Opinion
10-10-1902
MORRIS v. JOYCE et al.
F. P. McDermott, for complainant. Addison Ely, for defendants.
Bill by Eliza A. Morris against John J. Joyce and others to foreclose a mortgage. Judgment for plaintiff.
F. P. McDermott, for complainant.
Addison Ely, for defendants.
EMERY, V. C. The complainant, Mrs. Morris, was the owner of a first mortgage for $3,000 on property of the defendant Joyce, situated in Point Pleasant. The mortgage was originally given by Joyce to the defendant Murphy, from whom Joyce purchased the property in November, 1895, and was a purchase-money mortgage. Joyce was Mrs. Morris' attorney, and looked after the investment of her entire funds. Mrs. Morris before May, 1899, left the bond and mortgage with Joyce to keep with her other papers, and on May 26, 1899, executed an assignment of the mortgage to the defendant Murphy. The consideration expressed in the assignment was $1, but the assignment contained a covenant that $3,000 was due, besides interest. As to the circumstances under which the assignment was made, the complainant says, substantially, that Joyce procured it by the statement that he wished to have the paper signed in order to make some change in her investments; and shefurther says that she understood it related to a $1,000 mortgage on Philadelphia property, which belonged to her, and which was also in Joyce's hands. She also says that, after this explanation was given by Joyce, the master, who had come to the house with him for the purpose of taking the acknowledgment, was called into the room, and the assignment was acknowledged. The master has no special recollection of the circumstances, and knew nothing about the transaction, but, speaking from his general custom, says that he explained to her the nature of the instrument. On the following day Mrs. Morris, as she says, went to Mr. Joyce's office, and, to her inquiry as to where he Invested the money, Joyce said that he found he did not have to make the change, and that he had put the papers back with the rest of the papers. The bond and mortgage, with the assignment to Murphy, were left with the defendant Joyce. Joyce applied to the defendant Murphy to purchase the mortgage himself, or to find a purchaser, which Murphy said he could not do. Joyce then stated that he wanted to raise some money for Mrs. Morris, and could get along with $2,000. After a consultation of Joyce and Murphy with an officer of the Manasquan Bank, it was arranged that the bank would discount Joyce's note for $2,000, if indorsed by Murphy, and Murphy agreed to indorse the note on the security of the mortgage. The note was so made and indorsed, and the bond and mortgage and the assignment were delivered to Murphy by Joyce for the purpose of securing Murphy's indorsement. The proceeds of the note were received by Joyce, who misappropriated them to his own use. Subsequently, and in November, 1899, Joyce applied to the defendant the Chosen Friends, etc., a loan association, for a loan of $3,200 upon the property. The written application signed by Joyce stated there was a $3,000 mortgage on the property, and also a $1,000 second mortgage, and that the $3,200 mortgage applied for was to be a first mortgage. Joyce's verbal statement to the officers of the association was that, although the first mortgage was for $3,000 on its face, it had been liquidated, and was only worth $2,000, and that the Manasquan Bank held it to secure the loan of $2,000 on a note. As to the $1,000 second mortgage, he stated that Murphy, who held this mortgage, had agreed to cancel his mortgage and take a new mortgage, subject to the loan association first mortgage of $3,000. The loan association did not have the entire $3,000 applied for on hand, and agreed with Joyce to assume the payment of the $2,000 note to the bank, which was then due, provided it could be renewed (this assumption being taken as payment of $2,000 of the mortgage), and to advance Joyce the balance of the loan, amounting, after charges due, to about $1,040. Without, in fact, making any previous arrangement with the bank or with Murphy about taking up or renewing the note, the loan association on November 9, 1899, took a mortgage on the premises from Joyce and wife to secure $3,200, and paid to Joyce on November 11, 1899, the sum of $1,040, which he also appropriated to his own use. Murphy canceled his mortgage for $1,000, and took a new mortgage for $1,000, which was expressly made subject to the loan association mortgage; but in the meantime Murphy continued to hold as security for his indorsement the mortgage assigned by complainant. This assignment had never been recorded, and on the record the title to the mortgage was still in complainant. The loan association had an abstract of the title, but this abstract has not been put in evidence. The advance of $1,040 by the loan association was made without any inquiries of either the bank, Murphy, or complainant, and was made entirely in reliance on the statements and credit of Joyce. He was then in good standing and reputation, and occupied a responsible position. The note given by Joyce to the bank was not taken up, and subsequently, and on July 12, 1900, Murphy wrote the loan association, requesting them to pay Joyce's note of $2,000 according to their arrangement made, as he understood, with Joyce. He further states that the note is covered by a mortgage prior to the loan association mortgage, and unless the note is paid the first mortgage ($2,000) will be foreclosed. The loan association then had the note renewed, they becoming indorsers on it before Murphy. Subsequently they paid the bank $1,000 on account of the note which they originally Indorsed, or the renewal of it, and, upon making this payment, gave their own note to the bank for the balance remaining due, and which is still unpaid. Murphy, upon being released from obligation to the bank by the payment of the note upon which he was the indorser, assigned the mortgage to the association by a written assignment, reciting, among other things, that he held the mortgage as collateral security for Joyce's note originally indorsed by Murphy, and which had been assumed by the association, and declaring that the assignment was made subject to the conditions on which the mortgage had been assigned to him. The complainant seeks to have the mortgage assigned to her, and for a decree for payment of the amount due on the mortgage to her. The equitable grounds upon which this claim to relief is based are that the assignment of the mortgage was procured by fraud and misrepresentation, and that neither Murphy, nor the loan association, claiming under him, is entitled to hold the mortgage as against her.
