Balfour v. Hopkins

GILBERT, Circuit Judge, after stating the facts as above, delivered the opinion of the court. The deed which was placed in escrow with the cashier of the Commercial Bank was delivered to the attorney of the appellants in violation of the conditions stipulated in the agreement of the parties. The cashier had in his possession a writing referring expressly to the mortgage, the bond, and the preliminary agreement between Hopkins and Parkinson. The preliminary agreement was not deposited with him, but the mortgage, which was placed in his- possession, was sufficient to advise him of the condition upon which he was to deliver the deed. The escrow card, it is true, did not clearly define the condition. It instructed the bank to retain the custody of the deed until Parkinson should procure a loan of $60,000, and place that sum in the bank, subject to its control, and to be used in the construction of a building upon lot 7. By the agreement of the parties, however,' the deed was not to be delivered unless Parkinson should procure the loan upon a first mortgage on lots 7 and 8, leaving Hopkins with a first mortgage on the property lying to the westward thereof. That condition was not fulfilled. But it is urged that the appellants stand in the attitude of innocent purchasers; that their attorney had no actual notice of the terms of the agreement, nor of the terms of the mortgage, which was with the papers in escrow, and that his only information was that which [569] lie had received from Parkinson and from Spencer, which was to the effect ihat the deed was to be delivered whenever a first mortgage for §60,000 should he obtained upon the property described in the deed, and that sum should be placed in the bank; and that the appellants acted in good faitli, and without notice of the agreement between Hopkins and Parkinson, and without knowledge that the former was to have a first mortgage upon any portion of the property. The authorities are not in entire harmony as to the effect of the delivery oí a deed which has been left in escrow, to be delivered to the grantee upon the performance of a condition, and which has been wrongfully delivered before the condition was performed. The decided weight of authority seems to sustain the view that such a delivery is inoperative to convey title, even in favor of an innocent purchaser without notice, unless the grantor has, by some act or conduct of his own, estopped himself to deny the delivery. The principle on which the doctrine rests is that a deed delivered in violation of the terms on which it has been placed in escrow is not in fact delivered, and ihat its possession by the grantee is no more eifective to convey title than would be the possession of a forged or stolen instrument. Everts v. Agnes, 4 Wis. 343; Berry v. Anderson, 22 Ind. 36; Jackson v. Lynn (Iowa) 62 N. W. 704; Whipple v. Fowler (Neb.) 60 N. W. 15; Smith v. Bank, 32 Vt. 342; Haven v. Kramer, 41 Iowa, 382; Tisher v. Beckwith, 30 Wis. 55. In Provident Life & Trust Co. of Philadelphia v. Mercer Co., 370 U. S. 593, 604, 18 Sup. Ct. 788, 793, the supreme court distinguished between the ease of a bona fide purchaser of negotiable paper which had been wrongfully delivered by a depositary and that of a purchaser of real estate under like conditions, and quoted with approval the language of Chief Justice Bigelow in Fearing v. Clark, 16 Gray. 74, as follows: “The rule is different in regard lo a deed, bond, or other instrument placed in file hands of a third person as an escrow,' to be delivered on the happening of a future event or contingency. In that case no title or Interest passes until a delivery Is made in pursuance of the terms and conditions upon which, it was placed in the hands of the party to whom it was intrusted. But the law aims to secure the free and unrestrained circulation of negotiable paper, and to protect the rights of persons taking it bona fide, without notice.” " But it is not necessary to”determine whether the title passed to Parkinson at the time of the delivery of the deed. When Hopkins placed his own mortgage upon record, he undoubtedly ratified the delivery of the deed, and acknowledged that the legal title to the property had vested in Parkinson. We are unable to agree with the earnest contention of counsel for the appellants that, in admitting the legal title to be in Parkinson, he admitted the priority of their mortgage over all the property. When he found that the deed had been delivered, and that a mortgage had been placed of record which violated the rights that had been reserved to him, it is evident that, by placing his mortgage of record, he sought only 1o protect his own interests, and to give notice of his rights. It does not follow that, by ratifying the delivery of the deed., he ratified (lie inequitable use which Parkinson had made of the title which he thereby acquired. He gave immediate and positive no- [570] tice to the contrary. The utmost that the appellants can predicate upon his ratification of the delivery of the deed is that he acknowledged the validity of their mortgage to the extent only that Parkinson was authorized to incumber the property. The whole case therefore resolves itself into a question .of what were the rights, if any, which the appellants acquired as innocent purchasers. To constitute a bona fide purchaser, there must be want of notice, both at the time of the purchase and at the time of the actual payment of the purchase price. Notice before payment is equivalent to notice before the contract, even though the unpaid balance is secured. Blanchard v. Tyler, 12 Mich. 338; Brown v. Welch, 18 Ill. 342; Kohl v. Lynn, 34 Mich. 360; Lewis v. Phillips, 17 Ind. 108; Boone v. Chiles, 10 Pet. 211; Everts v. Agnes, 4 Wis. 343. At the time when the appellants received notice in this case, they had paid but $20,000 of the $60,000 which they had contracted to advance upon the mortgage.' The $20,000 so paid still remained in the bank, from which it was to be disbursed in the erection of the building. The appellants undoubtedly had the right, at this point, to rescind the contract; for both Parkinson and the bank had violated the escrow agreement, and Parkinson had executed a mortgage upon property which' he had no right to incumber. Instead of rescinding, the appellants chose to pay the bank the remainder of the loan. This they did with full knowledge of the facts. By electing to proceed and pay over the remainder of the money, they must be deemed to have