B. Recording Cases
 
SOBEL v. WOLF

216 N.Y.S.2d 132 (1961)

Mortgage foreclosure action.  On plaintiff's motion to strike out and dismiss affirmative defense and counterclaim, the Supreme Court, George M. Fanelli, J., held with regard to defense, that even without a valid acknowledgment mortgage may still be valid between parties, but held that absence of valid acknowledgment requires that instrument not be recorded, and that therefore counterclaim to expunge mortgage from record for want of valid acknowledgment was sufficient.

Order accordingly.
GEORGE M. FANELLI, Justice.

In this mortgage foreclosure action plaintiff-mortgagee moves, pursuant to Rules of Civil Practice, Rule 109, Subds. 5 and 6, to strike out and dismiss the 'Fourth' affirmative defense and 'Third' counterclaim (paragraphs 14 through 17) of the amended answer because of legal insufficiency.
 

By moving to strike out and dismiss for patent insufficiency, plaintiff authorizes the court to accept as true the relevant allegations of fact and the reasonable inferences that may be drawn therefrom.  Therefore, plaintiff admits:  (1) that defendant did not acknowledge the execution of the mortgage to any notary public; (2) that plaintiff caused Frederick N. Maltz, a notary public, to sign the acknowledgment on the back of the mortgage; (3) that said notary public did not witness the execution of the mortgage by defendant; and (4) that defendant did not at any time acknowledge the execution of said mortgage to said notary public.
 

The court is of the opinion that as a defense to this foreclosure action between the parties, the aforementioned facts are not legally sufficient.  Even without a valid acknowledgment the mortgage may still be valid between the parties, and this fact seems to be conceded by defendant in her memorandum of law. Here, there is no question but that defendant did sign the mortgage.  However, insofar as the counterclaim is concerned, a different situation is presented.  Under section 329 of the Real Property Law, an owner of real property may maintain an action to have any instrument in writing relating to such real property which has been improperly recorded cancelled of record (Newpar Estates v. Barilla, 4 A.D.2d 186, 164 N.Y.S.2d 132). In this case defendant-owner (implicit and reasonably inferred from all the pleadings, although not specifically alleged in the counterclaim) in her 'Third' counterclaim seeks to expunge from the record the subject mortgage on the ground that it was improperly recorded in that she did not acknowledge her signature to the notary public Maltz.  If that be so, then there is absent a valid acknowledgment, and plaintiff could not have recorded it as a 'conveyance' (Real Property Law, sections 291, 292).
 

Settle order on notice accordingly.
 

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O'NEILL v. LOLA REALTY CORPORATION
 

34 N.Y.S.2d 449, 264 A.D. 60 (1942)

Action by Theresa O'Neill against Lola Realty Corporation and others, to reform a mortgage and to foreclose it, as reformed, as a lien superior to defendants' interests in realty derived from instruments subsequently recorded.  From a consolidated order and judgment denying plaintiff's motion for judgment on the pleadings and granting defendants' cross-motion and dismissing the second amended complaint on the merits, the plaintiff appeals.

Affirmed.
HAGARTY, Justice.

 
This is an action to reform a mortgage and to foreclose it, as reformed, as a lien superior to the interests of defendants in realty derived from instruments subsequently recorded.  All the allegations of the complaint, including default by the mortgagor, are admitted in the joint answer of defendants and the complaint may therefore be deemed an agreed statement setting forth the facts which follow.

 

On March 25, 1936, one Calderaro executed and delivered to plaintiff a bond secured by a mortgage in the sum of $4,000.  The mortgage incorrectly described the property which was the subject of the lien.  The northerly boundary of the property was described as so many feet south of '23rd Avenue formerly Woolsely Avenue' and the southerly boundary was described as 'parallel with 23rd Avenue.'  The correct description is '24th Avenue, formerly Woolsey Avenue.' The description in the mortgage, so far as it refers to 23rd Avenue, places the property in block 173 of the land map of Queens County.  The parcel is actually located in block 155 of that land map.
 

The same incorrect description appeared in the deed to Calderaro delivered on May 8, 1935.  The deed, nevertheless, was properly indexed under block 155 when it was recorded on November 14, 1935.  However, when the mortgage was delivered to the register for recording, it was indexed under block 173.  This was done despite the fact that, on the back of the mortgage, there appeared a notation that the land affected by the instrument was in block 155.  This notation was erased by the register, or by one of his employees, and 'Block 173' inserted instead.  The mortgage was returned to plaintiff after its erroneous recording and she retained it without noticing the change.
 

Plaintiff argues that the register was at fault in recording the mortgage under block 173, even though the erroneous description placed the property in that block, because Woolsey Avenue was also referred to in the description and it was well known that Woolsey Avenue was 24th Avenue, and in substituting the erroneous block number for the correct one on the back of the instrument.  It is clear, however, that the mistake was induced, in part at least, by the misdescription.
 

An unfortunate sequence of conveyances ensued.  Calderaro conveyed the mortgaged premises to one Frank Dlouhy by deed bearing date the 9th of December, 1937, and recorded the following day, containing the true description of the property.  The deed contained no reference to plaintiff's mortgage. Dlouhy paid a valuable consideration and had no knowledge of the existence of the mortgage until he had conveyed to his successor, defendant Lola Realty Corporation, hereinafter referred to as Lola, by deed bearing date the 1st of March, 1938, and recorded on the 5th of April, 1938.  Lola was a bona fide purchaser for value and first acquired knowledge of the existence of the mortgage on the 29th of November, 1938.
 

Lola divided the premises into eight parcels and built a house on each parcel.  It sold two of the parcels to defendants Person and Contarino before it acquired knowledge of the existence of the mortgage.  After it had acquired such knowledge, it conveyed the remaining six parcels without disclosure to the defendant purchasers, all of whom paid a valuable consideration and had no knowledge of the existence of the mortgage, with the exception of Paraskevoula Calathas and Costas Calathas, hereinafter jointly referred to as Calathas, who purchased one parcel.  Calathas, prior to taking the deed from Lola which bore date the 16th of December, 1938, and was recorded on that day, knew of the existence of the mortgage.  The remaining defendants are holders is good faith and for value of mortgages on the other parcels.

 

Finally, on March 18, 1940, the plaintiff called to the attention of the register the fact that her mortgage had been incorrectly indexed under block 173 and, on that day, the register re-indexed the mortgage under block 155 and corrected the back of it accordingly.

 

In contending that a recorded mortgage is constructive notice to subsequent purchasers and encumbrancers, even if not properly block indexed, and that a listing under an alphabetical index is sufficient notice, plaintiff relies primarily upon the authority of Mutual Life Ins. Co. of New York v. Dake, 87 N.Y. 257.  There the claimed mistake was wholly that of the clerk who transcribed the mortgage in the proper record book but did not index it.  It was held that the mortgage was properly recorded.  The conclusion was reached, after examination of the then existent pertinent statutes, that the index was not required by law and so did not constitute part of the record but was merely a guide for the convenience of searchers.  The opinion concludes: 'It may be that the index, both for convenience and safety, should be made a part of the record; but until it is so made by the legislature, we can but pronounce the law as it is.'

 

Section 316 of the Real Property Law, as amended by chapter 582 of the Laws of 1924, with respect to the duty of a recording officer to maintain an alphabetical index, expressly provides that 'Such indexes shall form a part of the record of each instrument hereafter recorded.'
 

Where a mortgagee delivers an instrument for recording and, through no fault of his own, it is not placed on record by the recording officer, the instrument, nevertheless, is considered recorded from the time of such delivery.  ? 317, Real Property Law; Mutual Life Ins. Co. of New York v. Dake, supra, 87 N.Y. page 264; Putnam v. Stewart, 97 N.Y. 411, 417.  This is because a mortgagee is not liable for an omission of the clerk to record.  A mortgagee is responsible, however, for a false record, particularly where, as here, the description in the instrument which the mortgagee delivered for recording induced the mistake.  *452 President, etc., Manhattan Co. v. Laimbeer, 108 N.Y. 578, 591, 15 N.E. 712.  It follows that the failure properly to record the instrument renders it void as against subsequent purchasers in good faith and for a valuable consideration whose conveyance or contract is first duly recorded.  ? 291, Real Property Law; Page v. Waring, 76 N.Y. 463, 469; Howells v. Hettrick, 13 App.Div. 366, 368, 43 N.Y.S. 183, affirmed, 160 N.Y. 308, 310, 54 N.E. 677.

 

Plaintiff urges that inasmuch as section 316 of the Real Property Law provides only for the maintenance of an alphabetical index, a listing of this mortgage thereunder would be sufficient recording.  The pertinent provision of the Real Property Law must be read in pari materia with section 259-bb of the County Law, entitled 'Indexing, reindexing and recording of instruments affecting real estate in the county of Queens.' Subdivision 17 thereof provides that an instrument shall be indexed in the proper book of block indices under the block number.  Subdivision 20 provides that entries made in such indices shall, for the purpose of notice, be deemed and taken to be a part of the record and notice to subsequent purchasers to the same extent and with like effect as the recording of such instruments in the office of such register or clerk now is or may be notice.  Subdivision 21 treats the precise situation under consideration.  It provides that in cases where any instrument shall have been recorded with an erroneous block designation, the register, upon the presentation of proper proof, shall enter such instrument in the proper index under the proper block number.  The register shall make note of such entry and the date thereof in every place in which the instrument may have been erroneously indexed, and upon the record of the instrument, 'and the record of such instrument shall be constructive notice as to the property in any block not duly designated at the time of such recording only from the time when the same shall be properly indexed.'  (Emphasis supplied.)

 

In the light of this controlling language, it is clear that as to the owners and mortgagees of all the parcels, save that of Calathas, their title is unaffected by the lien of the mortgage in that they are purchasers in good faith and for a valuable consideration.

 

A further contention of plaintiff is that the title of Calathas is subordinate to the lien of the mortgage because Calathas took with knowledge of its existence at a time when the grantor, Lola, was also possessed of such knowledge.  By reason of taking with knowledge, Calathas became vested with their grantor's title, as assignees.  Dingley v. Bon, 130 N.Y. 607, 613, 29 N.E. 1023; Hood v. Webster, 271 N.Y. 57, 2 N.E.2d 43, 107 A.L.R. 497.

 

When it is held, as it must be, that Dlouhy took title superior to the mortgage, he must necessarily have been enabled to convey such title.  If he could not have conveyed title superior to the mortgage, then he would not have had such title himself.  In consequence, the element of knowledge on the part of those who took from Dlouhy is immaterial.  This was the holding in Wood v. Chapin, 13 N.Y. 509, 518, 67 Am.Dec. 62, where it was stated 'If Smith acquired a good title against Leland and Skinner by virtue of the recording acts, as I have shown he did, the plaintiff would be entitled to protection, though he had purchased with full notice of the prior deed.  * * * Smith's title being perfect against Leland and Skinner, the plaintiff, being clothed with that title, can hold the land against them.'  In Jospe v. Danis, 138 App.Div. 544, 546, 547, 123 N.Y.S. 360, 361, Burr, J., for this court, quoted the rule, on authority, as follows:  'A purchaser, with notice himself, from a person who bought without notice, may protect himself under the first purchaser.  The reason is to prevent a stagnation of property, and because the first purchaser, being entitled to hold and enjoy, must be equally entitled to sell.'

 

My conclusion, therefore, is that Lola obtained superior title because it succeeded to the title of Dlouhy and also because it was an innocent purchaser and could therefore convey superior title even though it thereafter acquired knowledge.  In turn, Calathas took that superior title from Lola, despite knowledge.

 

The consolidated order and judgment should be affirmed, without costs.

 

Consolidated order and judgment denying motion of plaintiff for judgment on the pleadings and granting defendant's cross-motion for judgment dismissing the second amended complaint on the merits affirmed, without costs.  All concur.
 

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RICH v. McCARTHY
 

 98 N.Y.S.2d 638, 198 Misc. 347 (1950)

Charles F. Rich brought action against Shirley McCarthy and Robert R. McCarthy, etc., to foreclose a mortgage.  On questions submitted upon agreed statement of facts.  The Special Term, Bailey, J., held that failure to record agreement extending mortgage until a date subsequent to judgment docketed against mortgagor afforded no priority to the judgment creditor.

  Judgment in accordance with opinion.
  BAILEY, Justice.

 Upon an agreed statement of facts the question is submitted as to whether the lien of a judgment is prior to the lien of the mortgage, the foreclosure of which is the subject of the action.  The judgment creditor as a defendant in the foreclosure action denies in his answer that the lien of the mortgage is superior to that of the judgment.  The mortgage is dated September 7, 1948 and recorded September 15, 1948 principal payable December 1, 1948.  An extension agreement was made dated April 26, 1949 and recorded February 10, 1950 by which the terms of payment of the principal sum were modified so as to provide for quarterly payments of principal and interest commencing July 22, 1949. Defendant's judgment was docketed August 23, 1949 based upon an indebtedness incurred by the mortgagor for merchandise furnished between April 1, 1948 and July 20, 1949.

 

The mortgage when made constituted a valid lien upon the property and continued as such until satisfied. It was a matter of record throughout a greater part of the period during which defendant's transactions ensued with the mortgagor culminating in the judgment.  Credit could not have been extended to the mortgagor with reliance upon the unencumbered ownership of the land in question.  The failure to record the extension agreement until a date subsequent to the judgment affords no priorities to the judgment creditor and creates no equities in his favor.  The judgment took effect only upon the interest in the land which the judgment debtor had at the time of the recovery of the judgment.  Trenton Banking Company v. Duncan, 86 N.Y. 221.
 

The Recording Act, Section 291, Real Property Law, provides protection for subsequent purchasers and mortgagees but not judgment creditors.  Blum v. Krampner, Sup., 28 N.Y.S.2d 62, affirmed 261 App.Div. 989, 27 N.Y.S.2d 1000; Fox v. Sizeland, 170 Misc. 390, 9 N.Y.S.2d 350.
 

Upon this submission it is therefore determined that the lien of plaintiff is superior to that of the judgment creditor defendant and plaintiff may proceed accordingly.
 

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FINN v. WELLS
 

237 N.Y.S. 580, 135 Misc. 53 (1929)

Action by William H. Finn and another against John Herbert Wells and others. Judgment for plaintiffs.

RHODES, J.

