Wailes v. Cooper

Mr. Justice Yerger delivered the opinion of the court. The appellant filed his bill in the superior court of chancery, as administrator de bonis non of John Thorn, deceased, alleging that, on the 2d day of January, 1835, John Thorn and wife sold to William Haile, now deceased, a tract of land in Wilkinson county for about $18,000, for which Haile executed his three promissory notes, payable in three annual instalments; and on the same day, to secure the payment of the notes, Haile executed a mortgage on the same land and a number of slaves. That this mortgage was duly proven, and certified and filed for record on the 26th day of February, 1838, and that the two last notes secured by the mortgage are still due and unpaid. The bill also states that, after the execution of this mortgage, and before it was filed for record, Haile conveyed the land to Joseph Johnston, to and for the use of Douglass H. Cooper. But that Haile, or some one else, informed Cooper, at the time the deed was executed, of the existence of the mortgage from Haile to Thorn; and that Cooper was duly notified, before the payment of the purchase-money by him for the land, of the existence of the mortgage, and the balance due. Haile is dead, having left a widow and three children; and Peter Joor has administered on his estate. To this bill, Cooper answered, and stated that, on the 1st of August, 1836, being then under the age of twenty-one. years, he made his two — 225 — promissory notes for the sums of $20,000 each, payable to Joseph Johnston on the 1st days of January, 1838 and 1839 respectively, which notes were indorsed by Johnston and W. T. Mayes, and delivered to Haile, in consideration of the sale and conveyance of the land named in the bill to Joseph Johnston, which deed was filed for record on the 1st of August, 1836; but denies that the deed is to and for the use of Cooper. He states that, on the day the deed was executed and filed for record, Johnston made an agreement to convey the land to him by a quitclaim deed as soon as Cooper paid the two notes. He denies that he or Johnston (as he is informed and believes) had any notice of the mortgage before the execution of Haile’s deed to Johnston, and states that Johnston employed an attorney to examine the records- before the execution of the deed, which attorney reported that there were no incumbrances of record on the land. He denies the delivery of the mortgage by Haile to Thorn, and states that only half of the land belonged to Thorn, and that the balance belonged to Mrs. Thorn, who declined to join in the sale and conveyance by deed till the mortgage, which embraced certain slaves, the property of Mrs. Haile, should be executed by her, which was never done; and states that Mrs. Thorn did not join in the sale or execute the deed till about two years after the death of Thorn, about which time Haile paid the first note named in the mortgage. Cooper also states, that he, Cooper, on the day the deed of Haile was delivered to Johnston, observed in the deed from Thorn to Haile a reference to a mortgage made by Plaile on the land for the purchase-money due to Thorn; and, upon alluding to that fact, Haile stated that he had arranged the purchase-money with Thorn ; that the mortgage was satisfied, and had in reality never been delivered, and that Thorn’s wife refused to execute a deed for the land till the purchase-money was paid or arranged; and he then showed by the deed that she had executed it. Cooper states that he has paid the first note made to Haile, both of which notes had been transferred by Haile to Peter Smith, and that the second is unpaid. Mrs. Haile answers, and claims the slaves named in the mortgage as her separate property. — 226 — Johnston answers substantially as Cooper. He states, that the land, when purchased, was intended for Cooper, who was then a minor; and that he took the deed in his own name as a security for his liability on the notes as indorser. Denies notice of the mortgage from Haile to Thorn, which mortgage he avers was never delivered to Thorn. The purchase was made by him for Cooper, who was a minor, and of whose estate Johnston was guardian. Watt, Burke & Co. also filed a bill to foreclose a mortgage made by Haile to them on this land, which mortgage was executed on the 12th of July, 1836, and filed for record on the 20th of August, 1836, twenty days after the sale to Johnston. Watt, Burke & Co. charge that notice of their mortgage was received by Johnston and Cooper before they completed the purchase of the land from Haile. Johnston denies this notice. Cooper says that, after the arrangement made by him to purchase from Haile, he heard that Haile had a larger offer for the land, and that to induce Cooper to decline completing the purchase, he would suggest objections to the title; admits that, before the conveyance to Johnston, Haile informed him that Watt, Burke & Co. had a mortgage on the land for $5,000; but he stated, at the same time, that he had a letter from Watt, Burke & Co., informing him that he could arrange that amount with them. Cooper filed a bill in the nature of a bill of interpleader, setting out substantially the same facts as stated in his answer to the bill of Wailes. He avers the insolvency of Haile’s estate, and states that he has paid one of the notes given by him to Haile; and that, on the other, the executor of Peter Smith, to whom Haile transferred it, has sued and obtained judgment against himself, Johnston, and Mayes, which judgment he is proceeding to collect. He avers a willingness to pay the amount of the judgment, but insists that, if he has it to pay to the estate of Smith, he should hold the land discharged of the mortgages in favor of Thorn, and Watt, Burke & Co.; and if the land is subjected to their mortgages, he should have a perpetual injunction against