Burdett v. Clay

• Decision Date: 28 January 1847
• Citation: 47 Ky. 287
• Parties: Burdett, & c. v. Clay, & c.
• Court: Kentucky Court of Appeals

47 Ky. 287

Burdett, & c. v. Clay, & c.

Court of Appeals of Kentucky.

January 28, 1847

Mortgages. Liens. Assignment of mortgage debts.

ERROR TO THE MADISON CIRCUIT.

B. &amp A. Monroe, J. & W. L. Harlan and Ballinger for Burdett, & c.

Caperton and Dunlap for Letcher, & c.: Turner for Clay.

OPINION

MARSHALL CHIEF JUSTICE.

Case stated in the bill and amended bill.

ON the 20th day of August, 1840, William Myers executed a mortgage which was recorded on the day of its date, upon 500 acres of land, to Nelson Burdett, Wm. Hoskins, John Rout and Abram Smith, to secure the payment of several bills of exchange to the amount of $12,000, payable in New Orleans, which they had indorsed and which he proposed to negotiate at any or several of the Banks of Kentucky. On the 10th day of October, he executed a second mortgage, recorded on the 13th, on the same land and several slaves, to Isaac M. Myers, Wm. Hoskins, R. P. Letcher and J. H. Letcher, to secure a debt of $701, due to R. P. Letcher, and to secure the payment of several specified debts in which one or more of the other mortgagees, (except R. P. Letcher,) were his sureties. On the 30th of December, 1840, he executed a third mortgage, recorded on the 5th of March following, on the same land, to C. M. Clay, to secure a debt of $6,000 due two years afterwards. This note was assigned to B. J. Clay, who in January, 1843, filed his bill for foreclosure, & c., against the mortgagor and last mortgagee alone. He afterwards filed amended bills noticing the first and second mortgages and bringing the mortgagees therein before the Court, but making no other parties. He alleges that the bills of exchange referred to in the first mortgage, if ever negotiated, had been paid without loss to the indorsers, and that the debts mentioned in the second mortgage had been paid without loss to the sureties, and calls for specific statements on the subject.

The answer of the first mortgagees states that the mortgage was made to secure them as indorsers of several bills of exchange drawn by Wm. Myers and payable in New Orleans; that one of said bills of exchange for $4,000, dated 29th of August, 1840, & c., and negotiated at the Danville Branch, & c., was paid by Myers, and goes on to say, " another bill of exchange was negotiated at same branch, which was not met at maturity, but the same, with costs of protest and interest, amounting to the sum of $4,074 40, (excepting a small portion paid by Wm. Myers,) was, on the 17th day of November, 1842, paid off by the mortgagees," & c., & c. " Another bill of exchange, for $4,000, was, on the 24th of August, 1840, drawn by Wm. Myers and indorsed by the mortgagees and negotiated at the Richmond Branch, which was not met at maturity," & c., but a part of which being unpaid by Wm. Myers, the mort gagees had paid, & c. The sums paid by the mortgagees on the two bills, are specified, and denying that they had any other indemnity or means of payment o?? reimbursement, except in the mortgage, they pray for a foreclosure.

The answer of the first mortgagees.

In a subsequent amended bill many interrogatories are put to the several defendants with regard to the condition of the various debts in which they were interested, and as to the manner and means of their payment, and the first mortgagees are called upon to exhibit the bills of exchange referred to, but there is no suggestion in any pleading on the part of the complainant, that the bills which had been referred to in the answer, and those afterwards filed were not the identical bills referred to in the mortgage. The three bills exhibited in the record all bear date after the date of the mortgage, two of them in the same month of August, 1840, and the other as late as September, 1841. An amended answer and cross bill filed by one of the mortgagees and adadmitted by the others who were defendants thereto, states that the three bills were indorsed by the mortgagees in blank, with nothing but the sum, " $4,000," at the top of each in figures, and in that condition delivered to the mortgagor as soon as the mortgage was acknowledged. And this fact is proved by two witnesses. The same answer alleges that the bills afterwards remained in the possession of the mortgagor until they were negotiated at bank, and the dates then filled, & c.; which is also proved by the mortgagor who identifies the three bills exhibited as being the same which were indorsed at the date of the mortgage, and referred to and intended to be secured thereby.

Second amended bill making mortgagees in two prior mortgages parties.

The entire mortgaged estate was sold during the progress of the cause, and the proceeds having been considerably less than the aggregate amount of the debts claimed to be secured by the several mortgages, the Court, by its decree, postponed the claim of the first mortgagees, so far as it was founded on the bill of September, 1841, and also postponed several of the claims under the second mortgage on account of charges made in the debts therein mentioned, and gave precedence to Clay's demand before these postponed claims.

The mortgaged effects sold and decree distributing the funds which is sought to be reversed.

To reverse this decree the first mortgagees prosecute a writ of error, the other postponed parties assign cross errors, and Clay also complains by cross errors, that his debt was not sufficiently preferred, and that too large a credit was allowed upon it.

The decree decides that Clay's mortgage, though not recorded nor lodged for record until after the expiration of sixty days from its execution, took effect as a recorded instrument from the time it was lodged for record, and was then notice to the senior mortgagees and all others. But although this question has been argued, we do not consider its decision necessary in the present case, because conceding that the recording of the third mortgage, whenever done, was constructive notice of the lien thereby created, this notice could only operate upon rights subsequently acquired or attempted to be acquired in the mortgaged property, and could not cut down any previous lien then existing, nor impose any active duty on the prior mortgagees, to be performed by them for the benefit of the junior mortgagee. Actual notice of a junior mortgage, though it might require greater caution in the exercise of his rights by the senior mortgagee, could not restrict them, farther than to postpone any new liens or burthens attempted to be placed by them upon the estate, though under the authority of the first mortgage, and to require good faith with respect to the old ones. But if the junior mortgagee may, to any extent, insist upon the effect of recording his mortgage as notice to the senior mortgagee, much more must he be bound to notice the senior mortgage, which being duly recorded is valid against all subsequent incumbrances. We do not understand, however, that mere constructive notice, though it operates upon the rights of parties, is regarded as affecting the conscience.

The real questions with regard to the first mortgage are: 1st. Whether it was in its inception, a valid security for the bills referred to. 2nd. Whether these bills exhibited are the identical bills secured by that mortgage; and, 3rd. Whether the mortgagees have, by their acts or omissions, lost the benefit of the security.

Questions arising in the case.

1. The mortgage describes the land conveyed so as to leave no room for doubt or question. It fixes the extent of the indemnity, viz: $12,000. It states the nature of the liability to which the indemnity is to apply, and it shows that this liability is to arise by the future negotiation of the bills, or some of them, by the mortgagor.

In the case of Nelson's heirs vs Boyce, (7 J. J. Marshall, 401,) a recorded mortgage to indemnify against future securityships, to be undertaken by the mortgagee at the request of the mortgagors, was held to be valid and to afford effectual indemnity for a future securityship entered into after the mortgagor had sold the estate to another, but without actual knowledge of that fact by the mortgagee. In the case of Thornton, & c. vs Knox's heirs, (6 B. Monroc, 74,) it was decided that a recorded deed of absolute conveyance, reciting the consideration as paid or secured to be paid, without specification of the sum remaining unpaid, or of the time or times of payment, was a sufficient evidence of a lien to bind the land in the hands of a subsequent purchaser.

The case of Nelson's heirs vs Boyce, (7 J. J. Marshall, 401,) and T...