Drury v. Holden

i Mr. Justice Sheldon delivered the opinion of the Court: This is an appeal by Drury, defendant in the court ■ below, from a decree setting aside a sale and deed to him of certain premises in Charles N. Holden’s subdivision in Chicago, known in the record as the “barn lot, ” made under the power in a trust deed given by appellee, Charles C. P. Holden, to secure the payment of his note for $6500, to one Kelly. The record shows that on April 23, 1869, Holden executed to Sanford B. Perry, as trustee, a deed of trust on lots 1, 2, 3, 4, 5 and 6, in C. C. P. Holden’s re-subdivision, etc., to •secure an indebtedness owing from him to the Jonathan Bevor ■estate, for the sum of $19,600. September 20, 1871, he executed to said Perry, as trustee, another trust deed upon the ■same premises, except lot 6, to secure the payment of his note to Edward A. Kelly, for the sum of $6500. By an ■agreement between the parties, Perry released from the last mentioned trust deed said lot 1, and at the same time, January 31,1873, in the place of the security so released, Holden ■executed to Perry a trust deed on the “barn lot,” so called, to secure the same note of September 20, 1871, for $6500. November 16, 1874, Holden conveyed said lots 2, 3, 4 and 5, ■to William H. Holden, who conveyed to Warren, he to Elliott, and the latter to Isaac M. Daggett, who, on April 12, 1876, conveyed the same to Drury, the appellant. This deed to Drury purported, for and in consideration of the sum of $40,000 in hand paid by the said party of the second part, (Drury,) to grant bargain, sell and convey unto Drury said lots 2, 3, 4 and 5. Immediately after the description of the lots conveyed, the deed contained the following clause: “Subject to the following incumbrances on said described premises: one for the principal sum of $19,600, and the other for the principal sum of $6500. The first of said incumbrances is dated April 23, 1869, and the second (the one for $6500) is dated September 21, 1871.” Following thereafter, the deed contained full covenants of warranty of title, and that the premises conveyed were free and clear from all incumbrances, there being no exceptions whatever to the covenants. Daggett, the grantor, testified that he made the deed, with deeds of three other pieces of property, in exchange for property owned by Drury; that in the exchange, said lots 2, 3, • 4 and 5 were estimated as worth $40,000; that the equity of redemption was traded for, and its value was computed as being the difference between $40,000 and the amount of the incumbrances; to make the amount of consideration named in the deed, the amount of the incumbrances was included with the value of the equity; that Drury knew the- property was incumbered, as the deed shows he took it from him subject to incumbrances; that he, Daggett, bought this property subject to iucumbrances, but did not assume any, and he put it off on Drury just as he got it; that there was no agreement by Drury to pay the incumbrance,—nothing said about-his paying them; that he took it subject to incumbrances; that the incumbrance formed part of that $40,000; that he-singly agreed to take this property mentioned in the deed, on the basis of $40,000, in making up the trade. It was admitted, that in April, 1879, one Eoff purchased the $6500 note with money furnished him by Drury therefor. September 23, 1879, Perry, the trustee, after advertising the-barn lot for sale, under "the trust deed of January 31, 1873, made a sale of the same to Drury, for the sum of $1000". The net amount from the sale ($945) was indorsed on the note, and Perry, as such trustee, made a deed of the lot to- ■ Drury, pursuant to the sale. The court below found that the premises, at the time of the sale, were freed and discharged of all indebtedness secured by the trust deed; that the sale and trustee’^ deed were void, ■ and by its- decree set them aside, f It is insisted by appellant, that the effect of the decree in this case is to decide that where two tracts of land are mortgaged, by separate mortgages, to secure the same debt, and one tract is afterwards conveyed away by the mortgagor, a remote grantee of the equity of redemption of the tract so-conveyed away is bound to pay the entire mortgage debt, to-■the relief of the other tract, even though his grantor was. under no obligation to pay such debt, and he has entered into no engagement to pay it; that the decree is in direct violation of the rule requiring mortgaged lands to be sold for the payment of the mortgage debt in the inverse order of their alienation by the mortgagor. This statement overlooks the fact that the conveyance of the lots to Drury was made expressly subject to the incumbrance. Admitting the general rule to be as stated by appellant, the inquiry arises as to the effect of this latter fact in modifying the rule. ¡ It is well established, that when a party purchases premises W'hich are incumbered, to secure the payment of indebtedness, and assumes the payment of the indebtedness as a part of the purchase money, the qiremises purchased are in his hands a primary fund for the payment of the debt, and it is his duty to pay it.