Neff's Administrator v. Newman

Campbell, J., delivered the opinion of the court. This suit was instituted by W. L. Newman and C. W. Bennick, trustees in a deed of assignment executed by G. B. Lohr and Martha R. Lohr, both in their own right and as husband and wife, for the purpose of having the court direct them in the administration of the trust created by the deed of assignment. The bill of complaint alleges that, by deed dated September 12, 1925, G. B. Lohr and Martha, his wife, conveyed to Newman and Bennick, trustees, certain real and personal estate, subject to all liens existing on the property conveyed, for the payment ratably and without priority of the creditors named in the trust deed and all other creditors of the grantors, pursuant to the provisions of an act of the General Assembly, approved March 31, 1924; that there was, on the 20th day of September, 1924, recorded in the clerk’s office, a mortgage from Lohr and wife to the Farm Land Bank of Baltimore, conveying one hundred and seventy acres of land, situated in Shenandoah eounty, known as the Crickenberger farm, to secure their note to the bank — 206 — for $14,000; that, on the 10th day of October, 1924, Lohr and wife conveyed this Crickenberger farm to C. W. Bennick, trustee, to secure the payment of a bond of $3,700.00 to Dr. A- B. Lohr, equally and ratably with a bond of $5,000.00 to Dr. A. L. Hildreth, also secured by deed of trust; that the two deeds of trust executed to secure the respective notes held by Dr. Lohr and Dr. Hildreth were subordinate to a deed of trust executed by Lohr and wife in favor of Martha J. Tusing, to secure the sum of $3,500.00; that the deed of trust dated and acknowledged September 15, 1924, conveying the Crickenberger farm to C. N. Hoover and C. W. Bennick, trustees, to secure the sum due Martha J. Tusing has never been recorded; that complainant, Bennick, had knowledge of the Tusing deed of trust when the general deed of assignment was executed; that the only liens of record against the Crickenberger farm as of the date of the deed of assignment were the mortgage to the Federal Land Bank and the two deeds of trust to Bennick, trustee, securing the notes held by Dr. Lohr and Dr. Hildreth; that the Crickenberger Farm was, after due advertisement, sold at public auction, for the sum of $25,000.00, to Dr. A. L. Hildreth, who complied with the terms of sale; that, although the deed of trust securing Martha J. Tusing in the sum of $3,500.00 has never been recorded, they are advised that Martha J. Tusing claims a lien on the Crickenberger farm, by virtue of the said deed of trust; that, if the Tusing debt should be held to be a valid lien paramount to the Dr. Lohr and Dr. Hildreth liens, and prior to the liens of the deed of assignment, then the assets in hand will not be sufficient to pay all of the said liens. The bill closes with the prayer that the court will direct and supervise the administration of the trust estate. — 207 — In the deed of assignment, the debt of Neff’s administrator was recognized, but the administrator, without declining in terms or accepting in terms to share in the-distribution of the assets of Lohr under the deed of assignment, on the 23rd day of September, 1925,. obtained in the circuit court two judgments against G. B. Lohr and Martha R. Lohr, for the respective sums of $500.00 and $5,198.96. Upon the call of the case, the court ordered an account of liens and the order of their priority. A hearing before the commissioner was had and both Martha J. Tusing and Neff’s administrator proved their debts, each asserting priority. In due course, the commissioner filed his report, setting forth that the lien of Martha J. Tusing, secured by the unrecorded deed of trust, had priority over the two judgment liens of Martz, administrator of Neff’s estate. Neff’s administrator excepted to the report of the commissioner, but the court overruled the exception and decreed that the Tusing lien was prior not only to the judgment of Neff’s administrator, but also prior to the liens in favor of Dr. Lohr and Dr. Hildreth, by reason of the fact that they had recognized such priority in the deed of trust securing their debts. In the written opinion of the learned chancellor, this conclusion is based upon the theory that, after the conveyance to the Federal Land Bank, G. B. Lohr and wife had only an equity of redemption in the Crickenberger farm; that this equity was conveyed in the two deeds of trust to secure Dr. Lohr and Dr. Hildreth, which were recorded prior to the docketing of the judgment