Opinion
Argued January 3, 1951
Decided March 8, 1951
Appeal from the Supreme Court, Appellate Division, Fourth Department, GILBERT, J.
George J. Skivington for appellant. Francis Currie for respondent.
We are all agreed that defendant's rights under its absolute assignment from Atwater were prior to those of plaintiff under his mortgage on part of the leasehold, since defendant took its assignment without notice of said mortgage, which was never properly recorded. Inasmuch as defendant paid Atwater the full consideration of $5,000 for said absolute assignment, its rights as a bona fide purchaser for value and without notice were fully crystallized long before plaintiff's notice of August 12, 1937. The additional one and one-half cents for each thousand cubic feet, if natural gas were produced and marketed, and which defendant was obligated to pay Atwater, arose out of a separate agreement between them involving their respective additional obligations relating to the development and operation of the property following the assignment.
Actions in equity, such as Macauley v. Smith ( 132 N.Y. 524), and Fisk v. Potter (2 Keyes 64 [1865]), where plaintiff sought to reach his security through the property itself, are not apposite here. Under the circumstances disclosed by this record, plaintiff may not recover directly from defendant in this action at law, in which Atwater is not a party, upon his (plaintiff's) mortgage, which defendant neither signed nor assumed (see People ex rel. Balbrook Realty Corp. v. Mills, 295 N.Y. 190, 194). Moreover, inasmuch as defendant's production of gas here was in a well already opened in August, 1937, and was incidental to the utilization of the land in the manner in which it was expected to be used, waste in the legal sense may not be ascribed to defendant (5 Tiffany on Real Property, § 1428; 1 Reeves on Real Property, § 555, p. 781; 2 Thompson on Real Property, § 825).
The judgment should be affirmed, with costs.
Plaintiff's mortgage on this oil and gas lease was a valid one, executed and delivered before the assignment of the same lease to defendant. However, since defendant took its assignment without notice or knowledge of plaintiff's said mortgage and before that mortgage was recorded, defendant's rights were prior to those of plaintiff. But that priority was only as to so much of the consideration running from defendant, for the assignment, as was paid by defendant before it had actual notice of plaintiff's mortgage ( Fisk v. Potter, 2 Keyes 64, 74; Macauley v. Smith, 132 N.Y. 524, 532, and cases cited; 1 Jones on Chattel Mortgages and Conditional Sales, § 313). It appears that practically all the royalty payments due from defendant pursuant to the assignment to it became due after defendant got actual notice of plaintiff's mortgage, and after plaintiff had demanded that defendant pay plaintiff the royalties as security for which plaintiff got his mortgage. Defendant's refusal to give any effect to that notice and demand and its subsequent removal of the gas from the well, effectually destroyed plaintiff's entire security and defendant is liable at law in damages for that violation of plaintiff's rights ( Van Pelt v. McGraw, 4 N.Y. 110; Manning v. Monaghan, 23 N.Y. 539, 546 et seq.). The cases cited herein show that it is unnecessary in such a suit to make the mortgagor a party.
Since there may be open questions here as to the amount of plaintiff's damages and as to the effect, if any, of assignments to other persons of the same lease, there should be a new trial, with costs to abide the event.
LOUGHRAN, Ch. J., LEWIS, CONWAY, FULD and FROESSEL, JJ., concur in Per Curiam opinion; DESMOND, J., dissents in opinion in which DYE, J., concurs.
Judgment affirmed.