O'BRIEN v. FLECKENSTEIN et al.

(80 App. Div. 140.) O’BRIEN v. FLECKENSTEIN et al. (Supreme Court, Appellate Division, Fourth Department. July 7, 1903.) 1. Mortgages — Priority—Record—Consideration—Antecedent Indebtedness, A second mortgagee without notice of a prior unrecorded mortgage is not a mortgagee for a valuable consideration, within the meaning of the recording act, if the sole purpose of the mortgage is to secure an antecedent debt. 2. Same — Extension of Time. Where a creditor who has furnished materials for a house built by the debtor forbore attempting to enforce his claim on condition that the debt- or execute to him a mortgage of the property, there was a valuable consideration for the mortgage, giving it precedence of a prior unrecorded mortgage, though the debt was an antecedent one. 3. Same — Evidence—Weight. The first mortgagee testified that the second mortgagee had admitted in conversation that there was no agreement for extension of time. The second mortgagee testified that such statement by him referred to foreclosing his mortgage, and not the attempt to enforce the original debt for which the mortgage was given. Held, that the first mortgagee’s testimony was insufficient to overcome that of the second, and all the witnesses who took part in the transactions out of which the second mortgage originated. -4 Same — Priority—Equities. A vendee of land, who had given back a mortgage, which was unrecorded, built a house on the land, purchasing materials of defendant, and, on agreement by defendant to grant an extension of time for materials furnished, provided further security were given, the vendee executed a mortgage on the property to him, which he received and recorded with-out notice of the prior mortgage. Helé that, as defendant surrendered the privilege of filing a mechanic’s lien, which would have been prior to the first mortgage, the equities preponderated in his favor, and the first mortgagee was not entitled to priority. Appeal from Special Term, Monroe County. Proceedings by John C. O’Brien against Frank V. Fleckenstein and ■others. From a judgment for plaintiff, defendants appeal. Reversed. Argued before ADAMS, P. J., and McLENNAN, SPRING, WILLIAMS, and HISCOCK, JJ. John P. Morse, for appellants. Hugh J. O’Brien, for respondent. [MAJORITY — SPRING, J.] SPRING, J. The gist of this controversy is to determine which of two mortgages covering the same premises is the superior lien. On the gth day of July, 1902, the plaintiff sold to the defendant Frank V. Fleckenstein, for $1,300, the premises described in the complaint, taking back as security for the entire purchase price the bond of the grantee and his mortgage on said premises, due in three months from its date. The mortgage was not recorded until November 25th following. There was paid on the bond and mortgage the sum of $500. The defendants Morse are lumber dealers carrying on business under the firm name of W. B. Morse & Sons. They sold lumber to Frank V. Fleckenstein, and on the 17th do)r of November, 1902, he owed the firm $2,700, and was being pressed for payment. On that day he gave to them a note for $1,350, due in one month, secured by a mortgage for a like sum on the premises described in the complaint, and the residue of the debt was secured in another way. This mortgage was recorded November 18, 1902, or before the mortgage of the plaintiff. The second mortgagees knew nothing of the plaintiff’s mortgage lien. By section 241 of the real property law (chapter 547, p. 607, Laws 1896), a conveyance not recorded “is void as against any subsequent purchaser in good faith and for a valuable consideration from the same vendor * * * of the same real property, * * * whose conveyance is first duly recorded,” and the term “conveyance” includes a ■mortgage. Section 240. The court has found as a fact that the note and mortgage given to the defending mortgagees were intended to ■secure a pre-existing indebtedness, and no new consideration was imported into the transaction. The only question, therefore, is whether this finding is supported by the evidence, for, if the sole purpose of the note and mortgage was to secure an antecedent debt, then the appellants are not mortgagees for a valuable consideration within the meaning of the recording act. Young v. Guy, 87 N. Y. 4571 Breed,. Ex’x, v. National Bank of Auburn, 57 App. Div. 468, 68 N. Y. Supp. 68; affirmed in 171 N. Y. 648, 63 N. E. 1115; Thomas on Mortgages-(2d Ed.) § 482. At the time of the giving of the note and mortgage the entire indebtedness represented by it had been overdue for a month or two. It appears, however, that Fleckenstein, the mortgagor, was engaged in the construction of houses — one on the said premises— and when payment was demanded he asked for more time. The defendant William S. Morse, in his narration of what then occurred, testified: “He [Fleckenstein] said: ‘If you will give me an extension of time till I can finish the houses, I can pay you.’ I told him I would give him an extension of time, provided he would give me security for the account. I told him I would take notes for the account, and make them long enough to complete the houses, if he would give me collateral security for the payment of the notes.” Eater he met the mortgagor and his attorney, and the note and' mortgage were prepared. At that time Fleckenstein said he wanted a month in which to complete the house on this property, and the defendant consented to this extension. He further testified that the notes settled the account, “and the account was paid in full by the notes, as our books will show.” Again, that he agreed to extend the time of payment if the security were given. George V. Fleckenstein,. the attorney for Frank, drew the note and mortgage, and testified that when Frank was asked how much time he wanted replied, “Long enough to finish the house, and he thought a month would be sufficient for that.” He also testified: “Tlie amount of extension he was to get had been talked between them. It was to be sufficient to enable him to complete the houses. Morse asked, him how much time he wanted for that purpose, and he said one month, would be sufficient.” The mortgagor testified that Morse wanted the money on the account, and that he was unable to pay, whereupon Morse agreed to extend the time of payment if security was given, and that was then agreed upon. Fleckenstein said he could finish this house in one month, and wanted an extension for that time, and the note and mortgage were then drawn due in one month. If these witnesses correctly describe the consideration of the note and mortgage, they were not intended wholly to secure an antecedent-indebtedness, but the appellants surrendered an existing right. They could have proceeded to enforce their claim or filed a mechanic’s lien, but they consented to waive these rights, and extend the time of payment, in consideration of receiving security. They forbore any right they had to collect the account. This constituted a valuable consideration. Meltzer v. Dole et al., 91 N. Y. 365; Breed, Ex’x, v. National Bank of Auburn, 57 App. Div. 468, 473, 68 N. Y. Supp. 68, affirmed in 171 N. Y. 648, 63 N. E. 1115; Mechanics’ & Farmers’ Bank of Albany v. Wixson, 42 N. Y. 438; Thomas on Mortgages (2d Ed.) §, 482. In Cary v. White, 52 N. Y. 138, the court say at page 142: “If there was an extension of time for a single day by a valid agreement as a consideration of the mortgage, there was a valuable consideration within the rule.” The respondent’s counsel testified that in December following the giving of the mortgage William S. Morse, one of the appellants, informed him that the mortgage was given to secure the outstanding debt, and that he had not agreed to “extend the time of payment of the original debt, * * * and he supposed the drawing of the note and mortgage operated as an extension of the time of payment.” A different construction is given to this conversation by William P. Morse, and also by his attorney. The former testified that the plaintiff’s counsel was endeavoring to induce the defendants to defer foreclosing this mortgage, and asked if there was any agreement to extend the time, and Morse, understanding the reference was to the note and mortgage, replied in the negative. The attorney, Morse, said O’Brien asked directly if there was an agreement to extend the time of payment of the note and mortgage, and that the defendant answered there was no such agreement. In view of the fact that the admission of a party is liable to be misapprehended, and that the version of this conversation by the defendant and his attorney is entirely reasonable and consistent, we think this evidence is insufficient to overthrow the positive testimony of all the witnesses who took part in the transaction out of which the note and mortgage of the appellants arose. The conversation with the appellants’ attorney is of no consequence, and, if it were, would not bind his client. The story of the appellants bears the stamp of probability. Fleclcenstein was seeking time. He was desirous of completing the house, evidently expecting to get the money therefrom to meet this liability. The giving of additional security in his straitened circumstances would be of no avail unless he secured the forbearance which is the one desideratum for a man struggling against financial ruin. He stipulated for that one condition, and it was granted to him. This constituted an express unequivocal agreement to extend the time of payment of the indebtedness, and beyond that merged it in the note and mortgage comprising the valuable consideration necessary to bring the defendants within the “subsequent purchaser” mentioned in the recording act. Fleclcenstein was then insolvent, although none of the parties now in controversy knew of it, and in December was adjudged a bankrupt. With this fact established, the respondent insists that no lien the defendants could have obtained on the 17th of November would have been any benefit to them. Section 67f of the bankruptcy act (Act July 1, 1898, 30 Stat. 565, c. 541 [U. S. Comp. St. 1901, p. 3450]) provides that judgments “or other liens obtained through legal proceedings against a person who is insolvent at any time within four months prior to the filing of a petition in bankruptcy against him shall be deemed null and void in case he is adjudged a bankrupt.” We must, however, consider the transaction as the facts were at the time the note and mortgage were given. There is no suggestion that these -securities were taken in contemplation of bankruptcy. Nor do we find the equities with the respondent so overwhelmingly as his counsel seems to believe. Fleclcenstein was erecting a house on these premises out of material apparently sold to him by the appellants. He was thus enhancing the value and adding to the security of the plaintiff. When the note and mortgage were given, the respondent’s mortgage had not been recorded. Had the defendants filed a lien for materials furnished, it would have been prior to the lien of the plaintiff. Lien Law, Laws 1897, p. 520, c. 418, § 13; Lemmer v. Morison, 89 Hun, 277, 35 N. Y. Supp. 623. It seems to us that the evidence very strongly preponderates in favor of the appellants, and the judgment should accordingly be reversed. Judgment reversed, and new trial granted on the law and facts, with costs to the appellants to abide the event. All concur. 1. See Mortgages, vol. 35, Cent. Dig. §§ 355, 374.