of Neff’s administrator; and that, in both deeds of trust, the lien in favor of Martha J. Tusing was established as a prior lien on the property. In other words r it was the opinion of the court that Lohr and wife,, — 208 — having parted with all of their interest in the land, the judgment creditor could acquire no better right to the estate than the debtor himself had at the date of the recovery of the judgment. To support this view of the chancellor, counsel for appellees rely on Floyd v. Harding, 28 Gratt. (69 Va.) 401; McClanahan’s Admr. v. N. & W. Ry. Co., 122 Va. 705, 96 S. E. 453, and kindred cases cited therein. We do not think these cases in point. Floyd v. Harding, supra, involved the rights of a purchaser of land under a parol contract. At the time of this decision the registry act did not require a contract for the sale of land to be in writing. It was, therefore, held that the purchaser having been put in possession of the land upon payment of the purchase money, he was possessed of a valid, equitable title, and that the grantor had no interest in the land which could be subjected to the payment of the judgment lien. Following that decision, section 5192 was enacted, requiring contracts for the sale of real estate to be in writing and recorded in order to be valid against creditors. Barnes v. American Fertilizer Co., 144 Va. 692, 130 S. E. 902. In McClanahan v. N. & W. Ry. Co., supra, it appears that judgment creditors sought to enforce their lien against real estate held by the railway company by adversary possession under color and claim of title beyond the statutory period, and the court held that the judgments were alive, the claim of the railway company had ripened into a good title, and there was nothing to which the judgments could attach: that the only title the judgment creditors acquired was against the judgment debtor, and not against the company, and was barred as against the company by section 2915 of the Code of 1904. — 209 — Another branch of that case involved a parol sale of real estate to school trustees. It appearing that the trustees were in possession of the real estate under a parol contract, the court held that the question was ruled by the decision in Floyd v. Harding, supra. An examination of the kindred eases discloses that each of them involved the question of a parol contract for the sale of land, a resulting trust, or some such similar question, and nowhere does it appear that since the enactment of section 5194 this court has held that an unrecorded deed of trust would be protected against judgment creditors with or without notice. This last cited section provides, inter alia, that (1) every such contract in writing, (2) every deed conveying any such estate or term, (3) every deed of gift, (4) deed of trust, or (5) mortgage, conveying real estate, shall be void as to lien creditors, until and except from the time it is duly admitted to record. That a judgment is a lien on the equity of redemption is settled law. In McClanahan’s Admr. v. N. & W. Ry. Co., supra, Judge Burks laid down the doctrine, which is nowhere controverted, that it is “* * * now well established, that an equity of redemption in real property is an estate in the land.” The equity of redemption being real estate, in order to protect her lien against judgment creditors, it was necessary, in view of the plain mandate of section 5194, for Martha J. Tusing to place her deed of trust upon record. The purpose of this statute is to require a person who takes a conveyance of real estate, either in fee or in trust, to have same recorded. That hard eases result through the negligence of the parties is no fault of the law. It is essential to the stability of business that people should have their legal rights definitely determined. This consideration, — 210 — no donbt, influenced the legislature in the enactment of section 5194. In the instant case, the contention of counsel for appellee, Tusing, rests entirely upon a legal title. No resulting .trust appears. No act of possession is observed. “The deed of trust was a mere security for the debt therein mentioned.” McClanahan’s Admr. v. N. & W. Ry. Co., 122 Va. 749, 96 S. E. 460. Lohr and wife not only had an equity of redemption in. the property conveyed, but had the absolute right to redeem the property upon the payment of the debt secured. This fact differentiates the instant case from a case where an absolute purchaser has paid a part of the purchase price and entered into possession of the land. In that event, a court of equity will limit the judgment creditor to the beneficial interest of the debtor in the property (which is the balance due) on the equitable theory that the debtor holds the property in trust to that extent for the benefit of the purchaser. But, as stated by Mr. Minor, “it must be observed, however; that this equitable ground of priority and relief is not admitted against the positive provisions of a statute, to sustain the prior against the subsequent incumbrancer.” 