Rohde v. Rohn

Mr. Justice Brown delivered the opinion of the court. This is a question of the priority of equitable mortgages. It is conceded by both parties that the note and trust deed belonging to the cross-complainant, Friedericka Rohn, constitute such an equitable mortgage. Dimond, who executed them, although a stranger to the title, executed them under the instructions and by the procurement of Schumacher (who was the holder of the legal title), and then gave them to Schumacher, who, with the representation that they made a first lien on the premises in question, sold them for value to the cross-complainant. Nothing could be a plainer case of an equitable mortgage than this. The insufficiency of the trust deed as a common law or statutory mortgage of Schumacher’s then existing interest in the land is not more apparent than is the intention necessarily from the transaction inferred and imputed to the parties that it was to operate as a charge on the property. It seems to be admitted in terms in appellant’s argument that the note and trust deed belonging to the appellant, John Rohde, also constitute an equitable mortgage; but the force of his argument, after all, lies in the position that they do not make an equitable mortgage merely, but a common law or statute^ one. This was the finding of the master. “The acquisition of said note and trust deed on the 20th day of February, A. D. 1900”, he says, (Finding 15) “did not constitute a merger of the said note and trust deed into the fee simple title of said premises owned by said Charles C. Schumacher; that the said Charles C. Schumacher gave no intention of merging said encumbrance into said fee simple title at that or at any other time; that there was no merger; that said Schumacher did not cancel said trust deed, nor did he release the lien of the same, but that it was his intention to negotiate the same, which he subsequently did.” And again (Finding 22), “Rohde had a right to rely upon the ownership of said real estate as the same appeared of record, and acquired said note from Schumacher for value and without notice of any equities.” Exceptions to these findings were sustained by the chancellor, and we think the chancellor was right. If, however, the findings of the master, as above given, should be considered correct, the mortgage held by Rohde would be regular and statutory, and being so would be entitled to what the master gave it—a priority over the purely equitable mortgage belonging to the cross-complainant, Rohn. The difficulty with the theory held by the master, that' because Schumacher gave no signs of an intention to merge the Schmidt encumbrance into the fee when he bought it, or at any other time, there was no merger, is that the premise cannot be considered correct under the circumstances of this case. It is true that equity will generally keep alive, or consider as kept alive, for the benefit of proper parties and for the purpose of bringing about justice, a mortgage or other lien security which has been bought by one holding the fee, when a merger is not intended or desired. In this case, however, whatever want of indication by Schumacher that he intended to merge the security in the fee there may have been February 20, 1900, when he paid to the holder of the Schmidt note and mortgage the amount due on them and took them "into his possession, there was no such want of indication on February 27, 1900, when he took from his clerk another note and a trust deed securing O that note on the same property and held them (as he evidently did) as a part of his stock in trade as a mortgage broker and dealer. Still less was there any want of such indication when, on September 10, 1900, he sold to Rudolph Rohn the note and trust deed of this clerk and assured the buyer that they made a first lien. To suppose that, as the master found, Schumacher had no intention at any time of merging the Schmidt encumbrance into the fee simple title, but intended further to negotiate the same, is to credit Schumacher from February 20, 1900, with a fraudulent and criminal intent to cheat one of two innocent parties, and to give to that wicked intent (only to be inferred from his subsequent actions) the same effect as equity, to prevent injustice, will give to an honest and beneficial one. Such a presumption cannot be indulged in this case. There cannot be presumed to have been a fraudulent intent on Schumacher’s part until it is impossible to suppose his action honest, and this time seems to us to have been on October 18, 1900, when, after having already made for value an equitable mortgage to one man, representing it to be a first lien, he re-negotiated to a second party with similar representations an encumbrance which he had paid and which was merged, but which had not been cancelled or released: It is fairly presumable that he had given, or supposed he had given, to Dimonda deed of the legal title before he took from Dimond the §1,600 note and trust deed. But even if the want of connection of Dimond with the legal title was due to something other than oversight, Schumacher’s actions estopped him, or anybody who did not secure from him greater rights than he himself possessed, from claiming that Dimond’s trust deed did not encumber the property. Had there been no merger, the master’s finding would have been correct, and the “Rohde” mortgage, prior in point of date and record, would have taken precedence of the Rohn mortgage. A merger of the Schmidt mortgage and the fee did, however, in our opinion, actually take place before the “Rohn” mortgage was sold by Schumacher. As we have said before, this is conceded in terms by the appellant in his argument, although the master based his findings on the ground that no such merger occurred. Appellant insists, however, that even conceding that this “Schmidt” mortgage was merged, and that therefore the question is not between a legal or statutory mortgage on the one hand and an equitable mortgage on the other, but between two equitable mortgages, yet the “Bolide” equitable