Webber v. Clark

Mr. Justice Shore delivered the opinion of the Court: The execution of the deed of trust, to foreclose which this bill was filed, is not denied, and there can be no dispute that it was given to secure a bonafide loan made by Lydia Beebe, in her lifetime, to Edmund C. Clark, and that subsequent to the sale of the land by Clark to Warner, by the agreement of parties, the trust deed was to stand as security for an additional loan made by Mrs. Beebe to said Warner. If the grantor in the trust deed had any title to convey to Webber, trustee in the trust deed made to secure Mrs. Beebe’s loan, it is derived from Thaddeus B. Beecher, under whom both parties in interest claim, and is as follows: A power of attorney from Beecher and wife to Seldon Fish, dated January 16, 1873, duly recorded; a deed from Beecher and wife, by Fish, attorney in fact, to Stephen T. King, dated December 24, 1874, and recorded on the .same day; a deed from Beecher to John E. Sayles and Albert H. Walker, dated January 12, 1875, and recorded January 18, 1875; a deed from Albert H. Walker to John E. Sayles, dated January 23, 1875, and recorded on the same day; a deed from said Sayles to Stephen T. King, dated May 24, 1875, and recorded Septemher 7, 1875; and a deed from Stephen T. King and wife to Edmund C. Clark, dated July 29,1875, and recorded on September 20, following. If the foregoing were all the conveyances, they would clearly -pass whatever title was in Beecher, to Edmund C. Clark, and his deed of trust to Webber, dated September 1,1875, was a valid incumbrance on the land, and Clark’s deed of April 21, 1876, vested Warner with the title, subject to the incumbrance created by the trust deed to Webber. Beecher, and his partner, Chetfield, were duly adjudged bankrupts on the 21st- of October, 1873, and Bradford Hancock was appointed their assignee, and on petition of the assignee an order was made by the District Court of the United States, on July 1, 1875, for the sale of Beecher’s interest in certain lands, including that in controversy, and a sale made thereof, in pursuance of such order, to William C. Grant, on February 29,1876, and the assignee’s deed recorded April 2é, 1876. The contention of appellees is, that this sale in February, 1876, passed the absolute title to the purchaser at the assignee’s sale, and the court so decreed. On the other hand, appellant insists that Beecher held the naked legal title, only, and, consequently, the land did not pass to his assignee, but remained unaffected by the bankruptcy proceedings. The evidence is convincing that Beecher held the land in his name merely as a trustee, for the benefit of Sayles and Walker, and to convey the same as they might direct,—that Beecher had no beneficial interest in the property whatever. If that was the case, the property did not pass to the assignee, or he become invested with any title or interest therein by virtue of the register’s deed. U. S. Rev. Stat. sec. 5053; Faxon v. Folvey, 110 Mass. 392. A mere holder of the legal title to property in trust for another is not its owner, and, as a general rule, such property is not liable for his debts. This rule, however, has its exceptions, but it is unnecessary to notice them here. An insolvent debtor, by making a voluntary assignment of his property and effects, can pass no greater right or title than he is possessed of. His assignee can assert only, such title as the assignor might assort. The same rule applies, with some exceptions, to bankrupt estates. In such eases the assignee takes no greater right than the bankrupt had, except that he may avoid fraudulent conveyances and preferences in fraud of the Bankrupt law. In other respects the assignee takes a bankrupt estate subject to all liens and affected with all equities that exist against the property in the hands of the bankrupt. The question presented by the facts before us is not, however, whether the assignee took any greater or different interest in the land than that held by the bankrupt at the time of the adjudication in bankruptcy. If the contest was, here, between Sayles and Walker, the beneficial owners of the property, and the assignee in bankruptcy, it would seem clear that their superior equity must prevail, as the rule is well established that such assignee in bankruptcy takes the bankrupt estate as a volunteer, and subject, as before said, to all the liens, incumbrances and equities existing against or in the same in the hands of the bankrupt. Talcott v. Dudley, 4 Scam. 427 ; Holbrook v. Brenner, 31 Ill. 502; Burgett v. Paxton, 99 id. 288; Wiegleb v. Thomsen, 102 id. 156; Rhoads v. Blackiston, 106 Mass. 324; Stewart v. Platt, 11 Otto, 731; Yeatman v. Savings Institution, 95 U. S. 766. The principal question of law involved is one arising under the registry laws of this State. Section 31 of the Conveyance act provides that deeds and other instruments authorized to be recorded “shall take effect and be in force from and after the time of filing the same for record, and not before, as to all creditors and subsequent purchasers without notice; and all such deeds and title papers shall be adjudged void as to all such creditors and subsequent