On June 5, 1923, the defendants Phillips conveyed a farm to the defendants Loveland, taking back a purchase-money mortgage on said premises, being the mortgage now sought to be foreclosed.  On the same day the said mortgagees assigned said bond and mortgage to the plaintiffs as collateral security for the payment of a note for $375, which note represented real estate commissions due plaintiffs from Phillips for acting as a real estate broker in selling said farm.  The mortgage in question was recorded July 3, 1923, and the assignment was recorded July 20, 1923.  Thereafter, and on January 6, 1924, said Phillips and wife assigned the same bond and mortgage to the defendants Wells by assignment dated on that day and recorded February 4, 1924, the same being part payment toward the purchase price of a parcel of real estate.  The defendants Wells insist that their rights under such assignment are prior to those under plaintiffs' assignment, laying special stress upon the fact that the bond and mortgage in question remained in the possession of Phillips until they were delivered to Wells with the assignment thereof.  The assignment of the mortgage to plaintiffs was a conveyance within the meaning of sections 290 and 291 of the Real Property Law.  See Gibson v. Thomas, 180 N. Y. 483, 73 N. E. 484, 70 L. R. A. 768.

 

Section 291 of the Real Property Law provides that 'every such conveyance not so recorded is void as against any subsequent purchaser in good faith and for a valuable consideration, from the same vendor, his heirs or devisees, of the same real property or any portion thereof, whose conveyance is first duly recorded.' Plaintiffs' assignment of the mortgage was first recorded.  This assignment transferred to him the bond and mortgage in question and was constructive notice to the defendants Wells of plaintiffs' rights, and the assignment of the defendants Wells was void as to plaintiffs under said section 291.  Plaintiffs are therefore entitled to foreclose the mortgage in question. The defendants Wells argue that plaintiffs were not bona fide purchasers of the mortgage for a present consideration as against Wells within the contemplation of the Recording Act.  It is to be observed, however, that in the present case the plaintiffs' assignment was supported by a consideration because given as collateral security for a valid, existing debt.  Plaintiffs' *582 assignment was prior in time of recording to that of Wells, and therefore a different situation exists than in the cases of Cary v. White, 52 N. Y. 138 and DeLancey v. Stearns, 66 N. Y. 157, the cases relied upon by the defendants.

 

Defendants Wells further argue that, inasmuch as the bond and mortgage never came into the actual possession of plaintiffs, there never was any transfer of the title thereto, arguing that a mortgage is only an incident to the debt which it is given to secure and cannot be separated therefrom, and that a transfer of a mortgage without a debt is a nullity.  I think their argument overlooks the fact that the transfer of the bond and mortgage was made by written assignment, which was accepted and recorded, and that this constituted a transfer to the plaintiffs of the bond and mortgage, regardless of whether or not they actually came into the physical possession of the plaintiffs.

 

The remaining question involves a determination of the amount of the mortgage.  Before November 1, 1924, the mortgagor Loveland knew of plaintiffs' claim.  This is admitted by Loveland, who says that the summer following June, 1923, he had information that plaintiffs claimed to be the owners of the mortgage.  Such information was sufficient to put the mortgagors on inquiry, and thereupon they are chargeable with all the facts which a reasonable and diligent investigation would have disclosed.  Notwithstanding this fact, the mortgagors continued to make payments on principal and interest to the defendants Wells.  Such payments of principal and interest are not chargeable in reduction of the mortgage as against the plaintiffs.  The only such payment chargeable against the plaintiffs is that of $350 principal and $48.25 interest paid November 1, 1923, before the mortgagors had knowledge of plaintiffs' claim.  With this exception plaintiffs are entitled to foreclose and recover the balance of said bond and mortgage in satisfaction of their note of $375, with interest thereon from June 5, 1923.  The overplus is payable to the defendant Wells to apply upon his debt under his said assignment, after deducting the payments already paid to him by the mortgagor Phillips.  In case a deficiency results upon the sale, plaintiffs should have judgment against the defendants Wells to the extent of the amounts collected by Wells under the mortgage.

 

I direct judgment accordingly, with costs to the plaintiffs to be taxed.
 

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DROBNEY v. SULLIVAN
 

66 N.Y.S. 245, 148 Misc. 670 (1933)

Action by Mary Drobney against James F. Sullivan and others to foreclose a mortgage.
Judgment ordered for defendants.

The nature of the issue and the facts so far as material are stated in the opinion.

 McNAUGHT, Justice.

 

The real parties in interest in the determination of the controversy presented by the issues are the plaintiff, Mary Drobney, and the defendants Steve Svec and Anna Svec.  The parties are the unfortunate victims of the fraudulent conduct of one James F. Sullivan.  Sullivan for some period of time was a practicing attorney and real estate operator in the village of Endicott in the county of Broome.  After the transactions involved herein he removed to New York City and subsequently absconded.  The unfortunate situation in which the parties find themselves is due to reprehensible and illegal acts of Sullivan, and to the confidence each reposed in him. A clear understanding of the issues requires the unraveling of a somewhat complicated state of facts.
 

It appears to be established that on or about November 21, 1923, Sullivan conveyed to one Roy Miller and Anna M. Miller, his wife, premises situate upon what is known as Nebraska avenue in the village of Endicott. The grantees executed and delivered to Sullivan a bond and mortgage for the sum of $2,000 to secure a portion of the purchase price of the premises.  On or about December 26, 1925, Miller and his wife conveyed the premises to Alfred Nicolai and Olive Nicolai, his wife, subject to the aforesaid $2,000 mortgage.  On or about February 25, 1926, Nicolai and his wife conveyed the premises to Michele Longo, the deed containing a like recital that it was subject to the aforesaid $2,000 mortgage.  On or about April 15, 1926, Longo and his wife conveyed the premises to the La Stella Agency, Inc., the deed reciting that the premises were conveyed subject to mortgages aggregating $3,900.  On or about April 17, 1926, the La Stella Agency, Inc., conveyed the premises to the defendants Steve Svec and Anna Svec, as tenants by the entirety; the conveyance reciting that it was made and accepted subject to a $1,900 mortgage held by one Louis J. Kingsley. The defendants Svec have been the owners and in possession of the premises since the deed of 1926.  The Kingsley mortgage has been paid and discharged of record.

 

The plaintiff, Mary Drobney, had business transactions with Sullivan in which he had acted as her attorney and adviser.  She had also acted in the capacity of interpreter in connection with business transactions of his office with individuals of foreign descent.  On or about December 1, 1923, the plaintiff purchased from Sullivan the mortgage given to him by Miller and wife.  The plaintiff paid to Sullivan by order upon a savings account in the Binghamton Savings Bank, $1,900, and by order upon an account in the Endicott Trust Company, $100. Sullivan delivered neither the bond, the mortgage, nor an assignment, but gave the plaintiff a receipt for $2,000, reciting that it was in payment of an assignment of '1st mtge. Miller to J. F. Sullivan for Two Thousand Dollars.' About the same time or shortly thereafter Sullivan delivered to the plaintiff a writing reciting that he agreed 'to obtain the whole or any part of the mortgage money on the property of Roy Miller on Nebraska Avenue represented by Bond and Mortgage held by Mary Drobney for $2,000.00 at any time that the said Mary Drobney should desire the money.'  The plaintiff at the time did not receive either the bond or mortgage, and no assignment was ever delivered to her. About a month later through the mail she received the bond and some insurance papers.  There seems to have been some transaction by which Sullivan was to record the mortgage, which, at the time the plaintiff paid the $2,000, had not yet been recorded.  The mortgage in fact was not recorded in the Broome county clerk's office until the 29th day of September, 1925, and never came into the possession of the plaintiff until after Sullivan absconded in 1930, when it was obtained for her from the county clerk's office.  No payments were ever received by the plaintiff from the mortgagor or any of the subsequent grantees of the premises.  From time to time money was paid to her by Sullivan, down to and including some time in the year 1929.  Plaintiff received payments of principal aggregating $800. She admits receiving other payments, and vouchers have been produced for sums aggregating $325, represented by checks of Sullivan, which apparently were payments of interest.
 

Plaintiff and the defendants Svec are employees of the Endicott-Johnson Corporation.  In 1931 plaintiff took up the matter of her mortgage with the legal department of that corporation, and the defendant Steve Svec was asked to call at the office of the legal department.  It appears from the proof that this was the first intimation Svec had that the plaintiff claimed to hold a mortgage against his property.  He had made no payments of interest or principal to the plaintiff, nor had she demanded such payment, and he had paid no principal or interest to Sullivan.  The defendants Svec declined to pay the mortgage.  Plaintiff brought this foreclosure action.

 

Prior to April 17, 1926, the defendants Svec were the owners of premises located upon Oakhill avenue in the village of Endicott.  The premises were subject to a mortgage of $1,000. Negotiations were entered into by Sullivan operators for an exchange of property owned by the defendants Svec on Oakhill avenue and the property then in the name of Longo on Nebraska avenue. The two properties were appraised, and upon the appraisal the difference in value was fixed at $2,000.  Longo then deeded on April 15, 1926, to the La Stella Agency, Inc., subject to mortgages aggregating $3,900.  Two days later the La Stella Agency, Inc., deeded to the defendants Svec, subject to mortgage in the sum of $1,900, and Svec conveyed his property on Oakhill avenue to the La Stella Agency, Inc., and paid $100 in cash.  The transactions all occurred in the office of Sullivan.  Sullivan was to all intents and purposes the La Stella Agency.  It was one of his real estate operations.  A contract was first drawn and subsequently the deed was executed.  At the time of the execution of the deed Sullivan stated in the presence of witnesses that the premises were being conveyed to Svec subject to a $1,900 mortgage only, held by Kingsley, and represented by Page as his agent.  A satisfaction piece of the $2,000 mortgage in the name of Sullivan was present, was seen by witnesses, and when the deed was executed Sullivan stated that he would record the deed and the satisfaction piece.  Svec left the papers with him as his attorney for such purpose.  The satisfaction was not recorded, and it cannot be found.

 

We therefore have a situation where it may be fairly stated upon the facts established by the evidence that the plaintiff, Mary Drobney, dealing with and reposing trust and confidence in Sullivan, parted with $2,000 for a mortgage she actually never received until long after Sullivan absconded, of which no assignment was delivered to her, and of the principal of which there is still unpaid $1,200. The defendants Svec, dealing with like confidence with Sullivan, and he acting as their attorney, and they relying upon his statements as to the disposition of the papers and as to the amount of the liens, accepted a conveyance subject to a $1,900 mortgage which has since been paid, and now find the plaintiff has a claim which she is seeking to enforce by foreclosure for an unpaid balance of $1,200 against their property.  There are strong equities in favor of each of these litigants.

 

A court of equity is naturally desirous and will strive to relieve the parties from the unfortunate situation in which they have been placed by the reprehensible conduct of Sullivan; yet even a court of equity is bound to follow well-recognized authority and principles of law which cannot be disregarded.

 

A bond and mortgage which is personal property may be assigned by delivery without a written instrument. Ebling Brewing Co. v. Gennaro, 189 App. Div. 782, 786, 179 N. Y. S. 384.

 

Where a party makes what is treated as a final payment and satisfaction of a bond and mortgage without taking a satisfaction and without requiring production of the instruments, or receiving some sufficient excuse for their nonproduction, the payment is at his peril and not good as against an assignee for value under an unrecorded assignment.  In dealing with the property on such an assumption the purchaser acts at his own peril and assumes the risk that the mortgagee may have transferred the mortgage to some one else.  He is put upon inquiry.  It is not enough for him to examine the record and see that no assignment of the mortgage appears thereon, but he should require a satisfaction piece in due form, or the delivery of the mortgage and bond. Curtis v. Moore, 152 N. Y. 159, 46 N. E. 168, 57 Am. St. Rep. 506; Assets Realization Co. v. Clark, 205 N. Y. 105, 98 N. E. 457, 41 L. R. A. (N. S.) 462.

 

It is not necessary to record an assignment of a recorded mortgage as against a subsequent purchaser of the mortgaged premises, but only as against a subsequent purchaser of the mortgage itself.  Greene v. Warnick, 64 N. Y. 220, 225; Curtis v. Moore, supra, 152 N. Y. 159, 164, 46 N. E. 168, 57 Am. St. Rep. 506.  The record of the mortgage was notice to subsequent purchasers of the premises, although the assignment to the plaintiff was not recorded.  Spicer v. First National Bank, 55 App. Div. 172, 66 N. Y. S. 902.

 

In Purdy v. Huntington, 42 N. Y. 334, 1 Am. Rep. 532, it was held that the assignee of a recorded mortgage upon real estate, which real estate was conveyed by the mortgagor to the mortgagee, after the assignment, holds a valid lien as against a purchaser from the mortgagee who took without notice of the assignment, notwithstanding the conveyance to the mortgagee as well as the conveyance from the mortgagee to the purchaser, were recorded before the assignment was placed upon record.

 

In this case, however, it appears that the defendants Svec did not deal heedlessly and carelessly with Sullivan without knowledge that the mortgage existed, or without proper precautions as to an assignment having been made.  The mortgage was discussed; a satisfaction of it was drawn, apparently executed, and such satisfaction, together with the deed received, was intrusted to Sullivan for record.  Defendant Svec could have done nothing more, unless they had refused to intrust the papers to Sullivan for recording and demanded that they be forthwith delivered to them. They, however, had confidence in Sullivan, regarded Sullivan as their attorney, and certainly could not be charged with negligence in intrusting the papers to Sullivan under such circumstances for the purpose of having them recorded.

 

The plaintiff did not exercise as great a degree of care as did the defendants Svec.  For nearly six years she did not seek to obtain the mortgage.  She apparently did not know the mortgage was not recorded until three years after she purchased it.  She did not seek to obtain nor apparently make any inquiries regarding a written assignment of it.  She trusted Sullivan implicitly, and she looked to Sullivan for payment, not to the owners of the premises, either Svecs or their predecessors in title.  It is a principle firmly imbedded in our system of jurisprudence that where one of two innocent parties must suffer by the wrongful conduct of another, that party must sustain the loss who by his own act has enabled the third person to do the injury.  Farmers' & Mechanics' Bank of Kent County v. Butchers' & Drovers' Bank, 16 N. Y. 125, 133, 69 Am. Dec. 678; Griswold v. Haven, 25 N. Y. 595, 599, 82 Am. Dec. 380; McNeil v. Tenth National Bank, 46 N. Y. 325, 333, 7 Am. Rep. 341; Moore v. Metropolitan National Bank, 55 N. Y. 41, 47, 14 Am. Rep. 173; Muller v. Pondir, 55 N. Y. 325, 335, 14 Am. Rep. 259; Walsh v. Hartford Fire Insurance Co., 73 N. Y. 5, 10; Conrow et al. v. Little et al., 115 N. Y. 387, 392, 22 N. E. 346, 5 L. R. A. 693; Hulburt v. Walker, 258 N. Y. 8, 17, 179 N. E. 34.

