Millick v. O'Malley

• Decision Date: 15 December 1928
• Docket Number: 4859
• Court: Idaho Supreme Court
• Parties: JOHN C. MILLICK, Appellant, v. P. C. O'MALLEY, Respondent, And JOSE FERNANDEZ, Cross-Appellant

273 P. 947

47 Idaho 106

JOHN C. MILLICK, Appellant, v. P. C. O'MALLEY, Respondent, And JOSE FERNANDEZ, Cross-Appellant

No. 4859

Supreme Court of Idaho

December 15, 1928

MORTGAGES-ASSIGNMENT-RELEASE-INNOCENT PURCHASER-PRIORITY OF LIENS-FORECLOSURE OF MORTGAGE-MORTGAGE DEBT-PERSONAL JUDGMENT-ALTERATION OF INSTRUMENTS.

1. Holder of mortgage, who failed to record assignment, held to have no claim or lien thereunder as against subsequent purchaser of property, purchasing in reliance on recorded release of mortgage executed by mortgagee, under C. S., secs 3634, 6363, 6365, providing for recording of assignments of mortgages, and secs. 5424, 5425, making unrecorded conveyances void as against subsequent purchasers.

2. Where one of two persons must suffer for wrongful act of a third, the person to suffer in equity should be the one who left it in the power of the third person to do the wrong.

3. Wrongful release of mortgage will not discharge debt as to mortgagor, irrespective of question of rights of innocent purchaser.

4. Holder of mortgage, who lost right to foreclose as against bona fide purchaser of property by failure to record his assignment, nevertheless held entitled to personal judgment against mortgagor for amount due on note.

5. Holder's notation, along lower left-hand side of note "It is mutually agreed that this note draws ten per cent interest from January 1, 1921," held not material alteration, precluding recovery on note, which called for seven per cent interest, since notation was disconnected from the body of the instrument and was merely a memorandum.

6. Note is not materially altered by writing thereon memorandum which is purely collateral to and independent of promise or contract which it contains.

APPEAL from the District Court of the Sixth Judicial District, for Bingham County. Hon. Dana E. Brinck, Judge.

Action to foreclose real estate mortgage. Judgment denying foreclosure but making personal award as against defendant Fernandez. Affirmed.

Judgment affirmed; respondent O'Malley to recover costs, cross-appellant Fernandez to pay his own costs.

John W. Jones and Guy Stevens, for Appellant.

Our statutory provisions conclusively support us in our contentions that in Idaho the assignment of the mortgage debt carries with it the security; that an assignment of mortgage is not an instrument required to be recorded by any of our registry acts; that an assignment may be recorded and, if so, it affords notice only "to all persons subsequently deriving title to the mortgage from the assignor." (C. S., sec. 6365.) The assignment of a debt secured by mortgage carries with it the security. (C. S., sec. 3634.) He must, upon the payment of his fees for the same, record separately.

Deeds, grants, transfers and mortgages of real estate, releases of mortgages, powers of attorney to convey real estate and leases which have been acknowledged or proved. (C. S., sec. 6358.) Every transfer of an interest in property other than in trust, made only as security for the performance of another act, is to be deemed a mortgage. (C. S., sec. 6363.) An assignment of mortgage may be recorded in like manner as a mortgage, and such record operates as notice to all persons subsequently deriving title to the mortgage from the assignor.

Construing these provisions together, the conclusion seems inevitable that the recording of an assignment of mortgage operates as notice only to all persons subsequently deriving title to the mortgage from the assignor. After a long and painstaking search of authorities we have found no different interpretation of the provisions of sec. 6363. ( People's Trust Co. v. Tonkonogy, 144 A.D. 333, 128 N.Y.S. 1055; First National Bank of Sodus v. Conant, 112 Misc. 663, 183 N.Y.S. 683; Adler v. Newell, 109 Cal. 42, 41 P. 799; Hull v. Diehl, 21 Mont. 71, 52 P. 782.)

Where there are somewhat similar provisions, and where the assignment of the debt carries the security, and the registry acts refer by separate provisions to registry of grants and to registry of mortgages, the decisions are all to the effect that the subsequent release of a mortgage by the mortgagee after he has sold and indorsed the notes secured thereby is void and affords no protection to an innocent purchaser or mortgagee. (Bamberger v. Geiser, 24 Ore. 203, 33 P. 609; Howard v. Shaw, 10 Wash. 151, 38 P. 746; Fischer v. Woodruff, 25 Wash. 67, 87 Am. St. 742, 64 P. 923.)

