Mortgage, Of real estate. Equity Jurisdiction, To remove cloud from title, To follow proceeds of trust funds. Payment.
In a suit in equity, by a bona fide purchaser for value of a mortgage of real estate, to enjoin the enforcement of a previous mortgage and mortgage note, it appeared that the plaintiff bought his mortgage and the mortgage note secured by it from the person to whom they were payable, the mortgage containing a warranty that the property was free from all incumbrances, and the note containing a statement that it was secured by a first mortgage, and the plaintiff relying on the statement of the assignor and having no knowledge of the existence of any previous mortgage on the property. It further appeared that the person who sold and assigned the mortgage to the plaintiff was a fraudulent trustee, who, before he sold the mortgage to the plaintiff, had purchased in his own name with trust funds a previous mortgage made by the same mortgagor on the same property, that he then had made an agreement with the mortgagor under which two new mortgages were made to take the place of the mortgage which he held, one being that purchased by the plaintiff, which was intended to be a first mortgage, and the other intended to be a second mortgage for a smaller amount; that the mortgagor believed the fraudulent trustee to be the sole owner of the previous mortgage in his own right, and the new mortgages were made with the intention of extinguishing and discharging the previous mortgage and taking up the note secured by it, it being agreed expressly that the new mortgages "operated to satisfy, extinguish and pay" the previous mortgage, which all parties intended thereby to discharge, but that the fraudulent trustee did not execute any discharge in writing of the previous mortgage and retained the note secured by it. The successor in the trust of the fraudulent trustee, who was one of the defendants in the case, desired to enforce the previous mortgage and note for the benefit of the beneficiaries of the trust, by way of following the funds of the trust embezzled by the fraudulent trustee. It was this enforcement that the bill of the plaintiff sought to enjoin. Held, that the previous mortgage was paid and must be treated as if discharged, and therefore did not belong either to the defendant trustee or to his beneficiaries; that the plaintiff was the rightful owner of the mortgage and note purchased by him and that the defendant trustee could not follow the trust property of his beneficiaries into the mortgage debt assigned to the plaintiff, who was a bona fide purchaser of it for value, and the plaintiff was granted the injunction prayed for.
HAMMOND, J.
The debt secured by the first mortgage was in fact and in law paid by the delivery of the two notes respectively secured by the second and third mortgages. Such was the intention of all parties; and the mortgagors were entitled to the return of the note and to a discharge of the mortgage. That being so, the plaintiff Macomber is not bound to pay anything to redeem from the mortgage given to secure that debt. There is nothing in Grimes v. Kimball, 3 Allen, 518; S.C. 8 Allen, 153, or the other cases cited by the defendant Bremer, inconsistent with this view. This is not a case of a contest between equitable estates, as in Cave v. Cave, 15 Ch. D. 639, and other similar cases. The first mortgage was paid and is to be treated as though discharged, and hence the interest of the mortgagors at the time of the delivery of the second mortgage is to be regarded as an estate in fee, and the legal estate in the land was conditionally conveyed in the second mortgage and held by the plaintiff upon the assignment and delivery of the papers to her. Nor is this a case of a mere change in the form of the debt. The transaction was more than that. The second and third mortgages were given upon the express agreement that they "operated to satisfy, extinguish and pay" the first mortgage, which all parties intended thereby to discharge. After this transaction the first mortgage and note did not belong either to Berry or to his cestuis que trust. Both his hold and that of his cestuis que trust upon the land, so far as resting upon this first mortgage and note, were extinguished.
The plaintiff is the rightful owner of the second mortgage and the debt thereby secured. Bremer cannot follow the trust property of his beneficiaries into the mortgage debt assigned to the plaintiff, because the plaintiff is a bona fide purchaser for value of the note secured by that mortgage.
There being no cross bill the question whether Bremer can follow the trust property in the $700 note does not arise, nor does he argue before us to the contrary.
Decree affirmed.