Demuth v. Old Town Bank

McSherry, C. J., delivered the opinion of the Court. This is a case of exceedingly great hardship, and we have diligently, but in vain, sought for some tenable ground upon which the appellants could be relieved from the loss — 320 — that an affirmance of the decree appealed from will necessarily subject them to. But hard cases, it has often been said, almost always make bad law; and hence it is, in the end, far better that the established rules of law should be strictly applied, even though in particular instances serious loss may be thereby inflicted on some individuals, than that by subtle distinctions invented and resorted to solely to escape such consequences, long settled and firmly fixed doctrines should be shaken, questioned, confused or doubted. Lovejoy v. Irelan, 17 Md. 527. It is often difficult to resist the influence which a palpable hardship is calculated to exert; but a rigid adherence to fundamental principles at all times and a stern insensibility to the results which an unvarying enforcement of those principles- may occasionally entail, are the surest, if not the only, means by which stability and certainty in the administration of the law may be secured. It is for the Legislature by appropriate enactments and not for the Courts by metaphysical refinements to provide a remedy against the happening of hardships which may result from the consistent application of established legal principles. Now, the facts before us are these: Samuel D. Price was in 1888 the owner of some leasehold property in Baltimore City. This- on January the twenty-eighth, 1888, he assigned to Henry C. Fowler, an employee of his, for an alleged, but in fact, for a simulated consideration of fifteen hundred dollars. On the same day and as a part of the same transaction, Fowler executed and delivered to Price a mortgage on the same property to secure the payment of one thousand dollars, stated to be the balance of purchase money due by Fowler to Price; and Fowler also signed and delivered a promissory note of even date payable to Price in one year, for the principal sum of one thousand dollars, and two other promissory notes, each for the sum of thirty dollars, payable in six and twelve months, for the interest. These three notes are described in the mortgage. The deed.arid the mortgage were .promptly placed- On.record. — 321 — Simultaneously with the execution of the deed, the mortgage and the notes, Fowler also executed and delivered to Price a deed reconveying and reassigning to him the identical leasehold property. This deed was not placed on record until November the twelfth, 1891. The sale by Price to Fowler was not an actual sale at all. It was a mere device to which Price, who was a builder, resorted to raise money without himself executing a mortgage on his property. To all appearances, however, so far as the public records disclosed, it was a perfectly regular and bona fide transaction. On January the thirty-first, 1888, Price borrowed from the Old Town Bank of Baltimore, the sum of one thousand two hundred dollars, and indorsed to the bank as collateral the one thousand dollar mortgage note of Fowler, and another note with which we have no concern. Price’s note to the bank was repeatedly renewed, and when each renewal was made Fowler’s note to Price was repledged. There can be no doubt about the entire good faith of the bank in this transaction. The bank continued to hold the note which on its face showed that it was secured by a mortgage of even date, and on October the thirty-first, 1895, after Price had become insolvent, and shortly before he died, the bank filed in the Circuit Court of Baltimore City a petition praying for a decree directing a sale of the mortgaged premises, and under the terms of the mortgage the usual decree was forthwith signed. Within a month thereafter the appellants came into the case, and by petition asked that the decree be set aside. They base the relief which they seek upon these facts : In November, 1891, the appellants desiring to purchase the property in question had the title examined, and it being then discovered that Price held the mortgage thereon from Fowler, negotiations were opened, not with Fowler — the apparent owner — but with Price, who informed the appellants and their counsel that the mortgage had been paid and that he held a deed from Fowler assigning the property back to him. He thereupon produced the deed of assignment con — 322 — temporaneous in date with the mortgage and with the deed from Price to Fowler; and he exhibited three promissory-notes purporting to be the three mortgage notes described in the mortgage from Fowler to him — the one note for one thousand dollars, and the other two, each for thirty dollars. Without making any inquiry of Fowler, the appellants concluded the purchase with Price ; and Price, on November twelfth, 1891, released on the public records the mortgage of January the twenty-eighth, 1888, and then placed on record the deed of assignment from Fowler to himself dated, as stated, on January the twenty-eighth, 1888, and delivered to the appellants a deed dated November the twelfth, 1891, assigning to them the same property. Thereupon the appellants paid him thirteen hundred dollars — the amount of the purchase money. The appellants had no knowledge of the outstanding note in the hands of the bank, and they believed that the one thousand dollar note exhibited by Price and stated by him to be the identical note secured by the mortgage was in fact the mortgage note. The evidence, however, clearly shows that Fowler signed two one thousand dollar notes on the same day, and the one retained by Price' and subsequently exhibited to the appellants as the genuine mortgage note was not in fact the note secured by and described in the mortgage at all; and that the note indorsed to the bank and forming the basis