purchasers without notice, until the same shall be filed for record.” This statute has been held to protect the purchaser from the heir as against a prior unrecorded deed of his ancestor; (Kennedy v. Northrup, 15 Ill. 148; Rupert v. Mark, id. 540; Bowen v. Prout, 52 id. 354;) also, the purchaser at an administrator’s sale from a prior unrecorded deed of the intestate. (Choteau v. Jones, 11 Ill. 300.) The subsequent purchasers who are protected against unrecorded conveyances, include purchasers at judicial sales as well as other sales. McNett v. Turner, 16 Wall. (83 U. S.) 352. Therefore, a purchaser at a bankrupt sale will be protected against a prior unrecorded deed of the bankrupt, if the purchaser has no notice thereof, and is not chargeable with facts sufficient to put him upon inquiry. (Holbrook v. Dickenson, 56 Ill. 497; Burt v. Batavia Paper Co. 86 id. 66; Hardin v. Osborne, 94 id. 571.) Was Grant, the purchaser at the assignee’s sale, a subsequent purchaser, within the meaning of the act ?—that is, was he a purchaser without notice of the want of title in Beecher, or of the character in which Beecher held the legal title ? At the time of the purchase from the assignee (February 29, 1876,) the records of Cook county showed the following conveyances of the property: First, the power of attorney from Beecher to Fish, dated January 16, 1873; second, the deed from Beecher, by Fish, to Stephen T. King, December 24, 1874; third, the deed from Beecher to Sayles and Walker, (the equitable owners,) January 12, 1875; fourth, the deed from Walker to Sayles, January 23,1875; fifth, the deed from Sayles to King, dated May 24, 1875. These conveyances, except the power of attorney mentioned, were all made subsequent to October 21, 1873, when Beecher was adjudged a bankrupt, but really made and recorded before the filing of the petition by the assignee for leave to sell the land. Were they notice, or sufficient to put purchasers at the assignee’s sale upon such inquiry as would be equivalent to notice, when taken in connection with the other facts and circumstances shown? They were notice that Beecher had conveyed the property. As already seen, the petition for the sale of the land in the District Court of the United States alleged that the title of Beecher, at the time of his adjudication in bankruptcy, and which vested in the assignee, if anything vested,, was a cloud merely upon the title of others, who are alleged in the petition to' be owners and in possession of the premises petitioned to be sold. This land had not been scheduled as property of the bankrupt. It is manifest that inquiry would have revealed the fact that Beecher had no beneficial interest in the property whatever, but that he held the title as a mere naked trustee, only, and that he so declared in a written declaration of trust executed November 15, 1873, but not recorded. A party purchasing at a judicial sale is chargeable with notice of such material facts as .the record of the proceedings, under which he derived title, discloses, and he will be presumed to have examined the same before becoming a purchaser. (Smith v. Huntoon et al. 134 Ill. 24.) It is clear that the proceedings by the assignee show sufficient on their face, to one familiar with them, to put a purchaser on inquiry as to a bankrupt’s title. The petition for the order of sale discloses that Beecher had not scheduled this land as a part of his estate. It is therein stated that the assignee “is informed and believes that said deed (Gassette to Beecher) is a cloud upon the .title of a great many individual owners of different portions of the above described premises, and that said owners are farmers now in possession of portions thereof, some of whom had been in possession of said premises for many years last past, and have applied to your petitioner to sell the interest of said Beecher in said premises, and have offered to pay therefor such a sum as shall pay all the expenses attending the sale.” As before seen, the tract of land embraced in the petition contained three hundred and ten acres, which the proof shows was worth, at that time, substantially $200 an acre, and, as averred in the petition and shown by the proof, most, if not all, of it was in the actual possession of the persons claiming to be owners. We think it clear, from the evidence, that the twenty acres involved in this case were in the possession of Warner, the purchaser from Clark, the grantor in the trust deed, and who held under the Beecher title, as before mentioned. And again, there is nothing shown to justify the sale of the bankrupt’s land if it had belonged to him, except that it was a cloud upon the title of the real owners, and would bring-enough to pay the expenses of - the sale. It is not shown in the petition that there was necessity for the sale for the purpose of paying proved claims against the estate, or that the land belonged to the bankrupt. The petition should have shown that the assignee was acting at the request of the occupants of the land, and in their interest, to clear up a cloud on their title, and not at the instance or for the benefit of creditors. This, of itself, would be sufficient to arouse a