Schenck v. Wicks

After stating the facts, BaskiN, J., delivered the opinion of the court. The appellant contends that upon the failure of Shaw, the vendee, under said agreement of October 4, 1890, to pay the note given by him when it became due, oh October 4, 1893, his said agreement with White terminated, and that the vendee — 580 — forfeited all rights thereunder, as well as the $2,000 paid by him, and that by virtue of the sale and deed to the said Harvey M. Bacon, and the aforesaid mesne conveyance, Jeremiah Schenck, the appellant, became, and now is, vested with the absolute legal title to said premises. As James H. Bacon, trustee, the beneficiaries of the trust deed, and those who acquired title under it, had notice of the agreement of October 4, 1890, between White and Shaw, the trust deed was subject to Shaw’s rights under said agreement; and the title acquired by Schenck, the appellant, under the trust deed is subordinate to any interest which Shaw acquired under said agreement. Under the executory agreement of October 4, 1890, Shaw, the vendee, acquired the equitable title to said premises, and the vendor acquired a lien on the equitable interest of the vendee for the payment of the note. Pom. Eq. Jur. 105-3J2, 1261-1263; Beach, Trusts, sec. 245, note 2. As, however, this lien arose, by operation of law, from the retention by the vendor of the legal title, it ceased to exist in his favor when he became divested of his legal title by the said sale and conveyance of said premises. The deed to Harvey M. Bacon, the purchaser at the sale made in pursuance of said deed of trust, passed to him the legal title to said premises; but, as the agreement between White and Shaw was duly recorded before the deed of trust was executed, the legal title so acquired by the said Harvey M. Bacon was subject to the equitable interest of the vendee under said agreement, unless the vendee’s equity became extinguished upon default in the payment of Shaw’s note, which occurred before said sale. Under the agreement, the payment of the balance of the consideration and the conveyance of a half interest in said premises were concurrent obligations. The vendee was entitled to a conveyance of a marketable title. The note became due on the fourth of October, 1893, but more than a year before that date the vendor, by making the deed of trust, had created a cloud upon the title — 581 — agreed to be conveyed, and that cloud still existed at tbe maturity of tbe note. By reason of tbat cloud, the vendor was not at tbe maturity of tbe note able to convey a good and marketable title to tbe vendee, and afterwards, by permitting tbe whole of tbe property to be sold under tbe trust deed, allowed tbe legal title to pass to the said Harvey M. Bacon. Tbe vendor’s ben on tbe equitable interest of tbe vendee as security for tbe payment of tbe note depended solely upon tbe legal title retained by him; and when he became devested of that title bis lien was extinguished and thereafter he could only enforce payment by a recovery on the note, and, as the note was never transferred by him, his lien did not pass by the deed of trust, or the sale and conveyance made in' pursuance thereof. Haslam v. Haslam, 19 Utah 1, 56 Pac. 243. There was no privity under the.trust deed between the trustee, or those who acquired the legal title under, it, and the vendee. He was under no obligation to pay to either of them the balance of the consideration of said agreement. It is a universal rule that when by the acts of the trustee the legal title to property held in trust by him is transferred to a stranger, with notice of the trust, the latter is thereby substituted as trustee, and the interest of the cestui que trust in the trust property is not affected by the substitution. A cloud on a title is something, such as a mortgage, deed, or judgment, etc., which shows prima facie some interest in a third party in or to the property adverse to the person vested with the real title to the same, or to one having an interest therein. 