Verner v. Betz , 46 N.J. Eq. 256 ( 1889 )

The opinion of the court was delivered by

Scudder, J.

The exact form in which this decree is made, for the removal of the house back to the mortgaged premises from which it was taken, is, so far as my examination of the authorities has gone, without precedent. But this may be not objectionable if, in administering equitable relief, it be found necessary to apply a remedy which is unusual. The design of the bill is to restore to the mortgagee his security, which he alleges has been taken from him by the severance of the dwelling-house from the land covered by his mortgage and its annexation to land owned by another. The defence is, that the house was removed on another lot to make room for a larger building which was to be extended over on the lot of land from the adjoining premises ; that the defendants acted in good faith ; that the complainant had notice, and, if he did not consent, did not object; that a full money consideration was paid, without any actual notice of the lien of the mortgage on the land from which the building was removed, and that the defendant, Verner, who appeals, is a bona fide purchaser of the building.

The facts are not as fully proved as they might have been, and are thus likely to mislead the court. We do not find in the evidence proof of the knowledge of the defendant, Verner, of the transfer of the building from one lot of land to the other, by which he may be charged with constructive notice of the lien-of the mortgage, nor actual notice of a fraud that was intended, which appears to have been satisfactory to the court below.

It appears that Verner lived in Philadelphia up to February loth, when he moved to Camden and opened a grocery store, about two squares from Muench’s place of business, and after that time went there frequently. He kept bar for him from May to August. Muench testifies that the house was removed about the 3d or 4th of February, and thinks they started in January. This was before Verner came to Camden. Verner says he did not know that the house had been, moved from another lot until after he had bought it. This evidence, if believed, shows that he neither saw nor knew that the house was moved from the mortgaged premises, and there was not a fraudulent knowledge or collusion in the purchase. Without proof of such collusion, the testimony of two witnesses that Muench told them “ he removed the dwelling-house so that if the sheriff came on him he would have a house, anyhow,” is not competent to show that Verner had knowledge of a fraudulent purpose and participated in it. If said, it was spoken between other’parties, in his absence. Faulkner v. Whitaker, 3 Gr. 438, The payment of the consideration'by Verner to Muench, is testified by them and by Muench’s wife, who says she saw money paid, without knowing the amount. The purchase-price, they say, was $1,300, paid in different sums, at several times — $400 on February 15th, $300 July 30th, $500 on August 1st, and $100 in wages due Verner. The first money was brought from Philar delphia, obtained by selling out a grocery there, and cash on hand; the second and third payments were, as Verner says, borrowed from his brother. The first sum was $400, loaned to-, assist Muench in building ; afterwards, he says, 'when he asked for it, he was told that he, Muench, had no money, and he offered to sell the house and lot; he did not want it, but with the advice and help of his brother he bought it to save losing the money he had loaned. Although this money was all paid before August 3d, when the deed was dated, it was not a preexisting debt, without parting with anything of value at the time of conveyance, depriving the defendant, Verner, of the character of a bona fide purchaser for value, as was argued by counsel, but all, excepting the first two items, were parts of a present consideration, appropriated, when made, to its payment, and sufficient to constitute the defendant, Verner, a bona fide purchaser in equity. Mingus v. Condit, 8 C. E. Gr. 313; De Witt v. Van Sickle, 3 Stew. Eq. 209; Basset v. Nosworthy, Finch 102; 2 White & T. Lead. Cas. 1.

The small profit derived from the grocery store conducted by his wife while he attended bar for Muench, and before that time; the fact that Muench collected rent of the tenant, after the alleged sale, as Verner’s agent, and the failure to produce the brother who was said to have loaned the money to complete the purchase, cast suspicion on the consideration; but as the proof now stands, with the positive evidence of three witnesses to sustain it, and nothing more than these circumstances to overcome it, we do not feel warranted in saying that this payment was not made. Muench swears positively that he received these sums of money and applied them to making the improvements for the summer garden.

Assuming that the appellant, Verner, bought the house and paid for it a valuable consideration, without knowledge of its removal, as appears by the direct proof; and that Muench sold it, as he testifies, to raise money to pay for the hall building and the improvements he was making, the important question is presented, whether the complainant is in a position to obtain the relief he asks here for the injury he has sustained.

