Haughwout & Pomeroy v. Murphy

The opinion of the court was delivered by Depue, J. The bill of complaint filed in this cause, after setting out the proceedings in the suit in chancery between Haughwout and Boisaubin, charges that the deed of conveyance from Boisaubin to Murphy, though bearing date on the 7th of August, 1865, was not actually delivered until the 5th day of October of that year, and after the filing of the bill of complaint by Haughwout against Boisaubin, and after the filing of notice of the pendency of that suit in the clerk’s office- of the county of Morris. It further charges that the — 544 — said Murphy had actual knowledge of the contract of purchase made by Haughwout with Boisaubin, and of the intention of Haughwout to commence a suit for specific performance, long before the delivery of his deed and the payment of any part of the consideration money therefor; and that the defendant accepted the said conveyance, and paid the purchase money therefor, with actual knowledge of the existence of the complainants’ contract, and of the pendency of the suit for the specific performance thereof. The prayer of the bill is, that the title of the complainants to the said three lots may be ratified and established, and declared to be good and valid as against the claim of title made to the same by said Murphy, and be declared paramount thereto; and that the claim of title to the said lots by the said Murphy, under his deed of conveyance from Boisaubin, be declared invalid and of no effect against the title of the complainants, and that the defendant may be directed to release and convey to the complainants; and that the complainants may have such other and further relief, &c. A suit in chancery, duly prosecuted in good faith, and followed by a decree, is constructive notice to every person, who acquires from a defendant, pendente lite, an interest in the subject matter of the litigation, of the legal and equitable rights of the complainant as charged in the bill and established by the decree. This effect of a successful litigation in subordinating the title of a purchaser pending a litigation, to the rights of the complainant as established in the suit, is not derived from legislation. It is a doctrine of courts of equity, of ancient origin, and rests not upon the principles of the court with regard to notice, but on the ground that it is necessary to the administration of justice that the decision of the court in a suit should be binding not only on the litigant parties, but also upon those who acquire title from them during the pendency of the suit. Bellamy v. Sabine, 1 DeG. & J. 566; Metcalfe v. Pulvertoft, 2 V. & B. 205; Walden v. Bodley’s Heirs, 9 How. (U. S.) 49; Murray v. Lylburn, 2 Johns. — 545 — Ch. 441. Such a purchaser need not be made a party, and will be bound by the decree which shall be made. 1 Story’s Eq., § 406; Story’s Eq. Pl., §§ 106, 351; Bishop of Winchester v. Payne, 11 Ves. 196. Before any statutory provision was made requiring notice of the pendency of the suit to be filed in order to charge a subsequent purchaser from the defendant with notice of the litigation, it became the established practice that subpoena served and bill filed were necessary before the suit was considered as commenced, so as to make its pendency constructive notice to persons deriving title from the parties, and to give the decree a conclusive effect against such persons. 1 Vern. 318; 2 Maddock’s Ch. Prac. 325; 2 Sug. V. & P.; Hill on Trustees *511; Hayden v. Bucklin, 9 Paige 512; Dunn’s Lessee v. Games, 1 McLean 321; S. C., 14 Peters 322, 333. An assignee who takes an assignment from the defendant after bill filed, but before subpoena served, is a necessary party. Powell v. Wright, 7 Beav. 444. By the fifty-seventh section of the Chancery Practice Act, (the provisions of which are similar to the New York act of 1834, and to the English statute of 3 & 4 Vic., ch. 11, sec. 7,) another requisite is superadded in order that the proceedings in the suit shall effect a bona fide purchaser or mortgagee : a written notice of the pendency of the suit must bo filed in the clerk’s office of the county in which the lands to be affected lie. Nix. Dig. 112. This section is expressed in negative terms, and has not changed the former practice except in prescribing that notice of the lis pendens shall bo filed before a bona fide purchaser or mortgagee shall be chargeable with notice of the pendency of the suit, notwithstanding the bill has been filed and the subpoena served. But the defendant was not a purchaser pendente lite. He acquired title by a deed which bears date on the 7th day of August, 1865, and was acknowledged on the next day. The defendant testifies that it was delivered on the 7th of August. Boisaubin’s testimony is that it was delivered on the 7th or 8th. Prom the date of the acknowledgment of the mort — 546 — gage, it is probable that it was not finally delivered before the 19 th. The proof, however, is full and clear that it was-executed and delivered to Murphy before the bill was filed in the case of Haughwout v. Boisaubin. The commencement of a suit ju chancery is constructive notice of the pendency of such suit only as against persons who have-acquired some title to or interest in the property involved in the litigation, under the defendant, after the suit is commenced. Stuyvesant v. Hall, 