Ohio Life Insurance & Trust Co. v. Ledyard

ORMOND, J. The controversy in this case, arises between a mortgagee ofland, who failed to record his mortgage, and others claiming the same lands by subsequent conveyances from the mortgagor, without notice of the previous mortgage. The unregistered mortgage was made by Sayre, Converse & Co., to Ledyard, in April, 1836, and the mortgage of the same parties to the Bank of Mobile, in August, 1837. The President of the Bank has been examined as a witness, and admits that the Bank, after it obtained the mortgage, and possibly at the time, knew there was a. previous incumbrance on the property, but does not know whether it was the mortgage of Ledyard, or some other incumbrance, of which the Bank had notice. Mr. Sayre was also examined, and says that he is under the impression, the officers of the Bank knew of the mortgage. That they did have knowledge of its existence, is, in our judgment, the necessary presumption from their subsequent conduct. It appears that Mr. Sayre, by the consent of the officers of the Bank, applied the rent of the mortgaged premises in discharge of Ledyard’s mortgage, from 1838 to 1841, and was only prevented from extinguishing the incumbrance by this process, by the accidental falling down of the warehouse erected on the land, which made it necessary to employ the rents in its reconstruction. This conduct on the part of the Bank, is a concession of the prior right of Ledyard, and is indeed inexplicable on any — 871 — other hypothesis. It is probable, that the Bank did not know that the prior mortgage had not been recorded, as it appears from the testimony of Mr. Sanford, its President, that as soon as it was ascertained that the mortgage had not been recorded, the permission to pay over the rent to Ledyard was withdrawn; but that its existence was known by the officers of the Bank, at the time the mortgage of Sayre and Converse to the Bank was made, is, in our opinion, the necessary inference from the conduct of the Bank, taken in connection with the facts proved. It is now contended, that no notice of the existence of a deed required by law to be recorded, is available, but the notice afforded by its registration. We think it perfectly clear, that both the acts of 1823, (Clay’s Dig. 154, § 18,) and the act of 1828, (lb. 255, § 5,) under one of which this deed must come, evidently contemplate, that actual notice shall be equivalent to the constructive notice afforded by the registration of the deed. The language admits of no other interpretation; the whole object and design of the statutes being to give notice of the existence of the deed. We come now to the consideration of the more difficult question, whether the Ohio Life Insurance and Trust Co., are creditors, or purchasers, for a valuable consideration, it being admitted that it had no notice, either actual or constructive, of Ledyard’s prior incumbrance. Rufus Green, who claimed to be the owner in fee, of an undivided half of the same lot, covered by the unregistered mortgage of Ledyard, executed a conveyance of the same, to R. G. Gordon, upon the following trust. Green was the maker of four promissory notes, two for the sum of $ 10,600, each due at the date of the deed, and two others for $10,900 each, payable eighteen months after date, but not then due. Upon these notes, Robertson, Beal & Co. were indorsers, and to indemnify them as in-dorsers, the deed was made, and upon the non-payment of the notes within seventeen months from the date of the deed, the trustee was authorized, and required, to sell a sufficiency of the property conveyed by the deed, to pay off and discharge the trust. It does not appear from the deed, who were the holders of the notes, but by the testimony of Green, it appeal’s that T. G. Mathews held them at that time. Green, and Robertson, Beale & Co. became bankrupt, and were discharged in 1842, leaving — 872 — no property to be divided among their creditors. The Messrs. Mathews filed a bill in Chancery, to obtain the benefit of the deed made by Green, and obtained a decree for the sale of the property. A sale was made under the decree, and in 1843 the land was purchased by the Ohio L. I. & T. Co., which sale was af-terwards confirmed. It is now strenuously urged, that the equity of Mathews before the decree, and under the deed, was not greater than that of Ledyard, who was clothed with the legal title. That under the sale made in virtue of the decree, no title passed, which was not previously vested in the party against whom the decree was obtained. That caveat empior is the rule at a Master’s sale. In the case of Toulmin v. Hamilton, 7 Ala. Rep. 367, which, upon this point, is in principle identical with' this, we had occasion to consider this question. It was there, upon great