
    (80 Hun, 207.)
    FITCH v. McDOWELL et al.
    (Supreme Court, General Term, Third Department.
    July 14, 1894.)
    .Mortgages—Assignment—Set-Off against Mortgagee.
    Where a mortgagor gave a note as a conditional part payment of the bond secured by mortgage, and the mortgagee, after transferring the note, assigned the bond and mortgage to another person, the assignee can foreclose only for the balance of the mortgage debt after deducting the amount of the note, unless he indemnifies the mortgagor against the note.
    Appeal from special term, Clinton county.
    
      Action by Emmett M. Fitch, as administrator, against Edward M. McDowell and others to foreclose a mortgage. There was a judgment in favor of plaintiff, and defendants appeal. Modified.
    Argued before MAYHAM, P. J., and PUTNAM and HERRICK, JJ.
    Weeds, Smith & Conway (T. F. Conway, of counsel), for appellants.
    Shedden & Booth (L. L. Shedden, of counsel), for respondent
   PUTNAM, J.

The arrangement under which the mortgagor, Edward M. McDowell, in November, 1887, made and delivered to Andrew Williams the note for $1,750 described in the answer of defendants as a conditional payment on the bond and mortgage in suit, is as valid and binding upon plaintiff as if the assignment by Williams to Jane Ellis, made in 1886, as collateral security, had not been executed. McDowell was- not informed of such assignment; it was not recorded. Williams had possession of the bond and mortgage, and, in fact, was authorized to receive payments thereon. Van Keuren v. Corkins, 4 Hun, 129, 66 N. Y. 77; Kelly v. Bruce, 17 Wkly. Dig. 39. Besides, the unrecorded assignment of 1886 was afterwards destroyed, the absolute title to the bond and mortgage revesting in Williams, and the transfer under which plaintiff claims was executed subsequent to the execution of said note and the transfer thereof to the Iron National Bank of Plattsburgh. It is proper, therefore, to pass on the questions submitted to us as if the note was executed and transferred when Williams was the absolute owner of the bond and mortgage, and the assignment as collateral security had not been made. The situation, then, was as follows: Williams had a bond for the whole amount of the mortgage debt, and also a note for $1,750 thereof. If Williams had not, after tiie execution and transfer of said note, made the assignment of the bond and mortgage to plaintiff’s intestate, and had the foreclosure action been brought by him as a plaintiff, he could not have obtained a decree of foreclosure, establishing the mortgage debt, without deducting the amount of said note, unless he was able to procure and surrender it. Battle v. Coit, 26 N. Y. 404-406; Burdick v. Green, 15 Johns. 247; Seymour v. Lewis, 19 Wend. 512; Lord v. Bigelow, 124 Mass. 185; Elwood v. Deifendorf, 5 Barb. 398-408; 18 Am. & Eng. Enc. Law, 176; and authorities cited. And this is the case, although expressly agreed that the note should only apply as a payment on the bond and mortgage when paid. In the absence of such an express agreement, the law would have implied one; would have ingrafted such a provision, in the contract. A note given by a debtor for a pre-existing debt is-deemed a payment thereon only when expressly agreed to be received as such. Murray v. Gouverneur. 2 Johns. Cas. 438; Van Eps v. Dillaye, 6 Barb. 244-252; Waydell v. Luer, 3 Denio, 410-415; Seymour v. Lewis, 19 Wend. 512. A careful examination of the case of Read v. Bank, 136 N. Y. 454, 32 N. E. 1083, cited by the learned counsel for respondent, will show that the authority I does not sustain the position taken by him on the argument. It I was held in that ease that—

I “Performance of an impossible thing was not demanded, and the law imI ported into the contract an exception, and if the paper had been actually lost,. I and he did not know, and could not reasonably be expected to ascertain,. I where it was, or if, knowing of its existence, it was beyond his power to re-I claim it by any lawful method of procedure, the defendant would not be I discharged from liability, but a recovery could be had by making substantial I indemnity at the trial.”

