Havighorst v. Bowen

Mr. ChiEE Justice Ricks delivered the opinion of the court: No question is made in this case but that the loans made by Neissen to Mrs. Neill, and secured by the trust deeds to Dreyer as trustee, were bona fide transactions, and that concurrent with the making of them was the recording of the release from Robert Neill, as trustee under the trust deed securing the note then held by Mathes as collateral. Nor is it questioned that the appellees Frillman and Creighton purchased the notes from Neissen that were secured by the trust deeds to Dreyer, without any actual notice of the alleged rights of Mathes under the trust deed to Neill. The undisputed evidence is that, these appellees never heard of Mathes or knew of his being in any way related to the property, as creditor or otherwise, until a number of years after they had purchased the respective notes held by them and until after foreclosure sale and purchase of the property, the expiration of the redemption and making deeds to them, respectively. The only notice to any of the appellees interested in the property, insisted "upon by appellant, is the constructive notice arising from the fact that the $1800 note, secured by the trust deed to Neill, lacked eight or nine months of being due at the time Neill released the trust deed securing the same. At the time of the release by Neill of the trust deed securing the note held by Mathes the fee to the land covered by the trust deed was in Mrs. Neill. The $1800 note was also payable to Mrs. Neill, so that, so far as appeared from the record, her interest as mortgagee was merged in the fee held by her. It was held in Ogle v. Turpin, 102 Ill. 148, that where one appeared of record as mortgagee and also became possessed of the fee to the land and released the mortgage before the notes were due, although the notes were outstanding in a third party’s hands and were not due, the mere fact that the record showed they were not due was not, of itself, such notice as wotfld affect , a subsequent bona fide mortgagee. In that case Runyan was the mortgagee and received several notes dated July 4, 1874, payable to himself, made by Allen, who was then the owner of the- land. Runyan endorsed the notes held by him, before maturity, to Ogle for value and delivered both notes and mortgage to him. In April, 1875, Runyan obtained from Allen a deed to the land, released the mortgage of record that secured the notes he had received from Allen and assigned to Ogle, and borrowed $20,000 on the property. Ogle sought to foreclose the mortgage assigned to him and to have it declared a lien prior to thé subsequent mortgage. His bill was dismissed, and in that case it is said (p. 151) : “Neither party denies the validity or fairness of the debt of the other, as against Runyan, or that both were liens on the property when the deed of trust was executed and delivered to Tripp, but the question is whether the bank did not obtain a superior lien by that deed or took their lien subject to Ogle’s, and the whole question seems to resolve itself into one of whether there was negligence on the part of the bank. Appellant claims that the bank had no right to rely alone on the record of the title to the property, which showed that it was clear, but, as the notes given by Allen were not then due, that it should have made inquiry as to whether or not they were paid, and were not, as the fact proved to be, in the hands of an innocent holder, and the bank having failed to exercise ordinary care, it should have •its claim postponed to that of appellant. On the other side it is claimed that when it appeared that Runyan had procured Allen’s equity of redémption in the property and had released and satisfied his mortgage, the bank had a right to rely on the record and was not bound to make further inquiry, and it took the preferred lien. It has not been suggested of whom the bank should inquire. It inquired of Runyan, and he said the title was good for the property. Had the bank inquired of Allen he could only have given information that he had not paid the notes, but could not have referred the bank to any person as assignee of the notes, and it was not required to go into the commercial world to find a holder. The mortgage showed the notes were payable to Runyan, and when he released the mortgage the bank had the right to presume the notes were paid, or if not, that he had waived and released the mortgage security and was willing to look to the responsibility of the maker or had obtained other security. We think the mere fact that the time of payment had not arrived was not sufficient to put the bank on inquiry or to charge it with notice that the notes had been endorsed to appellant and were unpaid, and to give his claim a preference the bank must have had notice in fact or of circumstances pointing to notice.” The above case is strongly supported by the later case of Mann v. Jummel, 183 Ill. 523, and Williams v. Jackson, 107 U. S. 478. The latter case bears a striking resemblance to the case at bar. There a trust deed was given by Mrs. Sweet securing a debt payable to one Augustus Davis for purchase money of real estate sold by him to the mortgagors. Charles Davis and William Sticlcney were named as trustees. Augustus Davis, for value and before maturity, transferred and endorsed the notes to one Jackson. The trustees, without the knowledge of Jackson, released the trust deed of record, and Mrs. Sweet procured a loan of $5000 from Williams and secured the same by a trust deed upon the same property. Neither Williams nor Mrs. Sweet knew, at the time of the release, Davis was not the holder of the notes. A further trust deed was made to Augustus Davis to secure certain notes. The debt secured by the trust deed to Williams not having been paid, the land was sold, under the power given, by the trustees to Blockwood, and Jackson filed his bill to have his notes, and trust deeds securing them, declared a first lien upon the property, and the relief prayed was granted him by the Supreme Court of the District of Columbia. The decree was reversed by the United States Supreme Court, and it was said (p. 483) : “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 therp 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 canceled 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 willful 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. (Hine v. Dodd, 2 Atk. 275; Jones v. Smith, 1 Hare, 42, and 1 Phillips; 244; Agra Bank v. Barry, Irish, 6 Eq. 128, and Law Rep. 7 H. L. 135 ; Wilson v. wall, 6 Wall. 63; Normen v. Towne, 130 Mass. 52.) 