 

The act of the plaintiff in failing to secure possession of the mortgage, her failure to obtain a written assignment, her carelessness as to the recording of the mortgage or the assignment, her reliance upon receiving payments from Sullivan, her failure to call the attention of any of the successive owners of the property to her mortgage lien, and her neglect to seek enforcement of payment from any of the owners including Svec, until long after Sullivan had ceased to make payments to her, clearly, while unfortunate for the plaintiff, place her in the position of a person who by his own negligence and carelessness enables the third person (in this instance Sullivan) to do the injury to both the plaintiff and the defendants Svec.

 

For the reasons outlined, the court feels constrained to hold that the plaintiff is precluded from enforcing the apparent lien of the mortgage she claims to own.  Upon all of the facts plaintiff has failed to establish a cause of action.

 

Judgment is directed for defendants, and complaint dismissed, with costs.
 

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BLUM v. KRAMPNER
 

28 N.Y.S.2d 62 (1940)

Action by Celia Blum against Dorothy Krampner, doing business as Auto Discount Company, and another to restrain the execution of judgment against property recorded in name of judgment debtor Benjamin H. Berkowitz.

Judgment for plaintiff.
Judgment affirmed, 261 App.Div. 989, 27 N.Y.S.2d 1000.

CUFF, Justice.

 

This action for an injunction was tried in Suffolk County.  The undisputed facts are:  One Benjamin H. Berkowitz was the owner prior to July 19, 1936, of a certain parcel of property in Suffolk County.  At or about that time he made a contract with the Baldwin Lumber-Junction Milling, Inc., pursuant to which the latter was to build a bungalow for Berkowitz on the aforesaid property.  It was arranged by the parties to that contract that Berkowitz should deed the land to the Baldwin Company and that the latter should retain title thereto until Berkowitz had made the instalment payments as provided in the contract to pay for the building and then re-convey it to Berkowitz.  Pursuant to the contract, Berkowitz gave the Baldwin Company a deed dated July 22, 1936, also a note for the amount due.  After making a certain number of payments, Berkowitz defaulted, leaving an unpaid balance of about $822.

 

It seems that Joseph Blum, the husband of plaintiff, had endorsed the note and that suit was commenced by the Baldwin Company against him when the note fell into default.  Before the trial the note action was settled.  By the terms of the settlement, the Baldwin Company executed a deed conveying the property in question to the wife of Joseph Blum, who is the plaintiff herein.  That deed was dated February 19, 1939.  It was recorded May 8, 1939.

 

Dorothy Krampner, doing business as Auto Discount Company, the defendant herein, had carried on business with Berkowitz over many years, lending him money from time to time.  He repaid these loans satisfactorily until about 1938, when she sued him and recovered judgment against him, because of his failure to pay certain of the loans.  The judgment was docketed June 28, 1938 for the sum of $605.66.  Thereafter it was redocketed on February 7, 1939 for $625.50.

 

The controversy in this suit centers around the fact that the Baldwin Company did not record the deed dated July 22, 1936, which it received from Berkowitz until July 8, 1938, by which time the defendant's judgment was of record; it had been docketed ten days earlier or on June 28, 1938.
 

Defendant, armed with its judgment, directed the Sheriff to execute against the real property which was recorded in the name of the judgment debtor, Berkowitz, at the time the judgment was docketed.  It is to restrain the defendant and the Sheriff from taking any action of that kind that plaintiff has brought this suit.
 

Defendant at the trial and in her memorandum urges that the deed from Berkowitz to the Baldwin Company was not properly acknowledged.  Evidence was offered on this score and I find as a fact that the acknowledgment is in order.

 

Defendant contends that, under the provisions of the Recording Act, the docketing of her judgment before the recording of the deed wins for that judgment a lien against the property even though the property had been conveyed by the judgment-debtor long prior to the obtaining of that judgment.  That contention must be overruled.  The Recording Act protects not judgment creditors, but subsequent purchasers and mortgagees. It provides:  'Every such conveyance (a mortgage is a conveyance) not so recorded is void as against any subsequent purchaser in good faith and for a valuable consideration, from the same vendor, his heirs or devisees, of the same real property or any portion thereof, whose conveyance is first duly recorded.'  Section 291, Real Property Law (Parentheses mine).

 

If amplification of that plain language is needed, the Appellate Division has spoken:  'A judgment creditor is not such a purchaser, and an unrecorded conveyance has a preference over a judgment, unless there is a superior equity in favor of the holder of the latter.'  Sullivan v. Corn Exchange Bank et al., 154 App.Div. 292, 296, 139 N.Y.S. 97, 100.

 

Defendant argues that her equities are superior.  I find no superior equities in this controversy in defendant's favor.  If money was loaned to Berkowitz on the strength of his apparent ownership of that land, there is no proof that plaintiff had knowledge of the situation, or in any way aided Berkowitz to obtain that extension of credit.

 

It is an admitted fact that the Baldwin Corporation, which is a foreign corporation, failed to obtain a certificate to do business in this state, and that no certificate of that character was on file at the time it received the deed from Berkowitz, and when it executed its deed to the plaintiff herein. Defendant argues that the deed which plaintiff holds is weakened by that omission.  It is her contention that because the certificate to do business was not first secured by the foreign corporation, that the original transfer from Berkowitz to the Baldwin Company was without legal effect.  Section 210 of the General Corporation Law is cited.  It reads as follows:  'A foreign corporation, other than a moneyed corporation, shall not do business in this state without having first obtained from the secretary of state a certificate of authority.'

 

Citing cases, defendant maintains that the Baldwin Company had no legal existence outside of the boundaries of the sovereignty by which it was created.  He relies heavily upon Bean v. Flint, 204 N.Y. 153, 97 N.E. 490. This case holds that a foreign corporation, as a pre-requisite to recovering a judgment must plead and prove that it had procured a certificate to do business in this state.  The foreign corporation seeks no relief in this action.

 

Defendant urges strenuously that the plaintiff stands in the shoes of the corporate defendant; that she is its assignee; that she has no greater rights and when she took the deed from the corporate defendant she took it subject to its weaknesses and infirmities; that whatever restrictions the law has placed upon the foreign corporation for non-compliance with the statute is inherited by her.  That is indeed a narrow view that would jeopardize the title to many parcels of land that have passed through foreign corporations.

 

The Ozark Cooperage Company v. Quaker City Cooperage Company, 112 App.Div. 62, 98 N.Y.S. 113, warns that the statute (Section 210) is a rigorous one and cautions that reason be applied to the interpretation thereof.

 

The evidence is, and I so find, that the plaintiff had no knowledge of the indebtedness of Berkowitz to the defendant.  I also find that there is no evidence in the case to support the charge that the Baldwin Company had knowledge of any indebtedness from Berkowitz to the defendant.

 

It has been suggested but not decided that a holder in due course of negotiable paper, in suing thereon, is not burdened with this particular non- compliance handicap that would have prevented a suit by the foreign corporation from whom such holder had received the negotiable paper.  Allison Hill Trust Company v. Sarandrea, 134 Misc. 566, at page 570, 236 N.Y.S. 265; Halsey v. Henry Jewett Dramatic Co., 190 N.Y. 231, 235, 83 N.E. 25, 123 Am.St.Rep. 546; Manufacturers' Commercial Co. v. Blitz, 131 App.Div. 17, 115 N.Y.S. 402.  If there is any merit to that reasoning at all, a deed received in due course, by reason of its very nature, the permanent character of the property it transfers and the far reaching effect upon our economic affairs that such transfer produces, should be held to be wholly untainted by the penalty that the statute would impose upon the non-complying corporation which had issued such deed.

 

Mahar v. Harrington Park Villa Sites, 204 N.Y. 231, 97 N.E. 587, 38 L.R.A.,N.S., 210, definitely lays down the rule that the only penalty prescribed for a failure of a foreign corporation to obtain a certificate to do business is to forbid such defaulting foreign corporation from maintaining an action upon any contract made by it.  That case discusses Wood & Selick v. Ball, 190 N.Y. 217, 83 N.E. 21.

 

This is not a case of antedating an unrecorded deed or even a suspicion of that unsavory practice.  The deed (Berkowitz to Baldwin Co.) bears the certificate of the County Clerk of Suffolk County, which is dated January 21, 1937, attesting to the authority of the Notary thereon to act.  Defendant's judgment was obtained June 28, 1938.

 

Judgment will be entered in favor of the plaintiff.
 

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SECURITY DISCOUNT ASSOCIATES, INC., v. LYNMAR HOMES CORP.
 

187 N.Y.S.2d 677 (1959)

Mortgage foreclosure action in which the defendants each claimed a prior and superior lien to that of plaintiff by virtue of two other mortgages executed by plaintiff's mortgagor.  The Supreme Court, Special Term, Fred J. Munder, J., held that even though it might be inferred that the advances plaintiff made subsequent to execution and recording of mortgage to him were made after knowledge of existence of subsequent mortgage, since under terms of mortgage advances were obligatory, lien of mortgage as to such advances would not be postponed in favor of holder of a subsequent mortgage.
 

Judgment accordingly.

FRED J. MUNDER, Justice.

In this mortgage foreclosure action the defendants, John J. Hassett, Jr. and Charles Reiber each claim a prior and superior lien to that of the plaintiff's by virtue of two other mortgages executed by the plaintiff's mortgagor, defendant Lynmar Homes Corp., to them as mortgagees.
 

The defendant, Lynmar, on November 4, 1957, executed a mortgage for the amount of $3,700 cash consideration which was recorded November 8, 1957. Subsequently for an additional cash consideration of $7,300 on January 15, 1958, Lynmar executed another mortgage which was recorded on January 20, 1958, at 9:05 a. m.  At the same time an agreement consolidating these two mortgages and extending the time of payment was executed and recorded.
 

Lynmar executed another mortgage on January 15, 1958, to the defendant Hassett which was recorded the same day as the plaintiff's and time stamped 10:47 a. m.  It appears that the Hassett mortgage was given in the designated amount of $5,000 to secure the cost of materials already advanced and to be advanced in futuro.
 

The defendant Hassett claims a prior and superior lien on the theory that his mortgage was the first recorded.  He further contends that the plaintiff's mortgages are invalid as to his because of the plaintiff's failure, in each case, to record a certificate of stockholders' consent before Hassett's lien attached.
 

     Though Hassett's mortgage, according to the time stamp thereon, was physically recorded approximately one hour and forty minutes later, the testimony of the deputy county clerk and the mail carrier, and the fact that it was recorded prior to the receipt of the second mail, sufficiently establishes that it was actually delivered to the clerk's office prior to 9:00 a. m. and before the plaintiff's second mortgage and consolidation agreement, which concededly were delivered by hand at 9:05 a. m.  'Every instrument, entitled to be recorded, must be recorded by the recording officer in the order and as of the time of its delivery to him therefor, and is considered recorded from the time of such delivery.'  Real Property Law, ? 317.  An instrument is in law recorded when it is delivered to the county clerk for that purpose. Manhattan Co. v. Laimbeer, 108 N.Y. 578, 15 N.E. 712.  A mortgagee is not liable for an omission of the clerk to record. O'Neill v. Lola Realty Corp., 264 App.Div. 60, 34 N.Y.S.2d 449. Subdivision 8 of Section 316-a of the Real Property Law, which provides that the record of an instrument shall be constructive notice as to the property 'only from the time when the same shall be properly indexed', presupposes an erroneous designation of the property within the instrument as originally recorded, and provides a method by which an improper recordation resulting therefrom may be corrected.  It would have no bearing on the instant case.  Thus the Hassett mortgage must, in any event, be considered prior and superior to the plaintiff's second mortgage.  To what extent the lien attaches will be considered later.
 

The contention that the Hassett mortgage was executed with actual notice of the plaintiff's second mortgage is without merit, since, though concededly executed the same day, there is no evidence as to which mortgage was first executed.
 

With respect to the plaintiff's first mortgage which was duly recorded in November of 1957, there is no question as to its priority.  The failure to execute, file and record a certificate of the stockholders' consent will invalidate a corporate mortgage. Cohn v. Gersh Realty Corporation, 137 Misc. 245, 242 N.Y.S. 671. However, in this instance there was merely a failure to record the consent, and where the mortgage, as here, recites that its execution was duly consented to and authorized by the stockholders, such recital is presumptive evidence that such mortgage was duly and sufficiently consented to and authorized 'as required by any provision of law'. Stock Corporation Law, ? 17.  In addition, a consent was actually given at the time the mortgage was executed, and is a part of the proof herein.
 

Though fraud and conspiracy by plaintiff and the defendant Lynmar and lack of consideration were alleged as a second affirmative defense in the answer, no proof of same was offered on the trial.
 

As to the extent of the priority of Hassett's line, though it may be inferred that the advances made subsequent to the execution and recording of the mortgage were made after knowledge of the existence of a subsequent mortgage, the terms of the mortgage and the agreement upon which it was based made these advances obligatory on the part of the mortgagee.  In such event the lien of the mortgage as to such advances will not be postponed in favor of the holder of the subsequent mortgage.  Hyman v. Hauff, 138 N.Y. 48, 33 N.E. 735. The lien therefore extends to the amount of all advances made.

 

In October, 1957, the defendant Lynmar executed and delivered to the defendant Charles Reiber a mortgage to secure a corporate note in the amount of $4,095.  The mortgage was recorded November 4, 1957, but was improperly indexed by the county clerk.  The omission was not discovered until July, 1958. Consequently both plaintiff's mortgages were executed without knowledge of the Reiber mortgage. Nevertheless under the provisions of ? 217 of the Real Property Law and the cases heretofore cited, the Reiber mortgage must be considered to have been first recorded. However, in view of the proofs offered and an examination of the instrument, it must be considered invalid as against the liens of Hassett and the plaintiff herein.  No certificate of stockholders' consent to the mortgage was ever recorded or produced.  Absent proof thereof it must be assumed that no such certificate was ever executed and there is no recital of such consent or authorization in the terms of the instrument itself from which a presumption might arise.  Cohn v. Gersh Realty Corp., supra.
 

Submit findings of fact and conclusions of law in accordance herewith.
 

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THONEMANN v. STEIN
 

18 N.Y.S.2d 204, 259 A.D. 27 (3rd Dept. 1940)

Appeal from Supreme Court, Sullivan County; Sydney F. Foster, Justice.
 

Proceeding by Anna C. Thonemann, individually and as administratrix of the goods, chattels and credits of Henry Thonemann, deceased, against Lena Stein and others, to reform and foreclose a mortgage against premises upon which defendant Anna M. King also had a mortgage of record.  From an unsatisfactory judgment entered in the Sullivan county clerk's office, defendant Anna M. King appeals.
 

