Morris v. Bacon. MORRIS V. BACON. (123 Mass. 58.) Collateral securities - Equities as between claimants. A executed a note to the order of B with a real mortgage as security, which was duly recorded. B indorsed the note to C, and subsequently assigned the mortgage to D, fraudulently substituting another note for the one described in the mortgage. C and D acted in good faith and paid value. Held, that C was entitled in equity to an assignment of the mortgage from D. BELL ILL in equity by Nathan Morris and Tremont National Bank of Boston against Josiah Bacon for the assignment to the bank of a mortgage made by Morris to Abraham Jackson. Decree below for the bank, and defendant appealed. The facts are stated in the opinion. F. V. Balch, for the bank. C. Browne and Jabez S. Holmes, for defendant. LORD, J. On April 1, 1870, the plaintiff Morris made a promissory note for the sum of $4,000, payable to the order of Abraham Jackson in five years from that date, and executed a mortgage at the same time of certain land in Boston to Jackson, to secure the payment of the note, and delivered both note and mortgage to Jackson, who caused the mortgage to be recorded on April 5, 1870. On or about April 21, 1872, Jackson indorsed the note of the Tremont National Bank as collateral security for a loan to a larger amount, made at that time by the bank to him, stating at the time, that the note, which upon its face purported to be secured by mortgage, carried the mortgage with it. This was the condition of the title to the note and mortgage on or about March 2, 1875. The plaintiff bank was owner of the note, and Jackson had the legal title to the mortgage in trust for the bank. On that day Jackson undertook to sell the note, with its security, to the defendant. He had, however, neither the title, VOL. XXV.-3 Morris v. Bacon. nor the possession of the note, nor any authority to sell the same. He could, therefore, convey no title to it. In order to seem to have a title which he could convey, he fraudulently substituted another note for the note which the mortgage was made to secure. This fraudulent substitution could give no right against the maker or the owner of the note. Neither Jackson nor the defendant could by any act, in the absence of the plaintiffs, convert the mortgage into a security for any other than the note which it was made to secure. Jackson fraudulently attempted to apply the mortgage to a note which it was not given to secure. Neither of the plaintiffs did any thing or allowed any thing to be done, in furtherance of the fraud. If the plaintiff Morris had paid the note between 1870 and 1875, leaving the mortgage still in the hands of Jackson undischarged, no one would contend that Jackson could by any mode have made the mortgaged property liable to a new debt. No person could derive from Jackson any title under that mortgage, except a title as collateral security for the debt. If the debt itself was not in existence, the assignee could take under any circumstances, at most, only a naked legal title to the mortgage; if the debt existed, and was not transferred to the mortgagee, the mortgage would be held only in trust for that debt, not for a different debt. That the debt is the principal and the mortgage an incident is a rule too familiar to require citations in support of it. Assuming, for the sake of argument, that the note held by the defendant is a genuine note, the case finds that it is not the note which the mortgage was given to secure; and the plaintiff Morris has never created a lien upon his estate in favor of that debt, and it cannot be contended that Jackson could by any act of his create such a lien. If the holder of the true note had in fact consented that the mortgage might be assigned to the defendant as collateral security for another note of the same tenor and date, that could not have made it so. Whether in equity it might have operated as a conveyance of the true debt to the defendant we need not decide, for there is no claim or pretense that such holder did thus consent. There was simply neglect on the part of the plaintiff bank to take an assignment of the mortgage. The utmost hazard which the holder took was that Jackson might discharge the mortgage, in which case the note would still be a valid security; or Jackson might pass the legal title to another, who in law would become the trustee of the owner of the note. Strong v. Jackson. This case is quite distinguishable from Blunt v. Norris, ante, 14. In that place the plaintiff acquired no rights beyond those of Samuel S. Jackson, who never owned the note, and who passed it, without indorsement, against the rights of the maker, so that there was no debt of the maker to which the mortgage could be incident. In this case Abraham Jackson was the bona fide owner of the note and the mortgage security, and transferred the note by indorsement before maturity, with the assurance that it was secured by mortgage. A was the owner, by assignment duly recorded, of a mortgage and note indorsed in blank, running together, and payable in five years, the assignment being on its face collateral to another note; he assigned the mortgage, and indorsed that note, for value, to B, by an assignment in like words duly recorded, retaining the mortgage note; afterward he transferred the mortgage note and fraudulently assigned the mortgage upon a separate paper, to C for value. Held, that C was not a bona fide holder, and that B acquired title to the mortgage debt. BILL ILL in equity by Elizabeth F. Strong, against Abraham Jackson, his