Can a court of equity return to the wasted property the building that has been wrongfully removed, and sold to a bona fide purchaser, after being affixed to other land not included in the mortgage ?

The subject of legal and equitable relief, where such removals are made, is considered by Mr. Jones in his book on Mortgages §§ 143, I44, 4M>> 684, with abstracts from cases and numerous citations in the notes. It is a question on -which the authorities are divided, and depends for its solution on the effect given to a mortgage of lands.

It seems that where the mortgage is regarded as a conveyance of the legal title to the property, giving the mortgagee the right of possession, there his legal ownership and actual, or constructive, possession, give him the right to follow and recover the property severed. The principle applied is, that property severed from the realty, so as to become a chattel, belongs to the legal owner of the land. But where the mortgage is regarded merely as a lien for security and the mortgagor has the right of possession until ejectment, or foreclosure, there the mortgagee has merely the right to restrain, the removal of the property by injunction, to protect his lien; or, after the removal, a right to recover damages for the wrongful diminution of his security.

The case of Hamlin v. Parsons, 12 Minn. 108, comes nearer to the conclusion reached by the decree in this case than any other to which my attention has been called. There the mortgagor moved a dwelling on an adjoining lot belonging to his wife, without the knowledge of the mortgagee, but with the knowledge of the wife, and it was held 'that the lien on the dwelling-house remained and the mortgagee might sell the lot of land covered by the mortgage, and afterwards the house, to satisfy his mortgage. But in Harris v. Bannon, 78 Ky. 568, where a petition was filed in equity to subject to the lien created by the mortgage a number of cottage buildings which had been removed to other land and affixed, it was held that when the buildings were severed from the mortgaged premises, and had become part of another freehold, the lien upon them was gone. In Peirce v. Goddard, 22 Pick. 559, the materials of a dwelling-house on mortgaged land were used in the construction of a house upon another lot of land; it was said the right of property vested in the grantee of that land, and the mortgagee could not maintain trover against the purchaser, either for the new house, or the old matei’ials used in its construction.

In Cooper v. Davis, 15 Conn. 556, mill-stones were severed from the mill and sold by the mortgagor; it was held that the title passed to the purchaser, and there was no power to seize them afte1’ they had been severed and carried away.

In Buckout v. Swift, 27 Cal. 433, where a house subject to a mortgage was floated off by a flood into the street, and was bought while in that position, it was said that the severance affected the right of lien, that a building on land was subject to the lien of the mortgage whether there at the time of the mortgage, or built there afterwards, but when severed, the lien was lost. If the contrary were the law, everything affixed to mortgaged lands might, when severed and sold to a bona ftcle purchaser, be followed and reclaimed. Clark v. Reyburn, 1 Kan. 281; Kimball v. Darling, 32 Wis. 684; Van Pelt v. McGraw, 4 Com. 110; Gardner v. Heartt, 3 Denio 232; Lane v. Hitchcock, 14 Johns. 213; Hutchins v. King, 1 Wall. 53; Gore v. Jenness, 19 Me. 53; Gooding v. Shea, 103 Mass. 360; Byrom v. Chapin, 113 Mass. 308; Wilson v. Maltby, 59 N. Y. 126, and many other cases might be cited, as illustrating the differences of opinion, and the principles applied in determining the rights of parties when fixtures are severed and sold from mortgaged lands.

A distinction is made in Hoskin v. Woodward, 45 Pa. St. 42, where it is said that “ a mortgagor may sell, in the usual way, lumber, firewood, coal, ore or grain growing on the land, until the mortgagee stops him by ejectment, or estrepement, for these things are usually intended for consumption and sale, and the sale of them is the usual way of raising the money to pay the mortgage. But in the case of a factory, or other building, it is from the use of it as it is, and not by its consumption, or its sale by piecemeal, that all its profits are to be derived.”

It is manifest that this cannot be reconciled with eases cited above, as furnishing a rule applicable to all fixtures, but that any general rule must be based on the right of property. If the mortgagee have the legal ownership and right of possession, he may follow things severed and removed from the mortgaged lands, without his consent, wherever he can find them. If he holds title under the mortgage only as security for his lien, then the remedies appointed for preserving the security, and compensating for any loss sustained by its diminution, are such, only, as the mortgagee may use. The theory in the latter case is, that as to innocent third parties, the mortgagor is the owner of the property, and may sever and sell until restrained by injunction, ejected by entry, or barred by foreclosure.