Affirmed.

 

SCHENCK, Justice.

 

This is an appeal by Anna M. King from a judgment entered in the Sullivan County Clerk's office after a trial by the court without a jury in an action brought to reform and foreclose a mortgage against premises upon which the appellant also has a mortgage of record.  There is no dispute as to the facts and the only issue to be decided is whether or not the mortgage directed to be foreclosed is a lien upon lot No. 8, located on a map of property in Woodridge, Sullivan County.  The Trial Justice in the reformation action corrected the description contained in a mortgage given by Lena Stein, one of the defendants herein, to Henry Thonemann and Anna C. Thonemann, on lot No. 10 so as to specify and describe lot No. 8 of said map instead of lot No. 10.
 

Some time prior to February 4, 1922, the plaintiff-respondent, Anna C. Thonemann, and Henry Thonemann, her husband, since deceased, entered into negotiations with one Adam Rampe with reference to a mortgage loan upon premises owned by Lena Stein, at Woodridge.  At that place Rampe showed to plaintiff-respondent and her husband a two-story frame dwelling house located on Highland Avenue and pointed out that this was the property upon which the loan was to be made.  Thereafter, on February 4, 1922, the owner, Lena Stein, executed a bond and mortgage to secure the sum of $3,300, covering a lot designated and described as lot No. 10.  It was subsequently discovered that lot No. 10 was a vacant lot and that the building shown to plaintiff-respondent and her husband was erected upon lot No. 8.  At the time of the execution of the mortgage, Mrs. Stein was not the owner of lot No. 8, but acquired title thereto on December 8, 1922, and on April 2, 1925, she conveyed both lot No. 8 and lot No. 10 to Harris Joseph, Inc., by deed recorded April 9, 1925, which deed contained the following clause:  'The premises are conveyed by the party of the first part subject to the following encumbrances.  Subject to a first mortgage in the sum of Thirty-three hundred ($3300.00) dollars, bearing interest at six (6%) percent, which is to expire on the 4th day of February, 1927.  The said mortgage is now recorded as covering lot No. 10.  It is distinctly understood that Lot No. 8 conveyed herein is purchased subject to the said mortgage of Thirty-three hundred ($3300.00) dollars bearing interest at the rate of six (6%) percent per annum.  Subject to any state of facts that an accurate survey may show.  Not rendering title unmarketable.  It is understood and agreed between the parties hereto that in the event, Jennie Steinberg the owner of lot No. 12, next adjoining to lot No. 10 owned by party of first part herein shall request the party of the second part or his or its successors in interest for a deed of the said lot No. 10 in exchange for lot No. 12, that the party of the second part, or its successors shall be obliged to exchange deeds with the said Jennie Steinberg, her heirs or legal representatives, without demanding any compensation or remuneration for such exchange, provided such demand is made within one year from April 1st, 1925, it being understood that mortgage of $3,300, on Lot No. 10 is to be transferred to cover lot No. 8, without expense to party of 2nd part, and without liability on bond of party of second part.'

 

Harris Joseph, Inc., conveyed lots Nos. 8 and 10 to Gussie Simowitz by deed dated June 15, 1925, and recorded June 19, 1925, which deed also contained substantially the above quoted clause.  Lot No. 8 was subsequently conveyed by Gussie Simowitz to Jennie Josephson by deed dated July 23, 1926.  This deed did not contain the clause heretofore referred to.  At the time of this conveyance, Jennie Josephson gave a purchase money mortgage to Gussie Simowitz, grantor, in the sum of $5,500, which mortgage was thereupon assigned to the defendant-appellant, Anna M. King.

 

The learned Trial Justice held that the mortgage to the plaintiff-respondent given by Lena Stein and her husband on February 4, 1922, is a lien upon lot No. 8, which would make the mortgage held by Mrs. King, defendant-appellant, subordinate thereto, and granted judgment reforming and correcting the bond and mortgage held by plaintiff-respondent so that the same would be a lien upon and encumber lot No. 8, and also granted judgment of foreclosure and sale.

 

The finding of the Trial Justice was proper.  The mortgage loan had been solicited by Rampe, the agent of the mortgagor, Lena Stein, who pointed out to the mortgagees, plaintiff-respondent and her husband, a two-story dwelling house and stated that was the property to be mortgaged.  It was clearly the intention of the parties that the said mortgage should cover and become a lien upon the dwelling house and the lot upon which it stood, and not upon an adjoining lot.  That a mistake occurred is best indicated by the action of Lena Stein. She attempted to correct a mistake in the identity of the property by obtaining title to lot No. 8, and providing in her deed to Harris Joseph, Inc., that the conveyance was subject to the $3,300 mortgage and wanted it 'distinctly understood that lot No. 8 conveyed herein is purchased subject to said mortgage of Thirty-three hundred ($3,300.00) Dollars'.  These deeds and mortgages are matters of record and that the appellant is bound by the record may not be disputed.  The recital in the deed from Lena Stein was notice to Harris Joseph, Inc., and to all other persons, for it is a well settled rule of construction that the recording 'is notice of the mortgage to all subsequent purchasers and mortgagees and they are chargeable with all the consequences of such notice'.  Brinckerhoff v. Lansing, 4 Johns. Ch. 65, 70, 8 Am.Dec. 538.  The record constituted explicit notice to all successors in interest of Lena Stein and certainly the defendant-appellant falls within that class.
 

The finding of the Trial Court is amply sustained by the evidence, and the judgment should be affirmed.

 

Judgment affirmed.  All concur.
 

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GROVES v. GEORGE

123 N.Y.S.2d 192 (1953)

Action was brought to have mortgage adjudged not a lien on realty.  The Supreme Court, Nassau County, Special Term, Part I, Christ, J., held that where grantee acquired title to realty in good faith without notice of prior unrecorded second mortgage, and grantee recorded the deed and paid off the first mortgage, the second mortgage, though a valid lien against the realty, was subject to equitable lien of grantee for amount of money paid to retire the first mortgage.

Judgment in accordance with opinion.
 

CHRIST, Justice.

 

This is an action brought by the plaintiff to adjudge that a mortgage in the sum of $2,500 recorded in Liber 3248, page 113 of Mortgages, in the Office of the County Clerk of the County of Nassau is not a lien upon certain property described in paragraph 'First' of the complaint and now owned by the plaintiff, William Maurer.  The defendant George formerly was the owner of this property and while George *193 was the owner he borrowed from the plaintiff, Mildred Evelyn Groves, acting through her husband George F. Groves, moneys totaling $6,330.  At about this period, George also borrowed from the defendant Charles Gersh $2,500.  Which of the borrowings was first in point of time was not established by the testimony.

 

Thereafter and on April 27, 1948, George gave the mortgage hereinbefore described to Gersh as security for the money which he owed him.  Gersh did not record this mortgage until June 14, 1948.  In between the time when the mortgage was given and the date of its recording, George gave a deed to the plaintiff Groves dated May 10, 1948 which was recorded on May 20, 1948, in Section 39, Liber 3583 of Conveyances, at page 490, in the Office of the Clerk of the County of Nassau.  The plaintiff Groves caused a search of the records in the County Clerk's Office to be made before taking title and accepting the deed and the property appeared unencumber except for a first mortgage in the sum of $3,000 made by George to one John F. Duncombe, dated December 9, 1947, recorded December 12, 1947, in Liber 3131 of Mortgages, page 435, in the Nassau County Clerk's Office.

 

Thereafter and subsequent to June 14, 1948, the date when Gersh recorded his second mortgage, the plaintiff paid off the first mortgage in the sum of $3,000.  The property has since been sold by the plaintiff Groves to the plaintiff Maurer, but the plaintiff Groves has an agreement to remove the Gersh mortgage as a could on the title of Maurer.  Hence this action.  Neither the plaintiff nor her husband had any knowledge of the existence of the Gersh mortgage when the conveyance of the property was made to them on or about May 10, 1948, and their first information came when Maurer had a title search made in August, 1952, which turned up this second mortgage.  The defendant George was a witness on the trial.  He testified that the deed to the plaintiff was not to be a real conveyance at all, but was just as a matter of convenience to George F. Groves so he could justify to his wife the advance of money to the defendant George.  George also stated that the money given to him by Groves was not a loan but was for the purchase of an interest in a gasoline station which the defendant had been operating.

 

The court finds to the contrary.  That is, the money advanced was a loan and was not a payment for the purchase of an interest in a gas station business and it further finds that the deed was given in satisfaction of this loan and neither the plaintiff nor her husband were advised about the Gersh mortgage. The question before the court is whether the unrecorded mortgage is a lien against the property and if so, to what extent. That determination is controlled by Section 291 of the Real Property Law which states that an unrecorded mortgage is void against any subsequent purchaser in good faith and for a valuable *194 consideration.  The court finds that the plaintiff acquired title in good faith without notice of this prior unrecorded mortgage and that she did not, at the time of the taking of the deed, give a valuable consideration within the purview of the statute.  At the time the deed was given for a pre-existing debt, no assumption of obligation was made nor was anything of value given at the time of the conveyance.  The plaintiff did not change her position by anything of value at that time.  Under the law of this state, a pre-existing debt is not a valuable consideration within the meaning of the recording act.  Dickerson v. Tillinghast, 1833, 4 Paige 215.  This is an old case but it is still the law.

 

Therefore, the mortgage was not cut off by the deed.  However, at a subsequent time the plaintiff did change her position by paying off the first mortgage in the sum of $3,000.  When this money was paid, Gersh had already recorded the second mortgage but plaintiff was unaware of this and had no reason to make a further search and so that recording and the existence of the mortgage was undiscovered when the payment was made to the holder of the first mortgage.  To hold now that the second mortgage is good against the deed with the first mortgage paid off results in a serious injury to the plaintiff.  The defendant Gersh would in such circumstances have advanced his position from that of a holder of a $2,500 second mortgage behind a first mortgage of $3,000 to that of a holder of a first mortgage of $2,500 and this he would have achieved by his own lack of diligence in recording his mortgage, for had it been recorded at the time the deed was given, the plaintiff would have had information of its existence.  With such information plaintiff would not have put out the additional $3,000 knowing that his advance would come behind the Gersh mortgage.  Such result is to be avoided.  The second mortgagee must not lose his mortgage to the grantee who gave no value for the deed, but neither may he profit by the subsequent retirement of a first mortgage which stood ahead of his interest in the property.  The second mortgagee is not cut off by the deed to the plaintiff but has a valid lien against the property subject, nevertheless, to a first equitable lien of the plaintiff for the amount of money which she paid to retire the first mortgage, that is, the sum of $3,000.

 

The foregoing constitutes the decision of the court pursuant to ? 440 of the Civil Practice Act.  Enter judgment on notice accordingly, without costs.
 

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ARMSTRONG v. COMBS
 

15 AD 246 (1897)

APPEAL by the defendant, Edward Combs, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Warren on the 3d day of October, 1896, upon the report of a referee in an action brought for the foreclosure of a mortgage.
 

MERWIN, J.:
 

The mortgage sought to be foreclosed in this action is dated May 10, 1889, was executed by James M. Tucker to Joseph Wood, and duly recorded May 10, 1889  On March 1, 1890, Joseph Wood assigned and delivered the mortgage, and the bond accompanying the same, to Mary Jane Wood for a good and valuable consideration, the assignment being recorded on May 15, 1891.  On the 10th of September, 1890, Joseph Wood, as the referee finds, assigned this same bond and mortgage to Charles P. Coyle and John H. Cunningham, and delivered to them the same with the assignment, the latter being recorded December 24, 1890.  On the 7th day of May, 1891, Coyle & Cunningham executed and delivered to the plaintiff an assignment of the said bond and mortgage.  This is expressed to be "for a good and valuable consideration to them in hand paid by the said party of the second part."  The bond and mortgage were delivered with the assignment, and the latter was recorded on the 12th of May, 1891.  On the 28th of April, 1891, Tucker, the mortgagor, conveyed the premises covered by the mortgage to the defendant Combs, the latter assuming and agreeing to pay the mortgage.  The deed to Combs was recorded September 23, 1891.  On September 1, 1891, Combs paid the mortgage to Mary Jane Wood, and took from her a discharge, which was recorded June 15, 1892.
 

The question here is whether the payment by Combs to Mary Jane Wood is available against the plaintiff. There is evidence tending to show that Coyle & Cunningham, when they took their assignment, knew of the assignment to Mrs. Wood.  The referee, however, does not pass on this question, but finds that the plaintiff was a purchaser in good faith and is entitled to protection, as the assignments from Joseph Wood to Coyle & Cunningham, and from them to the plaintiff, were recorded before the assignment to Mary Jane Wood.  The finding that the plaintiff is a purchaser for value, without notice, rests only on presumptions to be drawn from the recital in the assignment to her.
 

The acknowledgment by Joseph Wood of the assignment to Coyle & Cunningham was taken before Mr. Cunningham, one of the assignees, as notary public.  The defendant claims that such an acknowledgment is a nullity, and that, therefore, the assignment was not properly recorded, and, if not, did not give to Coyle & Cunningham or the plaintiff, their assignee, any priority over the prior assignment to Mrs. Wood.
 

We are not referred to any case in this State where the right of a grantee or assignee to take the acknowledgment of the execution of the instrument has been passed upon.  In Goodhus v. Berrian (2 Sandf. Ch. 630) it is said that if the witness sworn by a commissioner of deeds to identify the grantor in a conveyance is the grantee, the certificate of the officer of its due acknowledgment furnishes no proof of its execution.  In Lynch v. Livingston (6 N.Y. 422) it was held that relationship to the parties did not disqualify an officer from taking the acknowledgment, it being said that the act of taking and certifying the acknowledgment was a ministerial act.  This case was followed in Remington Paper Co. v. O'Dougherty (81 N.Y. 474).
 

In other States the question has been frequently considered, and quite uniformly it has been held that an acknowledgment by the grantor before the grantee is a nullity.  (Groesbeck v. Seeley, 13 Mich. 330; Laprad v. Sherwood, 79 id. 520; Hammers v. Dole, 61 Ill. 307; Wilson v. Traer & Co., 20 Iowa, 231; City Bank of Boone v. Radtke, 87 id. 363; Hubble v. Wright, 23 Ind. 322; Bowden v. Parrish, 86 Va. 68; Wasson v. Connor, 54 Miss. 351; Hogans v. Carruth, 18 Fla. 587; Tiedeman on Real Prop. Section 810; 3 Washb. on Real Prop. [4th ed.] 314; 1 Am. & Eng. Ency. of Law [2d ed.], 493, and cases cited.)
 

