Argued April 22, 1889
Decided May 3, 1889
E. Countryman for appellants. Henry Bacon for respondent.
The lien of plaintiff's mortgage was prior to that of the mortgage of Ramsdell Co., before they assigned it to a bona fide purchaser, because they accepted the latter without actual notice of the existence of the former. But after the purchase of the Ramsdell mortgage by the executors of De Wint, in good faith and for full value, it became, in their hands, prior in lien to that of plaintiff's mortgage, owing to the protection afforded by the recording act. Upon the former appeal this court sought to protect the equity of plaintiff as against Ramsdell Co. by permitting her to acquire the rights which the executors of De Wint had obtained by their purchase, including the guaranty contained in the assignment of the Ramsdell mortgage. ( Clarke v. Mackin, 95 N.Y. 346.) Prior to the judgment of this court, however, the land in question had been sold under the decree based upon the Ramsdell mortgage, and Ramsdell Co., had discharged their guaranty by payment of the deficiency. Otherwise the plaintiff could have acquired the Ramsdell mortgage and could have been subrogated to the rights of the holders thereof. If a sale had been made, she would have been entitled to have her mortgage first paid out of the proceeds, and after application of the residue upon the other mortgage could have collected from Ramsdell Co. any deficiency then remaining. In order to accomplish the same result in the only way then available, a supplemental complaint was filed and the parties who were necessary, owing to the change of circumstances, were brought in. Upon the trial of the new issues, the court found that Ramsdell Co. were virtually the purchasers at the foreclosure sale, and that the defendant Carvey took title from their representative upon being indemnified by them against loss by reason of plaintiff's claim to priority, of which claim he was fully informed. The situation is, therefore, the same as if Ramsdell Co. now owned the premises through a purchase in their own names under the decree of foreclosure. The question presented is, whether such a purchase by them, under all the circumstances, would give them a title free from the lien of plaintiff's mortgage. The appellants claim that it would, upon the ground that a purchase from one who is protected by the recording act against a prior unrecorded mortgage is himself protected, even if he had actual notice at the time of his purchase. It is clear that a sale to anyone except Ramsdell Co., or their representative, would have destroyed the lien of plaintiff's mortgage. But a sale to Ramsdell Co., or to one who purchased for them, would not have this effect. As the lien of their mortgage, while they held it, was subject to that of the plaintiff's, so their title acquired under that mortgage would be subject to the same lien. By selling the mortgage they did not destroy plaintiff's equity, but simply prevented her from asserting it against a bona fide purchaser. If they had afterward bought the mortgage, the equity would have at once re-attached, and when they bought the land upon a sale under the mortgage, the equity of plaintiff's lien forthwith revived.
It is a familiar principle that where one purchases with full notice of the equitable claim of another to the same property, he will not be permitted to protect himself against that claim, but his own title will be postponed and made subservient to it. This is upon the ground that he is guilty of constructive fraud. If, however, he transfers to a bona fide purchaser, the latter not only takes a good title, but can transfer a good title even to one who purchases with notice of the facts, as otherwise the bona fide purchaser could not get the market-value of his property. To this general rule, however, there is an exception. The principle of protection does not extend to the one guilty of the constructive fraud, even if he purchases from a bona fide purchaser.
The rule as stated in Story's Equity Jurisprudence (§ 410) is, "that it is wholly immaterial of what nature the equity is, whether it is a lien or an incumbrance, or a trust or any other claim; for a bona fide purchaser of an estate, for a valuable consideration, purges away the equity from the estate, in the hands of all persons who may derive title under it, with the exception of the original party, whose conscience stands bound by the violation of his trust and meditated fraud. But if the estate becomes revested in him, the original equity will re-attach to it in his hands."
The rule and the exception are laid down in Pomeroy's Equity Jurisprudence (§ 754), as follows: "If the title to land, having passed through successive grantees, and subject in the hands of each to prior outstanding equities, comes to a purchaser for value and without notice, it is at once freed from these equities; he obtains a valid title, and, with a single exception, the full power of disposition. This exception is, that such a title cannot be conveyed, free from the prior equities, back to a former owner who was charged with notice."
The authorities are uniform upon the subject, so far, at least, as they apply to the facts of this case. ( Schutt v. Large, 6 Barb. 373, 380; Ely v. Wilcox, 26 Wis. 91; Church v. Ruland, 64 Pa. 432; Quinn v. Fuller, 7 Cush. 224; Kost v. Bender, 25 Mich. 515; Daniel on Negotiable Inst. § 805.)
The appellants insist that the witnesses McNeal should not have been permitted to testify to conversations between themselves and George W. Townsend, deceased, upon the ground that such evidence was inadmissible under section 829 of the Code of Civil Procedure.
We think the evidence was competent. The plaintiff did not derive her title to the mortgage through either of the McNeals. Neither of them ever owned it. They were not called in their own behalf, nor in behalf of a person who had succeeded to their interest. The action could not have so resulted as to add to or take from their liability. One of them was not a party to the action, and the other interposed no defense.
The judgment should be affirmed, with costs.
All concur, except BROWN, J., not sitting.