the judgment in favor of Smith’s executor. Smith’s executor, Wailes, and Watt, Burke & Co. — 227 — are made parties defendants to this bill. The answers of "Watt, Burke & Co., and of Wailes, insist upon the validity of their respective mortgages, and that they are liens on the land. The answer of the executor of Smith states, that Peter Smith, the testator, received the two notes from Haile, before the maturity of either of them, in payment of a tract of land and slaves sold by him to Haile; that he had no notice, at the time he received the notes from Haile, of any defence by reason of failure of consideration or otherwise, that any of the parties could claim to the notes; that Cooper paid one of the notes, and promised to pay the other. He insists that, whether the land is subjected to the mortgage or not, he has a right to collect the amount of the judgment against the defendants thereto. These several bills were all submitted in the chancery court at one time, as constituting in fact but one suit; and the chancellor decreed against the right of Wailes, and Watt, Burke & Co., to subject the land to the payment of their mortgages. He also decreed that the parties to the judgment in favor of Smith’s executor should pay the amount thereof to the executor, Wailes; and Watt, Burke & Co. have appealed from that decree. The record presents two questions for our consideration. 1st. Is the land subject to the mortgages in favor of Watt, Burke & Co. and of Thorn.' 2d. If so, can Cooper and Johnston, on that account, set up a failure of consideration to the extent of those incumbrances, against the enforcement of the judgment in favor of Smith’s executor. The first question depends on the validity of the mortgages, and the notice of their existence received by Cooper and Johnston before the purchase. As to the validity of the mortgage in favor of Watt, Burke & Co., there seems to be no dispute. It is said, that there is not sufficient proof of delivery in relation to the mortgage to Thorn. But, upon looking at the proof in the record, we think it clearly establishes a delivery; and that this objection is not, therefore, tenable. Did Cooper and Johnston have notice of those mortgages before they concluded the trade with Haile ? On the face of the deed made by Thorn to Haile will be found the following recital and reference to that — 228 — mortgage: “ Reserving herein a mortgage or lien on said land until the purchase-money for the same is fully satisfied and paid, all the terms of which are fully explained and set forth in a mortgage of even date herewith, made by the said Haile to the present grantor, of this tract of land and'forty-one negroes, to secure the same.” It is insisted that this recital and reference to the mortgage was sufficient notice to both Cooper and Johnston of its existence and of its contents. In this we fully concur with counsel. The rule seems to be well established; and it is in consonance with reason, that if the title-deeds under which a purchaser derives title, recite an incumbrance, he will be bound by that recital, and presumed to have had notice of it, whether he has read it or pot, For the law will not permit him to deny notice by insisting that he had not read the deed, 2 Powell on Mort, 561.; Sugden on Vend. 544; 15 Johns. R. 555. We regard, then, the proof of notice in relation to the mortgage in favor of Thorn, as complete. As to the mortgage of Watt, Burke & Co., Cooper states distinctly the notice to himself given by Haile, the vendor. It is true he alleges that Haile informed him he had a letter from Watt, Burke & Co., agreeing to arrange the mortgage debt; and also says, that he did not believe Haile’s statement in relation to it, as he supposed the statement was made to induce him to decline the purchase. The notice thus communicated to him by Haile, the mortgagor, is certainly all the notice required by the statute. It was not a mere floating rumor, circulated by irresponsible persons, and which the party might, perhaps, have disregarded, but was the direct and positive statement of the vendor himself, who, of all persons, must have known the truth" of the statement he thus made, and whose duty it was both to Cooper and Watt, Burke & Co., to make the statement and give the notice, as was done by him. The fact that Cooper did not believe it, can make no difference. The notice to Cooper was, therefore, sufficient. There is no proof that notice of this mortgage was given to Johnston ; and it is said, however, that as he took the deed to secure himself, as indorser, he was in law and fact the purchaser of the land; and that notice to Cooper was not notice to him. On this — 229 — point, by reference to an agreement made between Johnston and Cooper on the day of sale, it will be seen, that Johnston, after reciting the fact that he had become the indorser of Cooper on certain promissory notes given by Cooper to Haile, states that they “ were given by Cooper as the consideration for’ a certain tract of land, containing 1075 acres, purchased by said Cooper from William Haile and wife, which land Haile and wife had, by consent of Cooper, conveyed to Johnston, as his security and indemnity for becoming indorser as aforesaid.” This recital, and all the circumstances, negative the idea of an actual sale of the land, in the popular meaning of that term, by Haile to Johnston. The contract of sale was made with Cooper, and for his benefit. It is true the conveyance was made by his consent to Johnston, to indemnify him as the accommodation indorser of Cooper; and fit is insisted for Johnston, that as he took the title in his own name to secure or indemnify himself against a liability which, he had thus incurred for Ctíoper, that he was, in equity, a bond fide purchaser, for a valuable consideration, without notice of the mortgage to Watt, Burke & Co., and should, therefore, be protected in a court of equity against that mortgage; and that, being such a purchaser, notice to Cooper of the deed cannot affect his rights. We admit the rule to be, as contended for by counsel, that where a person, about becoming the surety of another for the purchase of lands, stipulates at the time that the vendor shall convey the land directly to him, in order to secure or indemnify himself against liability as surety, he may defend the title thus acquired as a bond fide purchaser for a valuable consideration; and that notice of the prior deed or incumbrance, given to the actual ven-dee, will not affect his right., This brings us to the consideration of the question, What is a bond fide purchaser for valuable consideration without notice ? In England, and so far as we are advised in relation to the decisions in the United States, it has been uniformly holden, that “ bond fide purchasers for a valuable consideration without notice,” are those who are the purchasers of the legal estate or title ; and that a purchaser of a mere equitable estate is not embraced in the definition. 2 — 230 — Johns. Ch. R. 608; Fonb. Eq. b. 1, ch. 4, § 25, note (e), 320 ; 1 Story’s Eq. 75, § 57; 2 Sug. on Vend. 352, ch. 18. But where the legal estate is outstanding, equitable rights or incumbrances must be upheld or discharged, according to their priority in time. Fonb. Eq. b. 1, ch. 4, § 25, note (e), 320. Chancellor Kent lays down the rule distinctly in the following language: “ If there be several equitable interests affecting the same estate, they will, if the equities are otherwise equal, attach upon it, according to the periods' at which they commenced ; for it is a maxim of equity as well as of law, that qui prior est tempore potior est jme.” 2 Johns. Ch. R. 608. Judge Story states the rule to be, that “ where the title of each party is purely equitable, and the equities in other respects are equal, precedency in time will, under such circumstances, give the advantage or priority in right.” 1 Story’s Eq. 76, § 58. And in the case of Beckett v. Cordley et al., 1 Brown’s Ch. R. 353, which was a controversy between two equitable incum-brancers or claimants, the legal title being in a third party, Lord Thurlow said the party “ prior in time, must be prior in equity; ” that as the mortgagee knew the “ mortgagor had not the legal estate, he trusted to his honor,” and the holder of the junior in-cumbrance was postponed in favor of the prior. Tested by these principles, how does the right of Johnston stand in relation to Watt, Burke & Co.? As we have before decided, the mortgage from Haile to Thorn was valid; and Johnston in law had notice of that mortgage, and was bound by it. The legal title to the land was then in Thorn or his heirs; and being thus situated, the title acquired by Johnston by the deed from Haile to him as a security for his indorsement, was only an equitable title or estate. The title of Watt, Burke & Co. by the mortgage of Haile to them, was an estate of the same kind. Neither Johnston nor Watt, Burke & Co., by the deeds of Haile to them, obtained the legal title; each only acquired an equitable title or interest in the land, and that being the case, the question arises, Whose equity shall prevail ? Neither having the legal title, each being perfectly innocent, and no fraud imputable to either, which of the two shall be postponed ? According to the view we take of the statute, when the words “ pur — 231 — chasers for valuable consideration without notice,” are used in it, the legislature intended to designate that class of persons who had been declared to be such by the judicial tribunals, and they were purchasers of the legal estate. Under this view of the law, we are compelled to declare, that the mortgage of Watt, Burke & Co. must prevail against the title or right acquired by Johnston; because, as neither of them has the legal title, their respective rights must be governed, in the language of the Supreme Court of the United States, in the case of Fitzsimmons v. Ogden, 7 Cranch, 18, “by the well known principle which governs a court of chancery, that between merely equitable claimants, each having equal equity with the other, he who hath the precedency in time, has the advantage in right.” This brings us to the consideration of the second question, to wit, the right of Cooper and Johnston to set up a failure of consideration, to the extent of the mortgages, in favor of Thorn and Watt, Burke & Co., against the judgment in favor of Smith’s executor. The facts established in the case clearly show, that Peter Smith in his lifetime became the owner of the two notes made by Cooper for valuable consideration in the due course of trade, before their maturity, and without any notice of any want of consideration, failure of consideration, or other equity, which might exist on the part of Cooper and Johnston against a recovery of the same. By the rules of the common law, and of the law merchant, Smith certainly could recover upon the notes, regardless of any equity in favor of the maker. It is said, however, that by the provisions of our statute on the subject of assigning choses in action, Cooper and Johnston have a right, as against the executor of Peter Smith, to insist upon the failure of consideration. It must be remembered, that Smith is a bond fide holder of the note for valuable consideration, and that he received it without notice of any want or failure of consideration. A judgment has likewise been rendered upon the note against the maker and indorsers. On the established facts in this case, the record presents two questions for our consideration. First. If Haile, the original — 232 — vendor, had sued Cooper and Johnston, and obtained a judgment on the note against them, would a court of equity have relieved them from the