O'Connell v. Pate

TAFT, Circuit Judge, (after stating the facts.) The question whether a mortgage on a ship delivered to the collector of a port to he recorded, as provided by sections 4192-4194, Rev. St. U. S., is constructive notice to subsequent purchasers if, through the negligence of the collector, it is not actually recorded, was much dis — 184 — cussed in the briefs and arguments of counsel. It is by no means free from difficulty, and, as the decree of the court below can be satisfactorily affirmed on another ground, we express no opinion thereon. 'The subject-matter of this controversy is the one-half interest in the steamboat W. B. Oole, which Pate held in May, 1889. He held this, as he had a right to do, independent of Bradley, and could mortgage it and grant it without Bradley’s consent. We may therefore dismiss the other half of the boat from our consideration, and regard the case as if Pate had owned the entire boat. Pate sold the boat to Eshman, May 8, 1889. Eshman mortgaged to Pate on the same day. Eshman sold to Bradley some time thereafter. Bradley sold to the Moscow & Cincinnati Towboat Company, January 17, 1890. Pate’s mortgage from Eshman was recorded March 6, 1890. The towboat company sold to Wright, March 7, 1890, and the bill of sale was recorded March 8, 1890. Upon the same day, Wright gave his note at 30 days and mortgage to Bradley, and the mortgage was duly recorded. Bradley sold this note and mortgage to O’Connell, March 28, 1890, before the note had fallen due. Bradley had notice of the Pate mortgage when he bought from Eshman. It does not appear that the Moscow & Cincinnati Towboat Company had any notice of that mortgage when they bought from Bradley, and at that time the mortgage was not recorded. It is clear that the Moscow & Cincinnati Towboat Company was a bona fide purchaser of the boat from Bradley, and, as its title was recorded before the Pate mortgage was recorded, it did not take subject to the Pate mortgage. It had neither actual nor constructive notice of the existence of that lien. Whether Wright had notice of the lien or not, he took all the right in the boat which the Moscow & Cincinnati Towboat Company could convey, and therefore he also held his title to the boat free from the Pate mortgage. .When Wright conveyed to Bradley, the title to the boat as a mortgagee revested in him who had been guilty of the original fraud in selling a boat, which he knew to' be mortgaged, free from that mortgage. As against him, Pate’s equity was revived, and Bradley held the mortgage on the boat subject and junior to the Pate mortgage. Story, Eq. Jur. § 410; Bisp. Eq. par. 265; Perry, Trusts, 222; Daniel, Neg. Inst. (3d Ed.) § 805; Church v. Ruland, 64 Pa. St. 432; Ashton’s Appeal, 73 Pa. St. 153; Sawyer v. Wiswell, 9 Allen, 39; Kost v. Bender, 25 Mich. 516; Kennedy v. Daly, 1 Schoales & L. 355, 379. The question now is whether O’Connell, who purchased from Bradley for value, got any better right than Bradley had in the mortgage-which Wright had executed to him. O’Connell had constructive notice of the Pate mortgage, because when O’Connell bought, March 8, 1890, the Pate mortgage had been recorded. It had not been indexed, but it is generally held in all the authorities that the failure to index a mortgage, if the mortgage is recorded, does not destroy the priority acquired under the law by recording the mortgage. The indexing is for the benefit of the subsequent — 185 — purchasers, and a failure to properly index is a violation of the duty of the recording officer, owing, not to the person tendering the instrument for record, but to the subsequent purchasers, who are interested in discovering what the instrument contains. Green v. Garrington, 16 Ohio St. 548; Jones, Mortg. § 553. If O’Connell had constructive notice of tin; mortgage from Eshman to Pate, he was bound to know that, if Bradley had actual notice of the Pate mortgage when he bought from Eshman, the statute would not protect Bradley from the Pate mortgage. He was further hound to know that if Bradley, with actual notice of the Pate mortgage, had sold the boat to the towboat company free from the mortgage, the subsequent revesting of the title in Bradley would revive the equity which Pate held against Bradley when he first purchased the boat from Eshman, and would give Pate’s mortgage priority over Bradley’s. It therefore follows that O’Connell’s position in receiving a mortgage from Bradley is exactly the same as if neither the towboat company nor Wright had intervened in the chain of title, for he was bound to know that he could get from Bradley nothing more than a title affected by the same equity in favor of the Pate mortgage with which Bradley’s original title was affected. Tt is said, however, that O’Connell was not charged with constructive notice of the Pate mortgage, because the mortgage was out of the chain of title. The chain of title disclosed by the record showed a conveyance from Pate to Eshman, from