1 Rap. & L. Law Dict., tit. “Cloud on Title”; Cooley, Tax’n, p. 779; Warv. Vend., p. 324, sec. 23; Frost v. Leatherman, 55 Mich. 33, 37, 20 N. W. 705; Lick v. Ray, 43 Cal. 83-88. Where an instrument upon its face shows prima facie such an adverse interest in a third party, and is of such a character as that if put in evidence in an action by the real owner, or by one having such an interest, to quiet his title, he — 582 — would be compelled in defense to prove bis own title, it constitutes a cloud wbicb a court of equity, if applied to, will remove. 1 Warv. Vend., p. 324, sec. 23; Cooley, Tax’n, p. 780, and cases cited in note 2; Douglas v. Nuzum, 16 Kan. 515-519; Lick v. Ray, 43 Cal. 88; City of Detroit v. Martin, 34 Mich. 170, 22 Am. Rep. 512. Tbe deed of trust in question was an instrument sucb as tbe ones mentioned in said decisions, and rendered tbe vendor unable to convey to tbe vendee a marketable title. In tbe case of Jeffries v. Jeffries, 117 Mass. 184, tbe court said: “Hence tbe propriety and necessity of tbe rule in equity that a defendant, in proceedings for specific performance, shall not be compelled to accept a title in tbe least degree doubtful. It is not necessary that be should satisfy tbe court that tbe title is defective, so that be ought to prevail at law. It is enough if it appear to be subject to adverse claims wbicb are of sucb a nature as may reasonably be expected to expose tbe purchaser to controversy to maintain bis title, or rights incident to it. Richmond v. Gray, 3 Allen, 25; Sturtevant v. Jacques, 14 Allen, 523; Hayes v. Harmony Grove Cemetery, 108 Mass. 400. He ought not to be subjected, against bis agreement or consent, to tbe necessity of litigation to remove even that which is only a cloud upon his title.” In an opinion by Sbarswood, J., in tbe case of Swayne v. Lyon, 67 Pa. 436, it is said: “It has been well and wisely settled that, under a contract for the sale of real estate, tbe vendee has tbe right not merely to have conveyed to him a good, but an indubitable, title. Only sucb a title is deemed marketable; for otherwise tbe purchaser may be buying a lawsuit, which will be a very serious loss to him, both of time., and money, even if he ultimately succeeds. Hence, it has often been held that a title is not marketable where it exposes the party bolding it to litigation.” In Vought v. Williams, 120 N. Y. 257, 24 N. E. 195, 8 L. R. A. 591, it is said: “A marketable title is one that is free from reasonable doubt. There — 583 — is reasonable doubt when there is uncertainty as to some fact appearing in the course of its deduction, and the doubt must be such as affects the value of the land, or will interfere with its sale. A purchaser is not compelled to take property the possession of which he may be compelled to defend by litigation. He should have a title that will enable him to hold his land in peace, and, if he wishes to sell it, be reasonably sure that no flaw or doubt will arise to disturb its market value. Commissioners v. Armstrong, 45 N. Y. 234, 6 Am. Rep. 70; Shriver v. Shriver, 86 N. Y. 575; Hellreigel v. Manning, 97 N. Y. 56; Fleming v. Burnham, 100 N. Y. 1, 2 N. E. 905; Ferry v. Sampson, 112 N. Y. 415, 20 N. E. 387; Moore v. Williams, 115 N. Y. 586, 22 N. E. 233, 5 L. R. A. 654, 12 Am. St. Rep. 844; Swayne v. Lyon, 67 Pa. 436; Dobbs v. Norcross, 24 N. J. Eq. 327.” At the time the trust deed was made, James H. Bacon, the trustee, requested the vendor to transfer the note to him, but the vendor refused to do so. Therefore neither the trustee, nor the beneficiaries of the trust deed, nor the purchasers at the sale thereunder acquired any interest in the note; nor was it transferred afterwards to an innocent third party, for value, but remained in the hands of the vendor until it was delivered to the vendee for cancellation. The cloud on the title agreed to be conveyed, relieved the vendee from his obligation to pay the note at maturity, and until, by operation of law, as hereinafter stated, he became vested with the legal title, he was under no obligation to pay the note; and even then he was only obligated to pay to the owner and holder thereof. Therefore the failure to pay the note at maturity did not forfeit the equitable interest of the vendee, or the $2,000 of the purchase money paid. As by the sale and conveyance under the trust deed the legal title of said vendor to an undivided one-half of said premises was devested, and passed to the