McGraw v. Bayard

Mr. Chief Justice Dickey delivered the opinion of the Court: This court has repeatedly held that suits to enforce mechanics’ liens are substantially chancery proceedings, and are governed by the rules of chancery practice. Hamilton v. Dunn, 22 Ill. 259; Lomax v. Dore, 45 id. 380; Clarke v. Boyle, 51 id. 105. The general equity rule is, that all persons interested in the subject matter of a suit must be made parties in order that the decree may affect their rights, and this rule requires that in litigation had in respect to trust property, both the trustee and the cestui que trust be made parties. There is an exception to this where the trust is an active one, imposing on the trustee the duty of receiving, controling and managing the trust fund for the benefit of the cestui que trust. Such is the case of Willis v. Henderson, 4 Scam. 18. But where a trustee is interposed between a lender and a borrower, merely for the purpose of enabling the lender to obtain payment through the exercise by the trustee of powers conferred upon him by a mortgage or a deed of trust, and the trustee can only be called upon to act in case of default of the grantor in performing the conditions of the instrument, both trustee and cestui que trust must be made parties. Such is the case of Scanlan v. Cobb, 85 Ill. 296. The Mechanics’ Lien law provides that no creditor shall be allowed to enforce his statutory lien, as against any other creditor, unless the suit be instituted to enforce such lien within six months after such payment for labor or materials shall become due and payable, and we have construed this law to mean that unless the creditor whose rights are sought to be affected is made a party to the proceeding within the six months, the lien can not be enforced as against him, although the suit may have been commenced within the six months and he subsequently made a party by an amendment to the petition. The time of his being made, a party must be regarded as the time of the commencement of the suit as to him. Dunphy v. Riddle, 86 Ill. 22; Crowl v. Nagle, id. 437. In the case at bar, Bayard was the assignee and holder of the notes secured by'the deeds of trust to Smith, and the trust falls within the class in which the cestui que trust is deemed a necessary party, and not having been made a party within the six months, the lien can not be enforced as against him, unless the circumstances of the case take it out of the general rule above stated. Counsel for appellants earnestly contends that, as the name of the holder of the note was unknown, and could not be ascertained from the deeds of trust,—under such circumstances, his being made a party ought to be dispensed with; or that the lien should be enforced against him, if he is made a party as soon as by the pleadings or evidence his name is disclosed, and that the six months limitation by law ought not to be construed to apply in behalf of holders of secret liens, as such a construction would render the enforcement of a mechanic’s lien extremely difficult, and in many cases impossible. Appellants knew when they instituted their proceedings, in May, 1876, that the deeds of trust to Smith had been executed and placed upon record. They were well aware that Hayes had been trying to negotiate a large loan by means of these deeds of trust upon the very property upon which they nOAV claim a prior mechanic’s lien. They not only made no objections thereto, but repeatedly called on Hayes to learn whether he had effected this loan, (for from the proceeds of that loan it was anticipated, both by Hayes and the petitioners, that Hayes would be able to pay off the incumbrance upon the property the petitioners were buying from him, and also to pay off the notes Hayes had given to them, and which they had sold, and also to pay to them, in cash, the residue of their claim for work and materials.) We are warranted by the proofs in saying that Hayes consummated this loan upon these trust deeds to Smith with the approbation, if not at the instance, of petitioners. They must have believed that the loan had probably been consummated, and they certainly had such notice as put them on inquiry as to the existence of the debt, and as to the holder of the paper. By inquiry of either Hayes, or Smith, the trustee, they would have learned that Bayard had become a creditor under these trust deeds, and could, and should, have made him a party in apt time if they wished to postpone his lien to theirs. Under the circumstances, we think, Bayard had good ground to insist that the proceeding against him was barred before any steps were taken to make him a party. Our attention is called to the fact that these notes held by Bayard are payable on their face to the ordér of the maker, and it is suggested that when the holder of real estate executes a deed of his land to a trustee, to secure notes therein described which are payable to his own order, he does not thereby create any lien upon his property,—for, notes payable to the order of the maker are mere nullities, so long as he holds them, and until he has endorsed and delivered them to another. It is suggested that the recording of such a deed of trust is not constructive notice to any one that a valid lien has been imposed upon the- property in question, and that the recording of such a deed of trust ought notto be construed to be anything more than notice merely that the maker expects to create a debt of a given character and amount to some one uuknowuj and that such debt when created is to be a lien upon the property in question. It is not necessary in this case to decide whether the mere record of a trust deed, made to secure notes payable to the order of the maker, should be regarded of itself notice sufficient to impose upon a subsequent purchaser or other stranger to the proceedings the duty of inquiring of the maker of the notes whether they had been endorsed. Nor is it necessary to decide whether a subsequent purchaser under such circumstances might safely buy the land in question, or take other action where upon such inquiry he was informed by the maker and made to believe that the notes had not been assigned, in a case where the notes had, in fact, been sold for value, and indorsed to a bona fide holder. That precise question is not presented here. In this case there really seems good ground to hold that appellants are estopped from insisting that the lien of Bayard, under the Smith trust deeds, is subordinate to their mechanic’s lien. After all the work upon these houses was done, and after the trust deeds to Smith had been executed and recorded, and when it was anticipated that Hayes would succeed in negotiating a loan upon the faith of these trust deeds, appellants had a settlement with Hayes, and having accepted the notes of Hayes for $2000 of their claim, and sold and assigned these notes to third parties, they accepted from Hayes a warranty deed conveying lo them real estate at the agreed price of $9000, to be in discharge of $3000, of their claim, aud placed this conveyance upon record, and at the time of accepting this warranty deed from Hayes they made their promissory notes to Hayes, for the sum of $6000, as the balance of the purchase money, and placed this note in escrow, in the hands of a third party, to be delivered to Hayes as soon as he should remove certain incumbrances from the land so conveyed to them by Hayes,—and these encumbrances were less in amount than the amount of the note thus held in escrow. While matters were [in .this condition, it is shown that petitioners were well aware that Hayes was trying to negotiate a large loan upon this property, upon which they now claim a prior lien. As already said, they not only made no objection thereto, but repeatedly called upon Hayes to learn whether he had effected this loan, and, as already suggested, the loan was effected with their approbation, and the money advanced upon these deeds. By their conduct in this regard appellants substantially said to the public that their right to a mechanic’s lien upon the property was, in fact, waived; that when the liens upon the property purchased by them from Hayes should be removed, their claim would be satisfied. And, to secure the performance of that duty by Hayes, their note for $6000 was held by a third party,, and was not to be delivered until these encumbrances were removed. Bayard and his agents, in a negotiation for the loan of this money upon these trust deeds, had a right,' from the circumstances, to assume that that was the truth. Appellants thus put it in the power of Hayes to induce them to believe, without misrepresentation, that Bayard, by advancing the money, was acquiring a first lien upon the property. It may well be that, as between appellants and Hayes, the transaction was such that, upon the failure of Hayes to remove this, encumbrance upon the property purchased by appellants, they had a right to rescind the whole transaction, and thereby rescind their apparent waiver of their mechanic’s lien, and as against Hayes to prosecute their lien upon this property. This, however, does not affect the relative rights of Bayard as against appellants. Under all the circumstances, we hold that the Appellate Court was right in postponing the lien of appellants to that of Bayard, and declaring it subordinate thereto. The judgment of the Appellate Court must be affirmed. Judgment affirmed.