Reeves v. Hayes

• Decision Date: 25 March 1884
• Docket Number: 7894
• Parties: Reeves, Guardian, v. Hayes et al
• Court: Indiana Supreme Court

95 Ind. 521

Reeves, Guardian, v. Hayes et al

No. 7894

Supreme Court of Indiana

March 25, 1884

Petition for a Rehearing Overruled May 28, 1884.

From the Rush Circuit Court.

Judgment reversed, with instructions to proceed in accordance with this opinion.

G. C Clark, J. W. Brown, G. B. Sleeth, J. W. Study and W. A Cullen, for appellant.

L. Sexton, C. Cambern, J. H. Mellett, E. H. Bundy and J. M. Morris, for appellees.

Elliott, C. J. Niblack, J. Zollars, J.

OPINION

Elliott, C. J.

John S. Hayes executed to William F. Reeves, guardian, a mortgage to secure the payment of three promissory notes evidencing the unpaid purchase-money of land sold to him by the guardian, and dated September 1st, 1873; afterwards Hayes sold the land to Len M. Copeland, who executed nine promissory notes for the purchase-money and also executed a mortgage; three of these notes were paid; prior to November 6th, 1874, one of them, number four in order of priority, was assigned to the First National Bank of Newcastle; on the day named Hayes assigned to Reeves, guardian, the notes, in order of priority numbers six and eight, in exchange for the first notes executed by the former to the latter, and delivered, at the time, the mortgage executed by Copeland; on the 7th day of June, 1875, seven months after Reeves, guardian, had acquired the notes and mortgage by assignment, his assignor and original debtor, executed a release to Copeland which was placed on record; after the execution of this release and its entry of record, William Wilson lent to Copeland $ 2,000, and took as security a mortgage on the land bought of Reeves, guardian. The contest is as to who has the prior lien Wilson or Reeves and the Bank of Newcastle, the court below holding that Wilson's lien was superior to that of the appellants.

Prior to July, 1877, there was no law in force in the State authorizing assignments of mortgages to be recorded. This was the ruling in Hasselman v. McKernan, 50 Ind. 441, and while some of those who concur in this opinion regret that decision, we feel bound by it, for the reason that it has never been disapproved, but, on the contrary, has been repeatedly approved and followed. Coombs v. Carr, 55 Ind. 303; Dixon v. Hunter, 57 Ind. 278; Cain v. Hanna, 63 Ind. 408; Hosford v. Johnson, 74 Ind. 479. There is, therefore, an unruffled current of decisions upon this subject, but there is more, the Legislature accepted the court's construction of the statute and passed an act providing for the recording of assignments, so that we have the concurrent action of two of the great departments of government. R. S. 1881, section 1093.

It is perfectly well settled that notice is never imparted by the recording of an instrument which the law does not authorize. In Deming v. State, ex rel., 23 Ind. 416, it was held that a mortgage, not acknowledged according to law, could not be legally recorded, and that, although actually entered of record, it did not constitute notice, the court, by Frazer, J., saying: "We suppose there can be no question, that the fact that the mortgage was actually recorded, without being acknowledged or approved, as the statute required to entitle it to be recorded, is not notice." If it be true, as undeniably it is, that such a registration is not notice, much stronger the reason for holding the record not notice where there is no law authorizing the recording of the instrument. That is the case here, for there is not merely a defective execution of an instrument, but an absolute absence of authority for recording it. Caldwell v. Williams, 1 Ind. 405; Brown v. Budd, 2 Ind. 442; Taylor v. City of Ft. Wayne, 47 Ind. 274; Westerman v. Foster, 57 Ind. 408. Judge Story says, in speaking of the registry of instruments: "If they are not authorized or required to be registered, or the registry itself is not in compliance with the law, the act of registration is treated as a mere nullity." 1 Story Eq., section 404.

The appellants could not have done more than they did do. The recorder could not have recorded the assignment without a violation of his duty, and even if he had actually recorded it, his action would have been a mere nullity. There can be neither fault nor negligence where one does all the law permits him to do. Purdy v. Huntington, 42 N.Y. 334 (1 Am. R. 532). See opinion, Sutherland, J., 1 Am. R. 541. It was impossible for the appellants to have given notice, for there was no way in which it could be done. They acquired rights in good faith, have been guilty of no fault, they are equal in equity, and prior in point of time, and we know of no principle which will warrant the courts in depriving them of their rights.