consideration, held, that when a deed of trust was given to indemnify an accommodation acceptor, the holders of the paper might resort to the trust property for the payment of the paper when dishonored. That is the precise predicament of this case. The deed of trust was executed to secure, or indemnify, Robertson, Beale &. Co., as indorsers of certain notes, which it appears by the testimony of Green, had previously been given to T. & C. Mathews. The rule as established by that case, is, that the creditor is entitled to the benefit of all pledges, or securities given to, or in the hands of the surety, for his indemnity, to be applied to the payment of the debt. It does not in the slightest degree vary the case, that the indorsers havebecome bankrupt, andh ave no estate for distribution. The right ofthe holderto the benefit of this security, doesnot depend upon the liability ofthe surety to be damnified ; it is because it is a trust created for the better security and protection of the debt. It therefore attaches to the debt, and those interested in it, may affirm the trust, and enforce its performance. [Moses v. Murgatroyd, 1 John. C. 129.] It is also to be observed, that the right to sell vested in the trustee, did not depend upon the fact that the indorsers of the notes were compelled to pay upon their indorsement, but the trust was, to sell if the notes were not paid by Green the maker, in seventeen months, and to pay and discharge the notes. It is certainly true, as contended, that upon a sale by the Master, no title is acquired which has not been put in litigation, and — 873 — adjudicated by the Court, the parties in interest being before it, but we do not perceive, how this admitted principie affects this question. When this deed of trust was made, Green had the legal title to an undivided half of the lot; upon this there was an incumbrance in favor of Ledyard, but of its existence, neither the trustee, nor any of the beneficiaries had notice, either actual or constructive. It is therefore, as to them, as if it never had existed. In the language of the statute, it is “ void,” and being void, no right can be derived from it, prejudicial to any right secured by the deed of trust, which though posterior in point of time, being received in ignorance of the existing unregistered incum-brance, is by the statute prior in right. It is further urged, that although the payment of the debt to Mathews, was the object of the deed, it was a voluntary conveyance, without valuable consideration, within the meaning of the statute. This objection has, to some extent been anticipated. It may be conceded that the “creditors” spoken of in the act of 1828, are not creditors at large, for in no just sense can a creditor whose debt is liquidated, admitted to be just, and a lien given by the debtor on a particular fund, for its payment, be considered a creditor at large. He is rather to be considered a purchaser, of which the debt forms the consideration. The case of Liggat, et al. v. Morgan, 2 Leigh, 841, is a direct authority, that such a creditor is to be considered a purchaser, within the meaning of the statute of the 13 Elizabeth. So in Collin v. Ray, 1 Metcalfe, 214, it is said, “ the attachment of real estate is considered as in the nature of a purchase, and the attaching creditor affected with notice of a prior conveyance, in the'same manner as a purchaser.” To the same effect is Priest v. Rice, 1 Pick. 164, and Bryan v. Cole, 10 Leigh, 500. The plain and obvious design of our statute, in requiring registration, is, to give notice that creditors, and subsequent purchasers may not be deluded or defrauded $ and as to all ^uch, who have not notice in fact, the unregistered deed is void; any other decision would make the provision in favor of creditors utterly fruitless. But if we were to consider the prior unregistered incumbrance as an equitable lien, and equal in dignity with the lien of a creditor subsequently obtained on the same property, certainly the equity of the creditor is superior, after he has obtained a decree for the en874 foi’cementofhis lien, and has actually enforced it, by sale. In such a -case it cannot be doubted, that the purchaser would have, with the legal title, the superior equity, as he would be literally a purchaser for a valuable consideraiion without notice of the prior equity. That is this case. The Ohio L. I. & T. Co. purchased at the sale, made under the decree. It is true, it does not appear that the Messrs. Mathews have received the money, but it does appear that the sale was confirmed, and the title has been made to the company, and that the costs of the suit have been paid. This is in effect, an admission by them, of the payment of the money, as on no other hypothesis can the fact of their permitting the sale to be confirmed, be