Evans Bros. v. Roanoke Savings Bank

Keith, P., delivered the opinion of the court. This controversy originates in a bill filed by the Roanoke Savings Bank against Evans Bros., the Covenant Building & Loan Association, Lizzie Reed, C. A. Myers, and others. The facts, as they appear in the record, are as follows: O. A. Myers was the owner of a lot in the city of Roanoke fronting 30 feet on Rutherford street and running back 200 feet to Walker street, with a front on the latter street of 60 feet. Upon the Rutherford street front, running back 100 feet, there was a ■ deed of trust from Lizzie Reed to Cocke and Shields, trustees, to secure the Old Dominion Building & Loan Association the payment of $1,000. This deed was acknowledged and admitted to record October 3, 1892, and constitutes the first lien upon — 299 — that portion of the lot fronting on Rutherford street. The next lien was created by a deed of trust from Lizzie Reed to L. W. Hartwell, trustee, to secure O. A. Myers two negotiable notes, each in the sum of $400, dated October 25, 1892, and payable respectively at twelve and eighteen months from date, with interest from date. These two notes had, at the date of the transaction about to be narrated, been indorsed to the Roanoke Savings Bank, which holds them as an innocent purchaser for value. This deed was dated October 25, 1892, and was on the same day acknowledged and admitted.to record. It constitutes, therefore, the first lien upon 60 feet of the property fronting upon Walker street, and running back 100 feet, and the second lien upon the 30 feet fronting upon Rutherford street, and running back 100 feet. With these liens upon her property, Lizzie Reed borrowed of the Covenant Building & Loan Association of Knoxville, Tenn., the sum of $1,200, and offered as security therefor a deed of trust upon the property, 60x100 feet, fronting on Walker street. Before paying the money over, however, the Covenant Building & Loan Association had the title investigated, and ascertained the existence of the liens heretofore mentioned. It refused to make the loan, and thereupon Lizzie Reed induced O. A. Myers, the apparent owner of -the first lien, securing the two notes of $400 each, which had, as a matter of fact, been indorsed, as we have seen, to the Roanoke Savings Bank, but of which transfer the Covenant Building & Loan Association was ignorant, to enter upon the margin of the deed book in which this incumbrance was recorded that it had been satisfied to her. The efEect of this entry, under section 2498 of the Code,- was to release the incumbrance referred to. The Covenant Building & Loan Association thus became the first lienor upon so much of the lot as was-conveyed to trustees to secure the loan made by it. It is true that the equity of the Roanoke Savings Bank was unaffected. It had acted in good faith; had lent its money after an examina — 300 — tion of the record, which showed that the notes purchased by it were secured by a deed of trust which constituted a first lien upon'the property; but, by a fraudulent combination between the original payee in the note and the grantor in the deed of trust, the lien was, without any fault upon the part of the Roanoke Savings Bank, marked “satisfied,” and the legal title to the property, which was held by the trustee named in' the deed to secure these two notes held by it, and the benefit of which lien had by the assignment of the notes been vested in the Roanoke Savings Bank, was by this fraud defeated and rendered wholly valueless. The Covenant Building & Loan Association, ignorant of the true situation, with nothing to put it upon inquiry as to the transfer of these notes, dealt with the record as it found it.' Being informed of the existence of this lien, it ■declined to make the loan until Mrs. Myers, who was the apparent owner of the lien, voluntarily came forward, acknowledged that it had been paid, and recorded the satisfaction of it upon the deed book in accordance with the statute. The result of it is that the deed to secure the notes held by the Roanoke Savings Bank was by these transactions released, so far as the Covenant Building & Loan Association is concerned; and that association, being an innocent purchaser, relying upon the public record, stands to-day before the court with an equity equal to that- of the Roanoke Savings Bank, and with a legal title vested in the trustee for its benefit. This case is very similar in its facts, and is identical in principle, with that of Williams v. Jackson, decided by the' Supreme Court of the United States, and reported in' 107 U. S., at page 478, where Justice Gray, delivering the opinion of .the court, uses the following language: “Williams is admitted to'have had no actual knowledge that the notes secured by the first trust deed were held by the plaintiffs, or that they were unpaid. The knowledge of those facts by Charles T. Davis, through whom Williams made the loan, — 301 — does not bind him because, upon the evidence, Charles T. Davis appears not to have been his agent, but the agent of Sweet and wife. “Williams took every reasonable precaution that could have been expected of a prudent man, before advancing his money to Charles T. Davis for Sweet and wife. He declined to lend his. money until after he had been furnished with a conveyancer’sabstract of title, showing that the deed of release from the trustees under the first deed of trust, and from the original holder of the notes secured thereby, as well as the second deed of trust to secure the repayment of the money lent Williams, had been recorded, and that the land was not subject to any incumbranceprior to the second deed of trust. “it was suggested in argument that, as the first deed of trust, showed that the notes secured thereby were negotiable, and were not yet payable, and that the land was not intended to be released from this trust until all the notes were paid, Williams was negligent in not making further inquiry into the fact whether they were still unpaid. But of whom should he .have made inquiry? The trustees under the first deed, and the original holder of the notes secured thereby, having expressly ■ asserted under their own hands and seals that the notes had been paid, and