Manwaring v. Farmers' Bank of Commerce

HART, J., (after stating the facts). The decision of the chancellor was correct. It is well settled in this State ■that where the owner sells land to another and executes a bond for title, the effect of the contract is to create a mortgage upon the land in favor of the vendor to secure the purchase money subject to all the incidents of a mortgage as effectually as if the vendor had conveyed the land by absolute deed to the vendee, and had taken a mortgage back to secure the purchase price. It is equally well settled that, upon the failure of the vendee to pay in accordance with the terms of the contract, the vendor may proceed by a bill in equity to foreclose the equity of redemption and sell the lands for the payment of the debt. Higgs v. Smith, 100 Ark. 543, and cases cited. The lien of Ward upon the 160 acres of land in question to secure the purchase money notes executed to him by Manwaring, was in the nature of a mortgage, and when he transferred the notes to the Bank of Benton and the Farmers Bank of Commerce to secure the amounts which he had borrowed from them, the lien passed with them and the banks had the right, by subrogation, to foreclose the lien. Martin v. O’Bannon, 35 Ark. 62, and Calhoun v. Ainsworth, 118 Ark. 316. These principles are conceded; but counsel for Manwaring claims that the vendor’s lien on the land in question was terminated because Ward had by a deed from Manwaring taken back the land. It is claimed that the effect of the reconveyance was to extinguish the vendor’s lien on the land. It is true the general rule is that where one having a vendor’s lien on land becomes the owner of both the legal and equitable title by reconveyance, the lien is extinguished, still there are exceptions to the rule, and this is one of them. The purchase money notes given by Man-waring to Ward were transferred before their maturity respectively to the Bank of Benton and the Farmers Bank of Commerce as collateral security for an' amount of money which Ward had borrowed from each bank. While Ward was still indebted to each bank and the notes were in the possession of the banks as collateral security for his indebtedness, Manwaring reconveyed the land to Ward and attempted to cancel the notes which he had executed to Ward for the purchase price of the land. This he could not do. So far as the banks were concerned there could be no merger of the legal and equitable title in Ward by a reconveyance of the land to him by Man-waring. Manwaring knew that the notes given by him to Ward for the purchase price of the land were outstanding and not yet due at the time he reconveyed the land to Ward. Therefore, in order to protect himself, he should have required Ward to have surrendered the notes to him before or at the time he executed the deed to Ward. Driver v. Lacer, 124 Ark. 150. Manwaring alone has appealed, and it is unnecessary to consider the correctness of the decision of the chancellor as to the other defendants. It follows that the decree must be affirmed.