Swarthout et al. v. Curtis et al.

Swarthout et al. v. Curtis et al. Discharge of mortgage. — Authority of Guardian. if a-mortgage be discharged by any other person than the mortgagee, a subsequent incumbrancer is hound to look to his authority to do so ; he is affected with notice of all facts, which a reasonable inquiry would have disclosed. tf a guardian he empowered to discharge a mortgage, on receiving other -security, hi? authority is conditional only, and his discharge, without such security, will not protect a subsequent mortgagee ; he is bound to look to such guardian’s authority. Swarthout «. Swarthout, 7 Barb. 354, affirmed. * Appeal from the general term of the Supreme Court, in the seventh district, where a decree of the special term, at Canandaigua, in a suit in equity, had been affirmed. (Reported below, 7 Barb. 354.) This was a hill in equity filed by certain mortgagees of a farm in Seneca county, to have a discharge of the said mortgage annulled and set aside, their mortgage and the record thereof confirmed, and for a foreclosure of the same. In 1829, James Swarthout was indebted in a considerable amount to his father-in-law, Joseph Hunt, for which the latter held the sealed notes of Swarthout. These were placed by Hunt in the hands of John Maynard, to be prosecuted, unless paid or secured, with directions to accept a bond and mortgage on Swarthout’s farm, payable to the children of the latter, in equal amounts, as they should respectively beconie of age. A suit was commenced upon the notes, which was settled on the 16th November 1829, by Swarthout executing a bond and mortgage upon bis farm, conditioned for the payment to each of bis nine children, all of whom were infants, of the sum of $778, when they should respectively attain the age of twenty-one years. This mortgage was duly recorded in the clerk’s office of Seneca county, on the 22d January 1830. On the 11th August 1831, James Swarthout and wife conveyed one and a half acres of the mortgaged premises to Jonas S. Tarawa, who, on the 30th April 1835, conveyed the same to John Neal, who was- made a defendant in this suit. James Swarthout, having contracted to sell his farm, and to make a clear title thereto, on the 14th August 1837, presented a petition to the vice-chancellor of the sixth circuit, in which his three adult children joined, setting forth that he was desirous of having the said mortgage cancelled, and of securing the payments to his children upon other property lately purchased by him, and praying'that a guardian might be appointed to take charge of the property and estate of his said children. On the report of a master, John M. Miller was appointed such guardian, and gave security, on the 23d August 1837. The court also, by the same order, authorized the guardian to release, discharge and cancel the said bond and mortgage, “ upon receiving from said James Swart-hout, a bond and mortgage upon unincumbered real estate, of sufficient value to be ample security for the amount due to the said infants, conditioned to pay to each of the said infants the amount due to them, respectively, at the time they shall respectively become of the age of twenty-one years.” On the same day, Miller, the guardian, executed a satisfaction-piece of the mortgage, which was duly acknowledged and recorded. It was thereby certified, “ that the sum of $768, secured to be paid to each of the said infants, on their arriving at the age of twenty-one years, respectively, in and by a certain mortgage (describing it), has been paid and satisfied to me, as guardian of said *infants, in full; that is to say, the sum of $768 has been paid to me, as such guardian, for each of the said infants, making in all the sum of $5376. That the condition of the said mortgage, so far as the interests of the said infants are concerned therein, has been performed, and the. said mortgage discharged and satisfied.” No security, however, was, in fact, taken by the guardian, nor was any money paid to him on account of the mortgage. The sureties in the guardian’s bond, as also the guardian himself, subsequently became insolvent, and the guardian died. On the 30th January 1838, after the execution of the satisfaction-piece, James Swarthout gave a mortgage upon a part of the premises, including other lands, to Charles A. Jackson, to secure the sum of $2500, in two years. Jackson was made a party defendant in this suit; and Cooper, another defendant, was in possession of the mortgaged premises, by conveyance from Jackson, after a foreclosure of his mortgage, to which the complainants were not made parties. On the 15th July 1838, Swarthout executed a mortgage for $8500 to one Reuben D. Dodge, upon the premises described in the first mortgage. This was given for the purpose of procuring stock of the North American Trust and Banking Company, to whom it was assigned in payment of such shares of stock. The Trust and Banking company transferred the same to Curtis and others, as trustees. David Leavitt, the general receiver of the assets of the company, and John J. Palmer, a special receiver of a portion of such assets, who were also made defendants, claimed some interest in the said mortgage. In December 1839, the Chemung Canal Bank, which was also made a defendant, recovered a judgment against James Swarthout, and at a sale upon an execution issued on such judgment, became the purchaser of the mortgaged premises, and received a deed therefor from the sheriff, after the time for redemption had expired. *Two of the original mortgagees, after attaining their majority, had released their interest in the mortgage; another of them was made a party defendant; the complainants were the remaining six mortgagees. Various other persons having liens upon, or interest in, the mortgaged premises, derived from James Swarthout, subsequently to the discharge of the plaintiffs’ mortgage, were also brought in as parties defendant. The receivers and trustees of the North American Trust and Banking Company insisted, that they were entitled to protection as bond fide purchasers of the mortgage held by them. The like claim was made by Cooper, the grantee of Jackson; and by the Chemung Canal Bank. The court at special term (Hoyt, J.) made a decree in favor of 'the plaintiffs, as prayed for in their bill, annulling the discharge executed by the guardian, declaring the plaintiffs’ mortgage a valid and subsisting lien upon the premises, directing a reference to compute the amount due thereon, a sale of the mortgaged premises for the payment of the same, and a foreclosure of the defendants’ claims upon the property. A rehearing having been granted, at the instance of some of the defendants, the court, at general term (Welles, J., delivering the opinion), affirmed the decree below; whereupon, the trustees and receivers of the North American Trust and Banking Company, and the Chemung Canal Bank appealed to this court. Noyes, for the appellants. Edwards, for the respondents. • [MAJORITY — *Foot, J.] *Foot, J. The authority given by the order of the vice-chancellor of the sixth circuit to Miller, the guardian, to release, discharge and cancel the bond and mortgage given by James Swarthout, for the benefit of his children, was conditional. The guardian had no right to discharge that mortgage, until he had received from James Swarthout a bond and mortgage upon unincumbered real estate, of sufficient value to be ample security for the money belonging to his children. The condition was not performed; yet the guardian discharged the mortgage of record, and the question is, whether the appellants, who are assignees of a subsequent bond and mortgage, taken without actual notice, and for a valuable consideration, are chargeable with constructive notice of want of authority in the guardian to discharge the prior mortgage. The views of the supreme court on this question, as expressed at the special term by Mr. Justice Hoyt* and at the general term by Mr. Justice 'Welles, appear to me, in the main, to be sound. As the mortgage was discharged by a ^person other than the mortgagee, the subsequent incumbrancer was bound to in quire by what authority such person assumed to discharge it. Such inquiry, in this case, prosecuted with ordinary diligence, would have shown that the discharge was unauthorized; and of the facts which such an inquiry would have ascertained, the law charges the party who is bound to make the inquiry, with knowledge. Decree affirmed.