First Nat. Bank v. National Grain Corp.

• Decision Date: 23 December 1925
• Citation: 131 A. 404,103 Conn. 657
• Court: Connecticut Supreme Court
• Parties: FIRST NAT. BANK OF BRIDGEPORT v. NATIONAL GRAIN CORPORATION ET AL.

131 A. 404

FIRST NAT. BANK OF BRIDGEPORT v. NATIONAL GRAIN CORPORATION ET AL.

Supreme Court of Errors of Connecticut.

December 23, 1925

Appeal from Superior Court, Fairfield County; Christopher L. Avery and Leonard J. Nickerson, Judges.

Action to foreclose a mortgage by the First National Bank of Bridgeport against the National Grain Corporation and others. Judgment for plaintiff, and defendants appeal. No error.

Israel J. Cohn, of Bridgeport, for appellants.

William H. Comley, of Bridgeport, for appellee.

HAINES, J.

This action was brought to foreclose a mortgage of $83,000, made by the defendant Grain Corporation April 5, 1923, to secure a note of like amount. In the history of the transaction as disclosed by the finding, it appears that the Grain Corporation, on November 8, 1921, owed the bank $30,000, for which the bank held the unsecured note of the Grain Corporation. At the same time the Grain Corporation was a creditor of David Feuer, Samuel Susman, and Benjamin W Brownstein for $83,000, and this was represented by a note for that sum signed by these three debtors, payable on demand, with 6 per cent. interest, and secured by a mortgage on real estate owned by the makers of that note. In this situation, the Grain Corporation, on this date, for the purpose of giving the bank collateral security on its $30,000 note above referred to, assigned this $83,000 note and the mortgage to the bank, and this was duly recorded. The assignment contained the following provisions:

" This assignment is given as collateral security for the payment of a note and the renewal thereof until fully paid, of the National Grain Corporation of even date herewith for the sum of thirty thousand ($30,000) dollars, payable to the order of the First National Bank of Bridgeport, three months from date and indorsed by the said David Feuer, Samuel Susman and Benjamin W. Brownstein, and if said note shall be well and truly paid according to its tenor then this deed shall be void, otherwise to remain in full force and effect."

This situation between the bank and the Grain Corporation remained unchanged till April 5, 1923, save that the note for $30,000 was reduced by payments to $27,500. On the last-mentioned date, Feuer, Susman, and Brownstein deeded their equity in the real estate to the Grain Corporation.

The question then arose between the parties as to a possible merger of the titles to the real estate, and they all thereupon mutually agreed that new papers should replace the old. To carry out this plan, one Resnick was to act as an intermediary in behalf of the bank. The bank released the note of $30,000 and the mortgage and note for $83,000; the release of the mortgage being made direct to the Grain Corporation. Then Resnick signed a new note for the balance of the $30,000, being $27,500, dated April 5, 1923, at three months, payable to the Grain Corporation, and the latter, together with Susman, Brownstein, and Feuer, indorsed and delivered it to the bank. Then the Grain Corporation made a note of $83,000, secured by mortgage covering the same real estate, to Resnick. This mortgage note contained the following conditional clause:

" The condition of this deed is such, that whereas the said grantor is justly indebted to the said grantee in the sum of eighty three thousand ($83,000) dollars as evidenced by its promissory note for said sum of even date herewith, payable to the order of said grantee on demand with 6 per cent. interest payable semiannually. * * *"

The note of $83,000 was indorsed by Resnick, Feuer, Susman, and Brownstein, and turned over to the bank, together with a separate written assignment by Resnick of both the note and mortgage, on April 5, 1923, which assignment contains the following provisions:

" This assignment is given as collateral security for the payment of a note and the renewals thereof until fully paid of the National Grain Corporation of even date herewith for the sum of twenty seven thousand five hundred ($27,500) dollars payable to the order of The First National Bank of Bridgeport three months from date, and indorsed by David Feuer, Samuel Susman, and Benjamin W. Brownstein all of said city of Bridgeport and also as collateral security for any or all other obligations of the The National Grain Corporation, and if said note and all other obligations of the said The National Grain Corporation to the said The First National Bank of Bridgeport, shall be well and truly paid according to their tenor, then this deed shall be void, otherwise to remain in full force and effect."

The release and the new mortgage and the assignment were duly recorded, the last two on April 10, 1923, on the land records of Bridgeport.

It will thus be seen that, upon the completion of this transaction under date of April 5, 1923, the bank held a note for $27,500 which was considered and treated by all parties as the primary obligation of the Grain Corporation, and, as collateral security for that note and for " all other obligations" of the Grain Corporation to the bank, it held the note and mortgage of $83,000 made by the Grain Corporation. This situation was fully disclosed upon the land records of Bridgeport by the record of the mortgage, and of the assignment made in conjunction therewith. The " other obligations" of the Grain Corporation to the bank, on April 5, 1923, were certain notes of the corporation amounting to over $60,000, but this fact, of course, was not discoverable upon the land records.

Save for some relatively small payments made by the Grain Corporation to the bank, there was no change in the relations of the parties till November 23, 1923, when the Grain Corporation was adjudicated in bankruptcy. The present action was brought by the bank February 12, 1924, for the foreclosure of the above-described mortgage of $83,000, and the trustee appointed in the bankruptcy proceedings appears in behalf of the general creditors of the Grain Corporation, and defends generally on the ground that the mortgage for $83,000 is not, so far as the general creditors are concerned, a valid and enforceable mortgage, because the land records did not disclose " the real, true, and entire nature, purpose, and extent of the obligations in fact sought to be secured thereby," and that in any event this mortgage can only be held to secure the payment of the $26,500 remaining unpaid of the note of $27,500. From the adverse judgment of the trial court, the defendants appeal.

Since this is the pivotal question raised by the appeal, and is properly presented by the finding as it stands, it will first be considered. It will be assumed, as admitted by defendants in their brief, " that all the parties to the present transaction acted in good faith," and all questions of fraudulent intent may be laid out of the case. The presumption obtains, in the absence of evidence to the contrary, that the note for $83,000 and the mortgage securing it are valid subsisting obligations, and the defendants, in denying the validity, assumed the burden of proof. McLoughlin v. Shaw, 95 Conn. 102, 105, 111 A. 62.

The general rule of law in this jurisdiction, having in mind the purpose and effect of our recording system, undoubtedly is as the defendants contend, that valid and enforceable mortgages, so far as the rights of subsequent claimants are concerned, must show by their record with reasonable certainty the real nature of the transaction involved, so far as it can be disclosed, so that such claimants may be able to determine the real facts, or may be so informed that they can, by common prudence and by the exercise of ordinary diligence, ascertain the extent of the incumbrance. Lampson Lumber Co. v. Chiarelli, 100 Conn. 301, 306, 123 A. 909; Rosenbluth v. De Forest & Hotchkiss Co., 85 Conn. 40, 47, 81 A. 955; Beach v. Osborne, 74 Conn. 405, 411, 50 A. 1019, 1118; Ives v. Stone, 51 Conn. 446, 456; Merrills v. Swift, 18 Conn....