Tate v. Sec. Trust Co.

• Citation: 63 N.J.E. 559,52 A. 313
• Parties: TATE v. SECURITY TRUST CO. et al.
• Decision Date: 09 June 1902
• Court: New Jersey Court of Chancery

52 A. 313

63 N.J.E. 559

TATE

v. SECURITY TRUST CO. et al.

Court of Chancery of New Jersey.

June 9, 1902.

Action by Samuel H. Tate against the Security Trust Company and others to compel delivery of a mortgage. Decree for complainant.

D. J. Pancoast, for complainant.

John F. Harned, for defendants.

REED, V. C. On February 2, 1900, Charles S. and William Solomon entered into a written agreement with Samuel H. Tate, the terms of which were that the Solomons would sell the San Marcos Hotel, in Atlantic City, to Tate, for $50,000, free of incumbrances, except a $15,000 mortgage. The consideration to be paid to the Solomons was in the shape of certain properties that were to be conveyed to them by Tate and a promissory note of $3,000 made by Tate. It was also agreed that, to enable the Solomons to raise money upon the $3,000 note for the payment of taxes and so forth, Mr. Tate was to make a second mortgage of $4,000 upon the hotel property sold, which mortgage was to be used by the Solomons to secure the said $3,000 note, and when this note was paid the mortgage was to be reassigned to Tate. The agent who acted for Tate in the transaction was Charles B. Prettyman, a real estate broker, who signed the agreement for his principal. After the agreement for the sale or exchange was signed, Mr. Prettyman sold the property to a Mr. Stehle, and a part of the consideration for such sale was a $4,000 mortgage to be executed by Mr. Stehle upon the said hotel property. By an arrangement between Prettyman and the Solomons this mortgage was made to the Solomons instead of to Tate, for the purpose of being used by them to secure the $3,000 note, in accordance with the agreement already mentioned. It was made in this shape, according to the statement of Mr. Prettyman, to avoid the expense of two papers,—first, a mortgage to Tate, and then an assignment from Tate to the Solomons. This mortgage therefore belonged to Mr. Tate after the payment of the $3,000 note, for the security of which it was made to Solomon. William Solomon had the $3,000 note discounted by the defendant the Security Trust Company of Camden, and the mortgage was delivered as security. Five hundred dollars was paid upon the note, and the trust company refused to redeliver the mortgage to Tate in case the note should be paid, claiming to hold the mortgage as security for other indebtedness due to them from the Solomons. This bill is filed to compel such delivery.

It is thus perceived that the litigation arises by reason of the incapacity of the agent in conducting the transaction. Had the mortgage for $4,000 been made to Tate, and by him assigned to the Solomons by an instrument stating the purpose of such assignment, there could not have been the least trouble. As the affair was conducted, the Solomons were invested with the power to make an absolute assignment of the instrument, and this they seem to have done. It appears that the Solomons are indebted to the Security Trust Company to an amount in excess of the face value of the $4,000 mortgage. This indebtedness, other than the $3,000 note which was discounted at the time of the pledge of the mortgage, so far as appears, was one existing at that time. What occurred between the officers of the trust company and Mr. Solomon, or his agent, at the time of the discount of the $3,000 note and the delivery of the mortgage, does not appear, as neither of the parties to the transaction was sworn. The right to hold this mortgage for a pre-existing indebtedness is rested upon an agreement indorsed upon a note for $3,000 dated February 8, 1898. By this indorsement William Solomon agreed that the sureties thereby pledged (that is, in 1898), together with any that may be pledged hereafter, shall be applicable in like manner to secure the payment of any past or future obligations held by the trust company, and that "all of my securities in their hands shall stand as one general continuing collateral security for the whole of my obligations, so that the deficiency of any one shall be made good for collaterals for the rest." The query is thus presented whether the trust company, taking this mortgage as collateral security for a pre-existing debt, stands in a position superior to Tate, who had an equitable interest in the $4,000 mortgage, which, as against him, Solomon misapplied by pledging it for amounts in excess of the $3,000 note. The general rule that an assignee of a. mortgage takes subject to the equities existing in favor of a mortgagor does not apply in this case, because the equity of Tate was a secret equity. While there is some conflict between the cases (Davis v. Piggott, 57 N. J. Eq. 619, 42 Atl. 768), I think the rule should be settled in this state that a bona fide assignee for value of a mortgage takes it free from all latent equities existing in favor of third parties. Vredenburgh v. Burnet, 31 N. J. Eq. 229.

It is first said that the trust company is not a bona fide holder. The point is made that at the meeting of the parties when the mortgage and the note was finally passed to Solomon, Mr. Cooper, the president of the trust company, was present, and took part. It is insisted that he had notice of the purpose for which the $4,000 mortgage was made to Solomon, and that his knowledge of that purpose is equivalent to notice to the Security Trust Company, of which he was the head. Mr. Cooper says that he appeared at that conference as counsel for the Solomons, and not as a representative of the trust company. I think he took, for the Solomons, away from that meeting, the note and the mortgage. He knew, I think, that the note was to be presented to the trust company for the purpose of raising money upon it. He has no...