of the decree was in reality the mortgage note. About this the evidence leaves no room for doubt. The appellants claim that they are bona fide purchasers of the property from Price for value, and are, as such, entitled to hold it against the claim of the Old Town Bank. They undoubtedly paid their money for the property to Price, who shamefully deceived and misled them ; but whether these facts under the circumstances are sufficient to defeat the rights acquired by the bank is the question brought before us. The Court below dismissed the petition asking for a rescisión of the decree, and from the order of dismissal which permits the decree of October the thirty-first, 1895, — 323 — directing a sale of the property to stand, this appeal was take'n. Now it cannot be doubted that prior to the adoption of the Act of 1892, ch. 392 (which, however, has no application to this case), the law of Maryland was, and still is, except in so far as modified by the statute just named, that the indorsement or assignment of a promissory note secured by a mortgage gives to a bona fide holder of such note the benefit of the lien of the mortgage as fully as though he had been named as the actual mortgagee; and this, too,, though the' public records furnish no evidence of the indorsement or transfer and delivery of the note. The transfer or indorsement of the note, which is the principal, carries the mortgage, which is the incident, and effectually clothes the bona fide holder of the note with the lien of the mortgage itself. Clark v. Levering, 1 Md. Ch. Dec. 178; Ohio L. Ins. Co. v. Ross and Winn, 2 Md. Ch. Dec. 26; Byles v. Tome, 39 Md. 463; Boyd v. Parker & Co., 43 Md. 199; McCracken v. German F. Ins. Co., 43 Md. 477; Hewell et al. v. Coulbourn, 54 Md. 63. Clearly, then, the indorsement and delivery by Price of the one thousand dollar mortgage note to the Old Town Bank, on January the thirty-first, 1888, for value, operated to carry the mortgage with it and stripped Price of all authority to deal with that mortgage-without the consent or sanction of the bank. From the moment of that indorsement and delivery it ceased to be in the power of Price to release the mortgage so as to deprive the' bank, by which the note was held, of the benefit of its security under the mortgage. This is precisely what was decided in Boyd v. Parker & Co., supra, a case that cannot be distinguished from this. If, then, the bank became the equitable owner of the mortgage and Price no longer had power to release it so as to affect the rights of the bank, how can the fraud and deception which Price undoubtedly practiced upon the appellants, and for which the bank was in no way responsible or answerable, interfere with the title of the bank or give to the appellants rights superior to those — 324 — which Price himself could have asserted? In answer to this it is said the appellants are bona fide purchasers 'without notice and consequently are entitled to the protection of a Court of Equity. Bona fide purchasers without nptice and for value are a highly favored class in equity, and in a certain sense the appellants bought in good faith; but it is not every bona fide purchaser who can invoke the interposition of a Court of Equity to defeat the equally meritorious claims of others. In the recent case of Seldner v. McCreery, 75 Md. 296, we said: “Where a title is perfect on its face and no known circumstances exist to impeach it, or to put a purchaser on inquiry, one who buys bona fide and for value, occupies one of the most highly favored positions in the law.' If circumstances afterwards come to light which invalidate the title of the seller, there is nothing to prevent redress against him in behalf of the party who may be injured ; but the innocent purchaser must be protected at all events.” This language was used in replying to an objection that a will, upon which the title then being examined ■depended, had been proved only in common form and might consequently, thereafter be caveated, whereby the purchaser would be involved in a litigation. No facts were shown which rendered it probable that the will was invalid and the probate in common form being sufficient proof of the will to pass the title to the devisee, the mere possibility that the will might afterwards be contested was not a ground upon which the title that it did pass could be impeached. Under the will the seller had a title and of course circumstances coming to light afterwards and invalidating that title could not affect a bona fide purchaser for value and without notice. But we have, here and now, no such question before us. Price had no title on the face of the records •except as mortgagee when the negotiations were opened with him by the appellants ; but even that title he had parted with nearly four years previously by assigning or indorsing the mortgage note to the bank. Consequently at the very time he executed the deed to the appellants the bank owned — 325 — the lien of the mortgage ; and because the bank held the note secured by the mortgage Price’s attempted release of the mortgage was utterly ineffectual. No circumstance has come to light since the date of the deed to the appellants which invalidates Price’s title ; for Price had no title at the time he made the deed that was not actually subject to the lien of the mortgage in the hands of the bank. But in addition to this, the. whole difficulty has arisen out of the deception practiced by Price upon the appellants. The bank had no agency in misleading them and is clearly not responsible for Price’s fraud. The appellants do not seem to have considered it singular that if the mortgage notes had been paid by Fowler, as Price represented, the notes themselves still remained in the possession of Price. Had they been altogether free from fault or less willing to rely on the statements of Price, they would have applied to