purchaser, Harvey M. Bacon, in trust for said — 584 — vendee, and Bacon wag thereby substituted in place of the vendor as trustee, and as tbe only beneficial interest which the vendor had under his said agreement was the lien retained by him as security for the payment of the vendee’s note, and as the note was not transferred by the deed of trust to James H. Bacon, the trustee named therein, he did not acquire any right to the lien; and as the said Harvey M. Bacon did not acquire any beneficial interest in the subject of the trust, and as trustee was not charged with the duty of performing anything in relation thereto, the trust created by the agreement of October 4, T890, by Harvey M. Bacon’s substitution as trustee, became a simple or dry one, and the statute of uses (27 Hen. VIII. c. 10) which as this court, in Henderson v. Adams, 15 Utah 30, 48 Pac. 348, held is a part of the common law of this state, immediately vested the legal title in Shaw, the cestui que trust, to an undivided one-half of said premises. Hooper v. Felgner, 80 Md. 262, 271, 30 Atl. 911; Dodson v. Ball, 60 Pa. 492; Cornwell v. Orton, 126 Mo. 355, 27 S. W. 536; Henderson v. Griffin, 5 Pet. 150, 8 L. Ed. 79; Henderson v. Adams, supra; 2 Beach, Trusts, secs. 555, 557. In Hooper v. Felgner, 80 Md. 271, 30 Atl. 911, the court said: “Where an estate is given to trustees and their heirs upon trust to receive and pay the net income thereof to one for life, and upon his death in trust for, all and singular, his children and the issue of such children living at the death .of the life tenant, the trust ceases upon the death of the life tenant, for the reason that it remains no longer an active trust. In such case the statute of uses executes the use in those who are limited to take upon the expiration of the life estate; or, in other words, the statute transfers the use into possession by converting the estate or interest of the cestui que trust into a legal estate, thereby determining the intermediate estate of the trustee. As to the real estate, it is clear, therefore, that upon the death of Grace Eelgner, the life tenant, the trustees hav — 585 — ing no longer any active duties to perform, tbe legal estate was executed under tbe statute in her two children, and tbe trust was thereby at an end.” Tbe only interest acquired by Harvey M. Bacon by tbe sale and conveyance to him was tbe undivided one-half of said premises. By said sale and conveyance tbe said Shaw and Bacon became tenants in common, each bolding an undivided half interest in said premises; and by the mesne conveyances from Bacon to tbe appellant be became the owner, as tenant in common with tbe said Shaw, of Bacon’s interest. Tbe appellant contends that the counterclaim of the defendant is barred by section 3150 of tbe Compiled Laws of 1888, which is tbe same as section 2883 of tbe Revised Statutes. It is alleged in tbe complaint, and is not denied, that tbe said George H. Shaw died in tbe summer of 1893. It does not appear that during tbe life of tbe deceased either tbe appellant, or the parties through whom be derived bis title, asserted or claimed to bold said premises adverse to the said Shaw. On tbe contrary, it appears from tbe evidence that in 1898 a one-half interest thereof was assessed to tbe said Shaw, and one-half to the appellant, and that tbe latter only paid tbe amount of tbe tax levied on bis half interest. It does not appear from tbe record when, if ever, Shaw’s interest was disputed before tbe institution of this suit. Neither Shaw nor bis representative bad any cause of action against tbe appellant to quiet title until an adverse claim was made. When made, and not until then, did tbe cause of action alleged in the counterclaim arise; and, as it does not appear from the record that it arose before the institution of this suit, it is not necessary to decide whether tbe section of tbe statue of limitations relied upon by appellant is applicable to tbe case or not. As tbe established facts hereinbefore stated clearly entitle , tbe defendant to the decree rendered, tbe other assignments — 586 — of error are not material, and need not be considered. The decree of the court below is affirmed, with costs. Miner, 0. J., and Bartch, J., concur.