In some cases it is said to be against public policy to allow the grantee to be the acknowledging officer; that such a rule would leave a broad door open to the perpetration of frauds and tend greatly to defeat the purpose of the registration laws.  In others it is said that the act is a quasi judicial one and so not to be done by one in his own interest.  In the Groesbeck case it was said:  "We should have no hesitation in holding that a person could not take the acknowledgment of a deed made to himself.  Such a point is too plain for doubt."  In some cases the questions were under recording acts, and the same rule was applied.  In the case from 87 Iowa, the mortgage was to a partnership and the acknowledgment was before a notary who was one of the firm, though his name did not appear on the face of the instrument.  It was held that the acknowledgment was void and the mortgage not entitled to record, and the record, in fact made, not constructive notice.
 

The object of acknowledgment and record is to make title secure and prevent frauds in conveyancing as well as to furnish proof of the due execution of conveyance.  A history of the practice on that subject in this State will be found in Van Cortlandt v. Tozer (17 Wend. 338).  The early acts will be found in 3 Revised Statutes (1st ed.), appendix, 5-46.  It is very plain that when the right to acknowledge was provided for, it was not contemplated that the officer could be one of the parties to the instrument.  The object of the act and the manner in which it was required to be done were utterly inconsistent with such an idea.  A good deal of the formality has since disappeared, but the object remains and the law should be construed in the light of its original object and scope.  The statute does not in terms say that a grantee may or may not be the acknowledging officer.  It should not be deemed to give that right without an express provision to that effect. "A thing within the letter is not within the statute if contrary to the intention of it."  (People v. Utica Ins. Co., 15 Johns. 358; Riggs v. Palmer, 115 N.Y. 506; Smith's Comm. on State Const. Law Section 701.)
 

It should be held, I think, that the acknowledgment before one of the assignees was a nullity.  He was a party to the record and, therefore, disqualified.
 

In some cases it is said that if the defect is not apparent on the record it may operate as constructive notice. (Bank of Benson v. Hove, 45 Minn. 40).  If not duly acknowledged, it is not properly on record, and if not properly there, it is not constructive notice.  In 4 Kent's Commentaries, 174, it is said:  "A deed unduly registered, either from want of a valid acknowledgment or otherwise, is not notice according to the prevailing opinion in this country."  (See, also, Doe v. Roe, 1 Johns. Cas. 402; 1 Story's Eq. Juris. Section 404; Lemmer v. Morison, 89 Hun, 277.)
 

In the assignment to Coyle & Cunningham the parties of the second part are described as "Coyle & Cunningham," and the name of the notary as signed is "John H. Cunningham."  In the assignment to plaintiff the parties of the first part are described as "Charles P. Coyle & John H. Cunningham, composing the firm of Coyle & Cunningham," and in the body of the instrument reference is made to the prior assignment as "to Charles P. Coyle and John H. Cunningham, comprising the firm of Coyle & Cunningham."  The plaintiff, when she took her assignment, is presumed to have known its form and contents, and if she examined the assignment to her assignors, as she is presumed to have done, she presumptively knew that the notary was one of the parties.  There is no proof that she did not know it, or as to what she paid for the mortgage except the recital in the assignment.  We must, therefore, assume that the plaintiff knew the fact constituting the defect, and so, not in a position to say, although in a proper case she might have a right to say, that as to her the record should not be deemed to be defective.
 

If the assignment to Coyle & Cunningham had been properly acknowledged and recorded, its priority of record to the assignment to Mary Jane Wood would have been constructive notice to Combs of a prior right. (Brewster v. Carnes, 103 N.Y. 556.)  As, however, it was not properly recorded, it would not be such notice, and Combs had a right to pay to Mrs. Wood, although the assignment to plaintiff herself was recorded before Mrs. Wood's.  (Page v. Waring, 76 N.Y. 463.)
 

It is, however, claimed on the part of the plaintiff, that Combs, in paying Mrs. Wood, without the production and surrender of the bond and mortgage, was guilty of laches, and, therefore, still liable to plaintiff.  The assignment to mrs. Wood was first in time, and is found by the referee to be valid as between the parties.  The subsequent attempted transfer by the mortgagee was, therefore, in fraud of the rights of Mrs. Wood.  She continued to be the owner, and entitled to payment unless the plaintiff, by virtue of the recording act, acquired a better right.  Failing in that, the possession of the bond and mortgage through the fraud of the mortgagee, did not, of itself, give the plaintiff any right to demand payment as against Mrs. Wood, the transfer to whom was on record when the payment was made to her.  Mrs. Wood, as against the plaintiff, was entitled to payment.  The claim of laches is not, we think, made out.  Nor is the evidence sufficient to establish an estoppel against Mrs. Wood from claiming payment, by reason of the fact that she did not have possession of the bond and mortgage.
 

It follows that the judgment must be reversed.
 

All concurred.
 

Judgment reversed, referee discharged, and a new trial granted, costs to the appellant to abide the event.
 

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LaMARCHE v. ROSENBLUM
 

374 N.Y.S.2d 443, 50 A.D.2d 636 (3rd Dept. 1975)

Holder of earlier unrecorded executory contract for purchase of land brought action for specific performance thereof against vendor and interpleaded holder of later, recorded executory contract for purchase of land as defendants.  The Supreme Court, Special Term, Albany County, 371 N.Y.S.2d 843, entered an order denying plaintiff's motion for summary judgment, ordering defendant summary judgment dismissing plaintiff's complaint and granted interpleaded defendant's motion for summary judgment directing specific performance. An appeal was taken.  The Supreme Court, Appellate Division, held that the earlier contract was void as against the similar interest first duly recorded by holders of subsequent contract.
 

Affirmed.

 

Before HERLIHY, P.J., and GREENBLOTT, KANE, KOREMAN and MAIN, JJ.

 

MEMORANDUM DECISION.

 

Appeal from an order of the Supreme Court at Special Term, entered August 15, 1975 in Albany County, which denied plaintiff's motion for summary judgment; ordered defendant summary judgment dismissing plaintiff's complaint; and granted interpleaded-defendant's motion for summary judgment directing specific performance.
 

The facts of this case are not in serious dispute, the sole question being whether the interest in certain real property held by the Murphys is superior to that interest held by LaMarche.  On June 28, 1974 LaMarche contracted with the defendant Rosenblum to purchase the latter's residential property in Albany County with the closing date set for October 1, 1974.  When title did not then pass, Rosenblum sued LaMarche for specific performance, but the present status of that action does not appear in this record.  In any event, Rosenblum contracted to sell the same property to the Murphys on May 13, 1975, *445 they being unaware of any prior dealings between Rosenblum and LaMarche.  When LaMarche thereafter learned of this subsequent contract with the Murphys, he commenced the instant action for specific performance and filed a notice of pendency on May 30, 1975.  Finally, the Murphys caused their contract with Rosenblum to be recorded in the Albany County Clerk's Office on July 2, 1975, although it is unclear when they first learned of LaMarche's interest in the property.  Rosenblum interpleaded the Murphys as defendants in this action.

 

Special Term properly found that LaMarche's executory contract was void as against the similar interest first duly recorded by the Murphys pursuant to the explicit language of subdivision 3 of section 294 of the Real Property Law. LaMarche's contention that the 'good faith' requirement of that provision applies equally to the time of recordation is without merit.  Having failed to avail himself of that statute, LaMarche may not now be heard to argue that his filing of a notice of pendency serves as a substitute therefor and affords him the same protection since such notices have as their general object the preservation of existing property rights during litigation (cf. Israelson v. Bradley, 308 N.Y. 511, 516, 127 N.E.2d 313, 315), and do not affect the merit of those interests.  The mere filing of a notice of pendency will not suffice to permit its holder to prevail over a prior unrecorded interest of which he has knowledge (Cf. 7A Weinstein-Korn-Miller, N.Y.Civ.Prac., par. 6501.12; see, also, Welsh v. Schoen, 59 Hun 356, 13 N.Y.S. 71).  Accordingly, since LaMarche sued only for specific performance to which he is not entitled, Special Term correctly dismissed his action and cancelled his notice of pendency. Partial summary judgment in favor of the Murphys on their claim for specific performance was likewise properly ordered in the absence of any factual dispute raised by Rosenblum in opposition thereto. We decide no other issues.

 

Order affirmed, with costs.

 

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DOYLE v. LAZARRO
 

306 N.Y.S.2d 268, 33 A.D.2d 142 (1970)
 
 

Action brought by grantee in unrecorded tax deed to determine right to parcel of real property as between himself and subsequent purchaser.  The Supreme Court, Ulster County, entered judgment for grantee in tax deed, upon decision of Court at Trial Term, George L. Cobb, J., and subsequent purchaser appealed. The Supreme Court, Appellate Division, Reynolds, J.P., held that subsequent purchaser in good faith from record owner took title free from prior unrecorded tax deed, where such purchaser recorded his deed first.
 

Judgment reversed; complaint dismissed.

 

REYNOLDS, Justice Presiding.

 

This is an appeal from a judgment of the Supreme Court, Ulster County, holding that respondent Doyle rather than appellant Fiorelli was entitled to possession of a certain parcel of real property located in Ulster County.

 

Doyle bases his claim of title on a 1950 tax deed and Fiorelli through prior conveyances back to the owner at the time of the tax sale.  Concededly, Fiorelli recorded his deed before Doyle and at the time he did so had no actual knowledge of any defect in the title he acquired from the record owner.  Thus the sole question raised is whether one claiming under an unrecorded tax deed prevails over a subsequent purchaser in good faith from the record owner who records his deed first.  This question in turn presents two subsidiary questions; first whether a tax sale deed is embraced by the recording acts, and secondly, if so whether Fiorelli nevertheless can be said to have had attributed to him sufficient *270 notice of the tax conveyance to Doyle so as to defeat him even though he recorded first.

 

In our opinion the plain language of the relevant statutes (Real Property Tax Law ? 1018, subd. 2; Real Property Law ? 291; see also Real Property Law ? 290, subd. 3) brings a tax sale deed under the recording acts. We find no merit in the contention that recording under section 1018 of the Real Property Tax Law is simply permissive insofar as protection against a subsequent purchaer is concerned or that the recording acts do not apply because even if Doyle had recorded the tax deed it is unlikely that Fiorelli would have discovered it. The recording acts reflect a legislative presumption that a recorded deed constitutes notice to a subsequent purchaser. It matters not whether he checks the records but does not find the deed or neglects to check the records--he is unprotected in either case.  Nor do we see the relevance of the fact that the County at the time of the sale held the subject property since it clearly did so here not as a sovereign or in public trust but in a proprietary capacity (see Hetzel v. Barber, 69 N.Y. 1). Lee v. Farone, 261 App.Div. 674, 27 N.Y.S.2d 585, affd. 288 N.Y. 517, 41 N.E.2d 927 relied on by the trial court is inapposite in the instant case.  Nor did the available records in the County Treasurer's office constitute notice to Fiorelli.  A purchaser is not normally required to search outside the chain of title in order to determine if it is defective (Buffalo Academy of Sacred Heart v. Boehm Bros., 267 N.Y. 242, 196 N.E. 42).  The recording acts charge the purchaser with notice only of matters in the record (Cymerman Bros. v. Payne Homes, 5 Misc.2d 792, 160 N.Y.S.2d 135, affd. 4 A.D.2d 701, 164 N.Y.S.2d 1001, affd. 4 N.Y.2d 937, 175 N.Y.S.2d 815, 151 N.E.2d 613) and matters outside of the chain of title do not constitute notice (Lyons Holding Corp. v. Home Title Ins. Co., 250 App.Div. 640, 295 N.Y.S. 161). Thus, since the records in the County Treasurer's office did not constitute constructive notice to Fiorelli and since he did not have actual notice of these records, he cannot be charged with knowledge of their contents. Therefore, we find that Fiorelli took title free from Doyle's prior but unrecorded claim and, accordingly, the judgment must be reversed and the complaint dismissed.
 

The judgment should be reversed, on the law and the facts, and complaint dismissed, without costs.

 
 

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ELTMAN v. HARVEY
 

403 N.Y.S.2d 428., 93 Misc.2d 634 (1978)
 
 

Mortgagee instituted action against mortgagor, subsequent purchasers, and subsequent mortgagees to foreclose mortgage.  Subsequent purchasers and subsequent mortgagees asserted affirmative defense that, as a result of recording officer's alleged erroneous marginal notations on recorded mortgage, they had no constructive notice of mortgage and thus were subsequent bona fide purchasers or mortgagees.  The Supreme Court, Suffolk County, Leon D. Lazer, J., held that even though it was the custom of professional title searchers to rely on marginal notations, allegedly erroneous marginal notation in recorded mortgage did not relieve subsequent purchasers and mortgagees of obligation to examine agreement which was properly indexed; thus, subsequent purchasers and mortgagees had constructive notice of existence of mortgage.
 

Order accordingly.

 

MEMORANDUM

 

LEON D. LAZER, Justice.

 

To what extent may marginal notations placed on recorded instruments by recording officers be relied upon by purchasers or encumbrancers of real property?  The question arises from the extraordinary facts which underlie the instant mortgage foreclosure action in which the plaintiffs have moved for summary judgment. The pertinent events commenced with a loan of $25,000.00 from Hampton Funding Co. ("Hampton") to the defendant Indian Hills Management Corp. ("Indian Hills"), payment of which was guaranteed by defendants Thomas B. and Linda Donovan.  As security for their guarantee, the Donovans executed a mortgage to Hampton on two pieces of property in Northport, New York, identified here as parcels 1 and 2.  The mortgage was recorded in the Suffolk County Clerk's office on July 29, 1972 in mortgage liber 6429, mp 130. On September 20, 1972 Indian Hills paid Hampton $10,000.00 and obtained a release of parcel 2, a transaction which was memorialized by recording of the release instrument and noted on the margin of the recorded mortgage by the County Clerk.

 

In October of 1972 the Donovans, who resided at parcel 1, informed Hampton that they intended to purchase another home at Monroe Street in Northport and requested that parcel 1 be released from the lien of the mortgage and that the Monroe Street property be substituted for it.  Hampton agreed and the substitution was effectuated by the execution of a release instrument and a separate agreement which provided for the release of parcel 1 from the lien of *430 the mortgage and the substitution of the Monroe Street property in its place.  Although the face page of the substitution agreement contains no title which would serve to characterize the instrument, the legal back contains the designation "Modification Agreement."  The agreement was recorded in liber 6591, mp 136 of mortgages on December 26, 1972 and indexed in the alphabetical mortgagor-mortgagee index book for the Town of Huntington as an "Agrt" so that it appears there as follows: As in the case of the release of parcel 2, the County Clerk made an entry in the margin of the recorded mortgage in liber 6429, mp 130 as follows:

 

In addition, the Clerk noted the release and the term "Mod. Agt." in the "Notation Book" which summarizes all changes in recorded mortgages.

