This section is from the book "The Law Of Real Property and Other Interests In Land", by Herbert Thorn Dike Tiffany. Also available from Amazon: A Treatise on the Modern Law of Real Property and Other Interests in Land .
Pose of securing a valid debt, but that the debt which it purports to secure is invalid or non existent in whole or in part. There are quite a number of cases to the effect that a transferee who takes subject to a mortgage cannot question the existence of the debt which the mortgage purports to secure, as against the creditor seeking to foreclose,2 the courts not generally distinguishing such a case from that of an attack upon the mortgage itself. There is, however, it is submitted, a substantial difference. If a mortgage, though purporting to secure $1000, actually secures but $500, because that is the extent of the indebtedness, the mere accident of a transfer of the land in terms subject to the mortgage seems an insufficient reason for allowing the creditor to assert a lien for the larger sum. There is in such case no equity in favor of the creditor, the mortgagee, and while the transferor has an equity to demand that his personal liability shall not be increased as the result of an adjudication in favor of the transferee's contention, he will be protected in this regard, if made a party to the proceeding, since the adjudication will then be available in his favor as well as in favor of the transferee. All the persons in2. Key West Wharf & Coal Co. v. Porter, 63 Fla. 448, Ann. Cas. 1914A, 173, 58 So. 599; Lang v. Dietz, 191 111. 161, 60 N. E. 841 (semble); Foy v. Armstrong, 113 Iowa, 629, 85 N. W. 753 (semble); Johnson v. Thompson, 129 Mass. 398 (semble); Crawford v. Edwards, 33 Mich. 354; Moulton v. Haskell, 50 Minn. 367, 52 N. W. 960; Camden Safe Deposit & Trust Co. v. Citizens' Ice & Cold Storage Co., 71 N. J. Eq. 221, 65 Atl. 980; Cummings v. Jackson, 55 N. J. Eq. 805, 38 Atl. 763; Freeman v. Auld, 44 N. Y. 450; Ritter v. Phillips, 53 N. Y. 586; Ostran v. Bond, terested being parties, the court, in order to prevent the transferee from acquiring, by such defense, a benefit to which he is not equitably entitled, can establish in favor of the transferor, on his payment of the amount actually due, a lien upon the property for a greater amount, that is, for the nominal amount of the mortgage debt, subject to which he transferred the property. In one of the cases above cited, adverse to the transferee's right to assert such a defense,3 it is said that to the extent to which the sum collected by the mortgage creditor exceeds the amount actually due, he holds it in trust for the transferor, and this view accords in result with that above suggested, provided the transferor is able to have the trust established by decree in the proceeding to foreclose. It would seem, however, simpler, and more in accord with fundamental principles, to allow the mortgage to be enforced only for the actual amount of the indebtedness, rather than to allow its enforcement for a greater amount, merely for the purpose of implying a trust to the extent of the excess.
Alt v. Banholzer, 36 Minn. 57, 29 N. W. 674; Flanders v. Jones, 30 N. H. 154; Cummings v. Jackson, 55 N. J. Eq. 805, 38 Atl. 763; Sand v. Church, 6 N. Y. 355.
- Okla. -, 172 Pac. 447. So it has generally been held that one who takes a transfer subject to the mortgage, or with an assumption clause, cannot assert usury in the loan secured. See cases cited 39 Cyclopedia Law & Proc. 1068, 1069. The defense of usury may however be regarded as sui generis, and these decisions are based, to. a great extent, on the personal character of this defense, and the fact that the conveyance under such circumstances is evidently not intended to confer on the transferee the right to assert such defense.
If the mortgage purports to secure an indebtedness which is either wholly or in part illegal in its inception, as when it is a gambling debt, or a debt created in consideration of illegal cohabitation,4 it seems hardly probable that a court would recognize the mortgage as securing the full amount of the nominal indebtedness. In such a case the transferee would, it is conceived, always be allowed to show the character of the indebtedness, provided, at least, the transferor is made a party, so that he may be able to avail himself of any adjudication in this regard.
It has occasionally been decided that, although the transfer is subject to a mortgage, the transferee may show that the debt has been wholly or partially paid.5
3. Freeman v. Auld, 44 N. Y. 50.
4. Ante, Sec. 608.
5. Briggs v. Seymour, 17 Wis. 2f.5; Hartley v. Tatham. 2 Abb. Dec. 333; Huston v. Stringbam, 21
It is difficult to reconcile these with the decisions, above referred to, that the transferee cannot show that the nominal indebtedness is wholly or in part non existent because never created, but they are, it is submitted, essentially correct.
It has been decided that if the conveyance is not subject to the mortgage, by reason of an express statement to that effect or of the deduction of the amount of the mortgage debt from the purchase price, and there is no assumption clause, the transferee may question the validity of the mortgage.6 And occasionally the fact that the transfer was in terms "subject" to the mortgage was held to be immaterial in this regard provided the consideration paid for the transfer was not reduced on account of the existence of the mortgage.7
Since, if a transfer of mortgaged land is not subject to the mortgage, the transferee is not precluded from questioning its validity, it does not seem that one claiming under such transferee should be so precluded. Suppose, for instance, a transfer to A not subject to the mortgage, and a subsequent transfer by A to B in terms subject thereto. There is in such a case no equity in favor of the mortgagor which requires A to refrain from attacking the mortgage, and so, it would seem, there is no equity in his favor which requires B so to refrain. In such a case the last transfer, although expressed to be subject to the mortgage, is not properly so, since it cannot operate to throw upon the land the primary liability which has, by the previous transaction, been established against the mortgagor himself. Even though the second transferee pays a reduced price by reason of the mortgage, he does not, properly speaking, take subject to the mortgage.