Eshman to Bradley, from Bradley to the towboat company, from the towboat company to Wright, and from Wright to Bradley. Eshman was in the'chain of tide. The mortgage, which was recorded, bore date at the lime when Eshman was shown to be the owner of the boat,, though recorded at a later date, and after Eshman bad parted with his title. The authorities are uniform in holding that a subsequent purchaser is charged with notice of whatever appears in the chain of title. The mortgage of Eshman to Pate was in the chain of title, because it was executed by one who owned the boat, while he owned it. The fact that it was recorded at a time after he had parted with the possession of the boat does not take it out of the chain of title. In Flynt v. Arnold, 2 Metc. (Mass.) 619, 622, Chief Justice Shaw says, in discussing the effect of the recording acts: “Suppose, for instance, A. conveys to B., who does not immediately record his deed. A. then convoys to C., who has notice of the prior unregistered deed to B. O.’s deed, 1 hough first recorded, will be posiponed to the prior deed to B. Then suppose B. puis his deed on record, and afterwards C. conveys to 1). If the above views are correct, D. could not hold against B. — not in right of 0., because, in consequence of actual knowledge of the prior deed. (X had but a voidable title; and not in his own right, because, before he look his deed, B.'s deed was on record, and was constructive notice to him of the prior conveyance to B. from A., under whom his title is derived.” Again, the learned chief justice said: “The practical consequences resulting from this view of the registry acts would seem to be these: If a prior conveyance is recorded at any time, however late, before a subsequent conveyance is made by the same grantor to — 186 — a second grantee', the registration of the deed is conclusive legal notice to the second grantee of such prior conveyance.” The same doctrine is held in Mahoney v. Middleton, 41 Cal. 41; English v. Waples, 13 Iowa, 57; Van Rensselaer v. Clark, 17 Wend. 25; Van Aken v. Gleason, 34 Mich. 477; Jackson v. Post, 15 Wend. 588; Fallas v. Pierce, 30 Wis. 473. In the last case .Chief Justice Dixon delivered a very interesting opinion, in which he explained the reason for the rule. He says, on page 473: “Now, the reason why the purchaser from 0., in the case first above supposed, who buys after the recording of the prior deed to B. from A., also the grantor of 0., is bound to take notice of B.’s deed, or of the fact that the .true title is or may be in B., is that such purchaser, in looking upon the statute, sees that B.’s prior and paramount title at common law is not to be divested, or his deed avoided, except upon the happening of three distinct events or contingencies, the absence of either of which will save the title of B., or prove fatal to that claimed by C., or which may be acquired by a purchaser from him. Those events or contingencies are — First, good faith in C., i. e. the pin-chase by him, without notice of the previous conveyance to B.; second, the payment of a valuable consideration by C.; and third, the first recording of O.’s deed. The purchaser from O., looking upon the record, sees — First, the prior conveyance from A. to B.; and, second, the first recording of O.’s deed. Of these two facts the record informs him, but, of the other two facts requisite under the statute to constitute valid title in O. as against the prior purchaser, B., the record gives him no information. For knowledge of the other two facts, namely, the good faith of O. and valuable consideration paid by him, the purchaser from, or any one claiming title, under, C., as against B. or his grantees, must inquire elsewhere than by the record, and is bound at the peril of his title, or of any right which can be granted by or claimed under C., to ascertain the existence of those facts. * * * The operation of the statute, so far as it goes, in favor of the first purchaser, is not limited, and does not stop or cease with the first, second, or third, or any specified number of first recorded subsequent conveyances to' subsequent purchasers, or from one such purchaser to another, and consequently the right of the first purchaser to save himself by the recording of his deed continues, or may. continue, after any number of subsequent conveyances have been recorded; for if the facts exist that such subsequent purchasers, one and all, bought, either not in good faith, or not for a valuable consideration, then his pripr deed will hold, and the title conveyed by it be preferred.” It is obvious from the foregoing authorities that the proper construction of the recording acts charges every person taking title with all conveyances or mortgages made by any one in the chain of title while he holds title, whether the recording of such conveyances occurs then or not. If, upon the record, a prior conveyance seems to be defeated by a subsequent one through delay in recording, then