just suspicion of infirmity in the title of the bankrupt, and should require a purchaser cognizant of it, or chargeable with notice of what it contained, to inquire into the title, and ascertain whether Beecher in fact held the title to this property. Again, the purchaser at the bankrupt sale took the title, simply, that was authorized to he sold by order of the court. The order was for the sale of whatever title or interest Beecher had in the land,—not the absolute title; and this must have been .the understanding of the assignee, of the court, and of the purchaser. It is not to be presumed that the assignee would sacrifice the bankrupt’s estate by selling land worth $200 an acre for fifty oents an acre, or that the court would have approved such sale if made. The witness Brown, who, as solicitor for the assignee, prepared the petition for the sale of the land, had, it appears, frequent conversations with the purchaser, Grant, as to the best mode of getting rid of the apparent title in Beecher, who, as we have seen, was proceeding under the Burnt Records act to have the title confirmed in him, and it can not he doubted, from the evidence, that they finally concluded that it would he to the advantage of those opposing a confirmation of the title in Beecher, to have Beecher’s interest sold by the assignee in bankruptcy. This would be entirely consistent with the fact that Herrick, in effect, ceased defending in the proceeding by Beecher under the Burnt Records act, and allowed a decree to be taken against him by default. Grant and Brown undoubtedly acted together to accomplish the same purpose. The latter testifies that he submitted the petition for the sale of the land, to Grant, and made some changes therein at his (Grant’s) request or suggestion. Without going into a critical examination of the evidence, we think it reasonably certain that Grant, in making the purchase, was in fact carrying out the scheme devised to benefit those who were stated to be the owners of the land. He was the attorney, it seems, of Herrick, and it is difficult to resist the conclusion that in all this matter he had acted as Herrick’s attorney or agent. If this was so, Herrick would be chargeable with notice of such facts as came to the knowledge of Grant during the course of his employment or agency. The point is made that the petition of Beecher in the Superior Court of Cook county, and the decree therein affirming the title of the premises therein in him, must be taken as conclusive of his ownership. We are unable to concur therein. That proceeding was for the purpose of restoring lost records of deeds and establishing title as it originally was, and settled nothing as between Beecher, who, it is clearly shown, held the land as trustee for Sayles and Walker, his cestuis que trust. The decree in that proceeding confirmed the legal title as it was originally shown by the public records, and was not in any manner inconsistent with the fact that such title was held for the benefit of Sayles and Walker. They were not parties to that proceeding and were not bound by the decree, nor, in .our judgment, is Mrs. Beebe or her personal representatives foreclosed or estopped by that decree from showing the true state and condition of the title that passed by said sale to Grant, and from Grant to Herrick. We are of'opinion that the court below erred in finding, that Edmund C. Clark had no title in the premises at the time of the execution of the trust deed to Webber, and also that Warner had no title, and that Herrick was seized of the title in fee. Herrick can not, we think, in view of the recorded title, and of the facts appearing in the record through which he obtains title, and of the facts proved, be regarded as a bona fide purchaser without notice. The whole proceeding to sell this land by the assignee, taken in connection with the records of the deeds from Beecher, and with the other evidence in the case, convinces us that the sale of the assignee was not a fair and honest sale of the title to this land, and that the purchaser thereat, and any one deriving title through such sale, .would be chargeable with notice of such facts as would put any reasonable person upon inquiry, which, followed by the slightest diligence, would have disclosed the interest of the beneficial owners under whose title appellee claims. If Beecher'owned the land, the petition for the sale of it was in itself a fraud, in that, instead of asking the sale of the title of the land, it asked for the sale of what was a mere cloud upon the title to land owned by others, and which cloud, it was represented, could be sold for enough to pay the expenses of the sale. A ■title thus tainted is not entitled to favorable consideration in a court of equity. We are of opinion that the court erred in not granting the prayer of the original bill foreclosing the Webber trust deed, which seems to have been made in good faith, to secure the several sums of money owing to Mrs. Beebe in her lifetime, and in not dismissing the cross-bills. The decree of the court below will be reversed, and the cause remanded to that court for furthér proceedings not inconsistent with this opinion. Decree reversed.