As to the facts in the case bearing on the question of Murphy's right to hold the mortgage to secure him for his indorsement of Joyce's note, my conclusions are: First. That Murphy's indorsement of Joyce's note was made in reliance, on complainant's assignmentof the mortgage, and its delivery to him with the bond and mortgage, and in the belief that Joyce's application to him was for the purpose of assisting complainant in securing a loan upon the mortgage, and its assignment to him. Second. That the complainant, by leaving in Joyce's possession the bond and the mortgage and the assignment to Murphy, duly executed and acknowledged, assisted and made possible Joyce's deception of Murphy by his application. The assignment, as shown, was such as would probably or naturally have been made, had an application to Murphy on behalf of complainant been its real purpose. Third. That there was nothing in the circumstances of the transaction which gave Murphy notice or could reasonably put him on inquiry as to the truthfulness of Joyce's statement of the purpose of assigning the mortgage. The circumstance principally relied on is that Murphy knew that Joyce alone, and not Mrs. Morris, executed the note. But Murphy knew that Joyce was Mrs. Morris' attorney, and had been for some years. Joyce's reputation was good at that time, and, in the absence of something to arouse suspicion as to his intention to misapply the money to be raised on the note, I do not think this was sufficient to put him on inquiry. There is no evidence that would justify me in concluding that Murphy had notice, actual or constructive, as to Joyce's intent to misapply the money, or that the application was not made on behalf of compainant before he indorsed the note. If these conclusions of fact are well founded, the law is settled that, so far as relates to the assignment to Murphy to secure his indorsement, the complainant is not entitled to relief. By her delivery of the bond, mortgage, and assignment to Joyce, and allowing him to retain them, she assisted and made credible Joyce's misrepresentation to Murphy that he was applying to Murphy for a loan on behalf of complainant. By leaving with Joyce the papers which assigned the mortgage to Murphy, complainant, apparently, as Murphy had the right to consider on looking at them, applied to him, through Joyce, to take the assignment, either by way of purchase or as collateral, and Murphy was entitled to rely on these declarations and acts of the complainant, apparently making Joyce her agent for sale or loan, and to rely on his authority to do so. Complainant, having thus assisted in the misrepresentation of Joyce to Murphy, in reliance upon which Murphy indorsed the note, is estopped from now denying Joyce's agency to deliver the mortgage and assignment made to Murphy, either absolutely or as collateral. The decisions leave no doubt upon this point. Putnam v. Clark, 29 N. J. Eq. 412, affirmed on appeal in 33 N. J. Eq. 338. In this case complainants executed an assignment of a mortgage, either in blank or to their counsel, for the purpose of transfer on a sale to a third person. The sale fell through, as counsel stated, and the mortgage, as well as the executed assignment, were left with counsel. He subsequently assigned them as collateral for his own debt. As between subsequent bona fide assignees and the mortgagee, the assignment was held valid. The present case is a particular application of the general rule relating to estoppels against the denial of the existence of an agency: "Where the owner of things in action or of chattels has either designedly or negligently clothed a third person with the apparent title and power of disposition, and this third person transfers them to a purchaser in good faith, who relies upon the apparent power of sale they conferred, the original owner is estopped by his conduct from asserting his right of property, and the bona tide purchaser acquires a perfect title by estoppel." 2 Pom. Eq. Jur. § 811. See, also, Bigelow, Estop. (5th Ed.) p. 565.