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. The decree appealed from is in this respect erroneous, and must be reversed.” Appellant insists that these cases cannot be held to apply to the case at bar for the reason that Bowen was the maker of the trust deed that was released by Neill; that Bowen conveyed to Mrs. Neill by quit-claim deed merely; that the fee still stood in Neill as trustee, and that it does not appear that Bowen knew of the release or that it was even delivered to him, and that if it had been delivered to him the release operated as the conveyance of the legal title to him; and it is pointed out that as the deed to Mrs. Neill was a quit-claim deed, the legal title afterward obtained by the conveyance of release by Neill to Bowen did not inure to the benefit of Mrs. Neill, and that therefore there was no merger of the fee -in the mortgagee, as in the Ogle case, supra. It is undoubtedly the law that a subsequently acquired title does not inure to the benefit of a grantee under a quit-claim deed, but we do not think it is the law that a release made under the provisions of our statute for the purpose of releasing and satisfying a trust deed and mortgage can be classed along with those release deeds known to the common law wherein the grantor conveyed to the life tenant some contingent or reversionary interest in land. By sections 8 and 9 of chapter 95 of Hurd’s Statutes provision is made for the release of mortgages and trust deeds. By section 8 they may be released by the mortgagee or trustee, or his successor in trust, by entering satisfaction and release upon the margin of the record of any mortgage or trust deed, and by section 9 it may be done by deed. It cannot be that it is the intention of the law that a release made under one section of the statute shall have a different or greater effect than one under the other section. Both are to effectuate the same purpose,—that is, to give public notice that the debt is satisfied. If Robert Neill had simply entered satisfaction upon the margin of the record of the trust deed in question the position now contended for by appellant would not have been thought of, and the fact that it was released by the other mode pointed out by the statute cannot change the legal effect of the act. The purpose of the sections was the convenience of the transaction of the business, and not that the consequences or the legal effect should be different. A mortgagee or trustee resident of the county seat, or convenient to it, can with little trouble and with no expense enter satisfaction on the record, while one at a greater distance can better afford to make the release by deed. Whether the release was in fact delivered to Bowen would seem to be not controlling as between these parties. It was made by the person pointed out in "the trust deed to make it. It was placed of record, and under our Recording act the fact that it was of record carried with it, as to appellees and innocent third parties, the legal inference that it was delivered. There" is quite as much delivery of this deed as there could be of an entry of satisfaction on the margin of the record, and, as we have said, one is given the same legal effect as the other. Much stress is placed upon the contention that the release here in question was made without the knowledge of Mathes, the holder of the note in question at the time of the release. It may be that Mathes did not know of the release at the time it was made, but his own evidence and conduct tend very • strongly to show that he did know of it long before he disposed of the note in question to appellant. If he did know, it was his duty to take timely action to set it aside. But we are not disposed to the view that appellant stands in the same or as good position as did Mathes. It might be that as between Mathes and appellees there would be equities appealing in his behalf that would not operate or exist in appellant. Appellant became the purchaser of this note six years after its maturity and more than six years after the release of the trust deed of record. He did not take it in the ordinary course of business. If Mathes is to be given credit, he acquired it under the false pretense that he was representing Bowen, the maker. He paid $100 for it, and it is idle to say or to contend that he did not have notice of this release. The transaction itself bore with it evidence that'there was something wrong. No sane man would expect to buy a good security, amounting to $2300 face value, for $100. He had notice by the record, and he had notice from the transaction itself, that the security of the trust deed could not be relied on. He says he bought it on speculation, and the circumstances attending the transaction are such that equity will hardly seek to aid. We think the judgment of the Appellate Court is right, and it is affirmed. Judgment affirmed.