assented that their mortgage should stand as a lien upon the property only which Parkinson could rightfully mortgage to them under his agreement. It may be conceded that, if they were innocent purchasers to the extent of the $20,000 which they had paid before notice of the rights of Hopkins, they had the right, while declining to make further payments on the mortgage, to hold the mortgage itself as security pro tanto for the amount already paid, provided that sum had been paid beyond their power to recall it. But it is not shown that the bank, which held the money, and had given a bond for its disbursement for a specified purpose, declined to surrender the money to’ .the appellants, or that it was requested to do so. No ground is perceived upon which the bank could have resisted such a demand, since the money which it held had been obtained in violation of the escrow agreement of which it was the depositary. The burden of proving all the facts necessary to constitute themselves innocent purchasers rested upon the appellants. Not only have they failed to show that they could not have rescinded the loan, and recovered the $20,000 so paid to the bank, but the evidence in the record is insufficient to convince us that they were in fact innocent purchasers, even to the extent of said sum so paid to account upon the loan. In entering into the contract of loan, as it is disclosed in the record, the appellants were not in the attitude of dealing with one whom they found apparently clothed with the muniments of title. They had notice that Parkinson had no title. They found a deed which was in the possession of neither the grantor nor the grantee, but in the hands of a depositary. They knew that the [571] depositary was bound to deliver the deed only upon the performance; of a condition, and that he was equally bound to withhold its delivery until performance. The depositary was the agent of the grantor, but he was also the agent of the grantee. His authority, so far as he represented either, was not like the authority of a general agent. His agency was special, and for a single act. In procuring (.he delivery -of a deed so held by him in escrow, the aj>pellants were bound to know whether or not the conditions on which its delivery depended had been met. It was not. sufficient that they were ignorant of the rights of the grantor, or that no special fact or circumstance came directly to their notice to suggest his rights. It was not sufficient that the depositary voluntarily surrendered the deed, or stated that the terms of tie escrow had been fulfilled. The circumstance that the deed was in escrow was of itself sufficient to require them to ascertain the facts. Their attorney had been informed by Parkinson that his trade with Hopkins was conditioned upon his borrowing $(50,000 upon the security of a first mortgage upon the property. « He did not inquire of the bank upon what terms the deed was held in escrow. He did not see the escrow card, nor ascertain if the instructions were in writing. He had notice, however, from Parkinson’s statement to him that Hopkins had not been paid the purchase price of his property, and that a mortgage was to be given to secure it. He had no right to rely upon Parkinson’s statement of the terms of the escrow agreement. The fa,els which came to his knowledge were sufficient to put him upon inquiry. If he had read the escrow card, he would have been advised by its terms that a preliminary agreement had been executed, and that a- mortgage from Parkinson to Hojikins was among the escrow papers. Prom the mortgage he would have discovered that the deed could not he delivered unless the grantee borrowed the $60,000 without; incumbering lots Í) and 10 with a first lien. In loaning money upon the whole property without further inquiry, the appellants acted at their peril. The appellants point to various acts and conduct on the part of Hopkins which they contend establish against him an estoppel to deny that their lien is first upon lots 9 and 30, and amount to a ratification upon his part of their mortgage in all its terms. These are the fact that Hopkins received the bond of the bank, conditioned upon the disbursement of the money in the construction of the building upon lot 7, and subsequently sued the bank upon the bond, alleging that not more than $30,000 of the $60,000 loan had * been thus used; the fact that he wrote the letter of January 30, 3,893; the fact that he foreclosed his mortgage, and bought in all of the property which he had sold to Parkinson, in a foreclosure suit to which the appellants were not made parties; and the fact that he demanded of, and received from, Parkinson additional security upon property in Oregon for the unpaid balance of the purchase price which Parkinson owed him. All of these circumstances, except the delivery of the bond to Hopkins, and the letter of January 10, 1893, occurred after the appellants had parted with [572] the full amount of the $60,000 loan. It is not shown that in pursuance of, or relying upon, any or all of said acts, the appellants changed their relation to the transaction, or that they have thereby been placed in any different position from that in which they would otherwise have been. The letter of January 10, 1893, rejecting their proposition, and declining to give the matter “further attention at present,” was not inconsistent with an intention upon the part of Hopkins to rely upon his rights as he understood the same to be then defined and fixed by the antecedent facts; nor was it inconsistent with his present contention, that their mortgage upon lots 9 and 10 was, in equity, postponed to his. The fact that he demanded and obtained of Parkinson further security in no way affected their rights, nor were they injured by his foreclosure of his mortgage; nor can the fact that he failed to make them parties to his foreclosure suit, or that he paid interest upon their mortgage, or that he requested them to delay the commencement of their foreclosure suit, be construed to be a ratification of their mortgage, or-an admission of the priority of their lien. He held a lien second to theirs upon a portion of the property, and claimed a prior lien upon the remainder. While so asserting his claim, he waived none of his rights by paying the appellants the interest on their mortgage, or by requesting them to delay their foreclosure, or by any other act of which the record advises us. We find no error for which the decree should be reversed. It is therefore affirmed