George F. Perry & Sons, Inc. v. Mand

• Decision Date: 01 February 1932
• Docket Number: No. 60.,60.
• Citation: 158 A. 378
• Parties: GEORGE F. PERRY & SONS, Inc. v. MAND et al.
• Court: New Jersey Supreme Court

158 A. 378

GEORGE F. PERRY & SONS, Inc.

v. MAND et al.

No. 60.

Court of Errors and Appeals of New Jersey.

Feb. 1, 1932.

Syllabus by the Court.

P. took from Z., in satisfaction of its claim against Z. for merchandise sold, an assignment of a mortgage made to Z. P. had no knowledge that Z. had previously agreed to assign the mortgage in question to S. as security for a loan. Held: that P. acquired the mortgage free of the secret equity in favor of S.

Appeal from Court of Chancery.

Suit by George F. Perry & Sons, Inc., against Max Mand and others. From a decree dismissing the bill (107 N. J. Eq. 102, 151 A. 735), complainant appeals.

Reversed.

Stein, McGlynn & Hannoch, of Newark, for appellant.

Samuel H. Nelson, of Newark, for respondents Max and Sarah Mand.

George H. Rosenstein, of Newark, for respondent Michael Sokol.

BODINE, J.

The complainant filed a bill to foreclose a mortgage covering lands and premises owned by the defendant Max Mand. The mortgage was dated November 16, 1928, and was assigned to the complainant on April 12, 1929.

The validity of the mortgage is not questioned. The mortgagor alleged, however, that on July 20, 1928, before the mortgage was executed and before it was assigned to the complainant, the same had been equitably assigned to Michael Sokol, who claimed to own the same and demanded payment of interest due thereon. The defendant prayed interpleader as between the complainant and Sokol.

At the hearing before the Vice Chancellor the admitted facts demonstrated that the complainant had sold to one Znahrenko, the mortgagee, a carload of merchandise and had received in payment of a past-due account therefor the assignment of the mortgage in question since Znahrenko could not pay in cash. Sokol, on the other hand, had secured the prior equitable assignment of the mortgage as collateral security for a mortgage which he already held. The court, relying upon Tate v. Security Trust Co., 63 N. J. Eq. 559, 52 A. 313, entered a decree adjudging Sokol to be the owner of the mortgage and entitled to the interest thereon and dismissed the bill as to the complainant.

Vice Chancellor Reed, in deciding the Tate Case, supra, held that a bona fide assignee of a mortgage for value takes free of all latent equities existing in favor of third parties, but that an assignee taking a mortgage merely as security for a pre-existing debt without delivering up the evidence of such a debt was not a holder for value. It is to be noted, however, that in the present case the debt due the complainant was extinguished when the mortgage was assigned. The complainant did not hold the mortgage as security but took the same in satisfaction of its debt.

"The rule that a prior debt is not sufficient to make one a bona fide purchaser or mortgagee for value, has never been adopted in New Jersey. Our courts have uniformly held that it is a sufficient consideration to protect one holding the legal right, against the prior equity of one who has no legal right, when the other had no notice of such equity." Uhler v. Semple, 20 N. J. Eq. 293; Traphagen v. Hand, 36 N. J. Eq. 384; Sweeney v. Williams, 36 N. J. Eq. 459; Butterfield v. Okie, 36 N. J. Eq. 483.

"An assignee of a mortgage takes it subject to all defences existing against the mortgagee in favor of the mortgagor, but free from latent equities existing in favor of third persons." De Witt v. Van Sickle, 29 N. J. Eq. 209. See, also, New Jersey Discount Co. v. Telesca, 101 N. J. Eq. 462, 139 A. 1, where Vice Chancellor Backes reaffirmed this proposition of law.

"The (assignee) is entitled to enforce its security under the rule that a bona fide purchaser for valuable consideration of a mortgage is protected against any latent equities in favor of third persons against the mortgagor. Danbury v. Robinson, 14 N. J. Eq. 213, 82 Am. Dec. 244." McMurtry v. Bowers, 91 N. J. Eq. 320, 109 A. 361, 362.

"A conveyance of real or personal property as security for an...