In any view taken of the respective rights of mortgagor and mortgagee, the latter may have the security of his lieu protected by injunction. Brady v. Waldron, 2 Johns. Ch. 148; Emmons v. Hinderer, 9 C. E. Gr. 39.

In our state the title of the mortgagee to lands under his mortgage has been defined by this court in Shields v. Lozear, 5 Vr. 496, 503, where it is said, that the mortgage is regarded, not as a common-law conveyance, on condition, but as a security for debt, the legal estate being considered as subsisting only for that purpose. This is elsewhere called the equitable and the American doctrine by which the mortgagor has a right to lease, sell and in every respect deal with mortgaged premises as owner, so long as he is permitted to remain in possession and so long as it is understood and held, that any- person taking under him takes subject to all the rights of the mortgagor. 4- Kent Com. 157.

There is no difficulty in applying this, rule while fixtures remain attached to the realty, and so long as the mortgagor continues in possession; or when the property severed passes into the possession of a person in collusion with him to defeat the lien and security of the mortgagee, whether upon or off the mortgaged premises, it would seem that the rights of the mortgagee would be unaffected. But when the property is severed and sold by a mortgagor in possession, having the legal title, to an innocent purchaser, the lien in equity is gone, and the remedy of the mortgagee is by an action at law against the mortgagor and those who act with him to impair or defeat the security of the mortgage.

The case of Kircher v. Schalk, 10 Vr. 335, holds, that a mortgagee of real estate, whose debt is due, but who has not entered into possession, cannot maintain replevin for a steam-engine affixed to the realty subject to the mortgage, which the mortgagor or his assigns had severed from the realty and removed from the premises, because the mortgagee cannot, with 'propriety, insist upon being legally entitled to a remedy the enforcement of which pertains to the general legal ownership of the laud. But in Jackson v. Turrell, 10 Vr. 329, it was decided that a mortgagee may maintain an action on the case against the mortgagor, or his assigns, for an injury to the security resulting from the removal of fixtures, or other waste by the defendant. Notice, without fraud, was said to be sufficient to charge the purchaser with liability.

It is not necessary in this case to determine whether a court of law will enforce this remedy against a bona fide purchaser without actual notice, or the exact form of remedy that may be there used; but in a court of equity the right of such purchaser is equal to the equity of a mortgagee who has not such title to the article severed that he can maintain an action for the recovery, in specie, of the fixture removed.

It is a maxim, that where there is equal equity the law must prevail. It is upon this account that a court of equity constantly refuses to interfere, either for relief or discovery, against a bona fide purchaser of the legal estate, for a valuable consideration, without notice of the adverse title, if he chooses to avail himself of the defence at the proper time and in the proper mode. 1 Story Eq. Jur. § 6Ip e.

The conclusion given in 8 Pom. Eq. Jur. § 743 on this matter is, that wherever one or the other of the parties has a legal estate over which a court of law can exercise jurisdiction, then, in an equity suit between them, as a general rule, the defence of a bona fide purchaser for valuable consideration will avail as against the plaintiff, whether he has a legal or an equitable estate; in either case the court of equity simply withholds its hand and remits the party to a court of law.

In the review of cases which appear to conflict with the conclusion in this case, cited from the English courts, it must be borne in mind that there the mortgagee has the legal title to the mortgaged land, and the right of possession.

Having found that the appellant, Verner, is a bona fide purchaser of the building in controversy, affixed to his land, according to the weight of the evidence, as presented, the decree will be reversed and modified so that the land described in the mortgage with the building and improvements thereon, as they existed at the time of filing the bill, shall be sold to satisfy the mortgage; and as to the injury sustained by the removal of the building formerly on the land, the mortgagor will be remitted to his remedy at law.

For affirmance — None.

For reversal — The Chief-Justice, Dixon, Garrison, Knapp, Magie, Van Syckel, Brown, Clement, Cole, McGregor, Smith, Whitaker — 12.