Sweet and wife having apparently concurred in the assertion by accepting the deed of release, and putting it on record, he certainly was not bound to inquire of any of them as to the truth of that fact; and there was no other person to whom, he could apply for information, for he did not know that the notes had ever been negotiated, and he had no reason to suppose that they had not been cancelled and destroyed. “To charge Williams with constructive notice of the fact that the notes had not been paid, in the absence of any proof of knowledge, fraud, or gross or wilful negligence on his part, would be inconsistent with the purpose of the registry laws, with the settled principles of equity, and with the convenient, transaction of business. — 302 — “The equity of Williams being at least equal with that of the plaintiffs, the legal title held for Williams must prevail, and he is entitled to priority.” See, also, National Valley Bank v. Harman, 75 Va. 604. Mrs. Reed desired also to make this property the basis of a credit with Evans Bros., merchants of the city of Roanoke, and they paid to her, or extended credit to her, to the sum of $600, and took a deed of trust to secure it upon the property fronting on Rutherford street. As we have seen, there was a deed of trust upon this front in favor of the Old Dominion Building & Loan Association for $1,000, which constituted the first lien; a second lien to secure the two notes of which the Roanoke Savings Bank was the indorsee; and in this condition of the title Evans Bros, paid to Lizzie Reed, or extended credit to her for, the sum of $469 — a part of the sum of $600, now claimed by them. At the time the $469 was paid, the lien in favor of the Roanoke Savings Bank appeared of record in full force and effect. At that point Evans Bros, declined to extend further credit or make further payments until the lien now claimed by the Roanoke Savings Bank should be discharged and released. C. A. Myers then entered of record upon the deed book as in the case of the Covenant Building & Loan Association, the satisfaction and release of the incumbrance of which she was the apparent owner, and thereupon Evans Bros, paid over to Lizzie Reed $131, which, together with the $469, made up the aggregate sum of $600. At the time the $469 was paid, the deed to secure the notes to C. A. Myers, which had been by her transferred to the Roanoke Savings Bank, was in full force and effect. It is not suggested that Evans Bros, had received any assurance that it had been “satisfied,” as in point of fact it had not been, but the money was paid by Evans Bros., or credit extended by them to Mrs. Reed, to the extent of $469, with the record showing the liens outstanding, as they have been heretofore stated. — 303 — We are of opinion that as to the stun of $469 Evans Bros, cannot be. considered as innocent.purchasers for value, and without notice. There is room for grave question whether they can be so considered with respect to the $131, under the circumstances of this case; but that point it is not necessary for us to decide. When C. A. Myers entered “satisfaction” of the deed of trust to secure the two notes for $400, of which, so far as was disclosed by the record, she was the owner, it operated as a release of that incumbrance, but did not have the effect, as in the case of the Covenant Building & Loan Association, of putting the legal title in the trustee in the deed made for the benefit of Evans Bros., because upon this particular piece of property the legal title was outstanding in Cocke & Shields, trustees, to secure the Old Dominion Building & Loan Association, which, as we have seen, constitutes the first lien on the Rutherford street property. With respect, therefore, to the $131, Evans Bros, were the purchasers of a mere equity, and they may be said to have an equity equal to that of the Roanoke Savings Bank. If Evans Bros, had acquired the legal title, or, rather, had the legal title, by these transactions, been vested in a trustee for their benefit, they would have an equal equity, and the legal title would have prevailed; but as the case actually stands they are the holders of an equal, but a junior, equity, and must be postponed to the older equity of the Roanoke Savings Bank. See the citation already made from Williams v. Jackson, supra, and also Briscoe v. Ashby, 24 Grat. 454, where it is said, quoting from Chew v. Barnet, 11 Serg. & R. 389: “When it is asserted that a purchaser for valuable consideration takes the title free of every trust or equity of which he has no notice, it is intended of a title perfect on its face, for every purchaser of an imperfect title takes it with all its imperfection on its head. It is his own fault that he confides in a title which appears defective to his own eyes, and he does so at his peril. Row, every equitable title is incomplete on its face. It is, in truth, nothing — 304 — more than a title to go into chancery to have the legal estate conveyed, and therefore every purchaser of a mere equity takes it subject to every clog that may lie on it, whether he has had notice or not. But the purchaser of a legal title takes it discharged of every trust or equity which does not appear on the face of the conveyance, and of which he has not had notice, either actual or constructive.” We are of opinion, therefore, that the decree of the Corporation Court of Roanoke is erroneous in so far as it postpones the lien of the Covenant Building & Loan Association to that of the Roanoke Savings Bank, and to that extent it must be reversed, but that there is no error in the decree to the prejudice of the appellants Evans Bros., and it is, as to them, affirmed. We are also of opinion that C. A. Myers and Lizzie Reed, having perpetrated a fraud upon the Roanoke Savings Bank, are responsible to it for any loss it may have sustained, and that the court, having them now before it, should proceed to do full justice in the premises; and the cause will be remanded to the Corporation Court of Roanoke with directions to decree in favor of the Roanoke Savings Bank against O. A. Myers and Lizzie Reed for whatever sum may appear to be necessary to indemnify it against loss by reason of the fraud perpetrated upon it.