mortgage has priority over the Bohn mortgage. for various reasons. First, as we understand the argument, it is said that the reliance of Bohde on the note and record title was justified, rather than Bohn’s reliance on his mortgage, which could not be connected with the record title, because if one looked no further in the claim of title on the record than to the making of the Schmidt trust deed, the record lien of the mortgage would appear regular. Therefore, even though the mortgage had merged with the fee in Schumacher’s hands, its efficacy revived in Bohde’s hands as against the mortgage, the connection of which with the title could not be traced in the records. But this is equivalent to saying that the assignee or vendee of Schumacher obtained a better title than Schumacher had to the enforcement of this mortgage. Schumacher certainly could not, against the Bohn mortgage, have enforced this Schmidt mortgage, notwithstanding its ostensible greater connection with the title. By the law of Illinois mortgages (by deeds of trust or otherwise) are nonnegotiablé, and the assignee of them for value and innocently gets no better title or rights in them or by them primarily than the assignor himself had. Olds v. Cummings, 31 Ill. 188; Himrod v. Gilman, 147 Ill. 293; Buehler v. McCormick, 169 Ill. 69; Bouton v. Cameron, 205 Ill. 50. Priority in time for the equitable mortgage made to Bohn, made for it prima-fade priority of claim. Counsel for appellant lean heavily on the statement of Vice-Chancellor Sir Richard Kindersley in Rice v. Rice, 2 Drewry, 73, that priority of time in a contest between persons having only equitable interests is the ground of preference last resorted to. Undoubtedly this is in a sense true, and the section of Pomeroy’s Equity Jurisprudence (414) which -quotas Rice v. Rice (supra) is cited in Himrod v. Tillman (supra) to sustain it. Vice-Chancellor Kindersley’s language is accounted by Mr. Pomeroy as too strong (Pomeroy’s Eq. Juris., sec. 707), but allowing to it full force, it does not; as it seems to us, militate against the position of the appellee in this cause. For the gist of it is only what is conceded to be the law of this state, laid down expressly for example in Himrod v. Tillman (supra). “It is only where the equities are equal that he whose equity was first obtained has the better right.” This means, as applied to a case like the present, of two equitable liens, that circumstances are possible, where the holder of the first of these liens has estopped himself by some action or neglect from claiming the - natural result of his priority. Such a case was Rice v. Rice (supra). In such a case the equities of the two parties are weighed. In the case at bar it is argued that such a neglect occurred in the failure of Rohn to call for a trust deed mortiraire from Schumacher instead of Dimond, and -for a release from Schumacher of the Schmidt trust deed and for the cancellation of the Schmidt note. If it could be said that this would in any event have constituted a sufficient default in due care to have postponed the rights of the equitable mortgagee to those of a subsequent lien holder, we think that in the balancing of equities it is more than outweighed by the similar failure of Rohde sufficiently to investigate his purchase. In the purchase he dealt with the coupon notes and so-called extension of F. M.. Dimond, who styled himself in the latter document “ Assignee of Paul F. C. L. Schmidt.” He had reason, therefore, to know that Dimond was claiming to own the property. The question is not one of the duty of- a purchaser of a legal title to search the record beyond a certain point—-it is one of the balancing of equities to see whether the subsequent purchaser of an equitable lien is so much the more innocent victim of a fraudulent vendor as to overcome the prima facie presumption of priority that precedence in time gives to a preceding purchaser of a similar encumbrance. The language of Crawford v. C., B. & Q. R. R. Co., 112 Ill. 311-319, “Anything which apprises a purchaser of land or an incumbrancer that a particular person claims the property or an interest in it, makes it the duty of the former to pursue that notice to its source, and failing to do so he would have been chargeable with all he would have learned bad he pursued the matter to the full extent to which it led,” was therefore used in a case where its doctrine was not so plainly applicable as it is in the one at bar. Had Rohde pursued the “claim” of Dimond, of which he was “ apprised,” he would have discovered that Dimond had already pledged it, and that whatever it amounted to, it was in the hands of an innocent purchaser for value. Moreover, Rohde should, it seems to us, have been the more careful to make such an investigation, because he was receiving an obligation on its face six years overdue. We do not think that Rohde can claim a superior equity outweighing Rohn’s priority in time from any of the circumstances of the two sales or from any of the respective omissions or defaults of the two purchasers.. Mor do we think that the prior filing of Rohde’s bill to foreclose gave the Rohde lien precedence. It was not in this case, as it was in the cases cited by appellant’s counsel, the filing of the bills which gave or made the equitable liens. The liens respectively existed from the payments of money to Schumacher (in cash or by credit) by the respective purchasers. The bills were but means to enforce the liens, of which the' priority cannot be determined by the order of the filing of the bills.' The authorities cited in appellant’s argument to the effect that rights of action for fraud cannot be assigned, are of course sound in their doctrine, but they are not applicable, as we view the present case, to any of the issues involved in it. The" case involves in any event an unfortunate issue for one of two innocent victims of a fraudulent transaction. We think that the decree of the Superior Court was correct in determining the incidence of this loss, and it is affirmed. Affirmed.