I No indemnity was tendered by the plaintiff in this case. There-I fore, had Williams remained the owner of the bond and mortgage,. I and brought an action to foreclose it, instead of the plaintiff, he-I would only have been entitled to a decree establishing the amount I of the mortgage debt at the sum secured by said bond, less the I amount of the note, unless he could produce and return the note to I the mortgagor. We are of opinion that plaintiff’s intestate ac-I quired no other or superior rights under the bond and mortgage in: I question than her assignor possessed at the time of the assignment, I It is held that “the equities existing between the assignor and as-I signee of a chose in action not negotiable attend the title trans-I ferred to a subsequent assignee for value and without notice. The I latter takes the exact position of his assignor.” Bush v. Lathrop, 22 N. Y. 535; Green v. Fry, 93 N. Y. 353; Hill v. Hoole, 116 N. Y. 299, 22 N. E. 547. Hence, plaintiff, as against McDowell, the mortI gagor,—the assignor, Williams, having transferred the note in I question to the Iron National Bank of Plattsburgh, the present. I owner thereof, and of the judgment obtained thereon,—being unaI ble to produce and surrender said note, is not entitled to a decree I for that part of the mortgage debt represented by the note. As-I held in Battle v. Coit, supra, the note given to Williams operI ated at first as a conditional payment on the mortgage debt, but, I being transferred, and remaining in the hands of the assignee, who I had obtained judgment thereon, it operated as an absolute payment I on the original consideration as between McDowell, Williams, and I . plaintiff as the assignee of the latter. The note, therefore, under I the circumstances, operating as a payment on the mortgage debt, I the recording act which is invoked by respondents cannot be deemed' I to apply. Plaintiff’s intestate took the bond and mortgage re-I duced by the amount of the note in question. The Iron National I Bank of Plattsburgh cannot be considered an assignee of a portion I of the mortgage debt within the meaning of the recording act.

I . The learned counsel for the appellant assumes that, the Iron-I National Bank of Plattsburgh having taken the note with notice I that it was given to Williams to apply on the bond and mortgage in I question when paid, the mortgagor, McDowell, could have success-I fully defended the action brought by said bank on said note; that it I was, in fact, an accommodation note, and the bank had notice of I that fact. Granting that when the note in question was discounted I by the bank its cashier was informed by Williams that the note I ivas given to apply on the McDowell mortgage, if paid, and, if not, I he (Williams) would have to take care of it himself, as found by the court below, we are unable to see how McDowell could have successfully defended an action upon the note by the bank. Assuming, as claimed by plaintiff, that the note under consideration was accommodation paper, yet, by its terms, the maker, McDowell, agreed to pay, two months after its date, $1,750 at the Iron National Bank of Plattsburgh, value received. There was no restriction placed upon Williams as to the use of the said note. Therefore, Williams had a right to transfer the note to the bank, and, there being no unlawful diversion, the latter could recover thereon as against McDowell. Bank v. Neass, 3 N. Y. 442; Bank v. Strever, 18 N. Y. 502; Bank v. Townsend, 13 Wkly. Dig. 295. See, also, Lord v. Bigelow, 124 Mass. 184-189. The knowledge of an indorsee of a note that it was given for the accommodation of the indorser, where there is no unlawful diversion, does not prevent a recovery by the former. Bank v. Wells, 79 N. Y. 498. It follows that, if plaintiff was legally entitled to the decree entered in this case, the mortgagor, McDowell, may be compelled to pay $1,750 of the mortgage debt twice. The note was lawfully transferred by Williams to the Iron National Bank of Plattsburgh; the judgment was lawfully obtained by the bank against McDowell thereon, and may at any time be enforced. We are of opinion that the bank was not chargeable with notice of the unrecorded assignment from Williams to Jane Ellis in 1866, as claimed by respondent. Bank v. Clark, 139 N. Y. 314, 34 N. E. 910.

Without discussing other questions in the case, it follows that there must be a reversal of the decree. We are unable to come to a conclusion that will result in the mortgagor’s being compelled to pay a portion of the mortgage debt twice. Probably a proper disposition of the case would be a simple modification of the judgment by reducing the amount found due plaintiff. But as the defendant McDowell so requests, "we see no objection to making the following disposal of the case: The amount secured by the mortgage shall be deemed the amount found due by the decree. Out of the sale of the mortgaged premises, plaintiff shall first be paid the amount secured by the bond, less the said note and interest, and also the costs of the action as now in the judgment; and out of the balance of said proceeds, if any, the Iron National Bank of Plattsburgh shall be paid the amount of its judgment recovered on its note. The transfer of the note from Williams to the bank, operating as a payment, as between McDowell and Williams or his assignee, may have also operated in equity as an assignment of the mortgage security for the amount of the note. But we are unable to say that it could have the effect of giving such equitable assignee the right to a priority of payment before the payment of the legal assignee of the mortgage. Let the decree be so modified, with costs of this .appeal to be paid by plaintiff to appellants. 'All concur.  