assignees in bankruptcy, Edwin E. Kingsley, the Tremont National Bank, the First National Bank of Boston, and John McQuaid, to redeem a mortgage. The facts being undisputed, and the parties having agreed that a decree might be entered without regard to the form of the pleadings, the trial judge reserved the case for the full court. The facts are stated in the opinion. J. Fox, for plaintiff. R. M. Morse, Jr., and F. V. Balch, for the Tremont National Bank. W. G. Russell and G. Putnam, Jr., for the First National Bank. Strong v. Jackson. LORD, J. We have again to decide which of several persons who have done no wrong shall suffer by reason of the fraud of Abraham Jackson. The plaintiff, on April 28, 1874, was the owner of a note made to her by John McQuaid for the sum of $3,500, which note was secured by a first mortgage upon certain land in Boston. On June 30, 1874, her son-in-law, Edwin E. Kingsley, desired to borrow of Abraham Jackson the sum of $3,200, which Jackson agreed to lend upon receiving an assignment of said mortgage as collateral security therefor. The plaintiff, to accommodate her son-in-law, assented to this, and executed an assignment of said note and mortgage to Jackson on that day. The assignment in terms expressed "the same being collateral to Edwin E. Kingsley's note for $3,200, dated June 30, 1874." The mortgage note was indorsed by the plaintiff in blank. On January 7, 1875, Jackson assigned the mortgage to the Tremont National Bank as security for a previous debt of his to the bank, indorsing the Kingsley note in blank and passing that and the assignment of the McQuaid mortgage to the bank, but retained in his own possession the McQuaid note. The assignments to Jackson and from Jackson to the Tremont Bank were recorded, and the latter contained the same language as the former, "the same collateral to Edwin E. Kingsley's note for $3,200, dated June 30, 1874," On January 25, 1875, Jackson passed the McQuaid note with his blank indorsement to the First National Bank, as collateral security for a loan then made by said bank to him. He also, upon a separate paper, assigned the McQuaid mortgage to said bank, in which no reference was made to the Kingsley note. In this condition of things, the First National Bank contends that it has the right to hold and collect the McQuaid note to its own use, and to have a decree that the Tremont National Bank hold the mortgage in trust for the benefit of said First National Bank. The Tremont National Bank asks for a decree that the First National Bank shall hold the McQuaid note in trust for it as collateral security for the Kingsley note, and to convey the same to it, so that it may be surrendered to the plaintiff upon the payment of the Kingsley note. The plaintiff desires a re-assignment to herself of the mortgage and note, upon the payment of the Kingsley note, for which she pledged it. The assignment by Jackson to the Tremont National Bank of Strong v. Jackson. the McQuaid mortgage, by which in terms he sold and transferred "the mortgage deed, the real estate thereby conveyed, the promissory note, debt and claim thereby secured, and the covenants in said mortgage contained," made the McQuaid note, as between himself and the bank, the property of the Tremont National Bank. It became the property of said bank, not only as against Jackson, but as against all the world except a bona fide purchaser for value and without notice. The First National Bank claims to be such holder, and unless it is, it has no claim upon the note. Is that bank such a holder? This involves perhaps as much an inference of fact as a principle of law, or rather a mixed question of law and fact; but whether an inference of fact or a question of law, upon the reservation in equity by a single justice, the full court must decide it. Parks v. Bishop, 120 Mass. 340. The claim of the First National Bank is that the note is a negotiable promissory note, not matured, and that there was nothing to indicate that it was not what it seemed to be, and nothing to show that Jackson was not the owner of it and authorized to deal with it; and that, although it purported to be secured by mortgage, yet, as held in Morris v. Bacon, ante, 17, the mortgage is but an incident to the debt, and whether the mortgage is or is not available is a risk which the assignee of the debt is content to take. In the cases in which the question has been whether a party to a transaction is affected with notice of other equities, it is often stated that a particular fact is or is not sufficient to charge a party with notice. For example, the cases are very numerous in which it is said that the open and exclusive possession of real estate is notice to a subsequent purchaser of the equities of the person thus in open possession; the cases are perhaps equally numerous in which it is said that such possession is not notice. And so of a variety of other independent facts. These cases are perhaps as fully cited in Sugden on Vendors (8th Am. ed.), 755-765, and notes, as in any single collection of them. Upon the examination of those cases, it will be found that it is very rarely decided that any one fact is or is not conclusive evidence of notice. Indeed, in the nature of things, it can scarcely happen that the question is to be decided upon an isolated fact. It may be that in a particular case some single fact in and of itself is sufficient, but generally it is not so. The question is ordinarily a broader one; it is this: Do all the facts, taken in connection with the subject-matter, with the situa |