 

On December 12, 1973 Hampton assigned its mortgage to its principals, the current plaintiffs, by instrument recorded in mortgage liber 6591, mp 183, a transaction which also was noted in the margin of the recorded mortgage.

 

On November 26, 1976 the Donovans conveyed the Monroe Street property to the defendants Vance R. Harvey, Jr. and Victoria B. Harvey, Mrs. Donovan's parents.  At the same time the Harveys gave a mortgage in the sum of $51,300.00 to the defendants Dollar Federal Savings and Loan Association ("Dollar Federal") and another mortgage in the amount of $11,500.00 to the defendant David Gold, all of which instruments were then recorded.  When payments on the Indian Hills loan ceased in June of 1976, the plaintiffs instituted this action to foreclose their mortgage on the Monroe Street property, joining the Harveys, Dollar Federal, Gold, Indian Hills and the Donovans as defendants.  It is apparent that the Harveys, Dollar Federal and Gold were unaware of the plaintiffs' mortgage when they entered into the transactions referred to.

 

The Harveys, Dollar Federal and Gold have answered the complaint asserting an affirmative defense to the effect that the agreement by which the Monroe Street property was mortgaged "was entitled 'MODIFICATION AGREEMENT' " and neither its title nor its contents included the word or term "spreader" or "spreader agreement."  According to these defendants, plaintiffs' use of the designation "modification agreement" on the legal back resulted in the County Clerk placing the notation "Modification Agrt. (sic) L 6591, mp 136" on the original recorded mortgage.  Alleging that the custom and usage where a lien is spread to another property is to call the agreement which effectuates that result a "spreader," the defendants argue that the County Clerk's notation was inaccurate, erroneous, misleading, inadequate and insufficient notice to subsequent bona fide purchasers or mortgagees.

 

Although the affirmative defense in the answer concludes with allegations that defendants are bona fide owners of the fee and of mortgages on the property, they do not seek any declaration that the fee is not subject to the Hampton mortgage or that the Dollar Federal and Gold mortgages are superior liens to the Hampton mortgage; what they do seek is dismissal of the complaint as well as extensive relief based upon the claim of fraud against the defendants Donovan and Indian Hills.
 

Attached to the papers in response to the motion are eight identical mimeograph-style affidavits signed by persons who identify themselves as title company examiners, each of whom declares: "That if I was searching the title on premises 'X', and if I was searching for existing mortgages on such premises 'X', and if I found a mortgage in which the owner of premises 'X' was the mortgagor, but which such mortgage covered premises 'Y' and did not mention premises 'X', and if there were a notation on such mortgage on premises 'Y', 'see modification agreement Liber Page ---', then I would not consider it necessary to examine the modification agreement referred to in such notation. That the reason why I would not consider it necessary to examine such modification agreement, is because custom and usage in the title insurance business is as follows: The term 'modification agreement' is applicable to an agreement which modifies and/or amends the terms of an existing mortgage; and such term is not applicable to an agreement which extends or 'spreads' the existing mortgage to an additional parcel of property.  When an agreement includes in its terms the extension or 'spreading' of an existing mortgage to an additional parcel of property, the custom and usage in the title insurance business is to refer to such agreement as a 'spreader agreement'."

 

In essence, then, it is these defendants' position that the notation "Mod. Agt." on the recorded mortgage relieved them of the obligation of examining the agreement so referred to.

 

Real Property Law ? 316-a provides that the Suffolk County Clerk shall prepare separate index books of conveyance and mortgages for each town (s 316-a, subd. 2) to be indexed alphabetically under the "first letter of the last name and first letter of the first name method" (s 316-a, subd. 1).  Subdivision 6 of the statute reads as follows: "6. The entries made in said indexes in conformity with the requirements of this act shall for the purpose of notice be deemed and taken to be a part of the record of the instrument to which such entries respectively refer and shall be notice to such subsequent purchasers or encumbrancers to the same extent and with the like effect as the recording of such instruments in the office of said clerk now is or may be notice."

 

Real Property Law ? 321, subd. 2(b) provides that the recording officer "shall also record every other instrument relating to a mortgage" presented to him in proper form and that he shall "enter a minute upon the record of the mortgage to which such instrument relates, indicating the nature of such instrument" and where it has been recorded.  The statute does not mention a spreader agreement as such but section 321, subd. 3 does refer to instruments by which the liens of mortgages have been spread.

 

It is basic to title jurisprudence that the recording of an instrument affecting property is constructive notice to all subsequent purchasers and lienors of its existence and contents (People v. Luhrs, 195 N.Y. 377, 89 N.E. 171).  It is the plain purpose of the recording statutes to give constructive notice of claimed interests in real property (Security Discount Associates v. Lynmar Homes Corp., 13 A.D.2d 389, 216 N.Y.S.2d 543) and a subsequent claimant is chargeable with notice of all that the record reveals (Thonemann v. Stein, 259 App.Div. 27, 18 N.Y.S.2d 204; Smith v. Pure Strain Farms Co., 180 App.Div. 703, 167 N.Y.S. 877).  If there is sufficient notice contained in any deed or record which a prudent purchaser ought to examine to induce an inquiry in the mind of an intelligent person, he is chargeable with knowledge or a notice of the fact so contained (Cambridge Valley Bank v. Delano, 48 N.Y. 326).

 

The recording acts charge the purchaser with notice only of matters in the record; matters outside the chain of title do not constitute notice (Doyle v. Lazarro, 33 A.D.2d 142, 306 N.Y.S.2d 268, aff'd, 33 N.Y.2d 981, 353 N.Y.S.2d 740, 309 N.E.2d 138; Tarbell v. West, 86 N.Y. 280; Ackerman v. Hunsicker, 85 N.Y. 43), and a purchaser is not normally required to search outside the chain of title in order to determine if it is defective (Buffalo Academy of the S. H. v. Boehm Bros., 267 N.Y. 242, 196 N.E. 42).  The chain of title to real property is the succession of deeds or other instruments by which title is traced back to its original source (Capper v. Poulsen, 321 Ill. 480, 152 N.E. 587; Maturi v. Fay, 96 N.J.Eq. 472, 126 A. 170) and when the records of all transactions impinging upon a given piece of land are available through the pertinent indices the law assumes that a prudent purchaser will inspect them and treats him on the basis of his having knowledge of their contents whether he has seen them or not.  The presumption is so strong under this type of constructive notice that the courts will not allow of its being contradicted. It includes an assumed knowledge of the transfer of title or of the creation of interests affected by the instrument as recorded and also of all information afforded by the recitals therein (IV American Law of Property ? 17.17; McPherson v. Rollins, 107 N.Y. 316, 14 N.E. 411; Acer v. Westcott, 46 N.Y. 384; see also 6 Powell on Real Property ? 916).

 

It is axiomatic that a purchaser who has completed the examination of the basic conveyances comprising the chain of title must ascertain whether the property is encumbered by mortgages.  Where the indices are alphabetical in nature, this is done by taking the name of each grantee in the chain and running the mortgagor-mortgagee index at least for the period of that grantee's ownership (5A Warren's Weed, New York Real Property ? 3.08).  Such a search of the mortgagor-mortgagee index book by the answering defendants would have revealed the existence of the substitution agreement recorded in liber 6591, mp 136 which subjected the Monroe Street property to the lien of plaintiffs' mortgage.  The defendants' contention that the marginal notations on the recorded mortgage relieved them of the obligation to examine an agreement which was properly indexed is without warrant in law.  An abstracter of title is not justified in relying simply upon marginal statements or index data or recitals of conclusions concerning matters elsewhere appearing of record (Anno. 28 ALR2d 895; Wacek v. Frink, 51 Minn. 282, 53 N.W. 633; Crook v. Chilvers, 99 Neb. 684, 157 N.W. 617). Although mortgage extensions, assignments and other types of agreements are sometimes noted in the margin of the original recorded mortgage, "it is not safe for the examiner to rely upon these marginal notations, since there is a possibility of error or omission and the proper way is to run the official indexes (5A Warren's Weed, supra, ? 7.15) and to examine the instruments revealed thereby.

 

In sum, the answering defendants were charged with notice of every indexed and recorded transaction impinging on the Monroe Street title and therefore, they were required to examine every instrument which emanated from "Donovan, Thomas B. & ors" during the period of the latters' ownership of that property.  The copies of the relevant pages of the mortgagor-mortgagee index submitted with the moving papers indicate that there were other transactions by the Donovans which surely required examination even though they may have been unrelated to Monroe Street.  Nevertheless, the answering defendants chose to ignore the seminal principle that they were chargeable with notice of every fact affecting the title which would be discovered by an examination of the instruments underlying their grantee's title (see Cambridge Valley Bank v. Delano, supra). As a consequence, they relied upon what they now describe as an erroneous marginal notation and eschewed reading the substitution instrument which was the subject of a separate item in the mortgage index.  The fact that a group of professional title searchers in Suffolk County have sworn that it is their custom to rely upon marginal notations is immaterial.  The notice imposed by the statute is such as is imputable from an opportunity to acquire knowledge coupled with the duty to seek it in the exercise of a reasonable degree of care and prudence (59 C.J.S. Mortgages ? 253).  Both the opportunity and the duty existed here but it is apparent that the appropriate degree of care and prudence was not exercised.  The entry in the mortgagor-mortgagee index referring to the substitution agreement is part of the record of the instrument itself, and, as such, it constitutes "notice to such subsequent purchasers or encumbrancers to the same extent and with the like effect as the recording" of the instrument (Real Property Law ? 316-a, subd. 6).  Therefore, the marginal notation could be utilized to expedite the locating of related instruments; it could not serve as a substitute for examining an agreement which was separately itemized in the index of mortgages.

 

The motion for summary judgment is granted.
 

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TEFFT v. MUNSON
 

57 NY 97 (1874)
 
 

APPEAL from judgment of the General Term of the Supreme Court in the third judicial department, affirming a judgment in favor of defendants entered upon the decision of the court upon trial at special Term.
 

This was an action to restrain defendants, loan commissioners for Washington county, from foreclosing a mortgage executed to them by Martin B. Perking and wife.
 

On the 18th day of January, 1848, Gamaliel Perking purchased of Courtland Howland certain lands in Washington county, which were conveyed to him by warranty deed recorded March 7, 1848, in the clerk's office in said county.  Gamaliel Perking, immediately after his purchase, let his son, Martin B. Perking, into possession of the premises, who forged a deed of the land from his father to himself and placed it upon record in the clerk's office of said county, May 27, 1850.  On the 1st day of October, 1850, Martin B. and his wife executed a mortgage upon said land to the loan commissioners of said county, to secure the sum of $1,000 loaned to him.  This mortgage contained covenants that Martin B. and his wife were lawfully seized of a good, sure, perfect, absolute and indefeasible estate of inheritance in the premises, and that they were free and clear of and from all former and other gifts, grants, bargains, sales, liens, etc.; and this mortgage was, on the day of its date, duly recorded in the book kept by the loan commissioners, as required by law. On the 23d day of January, 1860, a deed of said lands bearing date April 1, 1853, was recorded in the county clerk's office, which purported to be executed by Martin B. and wife to his father.  On the 16th day of December, 1859, Gamaliel Perking conveyed said land to martin B., by deed recorded January 14, 1860.  Until this conveyance from his father Martin B. had no title to the land, although he remained in possession of the same from 1848.  On the 31st day of January, 1867, Martin B., being still in possession of the lands, conveyed them to the plaintiff, who paid full value for the same without any actual notice of the mortgage to the loan commissioners.  The deed to the plaintiff was recorded February 9, 1867.
 

The court below decided that plaintiff was not entitled to the relief sought and directed a dismissal of the complaint.  Judgment was perfected accordingly.
 

EARL, C.  The plaintiff claims that the mortgage to the loan commissioners has no validity as against him, and that his deed has priority over it under the laws in reference to the registry of deeds and mortgages.  It is a principle of law, not now open to doubt, that, ordinarily, if one who has no title to lands, nevertheless makes a deed of conveyance, with warranty, and afterward himself purchases and receives the title, the same will vest immediately in his grantee who holds his deed with warranty as against such grantor by estoppel.  In such case the estoppel is held to bind the land, and to create an estate and interest in it. The grantor in such case, being at the same time the warrantor of the title which he has assumed the right to convey, will not, in a court of justice, be heard to set up a title in himself against his own prior grant; he will not be heard to say that he had not the title at the date of the conveyance, or that it did not pass to his grantee in virtue of his deed.  (Work v. Welland, 13 N.H., 389; Kimball v. Blaisdell, 5 id., 533; Somes v. Skinner, 3 Pick., 52; The Bank of Utica v. Mersereau, 3 Barb. Ch., 528, 567; Jackson v. Bull, 1 John. Cas., 81, 90; White v. Patten, 24 Pick., 324; Pike v. Galvin, 29 Maine, 183.)  And the doctrine, as will be seen by these authorities, is equally well settled that the estoppel binds not only the parties, but all privies in estate, privies in blood and privies in law; and, in such case, the title is treated as having been previously vested in the grantor, and has having passed immediately upon the execution of his deed, by way of estoppel.  In this case, Martin B. Perking conveyed the lands to the loan commissioners, by mortgage with warranty of title, and thereby became estopped from disputing that, at the date of the mortgage, he had the title and conveyed it; and this estoppel applied equally to the plaintiff to whom he made a subsequent conveyance, by deed, after he obtained the title from his father, and who thus claimed to be his privy in estate.  The plaintiff was estopped from denying that his grantor, Martin B. Perking, had the title to the land at the date of the mortgage, and he must, therefore, for every purpose as against the plaintiff, be treated as having the title to the land at that date.
 

I, therefore, can see no difficulty in this case, growing out of the law as to the registry of conveyances. Martin B. Perking, having title, made the mortgage which was duly recorded.  He then conveyed to his father and the deed was recorded.  His father then conveyed to him and the deed was recorded. He then conveyed to the plaintiff and his deed was recorded.  Thus the title and record of the mortgage were prior to the title and record of the deed to plaintiff, and the priority claimed by plaintiff cannot be allowed.  Assuming it to be the rule that the record of a conveyance made by one having no title, is, ordinarily, a nullity, and constructive notice to no one; the plaintiff cannot avail himself of this rule, as he is estopped form denying that the mortgagor had the title at the date of the mortgage.  The case of White v. Patten (supra), is entirely analogous to this.  In that case, the plaintiff derived his title from a mortgage, made to him by one Thayer, containing covenants of seizin, warranty, etc., and recorded February 19, 1834. At the time of the execution of this mortgage the title was not in Thayer, but in one Perry, his father in law.  Perry afterward, by deed, recorded, August 2, 1834, conveyed the land in fee simple to Thayer, who conveyed the land by mortgage to the defendant, recorded the same day. The counsel for the defendant used the same arguments in a great measure, which have been urged upon our attention by the counsel for the plaintiff in this case, both as to the title and the registry of the mortgages; and, yet the court held in a very able opinion, that the plaintiff had the prior and better title.
 