- (Lilly v. Palmer, 51 Ill. 331; Russell v. Pistor, 8 Seld. 171.) And the rule is the same, although there be no assumption of payment of the indebtedness, if the purchase be made expressly subject to the incumbrance, and the amount of the indebtedness thereby secured is included in and forms a part of the consideration of the conveyance. Lilly v. Palmer, supra; Comstock v. Hitt, 37 Ill. 542; Fowler v. Fay, 62 id. 375; Russell v. Pistor, supra; Ferris v. Crawford, 2 Denio, 598. It is said the deed from Daggett to Drury contained full covenants of warranty, to which there was no exception; that thereby Drury’s grantor covenanted that he would warrant and defend the lots conveyed, against the holders of all incumbrances. The covenants extended only to what was conveyed, and that was not the lots absolutely, but the lots subject to the incumbrance. The real covenant was, that otherwise than as subject to the incumbrances named, the lots were free from all incumbrances, and that the grantor would warrant and defend the title. It is said, also, that there was not, here, a cash sale of the lots to Drury, but an exchange of property, and that the case is not one where the entire interest in property was purchased at .a fixed price, and then the purchaser was allowed to retain in his hands, for the payment of an incumbrance, an amount of the purchase price equal to the amount of the incumbrance; but it is, as we view it, as shown by Daggett’s evidence, just such a case, with the exception of its being property instead of money, which was thus held and retained in Drury’s hands. We understand, from Daggett’s testimony, that the lots conveyed to Drury were of the value, unincumbered, of $40,000; that it was the equity of redemption that Drury traded for, and its value was computed in the exchange as being the difference between $40,000 and the amount of the incumbrances. In thus obtaining the lots, Drury had and retained, in his property, the exact amount of the incumbrances ($26,100) as a fund for the payment thereof, in effect. We deem it immaterial whether the purchase was for cash or by exchange of property. It is objected that oral evidence was inadmissible to show that the amount of the incumbrances was deducted-from the amount of the purchase price, and allowed to Drury. The evidence being in regard to what constituted the consideration of the deed to Drury, and that the amount of the incumbrances was included in and formed a part of the consideration, was clearly competent, under the rule which permits parol evidence upon such subject of the consideration of a deed. If, then, the mortgagor himself had made this deed to Drury, we are satisfied that, under the rules and authorities above referred to, the lots conveyed to Drury would be the primary fund for the payment of this mortgage or trust deed in question. Does it differ the case that the deed was made by a grantee from the mortgagor, of the equity of redemption, and such grantee not being personally liable for the mortgage debt? It is insisted that it does—that appellee, the mortgagor, was a stranger to Daggett, who conveyed to Drury, the appellant, as well as he was to Drury, and would have no right to have such lots conveyed to Drury applied to the payment of the mortgagor’s debt. The deed to Drury was made expressly subject to the incumbrances. It appears that the mortgage debt was included in and formed a part of the consideration of the conveyance. It was seen by both parties that Drury would have the mortgage to pay. It was •expected that he would pay it, and Drury, in effect, retained from the purchase price the amount of the incumbrance, to pay it. If, then, Drury should afterwards pay the mortgage •debt, it would be but just that he should do so; it would be in accordance with the arrangement between him and Daggett ; it would, in truth, be but the payment of part of the purchase price of the lots. That price he ought to pay. There was, in effect, property retained in his hands to pay the mortgage debt, and it would seem inequitable for him to appropriate it to his own use, and not apply it, as contemplated, to the mortgage debt. That in paying the mortgage debt -there comes an incidental benefit to the mortgagor, in the discharge of his debt, is a benefit which he equitably may enjoy. In an equitable aspect, we think, in the effect, it should be regarded no differently than if the mortgagor, instead of Daggett, had made the deed to Drury. This conclusion, making the lots in Drury’s hands conveyed to him by Daggett a primary fund for the payment of the mortgage debt, renders Drury’s purchase of the mortgage note to be equivalent to the payment of it; and may, too, well enough present a case for the application of the doctrine of a merger where the equity of redemption and the mortgage meet in the same person. We think the decree of the circuit court should be affirmed. / Decree affirmed.