor, who, without notice of the assignment, has parted with his money, relying upon a cancellation made by the party shown by the record to be the proper party, will be protected against the equity of the assignee. Vann v. Marbury, 100 Ala. 438, 14 So. 273, 23 L.R.A. 325, 46 Am. St. Rep. 70; Hand v. Kemp, 207 Ala. 309, 92 So. 897; 2 Jones on Mortgages, 814, 989; 19 R. C. L. p. 364, § 133; 27 Cyc. 1421, 1431.
In the leading case of Vann v. Marbury, supra, an exception to the above rule is suggested "where the mortgage shows upon its face the negotiable character of the notes it secures, in which event it might be incumbent on a subsequent purchaser to inquire as to whether the notes have been assigned. Keohane v. Smith, 97 Ill. 156; 1 Jones on Mortg. § 814." In Hand v. Kemp, supra, the same qualification is mentioned. Both these cases involved nonnegotiable notes, or paper similarly governed, and the language employed indicates the exception stated is left an open question.
The appellee stresses the rule that only the holder of negotiable paper is entitled to make collection; that payment to the payee after negotiation is void; that no notice of the assignment need be given; that the person making payment is bound at his peril to pay to him who is in position to surrender the paper; and that the mortgage security partakes of the nature, and is entitled to the same protection under the commercial law, as the secured debt. These principles are not questioned. It is further the law that nonnegotiable paper in the hands of an assignee is subject to all payments and set-offs had or acquired before notice of the assignment.
But the incidents of commercial paper in the hands of a holder in due course relate to the parties thereto and those similarly bound. Code, § 9083. We are here dealing with the rights of a third person who not only did not know of an assignment, but had no knowledge of the existence of the negotiable note set up by complainant. A negotiable note must be payable to order or to bearer; must be for a sum certain; must be an unconditional promise. Code, § 9029. The record of the mortgage before us shows none of these incidents. "Two thousand dollars and other contingent sums" shows uncertainty in amount, and shows a condition or contingency upon which the full amount is payable. Appellee's position assumes that it is the duty of third persons contemplating a purchase or the taking of a mortgage on land and finding the record of a mortgage marked satisfied by the mortgagee — a notice of satisfaction by the same person who by placing it to record gave notice of its existence — to go further and ascertain whether the debt was evidenced by negotiable paper, and, if so, any unknown assignee of such paper who may claim under the mortgage, or else find the original papers duly surrendered. This is to render nugatory the entry of satisfaction required by law under penalty, greatly contribute to uncertainty of titles, and involve still greater expense in making abstracts of title.
The assignment of the note secured by mortgage passes merely an equity in the security. The legal title remains in the mortgagee. This passes only upon an assignment in writing, duly executed as other conveyances of land. We have a statute enlarging the effect of a power of sale in the mortgage which passes with the debt, and when exercised has the effect of a foreclosure in equity wherein all parties are present. Code, § 9010. But until the power is exercised, an assignment without apt words of conveyance leaves the legal title in the mortgagee, who is a necessary party to a bill in equity for foreclosure. Langley v. Andrews, 132 Ala. 147, 31 So. 469.
The assignee of the note only, therefore, holds only a secret equity as to third persons having no connection with the paper. The mortgagee holds the legal title in trust, it is true, for the owner of the debt, but it is a secret trust as to outsiders. The law of negotiable instruments is not intended to overturn the rules of law governing titles to land. By failure to take an assignment which is subject to record as other conveyances, the assignee of the note thus leaves the mortgagee the record owner, the actual owner of the legal title, placing him in position to defraud innocent parties. Where one of two innocent persons must suffer, it must be the one who has placed the other in position to be defrauded. The law does not presume fraud, and does not impose upon persons the duty to presume fraud, in the absence of circumstances of suspicion.
Numerous pertinent maxims of the law might be recalled. We would be understood as leaving open the question as to whether there is a further duty when the record of the mortgage shows the secured debt is evidenced by negotiable paper, as our former cases have done, to be decided when occasion arises.
What we now decide is that when the record of the mortgage, not showing the existence of negotiable paper, has been marked satisfied by the mortgagee, there being no assignment of record, a bona fide purchaser or mortgagee of the lands, relying upon the satisfaction of record by the person shown by the record to be the proper person to enter satisfaction, acquires a superior right to the assignee of the note, whether in fact negotiable or not.
There was error in overruling the demurrer to the bill.
Reversed and remanded.
ANDERSON, C. J., and SOMERVILLE and THOMAS, JJ., concur.