Burgess v. Bragaw
| Decision Date | 05 May 1892 |
| Citation | 52 N.W. 45,49 Minn. 462 |
| Parties | James L. Burgess v. Abraham Bragaw |
| Court | Minnesota Supreme Court |
Appeal by plaintiff, James L. Burgess, from an order of the District Court of Ramsey County, Kerr, J., made March 3, 1892 overruling his demurrer to the answer.
On May 7, 1887, William M. Bushnell, Alvin R. Bushnell, George E Routh, E. E. Jackson, William Rhodes, and the plaintiff jointly purchased of Cornelius H. Murphy the north half of the northeast quarter of the southeast quarter of section ten (10) in Township twenty-nine (29) north, of Range twenty-three (23) west, in Ramsey county, and paid for it $ 10,400, and for convenience had it conveyed to Randall F Hurd, who was a clerk of the Bushnells, and who executed and delivered to the six purchasers a contract to hold and convey the land for their benefit and as they should direct. This contract was sealed, but not witnessed, and was never recorded. Hurd, in violation of this contract, soon after fraudulently conveyed it by quitclaim deed and without consideration to the two Bushnells, and they fraudulently conveyed it with warranty on September 1, 1891, to Edwin Bucknell, another clerk of theirs, who paid no consideration for it, but agreed with the Bushnells to hold, convey, and mortgage it as they should direct, he knowing all the facts above stated. On September 2, 1891, Bucknell and wife made and delivered to the two Bushnells, without consideration his note for $ 5,000, due in five years, with interest payable semiannually at the rate of seven per cent. a year and fraudulently secured it by a mortgage to them on this land. He owed them nothing, but made the note and mortgage at their request, to enable them to sell and assign it to raise money for their use. The deeds and the mortgage were all duly recorded. They sold and assigned the note and mortgage to the defendant, Abraham Bragaw, on September 10, 1891, who bought and paid $ 5,000 for them, without notice of any fact not disclosed by the record. He received the note and mortgage, and put his assignment on record. Hurd died intestate and insolvent. The two Bushnells and Bucknell are also all insolvent, and the land is now worth no more than the face of the mortgage.
The complaint stated these facts, and prayed that the mortgage and assignment, and the record thereof, be adjudged fraudulent and void as against plaintiff, and that he have such other and further relief as should be found appropriate and equitable. The defendant answered stating that the Hurd contract was never recorded; that he had no notice of it; that he bought and paid $ 5,000 for the note and mortgage in good faith, believing the security to be a valid first incumbrance on the land. He prayed judgment dismissing the action on the merits and for costs. The plaintiff demurred to the answer, on the ground that it did not state facts sufficient to constitute a defense. The trial court overruled the demurrer, saying:
It is settled as the law, in this state at least, that, as between the mortgagor and an assignee of the mortgage, the assignment does not affect the rights of the former as they exist between him and the mortgagee at the date of the assignment, or perhaps at the date of notice of it by the mortgagor.
But it is equally well settled, both upon principle and authority, that the equities thus preserved are those residing in the original obligor, and that such an assignee does not take the mortgage subject to the latent equities of a stranger to the record.
In this case the plaintiff is such a stranger; the gravamen of his plaint is, not that the mortgage was without consideration, which would perhaps be a defense equally available to the mortgagor, but that Hurd and the mortgagor and mortgagee conspired together to deprive the plaintiff of the benefit of a secret equity which he held in the land while the title was in Hurd, and its proceeds, if sold by the Bushnells.
It would be stretching the doctrine beyond any application of it yet made, so far as I can discover, to hold that in such a case the equities of the secret cestui que trust are superior to those of the bona fide assignee of the mortgage.
Aside from this, the course and conduct of the plaintiff, in my opinion, preclude the relief here sought. He reposed such confidence in Hurd and the Bushnells as to authorize them, the trust remaining secret, to dispose of the property as they might see fit. Clothed with this apparent authority, they manipulated it so as to secure from the defendant a large sum of money upon the strength of the title and right to convey and mortgage. To permit the plaintiff after this to assert his equities and enforce his secret trust, as against the defendant, would to my mind be manifestly inequitable.
If plaintiff has been deceived and injured, it is he alone who placed it in the power of Hurd and the Bushnells and Bucknells to perpetrate the fraud, and he should sustain the loss rather than the defendant.
There is no pretense here that every indicia of title and right was not in the parties through whom plaintiff claims, which fact distinguishes the case from some that have been cited by counsel.
Order affirmed.
William G. White, for appellant.
The plaintiff was an equitable owner of an interest in this real estate, and can maintain this action to remove a cloud from his title; this has been distinctly decided by this court. Redin v. Branhan, 43 Minn. 283; Doe v. Doe, 37 N.H. 268; Kimberly v. Fox, 27 Conn. 307; Churchill v. Proctor, 31 Minn. 129.
The mortgage in question, being entirely without consideration, was of no force against the plaintiff's rights while it was held by the Bushnells, and its assignment to defendant gave it no new life or vitality, and in no way changed or modified its character, so far as the plaintiff is concerned. Johnson v. Carpenter, 7 Minn. 176, (Gil. 120;) Hostetter v. Alexander, 22 Minn. 559; Redin v. Branhan, 43 Minn. 283; Blumenthal v. Jassoy, 29 Minn. 177; Oster v. Mickley, 35 Minn. 245; Devlin v. Quigg, 44 Minn. 534.
From all these cases it is very manifest that the doctrine insisted upon by plaintiff has been fully recognized and applied in this state. The mortgage of the defendant is a mere chose in action. It was void as against the plaintiff in the hands of the Bushnells, and it is equally so in the hands of the defendant. It was never a mortgage at all, because there was no debt which it could secure, and if it was not at its inception, it certainly did not become one when it was assigned to defendant.
If the defendant claims that he is a bona fide purchaser of the mortgage, free from the equities of the plaintiff, he must allege in the answer the facts which show that he is such a purchaser. Newton v. Newton, 46 Minn. 33.
It was the duty of defendant to inquire of the mortgagor as to the character of the mortgage. Had he done so, it must be presumed that he would have discovered its true character. It is his negligence in this respect that will occasion his loss if the mortgage is held invalid. Olds v. Cummings, 31 Ill. 192; Silverman v. Bullock, 98 Ill. 20; Norton v. Rose, 2 Wash. (Va.) 233; Crosby v. Tanner, 40 Iowa 136.
If Hurd was not estopped, then the plaintiff may also attack the mortgage. His rights are at least equal to those of Hurd. The elements of an equitable estoppel do not exist in this case against the plaintiff. Nell v. Dayton, 43 Minn. 245; O'Mulcahy v. Holley, 28 Minn. 31.
The rule that, when one of two innocent persons must suffer, the one whose act has caused the loss must bear it, has no application to this case so far as plaintiff's rights are concerned. If it applies at all, it is against the defendant, because his negligence in not inquiring of the mortgagor as to the true character of the mortgage has caused the loss in this case.
Davis, Kellogg & Severance, for respondent.
It must be admitted that this court has held that the assignee of a mortgage takes it subject to any defenses that the mortgagor might have in the hands of the original mortgagee. Although this is contrary to the great weight of authority, the decisions are not at all inconsistent with the position of the defendant in this case. It should not be the policy of this court to extend this doctrine beyond the strict limits of these...
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