judgment ? Second. If it would have given them relief against a judgment obtained by Haile, will the same rule be applied to the judgment in favor of Smith’s executor ? Upon examining the various decisions made by this court, in relation to the relief which a vendee of lands is entitled to receive, on account of a failure or defect of title, we find the following rules very clearly and explicitly established: First. Where a contract for the sale of real estate has been executed, and the vendee has received a deed with covenants of warranty, and taken possession of the land, he cannot, in a case free from fraud or misrepresentation, avoid a judgment for the purchase-money, either at law or in equity, on account of a defect or failure of title, unless he has been evicted. Second. If there has been fraud or misrepresentation in relation to the validity of the title, or the absence of incumbrance on it, a court of law or equity, if the title be defective or incumbered, will relieve from payment of the purchase-money, without eviction, notwithstanding the party may have received a deed with covenants of general warranty, and gone into possession of the land. Third. Where the vendee, at the time of his purchase, knew of the defects of title, or the existence of incumbrances on the estate, and took a deed with covenants of warranty, he cannot at law avoid a recovery, even after eviction, but must rely upon the covenants. Nor will a court of chancery in such a case, as-a general rule, grant any relief; but will remit the party to his covenants, such being the remedy provided for himself. We conceive such to be the general rules established by this court in relation to the vendee’s right to relief from payment of the purchase-money in executed contracts for land. Where there has been failure of title or breach of covenants of warranty, it will be seen, from the facts of this, case, that at law in a suit brought by Haile himself on the notes, Johnston and Cooper could not have made a successful defence, because they are in possession of the land, have a deed with covenants — 233 — of warranty, and knew of the existence of the mortgage to Thom. But this record presents another feature, which would, in our opinion, entitle them to relief in a court of equity,,if the judgment in this case had been rendered in favor of Haile, the vendor. That feature is the admitted insolvency of Haile’s estate. This, at law, would not be sufficient to prevent a recovery on the facts presented by this record, but we have no doubt that it constitutes ample ground for relief in equity. By reason of the insolvency of Haile, the remedy upon the covenants has become entirely worthless, and of no value; and it would be iniquitous under such circumstances, to permit an insolvent vendor to recover the purchase-money for land sold with a defective and incumbered title, whether the purchaser has been evicted or not, or knew at the time of his purchase of the existing defects and incumbrances. We have no hesitancy, therefore, in saying that a court of equity would have relieved Cooper and Johnston from a judgment rendered in favor of Haile or his representatives, to the extent of the incumbrances on the land. A different question, however, is presented in the controversy between them and the executor of Peter Smith. It will be remembered that Smith became the bond fide holder of the note, in the usual course of trade, for full value, before its maturity, and in entire ignorance that Cooper and Johnston had any title to relief against its payment in law or equity. Under such circumstances, what is the rule in equity in relation to the conflicting rights of these parties ? When Cooper and Johnston bought, they knew that the land was incumbered; they took a deed to protect themselves against those incumbrances; they went into possession under that deed, and have not been evicted. On this state of facts, a judgment at law would have been rendered against them on the note, even at the suit of Haile; but, as before stated, equity would have relieved against that judgment on account of his insolvency. But the attitude occupied by the executor of Smith is very different from that which Haile would occupy. A judgment at law has been rendered against Johnston and Cooper, and on the facts of this case they could not have defended successfully at law. The executor of — 234 — Smith, therefore, has the legal advantage; and, as Smith was a bond fide holder for valuable consideration without notice, he has an equity of equal dignity, to say the least of it, to recover the money, with that of Cooper and Johnston, to be relieved from its payment; and in such a case, the rule in chancery is invariable and inflexible. Where two parties present a case in which the equity is equal, the legal right will always prevail. We are, therefore, clearly of opinion that Cooper and Johnston have not a claim in equity to be relieved of the judgment against them in favor of Smith’s executor. This case may seem hard upon them; but a different rule would be equally hard upon the other parties. Some one must lose in this case; and we have no discretion but to let the loss fall where it is cast by law. The decree of the chancellor must, therefore, be reversed, and the cause remanded, with directions to dismiss the bill, and dissolve the injunction of Cooper and Johnston, with leave to the executor of Smith to proceed at law to recover his judgment against them; and also with directions to decree a foreclosure of the, mortgages in favor of Thorn, and Watt, Burke & Co., giving priority of payment of the proceeds to the mortgage in favor of Thorn. Decree reversed, and cause remanded. SMITH, C. J., gave no opinion, being interested in the judgment. A petition for a re-argument was filed by the counsel for appellees, but was refused by the court.