Murphy v. Barnard

• Decision Date: 05 September 1894
• Parties: MURPHY v. BARNARD et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

162 Mass. 72

38 N.E. 29

MURPHY v. BARNARD et al.

Supreme Judicial Court of Massachusetts, Suffolk.

September 5, 1894

COUNSEL

J.A. Brackett and W.H. Hart, for plaintiff.

S.L Whipple and W.R. Bigelow, for defendant Barnard. H.E. Fales and S.H. Tyng, for defendant Patch.

OPINION

BARKER J.

In this cause it is necessary to decide two controversies,--one as to the amount which the plaintiff must pay to redeem his land and another as to the ownership of the mortgage. Both controversies arise from the frauds of Hutchinson, the original mortgagee, who has not only twice sold the mortgage as his own property, but has, after having sold it, received large payments from the mortgagor, who made them supposing that Hutchinson was still the owner of the mortgage. The mortgage was made on October 24, 1887, to secure a note of that date payable to the order of the mortgagee in four years with half-yearly interest, and was recorded on the next day. The mortgage and note were held and owned by the mortgagee until January 14, 1888, when they were sold by him to Mrs Patch for the sum of $2,200. She took an assignment in the usual form, and caused it to be recorded. The note was indorsed in blank, and delivered to her with the assignment, the mortgage deed, and an insurance policy procured by the mortgagee. At the same time it was arranged between her and the mortgagee that the latter should collect the interest as it should become due, retain that which had then accrued, and remit to her that which should accrue. Three days later an assignment of the mortgagee's interest in the insurance was written on the face of the policy, and the assent of the insurers was added on the following day. All these documents were kept by Mrs. Patch until June 25, 1890. In the meantime an installment of interest was paid to her by the mortgagee, and she indorsed on the note: "May 10, 1888. Interest received to April 24, ' 88, $66." The mortgagee was an attorney at law doing a real-estate loan business, and had an office in Boston and another in Chelsea. On April 24, 1890, he represented to Mrs. Patch that he ought to have the documents relating to the loan, and a paper signed by her, to enable him to collect the interest. He prepared a paper for her to sign, and, by false and fraudulent representations as to its purpose and contents, induced her to sign it. It was in fact an assignment of the mortgage from her to one Letteney, a clerk in his office, and was dated April 24, 1890, and witnessed by the mortgagee, and acknowledged before him, as a justice of the peace. Mrs. Patch had made no indorsement on the note, except that of May 10, 1888; and before June 25, 1890, at some time when she had the note at the mortgagee's office, he indorsed on it the three other payments of interest then accrued. On June 25, 1890, he induced Mrs. Patch to deliver to him the mortgage, note, insurance policy, and her assignment, and gave her a receipt stating that the mortgage was to be held by him for the "collection of interest, etc." On November 14, 1890, he sold and assigned the mortgage to Miss Barnard, and received from her $2,200. He represented to her that he owned the mortgage, and said nothing about the assignment to Mrs. Patch, or that from Mrs. Patch to Letteney. Before the transfer was completed, Miss Barnard told him that she wanted a search of the registry, and he asked if she had any one in mind to do it, and as she replied that she had not, he mentioned a young man in his office who could do it, and the young man went out, and she waited for him to return, when he reported that it was all right. It did not appear in evidence who this man was, or whether he made a search, and no charge was made for the search. All this was done at the mortgagee's office in Boston, and the note, the mortgage, and the insurance policy, and the assignment to Miss Barnard, were all delivered there. Miss Barnard's home was in Michigan. She took the mortgage with her, leaving her assignment with the mortgagee, to be recorded and then sent to her; and the insurance policy was also left with him, to be transferred to her. He was to collect the interest, and send it to her. He requested her to leave the papers with him, and upon her objecting he explained that the maker of the note might desire to see the interest indorsed on it, and she left the note with him. He sent to her the interest due April 24, 1891, and in October or November, 1891, the interest due October 24, 1891, and also that to become due April 24, 1892. He also paid to Mrs. Patch $66, as interest for six months, to October 24, 1892. The assignment of April 24, 1890, from Mrs. Patch to Letteney, an assignment dated October 14, 1890, from Letteney to the mortgagee, and the assignment of November 14, 1890, from him to Miss Barnard, were all recorded on March 16, 1891. The report finds that Miss Barnard had no actual knowledge of the assignment to Mrs. Patch, or of that from her to Letteney, or of that from Letteney to the mortgagee, and that in buying the mortgage she did not rely on them, but believed that the mortgagee held the note and mortgage as the original owner; that she did not see the assignment written into the insurance policy, although she had the opportunity to do so; and that nothing was said to her by the mortgagee, or by the person who went out to examine the records, about any of the assignments. The interest due October 24, 1890, was paid by the plaintiff to the mortgagee on the next day, but it is not stated whether that payment has ever been indorsed upon the note.

Miss Barnard contends that because the debt is the principal thing in the purchase and sale of a mortgage, and the mortgage an incident to the debt, her rights are to be settled upon the facts relating to the note, and that as she purchased in good faith, and for full consideration, before maturity, a negotiable promissory note from the payee, having possession of it, she took an absolute title, although her vendor had none. She also contends that Mrs. Patch was negligent tn leaving the note and mortgage in the hands of the mortgagee and that, as between Mrs. Patch and herself, the former must bear the loss. The report shows that Miss Barnard bought in good faith, and without actual notice. But her purchase was not the purchase of negotiable paper, simpliciter. While the title of one who buys ordinary commercial paper in good faith, and before its maturity, is not vitiated by the fact that there were suspicious circumstances which might have put him upon inquiry (Smith v. Livingston, 111 Mass. 342; Bank v. Savery, 127 Mass. 75), there is a distinction between the purchase of such paper and that of notes known to be secured by mortgage of real estate, although bought as negotiable paper (Strong v. Jackson, 123 Mass. 60). The effect of the distinction is that subsequently acquired rights in mortgage notes will not be allowed to supplant rights previously acquired, if all the facts taken together, and including the means of knowledge, and any circumstances which should lead to inquiry, show that such a result would be inequitable. If Miss Barnard's rights, as against Mrs. Patch, were to be settled on this basis, the fact that Miss Barnard saw the insurance policy on which the assignment to Mrs. Patch was indorsed would be of some importance. But her title is not to be settled on that basis. She did not buy a mortgage note only, but the mortgage also; and when the transaction is in terms the purchase of a mortgage, as both a debt and a conditional estate in land, the distinction becomes decisive, because of the doctrine that the purchaser of a mortgage is charged by statute with constructive notice of the state of the record title, when, as in the present case, the record discloses, not only a want of title in his vendor, but the fact that the title to the mortgage was in the person who now claims adversely to the purchaser. One who purchases under such circumstances is not a purchaser without notice, but with constructive notice of the want of title in his vendor. In the present case, Miss Barnard knew that in buying the note she was buying a mortgage; and in determining her rights, as against those of the real owner of both note and mortgage, she is to be charged with knowledge of the facts of which, as purchaser of the mortgage, she had constructive notice, namely, that the note and mortgage had been sold by her vendor to Mrs. Patch on January 14, 1888, and that Mrs. Patch continued to be the record owner of the mortgage. Miss Barnard, therefore, was not a purchaser without notice, but with a constructive notice of an infirmity in the title of her vendor; and,...