Carpenter v. Longan (1872)

In Carpenter v. Longan (1872) 83 U.S. 271, the defendants Longan and wife executed a promissory note to the assignee of plaintiff, or order, for a certain sum payable at a certain time, and gave a mortgage on certain real estate conditioned for the payment of the note at maturity. Two months before the maturity of the note, the original owner of the note and mortgage assigned the same to the plaintiff. The note not being paid at maturity, suit was brought for the foreclosure of the mortgage. The defendant raised certain defenses against the mortgage. Carpenter v. Longan, stands for the proposition that when a mortgagor and a mortgagee make a separate agreement, that agreement does not follow the note if the note is transferred. In Carpenter, a borrower signed a note and a mortgage to obtain a loan. The mortgagor and the mortgagee then made a separate agreement that the mortgagee would take possession of some property, sell it, and apply the proceeds to the debt secured by the mortgage. The mortgagee then sold the note to a third party without having fulfilled the mortgagee's obligation to apply the proceeds of sale to the debt. At the note's maturation date, the new mortgagee foreclosed on the loan for non-payment. The mortgagor asserted that their account should be credited for the value of the property given to the original mortgagee pursuant to their agreement with the original mortgagee. The question then became, whether an assignee "takes the mortgage as he takes the note, free from the objections to which it was liable in the hands of the original mortgagee." The Carpenter court answered in the affirmative. Had the mortgagee retained possession of the note, the mortgagor could assert that the terms of the separate agreement altered the mortgagee's right to foreclose on the note. However, the note was transferable and when the note was transferred, the separate agreement between the original mortgagee and the mortgagor was not binding on the assignee. The Supreme Court said: "The assignment of a note underdue raises the presumption of the want of notice, and this presumption stands until it is overcome by sufficient proof. The case is a different one from what it would be if the mortgage stood alone, or the note was non-negotiable, or had been assigned after maturity. The question presented for our determination is, whether an assignee, under the circumstances of this case, takes the mortgage as he takes the note, free from the objections to which it was liable in the hands of the mortgagee. We hold the affirmative. The contract as regards the note was that the maker should pay it at maturity to any bona fide indorsee, without reference to any defenses to which it might have been liable in the hands of the payee. The mortgage was conditioned to secure the fulfilment of that contract. To let in such a defense against such a holder would be a clear departure from the agreement of the mortgagor and mortgagee, to which the assignee subsequently, in good faith, became a party. If the mortgagor desired to reserve such an advantage, he should have given a non-negotiable instrument. If one of two innocent persons must suffer by a deceit, it is more consonant to reason that he who `puts trust and confidence in the deceiver should be a loser rather than a stranger.'" The Supreme Court found the note and mortgage to be inseparable, holding that under Colorado law, the assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity.The Supreme Court held: "All the authorities agree that the debt is the principal thing and the mortgage an accessory. Equity puts the principal and accessory upon a footing of equality, and gives to the assignee of the evidence of the debt the note the same rights in regard to both. There is no departure from any principle of law or equity in reaching this conclusion. There is no analogy between this case and one where a chose in action a mortgage standing alone is sought to be enforced. The fallacy which lies in overlooking this distinction has misled many able minds, and is the source of all the confusion that exists. The mortgage can have no separate existence. Whenthe note is paid the mortgage expires. It cannot survive for a moment the debt which the note represents."