2 Barb. Ch. 151; Hopkins v. McLaren, 4 Cow. 667; Parks v. Jackson, 11 Wend. 442. A person whose interest existed at the commencement of the suit is a necessary party, and will not be bound by the proceedings unless he be made a party to the suit. Ensworth v. Lambert, 4 Johns. Ch. 605. The complainants’ right to relief on the ground that the defendant was a purchaser from Boisaubin pendente lite having failed, it must be considered whether, in the other aspect of the case, he will be entitled to relief. In this aspect the bill is to be taken to have been filed for the execution of the trust arising from the prior contract between Haughwout and Boisaubin for the purchase of the lands, by the conveyance to the complainant, by Murphy, of the legal title which he acquired by his deed. In this aspect of the case, the bill is a bill for specific performance. In equity, upon an agreement for the sale of lands, the contract is regarded, for most purposes, as if specifically executed. The purchaser becomes the equitable owner of the lands, and the vendor of the purchase money. After the contract, the vendor is the trustee of the legal estate for the vendee. Crawford v. Bertholf, Saxton 460; Hoagland v. Latourette, 1 Green’s Ch. 254; Huffman v. Hummer, 2 C. E. Green 264; King v. Ruckman, 6 C. E. Green 599. Before the contract is executed by conveyance, the lands are devisable by the vendee, and descendible to his heirs as real estate; and the personal representatives of the vendor are entitled to the purchase money. 1 Story’s Eq., § 789; 2 Ibid., § 1213. If the vendor should again sell the estate of — 547 — which, by reason of the first contract, he is only seized in trust, ho will be considered as soiling it for the benefit of tho person for whom, by the first contract, he became trustee, and therefore liable to account. 2 Spence's Eq. Jur. 310. Or the second purchaser, if he have notice at the time of tho purchase of the previous contract, will be compelled to convey the property to the first purchaser. Hoagland v. Latourette, 1 Green's Ch. 254; Downing v. Risley, 2 McCarter 94. A purchaser from a trustee, with notice of the trust, stands in tho place of his vendor and is as much a trustee as he wms. 1 Eq. Cas. Abr. 384; Story v. Lord Windsor, 2 Atk. 631. The cestui que trust may follow tho trust property lii the hands of the purchaser, or may resort to the purchase money as a substituted fund. Murray v. Ballou, 1 Johns. Ch. 566, 581. It is upon tho principle of the transmission by tho contract of an actual equitable estate, and tho impressing of a trust upon the legal estate for the benefit of tho vendee, that tho doctrine of the specific performance of contracts for the sale and conveyance of lands mainly depends. Tho defendant insists that he holds tho lands discharged of any trust in favor of ITaughwout, or the complainants, by reason of his being a bona fide purchaser for a valuable consideration without notice. The proof is, that at the time of the delivery of the deed, $400 of the consideration money was paid, and tho balance secured by mortgage. Conceding that the $400 was actually pa-id before Murphy had notice of llaughwout’s claim, the defence of a bona fide purchase is not supported. Before the mortgage became duo, Murphy had actual notice of tho existence and nature of llaughwout’s claim. The defence of a bona fide purchase may be made by plea, in bar of discovery and relief, or by answer, in bar of relief only. If made by plea, the payment of the whole of the consideration money must be averred. An averment that part was paid and the balance secured by mortgage, will not be sufficient. Wood v. Mann, 1 Sumner 506. Proof of the — 548 — payment of the whole purchase money is essential to the defence, whether it be made by plea or answer. Jewett v. Palmer, 7 Johns. Ch. 65; Malony v. Kernan, 2 Drury & Warren 31; Losey v. Simpson, 3 Stockt. 246. Notice before actual payment of all the purchase money, although it be secured and the conveyance executed, or before the execution of the conveyance, notwithstanding the money is paid, is equivalent to notice before the contract. 2 Sug. V. & P. 533 (1037); Hill on Trustees 165. If the defendant has paid part only, he' will be protected pro tanto only. 1 Story’s Eq., § 64 c.; Story’s Eq. Pl., § 604 a. "What the measure of relief shall be in cases where the deed has been executed and delivered and part of the purchase money paid before notice of the previous contract to sell to another, was elaborately discussed by the counsel of the appellants. The Chancellor held, under the authority of Flagg v. Mann, 2 Sumner 487, that a contract of purchase, executed by delivery of the deed and payment of part of the purchase money without notice of the previous contract, gave the purchaser a right to hold the land, and that the equity of the person with whom the previous contract was made, was merely to have the unpaid purchase money. The law of the English courts is, that until the defence of a bona fide purchase is perfected by the delivery of the deed of conveyance, and the payment of the entire consideration money, such purchaser is without any protection as against the estate of the equitable owner under a prior contract, even though he contracted to purchase, and accepted his deed and paid part of the purchase money in good faith; his only remedy being against