P. C. O'Malley, for Cross-appellant.

"No personal judgment or deficiency judgment can be entered up or maintained against the original maker upon a note secured by a mortgage, if the mortgage was released without the knowledge and consent of the maker of the note. This rule has been firmly established and repeatedly followed in California and by the supreme court of this State." (Berryman v. Dore, 43 Idaho 327, 251 P. 757; Portland Cattle Loan Co. v. Biehl, 42 Idaho 39, 245 P. 88; Woodward v. Brown, 119 Cal. 283, 63 Am. St. 108, 51 P. 2, 542.)

"Where the alteration is apparent, the burden of explaining it is on the party claiming under the instrument, but where the alteration is not apparent, or fails by use of ordinary care in accepting the instrument, the burden is on the party alleging it." (Arnold v. Wood, 127 Ark. 234, 191 S.W. 960.)

"If the paper shows on its face that it has been materially altered, or if this is shown by evidence, the burden is on the holder to explain how and when the alteration was made." (Harrison v. Pearcy & Coleman, 174 Ky. 485, 192 S.W. 513; Darraugh v. Denny, 196 Ky. 614, 245 S.W. 152.)

The changing of a note bearing interest at ten per cent from maturity to one bearing seven per cent from date is a material alteration. (Courcamp v. Weber, 39 Neb. 533, 58 N.W. 187.)

P. C. O'Malley, for Respondent.

"It may be stated as a general rule that where the recording statutes expressly or impliably requires the recording of assignments of mortgages, it is the duty of assignee to record his assignment in order to charge subsequent purchasers or incumbrancers of the property affected with notice thereof, and where the assignment is not recorded, a subsequent incumbrancer or purchaser of the property affected thereby acting in good faith paying a valuable consideration in reliance upon a discharge of the assigned mortgage by the record holder thereof, will be protected as against the assignee." (19 R. C. L., p. 364, sec. 133; Huihtink v. Thompson, 95 Minn. 392, 111 Am. St. 476, 104 N.W. 237, 5 Ann. Cas. 338 and note; Cram v. Cotrell, 48 Neb. 646, 58 Am. St. 714, 67 N.W. 452.)

The supreme court of our own state, while not holding that an assignment of mortgage must be recorded yet they have impliably held that a subsequent purchaser and incumbrancer for value is protected by the record title showing mortgages released. (Pennypacker v. Latimer, 10 Idaho 618, 81 P. 55; Harris v. Reed, 21 Idaho 364, 121 P. 780.)

BUDGE, J. Wm. E. Lee, C. J., Givens and Taylor, JJ., and Hartson, D. J., concur.

OPINION

BUDGE, J.

Rivas and Fernandez, co-owners of a tract of land, had given two mortgages covering the same to the Northwestern Hypotheekbank, and thereafter executed and delivered to one Scofield three promissory notes accompanied by another mortgage on the same property. Two of the notes were purchased from Scofield by Millick, and the mortgage securing their payment transferred to the latter. Scofield's mortgage had been recorded, but no written assignment thereof was given to Millick, and he did not place of record any assignment of the mortgage to him.

After the execution of the mortgage to Scofield, Rivas and Fernandez contracted to sell the property to Reay brothers and gave the latter a warranty deed which, it appears, was deposited in escrow pending performance of the contract including payment of four notes. The Reay brothers thereafter transferred their interest in the property to Rich & Company who later turned over to O'Malley a quitclaim deed to the property with the name of the grantee omitted. O'Malley then purchased the property from Fernandez, Rivas' whereabouts being unknown. Scofield had, meantime, executed a release of the mortgage given to him by Rivas and Fernandez, and the release was recorded by the representative of the Northwestern Hypotheekbank, holder of the first and second mortgages.

This action was instituted by Millick to foreclose the mortgage to secure the payment of the one note remaining due of those originally delivered to Scofield. Scofield and Rivas were made parties defendant, but service of summons was not had upon either of them. After trial, judgment was rendered denying foreclosure of the mortgage held by Millick and declaring he had no lien upon the premises, but awarding personal judgment against Fernandez in the sum of $ 750, together with interest, attorney fees and costs. Millick appeals from that part of the judgment denying foreclosure of his mortgage, and Fernandez appeals from the money judgment against him.

The court found, among other things, that O'Malley purchased the property in good faith and for a valuable consideration without any knowledge of Millick's claim and without notice or knowledge of the transfer of the notes by Scofield to Millick and in reliance upon the recorded release of the mortgage by Scofield. It is appellant Millick's contention that it is unnecessary to obtain a written assignment of a mortgage and that no assignment thereof is required to be recorded under the registry laws of this state in order to protect the assignee as against subsequent purchasers or incumbrancers of the mortgaged property; while respondent O'Malley asserts the law to be that where the assignee has not filed an assignment of record and the record shows a release of the...