McKenzie v. McKenzie

[In Chancery.] Jurisdiction in Fequity. Mistake of Fact. The owners of certain premises executed a mortgage thereof to John to secure payment of certain notes, and the mortgage was duly recorded. John sold and delivered all but one of the notes to James. Certain of the owners afterwards executed a second mortgage to another party to secure payment of other notes. The second mortgage and the notes thereby secured were taken from the mortgagee and payee thereof by V. W. & Co., for value, but with notice of the prior mortgage. Afterwards, the note retained by John having been paid, and James having become entitled to the benefit of the first mortgage, James, John and one of the mortgagors, desiring to invest James with the ownership of the mortgage, but being ignorant of such matters, employed thetown clerk to do whatever was necessary to that end, telling him it was desired to transfer to James all the rights of John under his mortgage, and that there was a second mortgage on the premises. The clerk thereupon drew new notes in lieu of those that James then held, of the same tenor and date, but payable to James, and a new mortgage of that date, also running to James, to secure their payment, and procured John, with the assent of James, to discharge the original mortgage of record. Those steps were all taken under the supervision and by the advice of the clerk, and the clerk told James that he had acquired by the new mortgage a first lien on the mortgaged premises as security for his debt, and both James and John so believed. On a bill by James against Y. W. & Co., praying for the re-establishment of the priority of his lien and for foreclosure of his mortgages, it was held, that the mistake by which John with the assent of James was led to discharge the original mortgage was a mistake of fact, and that equity would give the desired relief.

Appeal from the Court of Chancery. The bill made substantially the following ease: On March 25, 1869, Austin McKenzie, his wife Kate, and Patrick McKenzie executed a mortgage of certain premises in Shelburne, to John Me Kenzie, to secure payment of the sum of $1,900 expressed in certain promissory notes of that date, one for $800 and six others for smaller sums, signed by said Austin and Patrick, and payable to said John, or order. That mortgage was duly acknowledged on March 27, and recorded on April 1, 1869. Soon afterwards, John delivered to the orator the smaller notes, amounting to the sum of $1,100, in payment of a debt of that amount. Afterwards on February 8, 1871, Austin and his wife Kate executed a mortgage of the same premises to Michael McKenzie, Jr., to secure payment of certain promissory notes of that date, signed by said Austin, and payable to said Michael, or bearer. Certain of those notes, together with the mortgage to secure them, were afterwards assigned to Frederick M. Van Sicklen, Obadiah J. Walker, William W. Walker and Benjamin B. Seymour, partners under the name of Van Sicklen, Walker & Co.; and the bill alleged on information and belief that one Thomas Hart claimed to hold some of them. On or about October 14,1875, the eight-hundred-dollar note having been paid and the orator having become entitled to the full benefit of the first-named mortgage, the orator and said John and Austin undertook by agreement to have writings so made as distinctly to express that the orator was the owner of said mortgage and the unpaid notes thereby secured, and to assign to the orator all the apparent right of said John therein, and to that end applied to Frederick M. Weed, then town clerk of Shelburne, to draw the proper papers. Acting under the advice of Weed, said Austin and Kate then executed six new notes in lieu of the old ones, and like them, except that they were payable to the orator, and a mortgage of that date, of the same premises to secure the payment thereof. That mortgage was then duly acknowledged and recorded, and the original mortgage discharged of record. The bill alleged that the new notes and mortgage were intended to be executed and taken, not in payment of the former notes and mortgage, but only by way of further security therefor, and that it was wholly by mistake and through the want of skill on the part of Weed, that the papers were drawn and the original mortgage was discharged as they were ; and that the holders of notes under the second-named mortgage had not been led into any error or sustained any loss thereby, for that they had full notice. The bill, to which all parties to said transactions were made parties defendant, prayed that the mortgage of October 14, 1875, be declared to be a charge superior to the second-named mortgage, and that the defendants be decreed to pay to the orator the sum due thereunder, or be foreclosed; and for general relief. The defendants who composed the firm of Yan Siclden, Walker & Co., answered, admitting the execution of writings, as in the bill alleged, and that they held notes as alleged to the amount of more than $2000, which they purchased in good faith and for full value in March, 1875 ; and alleging, on information and belief, that Hart’s claim was false and fraudulent, that all of the notes secured by the first-named mortgage had been fully paid ánd can-celled, and that even if they were exchanged for new notes, as in the bill alleged, the effect thereof was, as against those