the person taking title must inquire as to the facts which might defeat the statutory effect of such prior record. But it is said that because O’Connell, in an examination of the record and an investigation dehors the record, would have discovered the fact that the towboat company had acquired a good title as a bona fide purchaser from Bradley, he cannot be charged with notice as to the condition of the title on the record previous to that conveyance. This view, in our opinion, cannot be sustained. A purchaser is charged with notice of his chain of title, whether the grantees therein are bona fide purchasers or not. Whether such constructive — 187 — notice will defeat Ms title is quite another question. O’Connell could not, by a,n examination of the record, know that the towboat company was a bona ñde purchaser, without knowing' that it acquired title from Bradley, and therefore that Bradley was in the chain of title. O’Connell also knew that Bradley was his immediate assignor, and that equities against Bradley, existing when he first acquired the title, would revive against him as a mortgagee. Therefore, he was put upon inquiry in regard to Bradley’s bona Mes in reference to conveyances and mortgages appearing upon the record, recorded subsequently to Bradley’s first title, but executed prior thereto. In other words, O'Connell’s position is not affected by the question whether the towboat company and Wright had an indefeasible title, hv the reason of a want on their part of actual or constructive notices because the revesting of the title in Bradley eliminates their indefeasible title from further consideration, and makes the situation exactly as it was when Bradley first held the title. O’Connell had notice that Bradley had taken (lie title from Eshman. lie knew that he was buying his mortgage from Bradley, lie ran the risk, therefore, of Bradley’s having actual notice of the Bate mortgage when he acquired title. Bradley, it is admitted, did have actual notice of the Bate mortgage. Therefore, the constructive notice which O’Connell received of the Pate mortgage put him on inquiry as to how Bradley’s title was affected by it. As that title was subject to the Bate mortgage, O’Connell can take nothing more. But it is argued that O’Connell is protected in this case by the negotiable character of the note which he received from Bradley, to which he acquired title before maturity. It is said that, as the mortgage was given to secure the note, it was an incident to the note, and went into the hands of O’Connell as free from original equities as the note. There is no doubt that under the commercial law, as administered in the federal courts, a mortgage given to secure a negotiable instrument passes to a bona fide purchaser as free from original equities as (he instnunent whose payment it: secures. Carpenter v. Longan, 16 Wall. 271. But how does this principle affect the case at bar? The original equities, which are barred by the transfer of the securing mortgage, are equities of which the assignee has neither actual nor constructive notice. O’Connell had constructive notice from the record of Pate's possible equity against Bradley, and, when he bought from Bradley, he therefore took at his peril. Wright had a good title, and could convey one. When Bradley took title, however, it became tainted, by his previous relation to the title. O'Connell, by reason of the negotiable character of the note, Look Bradley’s title free from any equitable defense by Wright, against the mortgage not disclosed by the record; but whatever infirmity there was in Bradley’s title, apparent, or suggested by the record of the collector's office, O'Connell was hound io know at his peril. It seems manifest that the doctrine of negotiability does not do away with the effect of the recording acts. Daniel, Neg. Inst. (2d Ed.) § 834b; Linville v. — 188 — Savage, 58 Mo. 248; Logan v. Smith, 62 Mo. 455; Sims v. Hammond, 33 Iowa, 368; English v. Waples, 13 Iowa, 57. Finally, it is argued that in order to give Wright, the purchaser from the towboat company, the full benefit of the title of the towboat company, it is necessary that he should be able to dispose of that good title to any one, and that as O’Connell held the mortgage, as from Wright, by Bradley’s assignment, he took the title which Wright was able to convey. Wright was able to convey a good title to everyone in the world but Bradley. Bisp. Eq. par. 265. As against Bradley, Pate’s equities revived. O’Connell coxxld not get any better title to the boat by the mortgage than Bradley had, if he knew that Bradley’s title was defective. We have shown that he was charged with notice of a defect in Bradley’s title, and notice is equivalent to knowledge. The decree of the circuit court affirming the decree of the district court holding Pate’s mortgage prior in right to that of O’Connell upon the one-half of the boat covered by the Pate mortgage is affirmed, at the costs of the appellant.