Complainant's counsel contend that the case is one arising under the laws of agency, and that the question is whether the agency authorized a pledge of the mortgage. But this is a misapprehension of the situation. There was in fact no agency whatever in reference to the assignment of the mortgage. The assignment, on the contrary, was, by the understanding between Mrs. Morris and Joyce, a paper functus officio, and to be left and kept among the complainant's papers as such. Joyce's taking the assignment to Murphy, with the bond and mortgage, was not the exercise of any powers of agency but was the fraudulent use of an assignment executed by complainant for the purpose of inducing Murphy to advance money or incur liability on it. Murphy having in good faith incurred liability relying on the validity of the assignment for his security, the question is not whether Joyce was in fact the agent of Mrs. Morris for the purpose of assigning the mortgage, and whether the powers of the agent were exceeded, but the question is, has complainant by her acts so held Joyce out as her agent to negotiate the mortgage that she is now estopped to deny the agency? The distinction between cases of authority under the rules of law applicable to agency admitted to exist to some extent, and estoppels to deny the existence of an agency, which in fact did not exist for any purpose, is clearly stated by the text-writers. Bigelow, Estop. (5th Ed.) p. 457; 2 Pom. Eq. Jur. § 811. Murphy, being entitled to protection against his liability, and being to this extent a bona fide purchaser, has, of course, the right to the full benefit of this protection, which will extend to a transfer of his right of security to the loan association, who assumed and in part paid his obligation on the note, relying upon the payment of the note as being a discharge of the mortgage. So far as related to Murphy's note, they became assignees of his rights, and the mortgage in their hands, as to the amount of the Murphy note, must be held valid against complainant,by reason of this assignment of Murphy's rights.
As to the balance of the mortgage, the situation of the loan association is different. In assuming that $2,000 was all that was due upon the mortgage, which on its face secured $3,000, and that this was due to the bank, and in paying the $1,000 additional to Joyce on this assumption, they relied solely on the statement of Joyce, and made no inquiry either of the complainant, Murphy, or the bank. Joyce was the mortgagor; complainant, the mortgagee of the first mortgage, and on the record she had title to it. Murphy claimed to hold the $3,000 mortgage only as collateral for the $2,000 note, and the loan association, in relying on the mortgagor for information as to the amount due on the mortgage, and to whom it was due, took their own risk. Murphy appears to have made no statement to them in reference to the mortgage, until July, 1900, several months after their payment to Joyce, when he referred to it in a letter as a $2,000 mortgage. The payment in November, 1899, cannot be considered as made in reliance on any statement of Murphy's. Neither was this payment to Joyce in November, 1899, due to any act or negligence of complainant in relation to her conduct or duty toward the association, upon which the association relied in making the payment. On the contrary, they relied solely on the statement of Joyce, the mortgagor, and failed before making the payment to make inquiries of the complainant, the mortgagee on the record, or of Murphy, the assignee, or of the bank. Such inquiry would have disclosed that Murphy held or claimed to hold the mortgage of $3,000 as collateral to secure his indorsement for $2,000, and that the balance of the mortgage was certainly due to the complainant, and had not been paid. The association, having failed in its duty to make this inquiry, must be charged with notice of the facts which would have been disclosed upon the proper inquiry; and as to this payment of $1,040 to Joyce in November, 1899, the association is not a bona fide purchaser or assignee. Joyce continued to pay or account to complainant for the interest on the mortgage until he absconded, in July, 1900, and she did not know until after that date that the mortgage was out of Joyce's possession. The complainant was in no way bound by Joyce's representation to the association as to the amount due on the mortgage. Nor did she, by any act or conduct on which the association relied, assist in making credible Joyce's misrepresentation as to the amount due on the mortgage. Had Murphy, on being applied to before the payment, shown the absolute assignment, or informed the association that he owned the mortgage absolutely, and that only $2,000 was due on it, a different situation might have arisen. But there is no reason to believe that he would have made such statement, and, in the case as it stands upon the evidence, complainant is not estopped from claiming that after receiving the $2,000 payment which Murphy, or the association as his assignee, has made, the amount due on the mortgage is payable to her.
She is entitled to a decree for such payment.