Walworth v. The Farmers Loan and Trust Company. Twenty-Eighth and Twenty-Ninth streets, upon and east of First Avenue, and a tract north of Twenty-Ninth street; both parcels extending to the East river. That these premises were a more scanty security than those in the first mortgage. That the last mentioned bond and mortgage came to the possession of the complainant as clerk, and no interest having been paid since their date, he, on the 2d of May, 1842, filed a bill to foreclose the mortgage; obtained a decree of sale October 5, 1842; and the premises were sold by a master, November 7, 1842, yielding the net sum of $21,960, and leaving unpaid on the mortgage debt, $15,578,49. The bill then stated, that the original mortgage was never in fact paid or satisfied; that J. Walworth had no power or right to discharge or impair it, and that his certificate of discharge was void and of no force or effect. That the mortgagors are insolvent, and that there is no security for the balance of the debt except the premises in the first mortgage. The bill prayed a foreclosure of that mortgage and a sale of the premises. The Farmers Loan and Trust Company alone contested the suit. By their answer they ignored the source of the fund for which the mortgage was given, and the charge that J. Walworth had no interest in it, save by his office; and they alleged it had been paid off, satisfied and discharged, in his life time. The answer stated, that the consideration of the deed to them in December, 1836, was $200,000, in their trust certificates, issued and payable to Jones and Graham; and by the arrangement, the Trust Company was to withhold a sufficient amount of the certificates, until the incumbrances were all discharged and extinguished. That J. Walworth received the whole amount of the mortgage in question, and thereupon discharged it, validly and lawfully. That on receiving evidence of such discharge being given and recorded, they paid over to Jones and Graham, an amount of the certificates equal to the amount due upon the mortgage so discharged, without any notice, intimation or suspicion, that the mortgage had not been fairly and fully paid off and satisfied. They averred that the mortgage was actually paid in money to J. Walworth at the time; and when they paid over Walworth v. The Farmers Loan and Trust Company. the certificates to J. and G., they had no knowledge, notice, intimation or suspicion, that there had not been a full and actual payment to J. Walworth, when he satisfied the mortgage. They insisted they were and are bona fide purchasers, without notice. Also that if there were no payment to J. Walworth in money, the new bond and mortgage given to him were a good payment. And that no order, direction, sanction or approbation, of the vicechancellor or the court, were necessary, to enable J. Walworth to discharge the mortgage; and they are ignorant whether there was any such order, &c. or not. The defendants averred that the lands included in the second mortgage, were when it was given, worth more than those discharged from the first, and were worth more up to December, 1842; and were at the time a full and adequate security for the $29,000. They denied that the second mortgage was executed as security for the same money as was mentioned in the first bond and mortgage. That when the complainant commenced the foreclosure of the second mortgage, he knew all the facts stated in his present bill; and the defendants insisted that by his foreclosure and sale under the second mortgage, without making them parties or claiming against them, he ratified and confirmed the discharge of the original mortgage by John Walworth, as stated in the bill. A replication was filed, and a great deal of testimony taken, which it is deemed unnecessary to set forth at large. The facts stated in the bill were substantially proved. It appeared by the decree mentioned in the bill, that the suit in which the fund in question was paid into court, was a suit for the partition of the real estate of Henry A. Coster, deceased; and that the fund, after the death of Mrs. Hosack in July, 1841, belonged to the surviving heirs of Mr. Coster. All the testimony on this subject was objected to, on the ground that it was irrelevant to the issue, and tended to alter the mortgage, and add to its terms. The defendants proved the payment of their certificates to Jones and Graham, on the faith of the discharge of the original mortgage, as stated in their answer; and their entire ignorance of the nature of the fund for which that mortgage was given, aud of the circumstances attending the execution of the discharge, and of the second mortgage. Walworth v. The Farmers Loan and Trust Company. The result of the testimony on both sides, as to the relative value o the premises mortgaged, in 1835 and 1837 respectively, was in the judgment of the court, that in April, 1837, the former were worth more than double the latter, while at the time of the sale of the latter on the foreclosure, the former exceeded it in value about fifty per cent. The relative depreciation being much greater in the property first mortgaged. In respect of the discharge of the first mortgage by J. Walworth, the evidence was that the mortgagors negotiated with him for a new loan of the same fund on the premises secondly mortgaged, to which he assented on being satisfied by the esti mates of competent and experienced men, that those premises were worth $75,000; and that he executed and acknowledged the discharge, on receiving the new bond and mortgage, without any cash being paid to him and returned