Federal Land Bank of New Orleans v. Branscomb

• Decision Date: 18 June 1925
• Docket Number: 7 Div. 577
• Parties: FEDERAL LAND BANK OF NEW ORLEANS et al. v. BRANSCOMB.
• Court: Alabama Supreme Court

105 So. 585

213 Ala. 567

FEDERAL LAND BANK OF NEW ORLEANS et al. v. BRANSCOMB.

7 Div. 577

Supreme Court of Alabama

June 18, 1925

Rehearing Denied Oct. 22, 1925

Appeal from Circuit Court, Calhoun County; R.B. Carr, Judge.

Bill in equity by L.C. Branscomb against the Federal Land Bank of New Orleans and others. From a decree on demurrer, respondents appeal. Reversed and remanded.

R.T Goodwyn, of Montgomery, and Rutherford Lapsley, C.H. Young and Merrill & Allen, all of Anniston, for appellants.

S.W Tate, of Anniston, for appellee.

BOULDIN J.

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 the 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...