Martin v. Martin

It being now conceded by Kernahan that he has no claim against the mortgagees other than Manss Bros. & Co., the question to be determined is as between them, who has the better right to the lien of McGill in the proceeds of sale.

It is claimed on behalf of Kernahan that the assignment of the mortgage to Kernahan before the transfer and endorsement of the note to Manss Bros. & Co., passed the right of possession and property in the McGill note to him.

I believe the law to be well settled in Ohio that a mortgage deed of real estate is regarded in equity as a mere security for the performance of its condition of defeasance. If that condition be the payment of a debt, the security is regarded as an incident belonging to the debt, and the equitable right to the benefit of the security passes by the legal transfer of the debt to the assignee, unless the agreement to the transfer by the parties be otherwise; and that a note payable to order or bearer, when properly endorsed, and delivered for a valuable consideration, before due, is, in the hands of a bona fide holder, free from all equities between the original parties. ,

Do Manss Bros. & Co. come within this provision? *4Assuming for the present that this note was not secured by mortgage, there can be no question between Kernahan and Manss Bros. & Co., that the latter are entitled to the payment of their note, having received the same by proper endorsement before due, for a valuable consideration in the ordinary course of business, and without knowledge of any fraud. And it is evident that McGill did'not intend to transfer to Kernahan the genuine note.

But it is strongly urged that McGill having, before the transfer of the note to Manss Bros. & Co., transferred and assigned the mortgage with a stipulation transferring the note also, he thereby transferred in equity, all the interest he had in the note. In other words, that a transfer of a security carries with it the debt and that too, as in this case, where the debt was not transferred or intended to be transferred except by the mortgage. I cannot agree with counsel on this proposition.

I am satisfied that, if this note was still in the hands of McGill, or passed into the hands of a third party with knowledge of the fraud, equity would decree 'that such party held the note in trust for Kernahan. In law McGill could transfer the note by endorsing thereon his name,, and the title passed to a bona fide holder for value, if endorsed before due, free from all equities.

The debt is the principal and the mortgage an *5incident, the contention being between Kernahan and Manss Bros. & Co., as to who has the security of his respective debt. From the statement of facts it appears that Manss Bros. & Co., have the genuine note. It must follow that by the transfer of the debt, the-benefit of the security passes with it, in law. To hold otherwise would be to apply the mortgage to a note which it was not given to secure, and make the mortgage property liable for a new debt.

Note. — -Judgment affirmed in Common Pleas and Circuit Courts.