I am, therefore, of opinion that the judgment should be affirmed, with costs.
 

REYNOLDS, C. (dissenting).  When Martin B. Perking gave the mortgage to the loan commissioners he had possession, but no title to the mortgaged property.  He had forged a deed of the premises from Gamaliel Perking to himself, and caused it to be put on record in the clerk's office of the county of Washington; and by this device, imposed upon the loan commissioners.  The forged deed, was, of course, a nullity, and could not in the eye of the law, have any effect by way of constructive notice or otherwise.  It conveyed nothing, and was not a "conveyance" within the meaning of the recording acts, and did not affect the title to the land "in law or equity."  It may be assumed, therefore, that the loan commissioners took the mortgage, knowing that Martin B. Perking had no title, it being very clear that hey acquired no legal rights by being imposed upon, against any one, save Martin B. Perking.  They got no interest in the land, either in law or equity.  It is not in principle, unlike the case of a forged negotiable promissory note, where a bona fide holder for value can have no protection.  It follows, therefore, that the entry of the mortgage in the books of the loan office at the time it was made, was of no legal consequence whatever, except as against the mortgagor.  It was no notice under the recording acts, for it did not in the remotest degree affect the title to the land described in it.  The mortgage contained a covenant of title, and it seems to be clear, that a title subsequently acquired by Martin B. Perking, would, ordinarily, inure by estoppel, or otherwise, to the benefit of the mortgagees if other rights have not intervened.  The title to the mortgaged premises was in Gamaliel Perking, from the 18th of January, 1848, to the 16th of December, 1859, when he conveyed it to Martin B. Perking.  By this conveyance, the mortgage given by Martin B. Perking to the loan commissioners in October, 1850, acquired legal vitality by way of estoppel, or in some other form, and if it had then been in any proper form recorded, constructive notice of its existence, as a valid lien upon the property, would have been given to all the world.  It is urged, that there was no necessity of making any further record of the mortgage, because the title in the mortgagees comes under the warranty by way of rebutter or estoppel.  This will not do.  It is sufficient, to say, that by virtue of the transactions under which the defendants look to enforce the lien of the mortgage, the title to the land is affected, and such a paper must be properly put on record to bind subsequent purchasers in good faith.
 

If this be not so, it is impossible to see how a subsequent bona fide purchaser can have any protection, and when it is said to be impossible to record the estoppel which gave the mortgage vitality, it may be answered: that, until the estoppel became operative, the mortgage was a nullity and the record of it no notice whatever. When, however, Martin B. Perking obtained the title to the premises, it became by some operation of law valid against him; but it was of no greater force or effect, than if he had on that day given it to the loan commissioners.  It then, for the first time, affected the title to the land, and in order to bind subsequent purchasers, in good faith, must be duly recorded, and this was not done in any such way as to operate as constructive notice under the recording acts.
 

It is not questioned, but that the plaintiff is to be protected as a bona fide purchaser, for value, unless the mortgage given in 1850, and then entered in proper order in the books of the loan office, which, at the time, did not affect the title to the land in any way, was constructive notice of the lien.  It is well settled, that a conveyance that is not duly recorded according to law, even when the actual title has passed, is not effectual as constructive notice. (Frost v. Beekman, 1 John. Ch. R., 288; Lessee of Heister v. Futner, 2 Binney 40.) Much less can it be, that a conveyance which does not affect the title, can give any legal notice whatever.  In the very best aspect of the defendant's case, the record of the mortgage was made out of the order required by law, and failed to give notice to anybody dealing with the title to the land.  (The N.Y. Life Ins. Co. v. White, 17 N.Y., 469; Sawyer v. Adams, 8 Vt., 172.)  In this view, the deed of the plaintiff was first recorded, and he is entitled to protection in his title.
 

The judgment should be reversed, with costs, the mortgage declared no lien upon the land of the plaintiff, and the loan commissioners perpetually enjoined from attempting to enforce it.
 

For affirmance, EARL, GRAY and JOHNSON, CC.
 

For reversal, LOTT, Ch. C., and REYNOLDS, C.
 

Judgment affirmed.
 

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MERRITT v. DANSMITH CORPORATION
 

270 N.Y.S. 675, 240 A.D. 338 (3rd Dept. 1934)
 
 

Action by Frank M. Merritt and another, copartners, trading under the firm name and style of F. M. Merritt & Son, against the Dansmith Corporation and others.  From a judgment directing a sale of realty, with a building thereon, and distribution of the proceeds, after costs and expenses, first, to plaintiffs on account of their lien for materials, then to defendant mortgagee, and lastly to defendants filing labor liens, defendants appeal.

 

Affirmed.

 

Argued before HILL, P. J., and McNAMEE, CRAPSER, BLISS, and HEFFERNAN, JJ.

 

HILL, Presiding Justice.

 

The decision of this appeal involves a determination as to the priorities between liens for material, for labor, and that arising through the delayed recording of a mortgage given for the purchase price of the real property upon which a building was erected.  The chronological sequence:  July 9, 1932, defendant Fontana conveyed the unimproved real estate to the Dansmith Corporation.  The deed was recorded two days later.  Plaintiffs' lien for materials used in the erection of the building was filed November 9.  A mortgage bearing date November 3, from the grantee in the deed to the grantor to secure the entire purchase price of the real estate, was recorded December 5.  Four liens, conceded to be for wages, were filed the 9th and 10th of January, 1933. The decision and judgment of the Special Term direct a sale of the property and the distribution, after costs and expenses, first to the plaintiffs on account of their lien for materials; second to the mortgagee; lastly to the labor lienors.

 

The vendor's mortgage, through his neglect and delay, lost the priority given purchase-money mortgages, and became a lien at the time it was recorded, and subject to liens of earlier record.  'The general rule stated applies more particularly to cases where it is sought to enforce an equitable lien for the purchase-money, which has never been put on record as against subsequent mortgagees or purchasers in good faith and for a valuable consideration.  In such a case it is too clear to admit of any question that the rights of the person claiming such equitable lien should yield, by reason of his neglect, to the claims of subsequent incumbrancers or purchasers, Y., 134 N. E. 326):  'Of course a prior claimant for the purchasemoney liens does not provide or mean has, by his silence or neglect, yielded his right.'  Spring v. Short et al., 90 N. Y. 538, 543.  'A purchase-money mortgage is as much subject to the Recording Act as any other.'  Ebling Brewing Co. v. Gennaro, 189 App. Div. 782, 786, 179 N. Y. S. 384, 388.  The priority of a purchase-money lien arises when there is a simultaneous execution of the deed and the mortgage whereunder the vendee and mortgagor is seized only of such a beneficial interest as is not reconveyed by the mortgage.  While plaintiffs' lien, filed before the mortgage was recorded, is prior thereto (Lien Law, ? 13), the labor liens filed later are subsequent.

 

A difficult and anomalous situation is presented when we consider the priorities thus established, in connection with the statutory provision that there shall be no priority on account of the time at which notices of lien are filed, but that all shall be on a parity, except that laborers for daily or weekly wages shall have preference over all others.  Lien Law, ? 13. This preference was disregarded by the Special Term in its decision because, if the labor liens were preferred over that for material, they would be preferred also over the mortgage lien, in violation of the Recording Act (Real Property Law, ? 291).  Authority in support is found in Giant Portland Cement Co. v. Barber Asphalt Paving Co., 187 App. Div. 581, 177 N. Y. S. 408, affirmed 232 N. Y. 395, 134 N. E. 322.  There the action involved the distribution of a fixed amount of money due under a public contract.  A lien for material was first filed, followed by an assignment, and this by a labor lien.  Here the amount for which the premises will sell is unknown.  Should the sum available for distribution amount to not more than plaintiffs' lien for material, preference could be given the labor liens without affecting the rights of the mortgagee. The opinion in the Appellate Division in the Cement Co. Case says (page 585 of 187 App. Div., 177 N. Y. S. 411):  'Clearly the labor liens would be entitled to be paid first if there had been no assignment, regardless of priority of filing of the material liens, and that might be so if the fund did not exceed the amount of liens filed before the filing of the assignment, because if there was no surplus there would be nothing to assign.'  The determination made by the Appellate Division was affirmed by the Court of Appeals, but as therein stated, while the same conclusion was reached, it was for different reasons (page 409 of 232 N. N., 134 N. E. 326):  'Of course the statute of priority for laborers' liens does not provide or means that such liens are liens on or payable out of the liens and claims thereunder of materialmen.  It simply provides and means that such laborers' liens shall be paid out of the fund before the liens of materialmen.  Therefore, if priority of claims against the fund was given to these laborers' liens over those of the materialmen the result would simply be that the liens of the latter would be pushed farther down on the fund and that there would be less balance applicable to the payment of the bank under its assignment.  The only practical effect of such priority would be visited upon the bank and its claim under its assignment would be made subordinate to these additional liens.  This result cannot be permitted under the statute.  It has been held that this right of priority of laborers' liens does not exist as against an assignment by the contractor of moneys due or to grow due on his contract.  Riverside Contrg. Co. v. City of New York, 218 N. Y. 596 [113 N. E. 564, Ann. Cas. 1918C, 1075].'

 

Thus the Court of Appeals seems to have determined that the statute does not permit an application of the labor priority provision of the Lien Law in the event it would or might subordinate the mortgage lien to after filed liens.  Should this property sell for a sum not greater than plaintiffs' lien and costs, the mortgagee's rights will not be involved, and the lien for material will be given preference over labor.  This is in harmony with the construction by the Court of Appeals in the Cement Co. Case, that labor liens are not 'payable out of the liens' for material.  Judgment should be affirmed, without costs.

 

Judgment affirmed, without costs.  All concur.
 

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LEE v. BEAGELL
 

19 N.Y.S.2d 613, 174 Misc. 6 (1940)

 
 

Action by Gulia Lee against Theodore D. Beagell and others to redeem mortgaged premises.  Both parties moved for a judgment on the pleadings.

 

Judgment on the pleadings for the plaintiff in accordance with opinion.

 

DEYO, Justice.

 

A somewhat novel situation is presented in this action to redeem mortgaged premises.  It seems that in 1936 the plaintiff, for a valuable consideration, purchased the property involved from the defendants Theodore and Florence Beagell.  The plaintiff received a warranty deed and entered into possession. The deed, however, was not recorded.  Some three years later, on March 18, 1939, the plaintiff borrowed $50 from Mr. Beagell, which she agreed to repay in weekly installments of $2.50, together with interest at 6 percent and as security for the loan, she deposited the title deed, still unrecorded, with Mr. Beagell.  It was apparently understood that if the plaintiff failed to repay the loan the property would belong to Mr. Beagell.  The plaintiff did not pay, and on September 8, 1939, after the twenty-week period had expired, Mr. and Mrs. Beagell executed and delivered a deed of the same premises to the defendants George and Hazel Card, with the understanding that if the plaintiff paid off the indebtedness on or before February 1, 1940, the deed to the Cards would be destroyed and the deed to the plaintiff would be redelivered to her. The defendants say that the plaintiff had knowledge of this agreement and the court assumes that to be a fact.  The plaintiff failed to pay the indebtedness and on February 2, 1940, the deed to the Cards was recorded.  No tender of the amount due on the loan was made until after February 2, 1940.  The plaintiff remained in possession of the premises throughout and is still in possession of them.  Under these facts both parties move for judgment.  The plaintiff maintains that the transaction constituted an equitable mortgage in favor of the defendants.  The defendants maintain that on failure to pay the indebtedness they became vested with the title to the premises.

 

The execution and delivery of the deed by the Beagells on June 29, 1936, vested title to the premises in the plaintiff.  No further act was necessary. The failure to record the deed in no way affected its validity as between the parties nor as against any other party excepting a purchaser in good faith, for a valuable consideration and without notice of the unrecorded conveyance.  Real Property Law, ? 291; Dingley v. Bon, 130 N.Y. 607, 29 N.E. 1023; Castelli v. Burns, 1st Dept. 1913, 158 App.Div. 913, 143 N.Y.S. 755; Baker v. German- American Insurance Co. of New York, 3d Dept. 1909, 133 App.Div. 496, 117 N.Y.S. 1104; Fox v. Sizeland, 170 Misc. 390, at page 401, 9 N.Y.S.2d 350.

 

The redelivery of the deed to Beagell did not divest the plaintiff of the title she had thus acquired, since it is well established by statute and by the decisions that title cannot be conveyed except by a written instrument or by operation of law.  Real Property Law, ? 242.  'A deed once delivered and accepted, its redelivery by the grantee will not revest the legal title in the grantor.'  Herrmann v. Jorgenson, 263 N.Y. 348, at page 354, 189 N.E. 449, at page 451.

 

What then did Beagell acquire when the title deed was deposited with him as security for the loan?  It is axiomatic that a conveyance absolute in form, if intended merely as security for an obligation, will be construed in equity as a mortgage.  Peugh v. Davis, 96 U.S. 332, 24 L.Ed. 775; Nestell v. Hart, 202 N.Y. 280, 95 N.E. 703; Mooney v. Byrne, 163 N.Y. 86, 57 N.E. 163; Thompson v. Lewis, 2d Dept. 1918, 182 App.Div. 556, 169 N.Y.S. 501.  The defendant admits this principle of law, but insists that it applies only in those cases where the equitable mortgagor executed a conveyance.  True, that is the situation in the ordinary case, but the court does not deem it to be an essential prerequisite to the granting of the relief herein sought.  'The whole doctrine of equitable mortgages is founded upon that cardinal maxim of equity which regards that as done which has been agreed to be done and ought to have been done.  In order to apply this maxim according to its true meaning, the court will treat the subject-matter, as to collateral consequences and incidents, in the same manner as if the final acts contemplated by the parties had been executed exactly as they ought to have been, and not as the parties might have executed them, always regarding the substance, and not the form, of the transaction.' Sprague v. Cochran, 144 N.Y. 104, at page 114, 38 N.E. 1000, at page 1002.