defendants, to discharge the lien existing by virtue of that mortgage. The answer was traversed and testimony taken. The testimony tended to show that the original notes were never indorsed, and that the mortgage was never assigned to the orator ; that the business of taking the new notes and mortgage, &c., was all transacted under the supervision and by the advice of Weed ; that the McKenzies were ignorant of such matters, and that some of them could not read writing ; that they told Weed that John wished to transfer to. the orator all his right under his mortgage, and that there was a second mortgage on the premises ; that Weed told the orator he had acquired by the new mortgage a first lien on the mortgaged premises as security for his debt, and that John and James so believed. Weed testified that the McKenzies came to his office, and requested him to make out certain papers to transfer the debt and mortgage to the orator, representing that that was the first mortgage on the property, and requesting him “ to make the papers so as to put James in John’s place as holder of the first mortgage on the property described in the mortgage,” to secure the notes for $1,100. There was also testimony tending to show* that the defendants examined the town records and saw the record of the original mortgage before taking the mortgage on which they relied. The bill was taken as confessed as to all defendants except those who answered as above stated ; and, the cause having been heard on bill, answer, replication, and evidence, the court, Pierpoint, Chancellor, at the April Term, 1879, adjudged that the mortgage of 1869, and the mortgage-of October 14, 1875, were a valid charge on the premises described, superior to the claim of the defendants Yan Sicklen, &c., to the amount due on the notes specified in the last-mentioned mortgage, and ordered that the defendants pay to the use of the orator such amount, with interest and costs, or be foreclosed. Appeal by the defendants Yan Sicklen, &c. The transaction of October 14, 1875, stands upon the intent of the parties thereto. The intent was not to release the mortgage or discharge any security for the debt. Such having been the intention, and the debt being unpaid, nothing that the parties did could operate as a discharge or payment. Seymour v. Darrow, 81 Vt. 122 ; Dana v. Binney, 7 Vt. 493 ; McDonald v. McDonald, 16 Vt. 630 ; Dunshee v. Parmelee, 19 Vt. 172 ;"Parlchurst v. Cummings, 56 Me. 155 ; Bourne v. Littlefield, 29 Me. 302 ; Robinson v. Sampson, 23 Me. 388. Nothing but payment operates as a discharge. 2 Washb. Heal Prop. 173 Jones Mortgages, s. 971 ; 1 Hilliard Mortgages, 449; Swan v. Yaple, 35 Iowa, 248 ; Moore v. Bond, 75 N. C. 243 ; Trenton Banking Co. v. Woodruff, 1 Green, Ch. 117. “ And if it be clearly shown that the parties did not effect what they intended to do, a Court of Chancery will perfect the intention.” Beardsley v. Knight, 10 Vt. 185. The mistake was a mistake of fact, the parties supposing that the transaction was a transfer and not a discharge of the mortgage. But from mistakes that are mistakes rather of law than of fact, parties are sometimes relieved ; e.g., a mistake as to the effect merely of written instruments. Poland, J., in Proctor v. Thrall, 22 Vt. 267. And see Brown v. Sawyer, 1 Aik. 130 ; Pletcher v. Bennett, 36 Vt. 659 ; 2 Jones Mortgages, s. 970. The answer alleges no fraud, but relies on a mere technicality. But this is a question of equity, as well as a cáse in equity ; and these defendants are bound by the arrangement made at the town clerk’s office, as well as the person under whom they claim, unless they have thereby suffered loss. But they have not. The only damage that can be suggested is, that in case of redemption by them they might be subrogated to the rights of John or James as against Patrick. But to that there are many answers. The mistake on which the orator relies being not a mistake of fact but of law, if anything, the orator is not, as against these defendants, entitled to the relief sought. 2 Jones Mortgages, s. 969 ; McDaniels v. Bank of Rutland, 29 Vt. 230. In Hunt v. Rousmaniere, 1 Pet. 1, a case presenting an instance of the execution of a paper the contents of which were known to the parties, but which did not effectuate their intent, a case strikingly similar to this one in some of its circumstances, the court, per Washington, J., uses this language: “ If, then, the agreement was not founded in a mistake of any material fact, and it was executed in strict conformity with itself, we think it would be unprecedented for a court of equity to decree another security to be given.” Similar language is used by Redeield, J., in Fletcher v. Jackson, 23 Vt. 581. And see Baton v. Simonds, 14 Pick. 98 ; Broadwell v. Broadwell, 6 Ill. 599. But if the mistake were such as to entitle the orator to a restoration of the security of the old mortgage, he is not entitled to such relief. Under the doctrine of subrogation, a junior mortgagee stands, as to the mortgagor, in the position of a surety ; and on payment by him of a prior mortgage, he has an equitable right to the benefit of all the securities and means of enforcing repayment which the prior mortgagee had ; and if the latter voluntarily or negligently destroys, surrenders, or impairs any of such securities, his priority is lost. 1 Jones Mortgages, ss. 874, 876, 882, and cases passim.