by him. The proceeding was in entire good faith, and without any suspicion that it was irregular or illegal. There was no order or direction of the court, for the discharge of the mortgage. Some other facts will be found in the opinion of the court. W. M. Evarts and J. P. Hall, for the complainant, argued the following points: I. The bill in this cause is filed to foreclose the equity of redemption of a mortgage to the complainant as clerk of this court, made by the defendants Jones and Graham, to secure a loan to them of $29,000, dated April 11, 1835. II. The sum so loaned to Jones and Graham, was part of the dower fund of Mrs. Magdalena Hosack, widow of Henry A. Coster, deposited in this court under a decree in the partition suit of Hamilton Wilkes and wife v. Francis Barretto and others. The heirs at law of Henry A. Coster or their assigns, owners of this dower fund, (the dower right having expired by the death of the widow,) bring this suit in the name of the clerk, according to the provision of the statute, and by permission of the court duly obtained upon petition. (2 R. S. 252, § 73, 2d ed.) III. This mortgage is a valid and subsisting security to the parties whom the complainant represents, for the amount of the Walworth v. The Farmers Loan and Trust Company. sum loaned thereon now remaining due to them, and is a lien upon the mortgaged premises prior and superior to any right or lien of the defendants, The Farmers Loan and Trust Company. IV. The validity of the mortgage is not discharged or impaired in any manner, by the act of John Walworth in executing and delivering the paper, purporting to be a certificate of the payment of such mortgage. 1. This act was unauthorized by any order or direction of this court, or of any officer thereof competent to make such order or give such direction. 2. No clerk of this court, virtute officii, has power of his own motion, to discharge, vary, or impair, the securities for moneys remaining in this court; or in any manner to deal with such securities or moneys, except under the direction of the court itself. 3. The statutes of this state respecting the court of chancery, the powers and duties of the clerks thereof, and the custody, control, and management of the funds therein, confer no such power upon the clerks of this court; but impose the whole power, trust, and responsibility of the custody, control, and management of such funds, upon the court itself. (2 R. S. 99 to 101, 2d ed.) 4. The provisions of the statute respecting suits in partition, confer but very limited powers, and impose very limited duties, upon the clerks of courts, into which moneys or securities, under proceedings in such suits, may be brought, in respect of such moneys or securities. These provisions clearly exclude any inference of such authority to the clerk, as was exercised in this case. (2 R. S. 249, 253, § 51, 68 to 70, 71, 72.) 5. The statute respecting suits in partition, distinctly provides, in respect of investments of moneys brought into court in such suits, that "no such security, bond, mortgage, or other evidence of such investment, shall be discharged, transferred or impaired by any act of the clerk, without the order of the court, entered in the minutes thereof." (Id. § 72.) 6. This section of the statute is not merely prohibitory of certain acts of the clerk, but renders them, if committed or at Walworth v. The Farmers Loan and Trust Company. tempted, entirely inoperative upon the security, which survives unaffected by such acts. (14 Mass. 322; 5 John. 327; 3 Wheat. 204; 4 Peters, 437.) 7. But if the provisions of the statute are merely prohibitory upon the clerk, then his acts in contravention of its absolute terms, are equally void. (14 John. 273, 290; 8 Paige, 527; 7 Barn. & Cress. 12; 7 Wend. 152; 2 R. S. 582, 45, 46, 2d ed.) V. The certificate of John Walworth was not true in fact; the mortgage mentioned in it was not, at the date of the certificate, and never since, has been paid. The transaction was a mere attempt on the part of the clerk and the mortgagors, to substitute for the investment of the money in court, another and inferior security, with no motive of safety or other advantage to the fund, and solely for the accommodation and benefit of the mortgagors. The act of the clerk was one, which not only was not, but never could have been authorized or approved by the court; an act which contravenes not only the letter of the statute, but exhibits in a most flagrant aspect, the mischiefs which its provisions were so carefully framed to protect. VI. The defendants, The Farmers Loan and Trust Company, stand in no better condition in respect of the complainant's equity, than Messrs. Jones and Graham. 1. They are subsequent mortgagees, with actual notice of this mortgage, and an express acknowledgment of its superior lien. 2. The first parcel of their bonds, was advanced to Jones and Graham, in reliance upon the covenant of the latter, that out of them or their proceeds, they (Jones and Graham,) would pay off this and other incumbrances. The second parcel was advanced upon the representation of Jones and Graham, that they had done so. For this breach of covenant and false representation, they are confined to a personal remedy against Jones and Graham. 3. The Farmers Loan and Trust Company were affected with notice of the peculiar character of this security, and if they have acted upon insufficient evidence of its payment or satisfaction, they must bear the consequences of their own error. (1 Cowen, 622; 7 Conn. 333; 1 Paige, 461; 7 ibid. 421; 9 ibid. 317; 10 VOL. IV. 8 |