 

No authority is presented and the court has found none which limits the doctrine of equitable mortgages to those instances where the equitable mortgagor has executed a written instrument.  In fact, courts of equity have found an equitable mortgage to exist in a variety of cases, even though no writing exists.  Sprague v. Cochran, supra; Smith v. Smith, 125 N.Y. 224, 26 N.E. 259.  Although the creation of equitable mortgages by the deposit of title deeds has not been recognized in this State to the extent that it is in England, nevertheless, the courts have not hesitated to utilize this method of attaining justice when the equities so require.  Jackson ex dem. Lowell v. Parkhurst, 4 Wend. 369; Rockwell v. Hobby, 2 Sandf.Ch. 9; Carpenter v. Black Hawk Gold Min. Co., 65 N.Y. 43, at page 51.

 

In Chase v. Peck, 21 N.Y. 581, Denio, J., said at page 584:  'The courts of equity in this State have adopted the general doctrines of the English Chancery upon this subject, as upon many others.  The cases of a mortgage created by a writing not sufficient to convey the premises, or by a deposit of title deeds, have not been frequent with us; but the doctrine has been applied in a few instances, and I do not find any judgment or dictum by which it has ever been questioned.'

 

The question is one of intention to be decided from a consideration of the whole transaction and not from any particular feature of it.  Dickens v. Heston, 53 Idaho 91, 21 P.2d 905, 90 A.L.R. 953.  Clearly, it was the intention of the parties that Beagell should have a lien on the property as security for the debt, at the very least.  The plaintiff remained the owner of the legal estate and Beagell had a lien in the nature of an equitable mortgage.  This lien could not be changed into a legal estate by an agreement of the parties to cut off the right of redemption.  Thompson v. Lewis, 2d Dept. 1918, 182 App.Div. 556, 169 N.Y.S. 501.  The equity of redemption is inseparably associated with the mortgage be it legal or equitable, and cannot be cut off or impaired by any subsequent acts of the equitable mortgagee.  Mooney v. Byrne, supra; Massari v. Girardi, 119 Misc. 607, 197 N.Y.S. 751.  Since the defendants George and Hazel Card had knowledge that the title deed was deposited with Beagell as security only, and since the plaintiff was at all times in possession of the premises, they could not and did not become bona fide purchasers in good faith and they succeeded only to the rights which Beagell had in the premises, which was a lien in the nature of an equitable mortgage.  An action to redeem may be maintained against a mortgagee, whether in or out of possession.  Reich v. Cochran, 213 N.Y. 416, 107 N.E. 1029; Sumner v. Sumner, 2d Dept. 1926, 217 App.Div. 163, 216 N.Y.S. 389.

 

Judgment will be granted directing the defendants to execute, acknowledge and deliver to the plaintiff a good and sufficient deed or conveyance of their interest in said property upon payment by the plaintiff to the defendants of the amount still due and unpaid upon the loan with interest on same, together with the costs of this action.  If the parties cannot agree upon the amount due upon the loan, an accounting may be had which will be referred to an official referee.

 

Judgment on the pleadings in accordance with the foregoing.  No motion costs are allowed either party.
 

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OCHENKOWSKI v. DUNAJ
 

251 N.Y.S. 589, 232 A.D. 441 (3rd Dept. 1931)
 
 

Appeal from Special Term, Montgomery County.

 

Action by Jan Ochenkowski and another against Kazimierz Dunaj and another, impleaded with Dmytro Soroko and another.  From a judgment for plaintiffs (137 Misc. Rep. 674, 244 N. Y. S. 267), the impleaded defendants appeal.

 

Affirmed.
 

  Argued before VAN KIRK, P. J., and HINMAN, WHITMYER, HILL, and RHODES, JJ.

 

RHODES, J.

 

This is an action to foreclose a purchase-money mortgage held by the plaintiffs.  By warranty deed dated August 6, 1928, they conveyed to the defendants Dunaj the premises in question situated in the town of Florida, Montgomery county, N. Y.  Defendants Dunaj, at the same time, executed and delivered to the plaintiffs the bond and mortgage in suit to secure $5,300 of the purchase price of the premises, which mortgage was not recorded until February 18, 1929.  By warranty deed dated December 17, 1928, the defendants Dunaj conveyed to the defendant Soroko the premises in question, which deed recites a consideration of $1 and other good and valuable considerations, and was recorded in Montgomery county clerk's office December 19, 1928.  The said deed to Soroko contains no reference to plaintiffs' purchase-money mortgage which is now sought to be foreclosed, but it recites that it is subject to two mortgages upon which there was then unpaid $2,600, with interest from May 3, 1927.  The defendant Soroko testified that he paid for said premises, in addition to the said mortgages thereon, the sum of $1,500 in cash, and that he had no knowledge of the mortgage in question when he bought the premises.  The court refused to find that Soroko was a purchaser in good faith and for a valuable consideration; on the contrary, in his decision he found that Soroko was not a purchaser in good faith, but did not expressly find that he was not a purchaser for value.  The court also found that the deed from the defendants Dunaj to the defendant Soroko was executed and accepted for the common purpose of defrauding the plaintiffs of their rights and priority as lienors and mortgagees of said premises.  There is nothing, except suspicion and inference, to dispute Soroko who says that he had no knowledge of the mortgage in question, and that he paid a valuable consideration for the premises.  The credibility of Soroko was for the trial justice who has refused to believe his testimony; instead he has gone further and made affirmative findings that Soroko conspired with Dunaj for the common purpose of defrauding plaintiffs, and that Soroko was not a purchaser in good faith.  These findings rest on inference.

 

Where evidence is equally as consistent with innocence as with wrongdoing, the innocent construction must be adopted.  Constant v. University of Rochester, 133 N. Y. 640, 641, 31 N. E. 26; Morris v. Talcott, 96 N. Y. 100; Shultz v. Hoagland, 85 N. Y. 464.

 

Without enumerating the various circumstances from which inference might be drawn, it is sufficient to say that a presumption of innocence is as consistent with the facts here presented as is a presumption of guilt. These findings, therefore, in so far as fraud is concerned, are not supported by the evidence.

 

In this state of the record we are confronted with the question as to which parties should prevail, and this requires us to ascertain what inferences and presumptions arise and who has the burden of proof upon the proposition as to whether or not Soroko was a bona fide purchaser for value.

 

In Simpson v. Del Hoyo, 94 N. Y. 189, 194, it appeared that a mortgage was executed in fraud of the owner of the premises.  The plaintiff, holder of said mortgage, claimed to be a holder without notice and for value. The court, directing a new trial, said:  'Upon the new trial, the fraud being established, it will be incumbent upon the plaintiff to show satisfactorily how he came by the mortgage, and that he took the same for value.'

 

In Seymour v. McKinstry, 106 N. Y. 230, 240, 12 N. E. 348, 350, 14 N. E. 94, the court said:  'It was not necessary for the plaintiff to allege that the defendant Sabey took with notice, for his case was made out when his lien was established against his vendee, and against McKinstry, unless Sabey was a bona fide purchaser from McKinstry; and, if Sabey relied upon the fact that he took without notice, it should have been set up in the answer.  Weaver v. Barden, 49 N. Y. 286.  The reason for this rule may be the same ascribed to the doctrine which requires the holder of a note, shown to have been fraudulently obtained, to prove under what circumstances, and for what value, he became the holder; viz., that, when there is fraud, the presumption is that he who is guilty will part with the instrument for the purpose of enabling some third person to recover upon it, and such presumption operates against the holder, and it devolves upon him to show affirmatively the facts essential to overcome that presumption, and relieve himself of its effect.'
 

   Such a situation appeared in Weaver v. Barden, supra, where the plaintiff, through fraud, had been deprived of stock which came into defendant's hands. The fraud being proven, the burden was then cast upon the defendant of establishing that he was a bona fide purchaser for value.

 

The same rule is enunciated in First National Bank of Cortland v. Green, 43 N. Y. 298, 300, where the court said:  'A plaintiff, suing upon a negotiable note or bill, purchased before maturity, is presumed, in the first instance, to be a bona fide holder.  But, when the maker has shown that the note was obtained from him under duress, or that he was defrauded of it, the plaintiff will then be required to show under what circumstances and for what value he became the holder.'  See, also, Farmers' & Citizens' National Bank v. Noxon, 45 N. Y. 762; Wardell v. Howell, 9 Wend. 170; Stevens v. Brennan, 79 N. Y. 254.

 

But even it if be assumed that the conveyance by Dunaj to Soroko did not operate as a fraud as to the plaintiffs, still the burden was upon Soroko to establish his position as a holder for value and without notice. The trial court not having believed his testimony, no further evidence is in the record to sustain his contention, and he has thus failed to meet the burden of proof.  If there were credible evidence in the case that defendant Soroko paid a valuable consideration for his deed, that would have constituted prima facie evidence that he was a purchaser in good faith, and the presumption of good faith arising from the payment of a valuable consideration by the defendant would have been sufficient until overcome by proof.  Smith v. Pure Strain Farms Co., 180 App. Div. 703, 167 N. Y. S. 877; Ward v. Isbill, 73 Hun, 550, 26 N. Y. S. 141, and cases cited therein. But defendant's deed expressed only a nominal consideration, and therefore does not import a valuable consideration, and the presumption in favor of the defendant does not arise. Turner v. Howard, 10 App. Div. 555, 42 N. Y. S. 335; Ten Eyck v. Witbeck, 135 N. Y. 40, 48, 31 N. E. 994, 996, 31 Am. St. Rep. 809.

 

In Flickinger v. Glass, 222 N. Y. 404, 410, 118 N. E. 792, 794, the vendee under a land contract, having made payments upon the purchase price, established a lien against the vendor who was unable to perform his contract. In the interval the vendor made a mortgage of the premises to the defendants. In an action to establish the vendee's lien it was held that, even though there was no fraud in connection with the execution of the mortgage, 'the mortgage yields to the lien, unless it was taken without notice, actual or constructive, of the rights of the vendee; and the burden of proof is with the defendants to show that notice was lacking. Seymour v. McKinstry, 106 N. Y. 230, 12 N. E. 348, 14 N. E. 94.'

 

In Seymour v. McKinstry, supra, the court said:  'Indeed, the rule is entirely well settled that, if a claim can be sustained only upon the ground that the person asserting it is an innocent, bona fide purchaser, he must positively deny notice, even though it be not charged.  Denning v. Smith, 3 Johns. Ch. 332.'

 

In the case of Denning v. Smith, supra, it was recited:  'If a purchaser wishes to rest his claim on the fact of being an innocent, bona fide purchaser, he must deny notice, even though it be not charged, and he must deny it positively, not avasively; he must even deny fully, and in the most precise terms, every circumstance from which notice could be inferred.'

 

In Frost v. Beekman, 1 Johns. Ch. 288, 302, it is enunciated:  'In all cases in which a party sets up his title to relief in equity, as a bona fide purchaser, he must deny notice, though it be not charged.  * * * It is a general rule in pleading, that whatever is essential to the right of the party, and is necessarily within his knowledge, must be positively and precisely alleged; and the plaintiffs, coming in the character of bona fide purchasers, were bound to state, affirmatively, the equity of their case; if they will not aver the fact, that they were purchasers without notice, we are not bound to presume it.  The fact rests in their own knowledge.'  See, also, Westbrook v. Gleason, 79 N. Y. 23, at page 33, opinion by Rapallo, J., where it was held that the burden was on defendant to show that he was a bona fide purchaser for a valuable consideration and without notice.

 

It is true there are cases holding to the contrary on the question of burden of proof.  In Kirchhoff v. Gerli, 171 App. Div. 160, 164, 154 N. Y. S. 770, 773, the court said:  'The defendant was bound to show by clear and satisfactory proof that when this mortgage was executed and delivered the plaintiff then had knowledge, or that the facts were such that he was chargeable with implied knowledge, of the existence of this mortgage which was to be a lien upon the property.'

 

In Constant v. University of Rochester, supra (also same case 111 N. Y. 604, 19 N. E. 631, 634, 2 L. R. A. 734, 7 Am. St. Rep. 769) the plaintiff sought to establish the validity of a prior unrecorded mortgage as against defendant's subsequent mortgage which was first duly recorded.  The question was whether or not an agent of defendant had knowledge of plaintiff's unrecorded mortgage. The court held that the burden was upon the plaintiff to show notice to the defendant through its agent, the court saying:  'But the burden is upon the plaintiff to prove, clearly and beyond question, that he did, and it is not upon the defendant to show that he did not, have such recollection.'

 

The provisions of section 291 of the Real Property Law recite in part:  'Every such conveyance not so recorded is void as against any subsequent purchaser in good faith and for a valuable consideration, from the same vendor, his heirs or devisees, of the same real property or any portion thereof, whose conveyance is first duly recorded.'

 

In Ten Eyck v. Witbeck, supra, the court said:  'The English registry law made the prior unrecorded deed wholly void as against the subsequent grantee, without reference to the question of notice, or the payment of value. Immediately the court of chancery, with characteristic diligence, sought to relieve the earlier grantee from the hardship which the enforcement of the letter of the law might inflict, and, while respecting the command of the statute, which made his deed void at law, it invested him with an equitable title, which it declared should prevail over the legal title of the subsequent purchaser, if it appeared that he had notice of its existence, or did not part with value at the time of the purchase.  This rule of judicial construction was incorporated by the legislature into the lex scripta in almost the identical words in which it had been phrased by courts of equity.' In the same case the court said:  'Where the grantee parts with nothing of substantial value, he must be satisfied if he receives nothing, because his grantor had nothing which he could honestly convey.  * * * If her deed is adjudged void, she has not lost or sacrificed anything which she possessed when it was executed, nor become incumbered with any promise or obligation which will result in a future loss or sacrifice.  She has therefore failed to establish her title as a purchaser for a valuable consideration.'

 

In the present case, disregarding the testimony of defendant Soroko, which the trial court disbelieved, there is nothing to show any valuable consideration paid by him.  He is not obligated to pay the two mortgages amounting to $2,600 on the premises because he did not, by the terms of his conveyance, assume and agree to pay them.  On the record as it stands, therefore, the equities are with the plaintiffs who hold a mortgage which was given for a valuable consideration in the sum of $5,300.

 

By the weight of the authorities, therefore, the burden was upon said defendant to show that he was a bona fide purchaser for value, and in that he has failed in his proof.

 

The judgment should be affirmed, with costs.

 

Judgment affirmed, with costs.

 

All concur, except HILL, J., who dissents and votes for reversal of the judgment on the law and the facts and for a new trial upon the ground that the burden of showing knowledge of the existence of the unrecorded mortgage was upon the plaintiffs.

 

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