
    Leeper v. Hunkin et al.
    
      Mortgages — Priorities governed by recording — Assignee without notice of unrecorded mortgage, entitled to priority, when.
    
    Assignee free from laches, having purchased mortgage for value when there was nothing on record to advise him of existence of other mortgages, held entitled to priority under recording statutes.
    (Decided April 12, 1926.)
    Appeal: Court of Appeals for Cuyahoga county.
    
      Messrs. Bartholomew, Leeper & McGill, for plaintiff.
    
      Mr. A. F. Counts and Messrs. Nicola & Horn, for defendants.
   Mauck, P. J.

This is a case of foreclosure, the controversy being between the plaintiff, Edward W. Leeper, and Giuseppe Cherubini, each claiming to have the second mortgage on the premises under foreclosure. The two mortgages were executed on the 20th day of May, 1921; the one to Williamson and subsequently sold by him to the plaintiff; the other directly to Cherubini. The plaintiff’s mortgage was recorded May 21, 1921, and the Cherubini mortgage on May 26. The Cherubini mortgage was in part payment for the property, which was conveyed by Cherubini to the mortgagor contemporaneously with the execution of the mortgage. The mortgage under which the plaintiff, Leeper, claims was admittedly transferred to him May 24 for a valuable consideration by the mortgagee thereof, and without any notice to plaintiff of the existence of Cherubini’s mortgage.

It is admittéd that Williamson, the mortgagee from whom plaintiff purchased, had knowledge of Cherubini’s mortgage, and the only fair inference is that he took his mortgage with knowledge of the fact that Cherubini’s mortgage was then in existence. While it is now admitted that the plaintiff took the note secured by the mortgage bona fide, for a valuable consideration, and holds the same with all the rights attaching to an innocent purchaser of such an instrument, it is argued that an innocent purchaser for value of a mortgage acquires no rights in the mortgage superior to those of a purchaser who buys after maturity, or with full knowledge of any existing defenses, and that this rule should not only avail the mortgagor, but another lienholder.

To support this doctrine, reliance is had on Baily v. Smith, 14 Ohio St., 396, 84 Am. Dec., 385. At the time Baily v. Smith was decided there were no well-established principles fixing the rights of the assignee of a mortgage. It was to a large extent a pioneer case, and the courts of the various states then, and for a short time subsequently, expressed various views upon the question. This continued until the Supreme Court of the United States in Carpenter v. Longan, 16 Wall., 271, 21 L. Ed., 313, in a forcible opinion (page 275), criticized Baily v. Smith, pointed out that the authorities generally held that a mortgage was a mere accessory to the debt which it secured and was as impregnable to attack as the debt itself. Thereafter the courts of most of the states followed the rule thus laid down by the Supreme Court of the United States, all of which is well developed in an imposing review of the authorities, published in 1915 in 10 Ill. Law Rev., p. 337. In this paper it will be observed that the only states adhering to the doctrine of Baily v. Smith are Minnesota, Illinois and Ohio. While the subsequent cases in Ohio that have considered the question have refused to overrule Baily v. Smith, there is an evident purpose shown in the reports to not extend the doctrines of that case beyond the facts disclosed in that opinion.

In Pittsburgh, C., C. & St. L. Ry. Co. v. Lynde, 55 Ohio St., 23, 44 N. E., 596, the Supreme Court refused to apply the doctrine to a mortgage of a railroad company, holding that it would be unreasonable to require the bona fide holder of a railroad bond to inquire into the undisclosed equities of the mortgagee railroad company.

In First Nat. Bank of Wapakoneta v. Brotherton, 78 Ohio St., 162, 84 N. E., 794, Judge Shauck calls attention to the undesirability of widening the divergence between the law in this state, as laid down in Baily v. Smith, and the law in other states, and limits the operation of the Baily case to the precise terms employed therein — that is, that where both a note and mortgage are obtained by fraud the transfer of the note to a bona fide indorsee does not entitle the latter to foreclosure. The opinion in the Brotherton case then goes on to hold that while under the Baily case the mortgagor might be heard with his defense against the foreclosure, and the assignee of the mortgage might be put upon his inquiry as to whether or not the mortgagor had undisclosed equities, “it would not follow that he should be held to inquire of mankind with respect to latent equities.” The court then expressly approves Humble v. Curtis, 160 Ill., 193, 43 N. E., 749, a decision of one of the states adhering to the rules laid down in Baily v. Smith. In the syllabus in the Humble case the Illinois court held:

“A purchaser, in good faith, of a negotiable note secured by mortgage does not take the mortgage subject to equities existing in favor of third persons, even if it is taken subject to the equitable defenses existing in favor of the mortgagor.”

The mortgagor in the instant case is not disputing the validity of the mortgage sought to be foreclosed. He is asserting no defense of any kind. So far as he is concerned both the mortgages in question are valid and subsisting liens. When the plaintiff for a valuable consideration bought the mortgage on which he now relies, there was nothing on the record to advise him of the existence of any other mortgage. The plaintiff was free from laches, and there is nothing in the record to deprive him of the priority given him by the statutes regulating the record of such instruments.

We have not overlooked the fact that Cherubini is also asserting a vendor’s lien. It is sufficient to say that the plaintiff had no knowledge of any such lien. If Cherubini had desired to rely upon such a lien he had it within his power to protect both himself and the plaintiff by giving notice thereof by appropriate reservation in the conveyance made by him.

A decree will be entered for the plaintiff and the cause remanded to the common pleas for execution.

Decree for plaintiff.

Sayre and Middleton, JJ., concur.

Judges of the Fourth Appellate District, sitting in place of Judges Levine, Sullivan and Vickery, of the Eighth Appellate District.  