explained. Nor is this question put in issue by the bill. It is not alledged that the Life Insurance and Trust Co., is not a bona fide purchaser, but that it was a purchaser with notice of the prior unregistered deed. The decree in favor of the Messrs. Mathews, is not before us; their demand, to satisfy which the decree was made, was for upwards of forty thousand dollars, and as the maker and indorsers of the notes are all certificated bankrupts, without any estate to divide, as is admitted upon the record, the sale of this property was their only means of reimbursement, if indeed they were not, as is most probable, trustees merely for the Life I. & T. Co. The cases cited by the counsel for the defendant in error, from Paige & Wendell, to be found on his brief, are based upon a principle which does not obtain in this State — that the payment, or ’ discharge of a pre-existing debt, is not a valuable consideration, in the same sense, as paying money, or parting with property would be. See also, Coddington v. Bay, 20 Johns. 637, where this principle is asserted in reference to negotiable paper. This doctrinéis controverted in Swift v. Tyson, 16 Peters, 1, where this question was elaborately considered, and the New York authorities denied to be law, and to the same effect is the decision of this Court in the Bank of Mobile v. Hale, 6 Ala. Rep. 639. The analogy between negotiable papel-, and the question here discussed, appears to be perfect, and is so considered in the New York cases. Upon the whole, we are satisfied, that there is error in the decree, so far as it determines that the Ohio Life In-surand and Trust Co. were not purchasers for a valuable consideration. The view here taken, renders it unnecessary to determine the — 875 — question, whether a mortgage of lands is to be registered under the act of 1823, (Clay’s Dig. 154, § 18.) as maintained by the counsel for the defendant in error, or under the act of 1828, (lb. 255, § 5,) as contended by the counsel for the plaintiff in error, as we hold that the Life I. & T. Co. were purchasers for a valuable consideration, and therefore within the saving of both statutes. The decree of the Chancellor must be reformed, so as to subject the undivided half of the lot claimed by the Bank, to the whole amount of Ledyard’s mortgage. The costs of this Court to be equally divided between Ledyard and the Bank of Mobile. The costs of the Court below to be paid out of the fund. Let the cause be remanded for further proceedings. ORMOND, J A motion has been made for a rehearing in~ this case, and modification of the decree. The ground of our decision, that the Bank of Mobile had notice of Ledyard’s mortgage, when it obtained the mortgage of Sayre & Convei’se on a portion of the same land, is, that the Bank has not attempted to repel the inference arising from their permitting the rent of the mortgaged estate to be applied to the payment of Ledyard’s debt. That the persons having the management of the Bank, should permit this appropriation to be made for several years, without inquiry, is on its face incredible. It is then, material to consider, that no attempt is made at explanation, that this yearly appropriation was permitted by mistake. The only rational inference is, that the only mistake the Bank was under, was in supposing that the mortgage was recorded. As to the decree. It is insisted, that Ledyard having lost the/ right to look to the undivided half of the mortgaged estate originally owned by Green, he can only subject the residue of the estate to the payment of half the debt now remaining due on the mortgage. By the mortgage to Ledyard, by Sayre & Converse, and Green, the former acquired aright to satisfaction of his debt, out of all and every part of the land. In what way has this right been impaired ? The failure on his part to record the mortgage, certainly could not have this effect, because he was under no obligation to record it. This may have been necessary to protect him against creditors, and subsequent purchasers without notice, but as between the parties to it, it is as valid to all intents and — 876 — purposes, as if recorded. If by the omission to put the mortgage on record, its lien is lost on a part of the land, it is not caused by Ledyard, but by the improper conduct of Green, in again encuna' bering the land, without giving notice of the prior mortgage, and-if the whole burthen is-thrown upon the other half of the land, it is not the fault of Ledyard, who has done no act calculated to impair his rights. If then by the conduct of Green, the whole burthen is east upon Sayre & Converse, or those representing them, they will have the right to call upon Green to reimburse them. This point was in effect decided at the present term in the case of Andrews <fc Brothers v. McCoy.