2 Minor’s Inst. (4th ed.) 966. Discussing the general effect of section 2465, Code 1887 (now section 5194), this eminent author said: “The statute declares that every one of the writings enumerated * * * as required to be recorded, from one to five, inclusive, shall be void as to. creditors whether they have notice or not (Guerrant v. Anderson, 4 Rand. [25 Va.] 211). * * ” 2 Minor’s Inst. (4th ed.) 958. This construction is reiterated on page 964. It is there said: “It is immaterial, as has been remarked more than once (ante, page 958; Guerrant v. Anderson, 4 Rand. [25 Va.] 211), whether the creditor has notice — 211 — of the unrecorded writing or not, when the debt was contracted. The statute declares it void as to all creditors, without discriminating, as it does in the clause touching purchasers, in respect of notice. It should be observed, however, that this doctrine is not that which generally prevails in the United States, but is rather peculiar in Virginia. (Basset v. Noseworth, 2 Wh. & Tud. L. C. [Pt. 1], 110, 111, etc.; Eidson v. Huff, 29 Gratt. [70 Va.] 342.)” The fact that Dr. Lohr and Dr. Hildreth agreed to subordinate their debts to the Tusing debt is in no sense binding upon judgment creditors. In Eidson v. Huff, 29 Gratt. (70 Va.) 288, this court held that actual notice of an absolute conveyance of land did not bar a judgment creditor from enforcing bis lien, where it was made to appear that the deed was not recorded until after the judgment was docketed. See Gurner v. Johnson, etc., 77 Va. 712; Fulkerson v. Taylor, 102 Va. 314, 46 S. E. 309. Omitting the judgment in favor of Neff’s administrator from consideration for the present, it is conceded that the order of payment of the funds arising from the sale of the real estate involved herein would be: 1, the Tusing debt; 2, the Hildreth and Lohr debts; 3, the general creditors. The fact that Mrs. Tusing’s deed of trust was not recorded would not subordinate her to the Hildreth and Lohr debts, or the general creditors, because Hildreth and Lohr not only had notice of the Tusing debt but agreed that their debts should be subordinated thereto. Under this schedule, therefore, Mrs. Tusing would get the whole of her debt of $3,500.00, but Neff’s administrator has priority over her because he is a judgment creditor, and under section 5194, her deed of trust is void as to the Neff debt, whether Neff had notice of the deed of — 212 — trust or not. Therefore, the amount of Mrs. Tusing’s debt, which is $3,500.00, which would otherwise have-gone to her, would go to Neff’s administrator on his judgment. This does not pay off Neff in full, but his administrator is only entitled to have his judgment-credited by what would have gone to Mrs. Tusing. This does not in the slightest degree diminish what any creditors subsequent to Mrs. Tusing would have received, but only takes a fund which belonged to Mrs. Tusing and pays it on the Neff judgment because Mrs. Tusing’s deed of trust is void as to that judgment-It seems clear that none of the fund secured to Mrs. Tusing would be paid to Hildreth and Lo.hr, second deed of trust holders, for two reasons — first, because-the statute subordinates them to the Tusing debt, and, second, because by express contract they are subordinate. It follows that the Tusing fund, or $3,500.00 thereof, must be paid either to Mrs. Tusing or toNeff’s administrator, the judgment creditor. The statute declares the Tusing debt to be void as to judgment creditors, whether they had notice or not of theTusing deed of trust, because it was not recorded. Therefore, as between Mrs. Tusing and Neff’s administrator, the judgment creditor, to the amount of the judgment the fund should be paid to the latter. This-is in conformity with the statute in every particular. We think, therefore, that the trial court should have sustained the exception of appellant to the report of' the commissioner, and for the error committed by the-trial court in not doing so the decree must be reversed and annulled and the cause remanded to the lower-court to be proceeded with as indicated in this opinion.. Reversed.