Fowler, the mortgagor, and would have learned from him the true nature of the transaction, and the important fact that he had in reality executed two notes each for one thousand dollars on the same day, and a casual comparison of the interest notes with the one thousand dollar note exhibited by Price would have indicated such a marked difference as to suggest, at least, a doubt as to whether the one thousand dollar note shown to them was the genuine mortgage note. The interest notes shown by Price to the appellants contained on their face the words, “collateral with mortgage of even date herewith,” and along the margin the words “ mortgage note.” The one thousand dollar note produced by Price contained none of these words and in terms drew- interest from its date, payable half-yearly — a provision wholly unnecessary and altogether out of place where separate interest notes had been given. But more than this, a comparison of the note produced by Price with the description in the mortgage of the one secured by the mortgage would have indicated that Price was not then in possession of the genuine mortgage note; because, as just stated, the note produced was drawn to bear interest from — 326 — its date, whereas the note described in the mortgage was a note for the principal sum of one thousand dollars payable one year after date “ and for the interest to accrue thereon ” two interest notes were provided. The note produced by Price bore no mark to designate that it was a note secured by a mortgage at all, as each of the interest notes did. -These were circumstances calculated to suggest inquiry, if not to excite suspicion, when they are all considered together ; and were clearly sufficient to put the purchasers to a further investigation than they actually made. The note produced by the bank corresponds precisely with the interest notes, has the same words upon its face as to being collateral with mortgage, and the same words on its margin and does not bear interest- from its date. Obviously the note held by the bank was the genuine mortgage note and unless the bank’s failure to secure an assignment of the mortgage or its omission to have placed on record a notice that it owned the note, forfeits its right to the lien created by the mortgage, no act done by Price without the bank’s concurrence or sanction can prejudice or affect its lien. If this were not so there would have been no occasion for the adoption of the Act of 1892, ch. 392. But laches and limitations are relied on by the appellants as final defences. It has been repeatedly said that the application of the doctrine of laches depends on the circumstances of each particular case, and whilst in the abstract this is true, it is apt to be misleading if the constituent and essential elements which go to make up laches, in the technical sense of the term, are overlooked or disregarded. Strictly speaking, and using the term as it is understood in the law, laches is such neglect or omission to assert a right as, taken in conjunction with lapse of time more or less great, and other circumstances causing prejudice to an adverse party, operates as a bar in a Court of Equity. Lord Ellenborough said in discussing the question whether a failure to present a, bill of exchange at the specified place of payment was sufficient to discharge the acceptor: — 327 — " Laches is a neglect to do something which by. law a man is obliged to do. Whether my neglect to call at a house where a man informs me that I may get the money amounts to laches depends on whether I am obliged to call there.” Selby v. Abithoe, 4 M. & S. 462. Obviously, then, there must be a legal duty to do some act, a failure to do that duty and attendant circumstances which cause prejudice to an adverse party before the doctrine can be successfully invoked. Mere lapse of time, without more, unless of sufficient duration to amount to and constitute the bar of the statute of limitations, will not be sufficient. Now, there was clearly no duty which the bank owed any one to foreclose the mortgage prior to the date of the deed to the appellants. Its omission to do so anterior to the date of the purchase by the appellants was not, therefore, the omission to do something which by law it was required to do ; and the subsequent delay — that is the delay between the date of the purchase by the appellants and the filing of the decree appealed from — placed the appellants in no worse position than they occupied the very moment they paid the purchase money to and took the deed from Price. No act of the Old Town Bank, and no omission on its part to do something that it was legally bound to do, operated to prejudice the appellants, unless the mere naked failure to secure an assignment of the mortgage and to have that assignment recorded was an omission to perform an act which the bank was obliged to perform. But the decided cases we have referred to conclusively establish that no such duty or obligation rested on the bank. The essential elements of laches are, therefore, wanting ; and the question comes down to one of mere lapse of time, or the Statute of Limitations. About this question — the Statute of Limitations— there is no room to doubt. Whilst it may be conceded that the mortgage note of January, 1888, given by Fowler to Price, and by Price indorsed to the bank, was barred by limitations when the decree was signed, still the right of the bank to have the mortgage foreclosed could not be — 328 — barred by the lapse of less than twenty years. This principle has been expressly settled by this Court, and we need do no more than refer to two of the cases in which it was distinctly applied. B. & O. R. R. Co. v. Trimble, 51 Md. 111; Magruder v. Peter, 11 G. & J. 217. (Decided March 31st, 1897). As we find no error in the decree appealed from it will be affirmed with costs. Decree affirmed with costs above and below.