The contesting parties in this case are equal in equity, for both parted with value, and the appellants, as we have seen, were not, in anywise, in fault; therefore the maxim, "Where there are equal equities, the first in order of time shall prevail," must be the governing rule. 1 Pom. Eq., section 413.

The authority of the mortgagee to release the mortgage terminated with the assignment. A recent writer thus states the rule: "After an assignment of the mortgage note the mortgagee can not discharge the mortgage if the note be negotiable and it be assigned to an innocent party, before due and for a good consideration, although the note be without any consideration; and satisfaction so entered will be vacated by a court of equity." At another place this author says: "The notes in such a case become the evidence of the mortgagee's authority to enter satisfaction of the lien." 1 Jones Mort., section 814. In McCormick v. Digby, 8 Blackf. 99, it was held that the mortgagee had no authority to enter satisfaction after assignment, and this decision has received uniform approval from the text-writers. 4 Kent Com. 194; 1 Hilliard Mort. 230; 2 Washb. R. P. 129; Thomas Mort. 418; 1 Jones Mort., section 814.

The release entered by the mortgagee after assignment of the notes was ineffective, and the only ground on which the assignees can be even plausibly said to have lost their rights is that of negligence. But it is legally impossible to conceive them guilty of negligence, for they had done nothing wrong, and had omitted nothing that they could do. If there had been a law authorizing the recording of assignments, then a very different question would face us.

Promissory notes are articles of commerce, and pass from hand to hand by barter and sale. The transfer of a note carries the mortgage, for the former is the principal and the latter the incident. This is in accordance with the universal rule that the grant of the principal thing carries all the incidents. Matthews v. Wallwyn, 4 Vesey 118; Jackson v. Blodget, 5 Cowen 202; Green v. Hart, 1 Johns. 580; Johnson v. Hart, 3 Johns. Cas. 322. In Hubbard v. Harrison, 38 Ind. 323, it was said: "The assignment of a mortgage, independent of the debt which it is given to secure, is an unmeaning ceremony." It has always been the law of this State that the assignment of the note carries the mortgage. Blair v. Bass, 4 Blackf. 539. In Hough v. Osborne, 7 Ind. 140, the court said: "The only thing easily perceivable as to the transfer of the mortgage security without the notes, was its futility." Garrett v. Puckett, 15 Ind. 485; Gower v. Howe, 20 Ind. 396.

The assignment of a note negotiable by the law merchant carries the mortgage security, and in the hands of a bona fide holder the security is protected to the same extent as the note itself. Gabbert v. Schwartz, 69 Ind. 450; Bayless v. Glenn, 72 Ind. 5; Carpenter v. Longan, 16 Wall. 271; 1 Dan. Neg. Inst. 834; Clemens Corp., sec. 158.

Promissory notes may be transferred by delivery. Hancock v. Ritchie, 11 Ind. 48; Speelman v. Culbertson, 15 Ind. 441; 1 Dan. Neg. Inst., section 729. So may a mortgage. 3 Pomeroy Eq. Jur., section 1210; 1 Jones Mort. 813. But here there was a written assignment of the notes and a delivery of the mortgage. The appellants by the assignment to them of the notes acquired title, and as they acquired the notes they also acquired the mortgage securing them. It would not have added to the strength of their title to have taken a written assignment of the mortgage, because, under the law as it stood at the time, no assignment could have been admitted to record. The fact that no written assignment was taken does not impair their rights or show them to be in fault, for the reason that had they taken one it would not have enabled them to give constructive notice by registry.

Cases decided in States where the law provides for the registry of assignments can not be in point in a State where there is no law authorizing them to be recorded. This is the essential difference between many of the cases cited in argument and the one at bar. We must turn to the common law for information, because, as there is no statute authorizing assignments to be recorded, we must look to the rights of the parties as they existed in the absence of such statutes. The case of James v. Morey, 2 Cowen 246, was very ably argued, and the subject very carefully considered. Opinions were read by the Chief Justice and several other members of the court, and it was held that the assignee took absolute title as against subsequent mortgagees and bona fide purchasers, for the reason that there was no law authorizing the assignment of a mortgage to be recorded. Woodworth, J., in the course of his opinion, said: "I have not met with any case that places the rights of the assignee on other or different ground, or that gives countenance to the suggestion, that the assignee must, at his peril, give notice to a subsequent assignee, or purchaser from the mortgagee. Such a doctrine is not only most unreasonable in itself, but would shake the...