his vendor to recover bach what he has paid on a consideration which has failed. In some of the American courts this doctrine has been qualified to the extent of enforcing specific performance of the prior contract, on condition that the purchaser shall be indemnified for the purchase money paid, and also for permanent improvements put upon the property before notice, on the principle that he — 549 — who asks equity must do equity. The cases are collected in 2 Lead. Cas. in Eq. 1; notes to Basset v. Nosworthy. The doctrine of the English courts is necessary to give effect to the principle that in equity, immediately on the contract to purchase, an equitable estate arises in the vendee, the legal estate remaining in the vendor for his benefit. Qualified by the obligation to make compensation to any subsequent bona fide purchaser, who has paid part only of the consideration money, for all disbursements made before notice, the rule is every way consonant with correct principles. Such indemnity is protection pro tanto. But whatever the nature of the relief may be in cases where the naked question of the acceptance of a deed and payment of part of the consideration before notice is presented, the relief indicated by the Chancellor is the only relief the complainants would be entitled to under the circumstances of this case. The rule of law which deprives a subsequent purchaser who has contracted and accepted a conveyance, and paid part of the purchase money in good faith, of the fruits of his purchase without indemnity, is exceedingly harsh, and often oppressive in its application. Mitigated by the obligation to make indemnity for payments and expenditure before actual notice, its operation is nevertheless frequently inequitable. A party who asks the enforcement of a rule of this nature against another who is innocent of actual fraud, must seek his remedy promptly. He may lose his right to specific relief against the lands by laches, and be remitted to the unpaid purchase money as the only relief -which will be equitable. In cases where the prayer is for the specific performance of a contract between the immediate parties to the suit, delay in filing the bill is often of itself a bar to relief. Merritt v. Brown, 6 C. E. Green 401. The agreement between Haughwout and Boisaubin was made on the 24th of September, 1863. In February, 1864, Haughwout gave Boisaubin notice of his election to take the property under the agreement. After this notice was given, Boisaubin laid the property out in lots and publicly offered — 550 — them for sale. Murphy’s deed for the three lots of which he became the purchaser, was executed and delivered in August, 1865. The bill in the suit of Haughwout v. Boisaubin, was filed the last day in the same month. The solicitor who appeared for Haughwout in that suit, had notice of the existence of Murphy’s deed within a few days after his bill was filed. Boisaubin, in his answer, which was filed on the 3d of November, 1865, specifically sots out the fact of the conveyance to Murphy and the circumstances connected therewith. Murphy was himself examined as a witness on the 5t-h of April, 1866, and testified in relation to the conveyance to him. Haughwout must be charged with notice as early as April, 1866, that Murphy intended to assert his right to the land. The bill in this case was not filed until the 4th of April, 1868. After this long delay it would be inequitable to enforce specific performance against the defendant. The fact that there were delays in the prosecution of that suit to final decree, which were unavoidable, ought not to prejudice Murphy. He should have been made a party to that suit. Besides that, the bond and mortgage which were given by Murphy to Boisaubin for the unpaid purchase money, were assigned by Boisaubin to one Geoffrey, on the 16th of April, 1866, and by Geoffrey further assigned to William Davidson, on the 2d of July of the same year, and notice of such assignment given to Murphy by the solicitor of Davidson. The money due on the mortgage was paid at its maturity by Murphy to Davidson’s solicitor. That Davidson, in the transaction, was acting for Haughwout, and that the money wherewith this assignment was procured was paid by Haughwout, and that the proceeds when collected were realized by him, are indisputable. That the assignment was made by Geoffrey to Davidson, as collateral security, will not affect the case. When Murphy received notice of the prior equitable title of Haughwout, he was entitled to have the security he had given for the unpaid purchase money surrendered. Tourville v. Naish, — 551 — 3 P. Wins. 307. The subsequent assignments were taken and the money received, with full notice of all the circumstances. The money received on the mortgage Haughwout still retains. It is no answer to say that in decreeing specific! performance Murphy may have the money refunded to him. Iluugliwout might have insisted upon having the land itself, or at his option, pursued the proceeds of the sale. He cannot have both. By accepting a security given for the purchase money, he is deemed to have affirmed the sale so far as respects the purchaser. Murray v. Lylburn, 2 Johns. Ch. 441; 2 Story’s Eq., § 1262; Scott v. Gamble, 1 Stockt. 218. The complainants are not entitled to relief. The decree of the Chancellor is affirmed, with costs. The whole court concurred.