Refeld v. Woodfolk/Opinion of the Court

The appellee (Woodfolk) filed this bill in the Circuit Court against the executors and heirs of Frederick Notrebe, deceased, and the trustees of the Real Estate Bank of Arkansas.

He represents that, in 1845, he concluded an agreement with Notrebe for the purchase of fourteen hundred and seventy-eight acres of unimproved land in Arkansas, for fifteen thousand five hundred and eighteen dollars, a portion payable in cash, and the remainder in instalments, secured by his notes and bond. Notrebe and his wife obligated themselves, when the payment should be completed, to convey to him the land in fee simple, 'by a good and sufficient deed, with general warranty of title, duly executed, according to law.'

The appellee has established a plantation upon the land, and has greatly improved its value. He completed the payment in 1850, when the executor of Notrebe offered a deed executed by his widow and heir-at-law, in which there was a covenant of warranty, in fulfilment of the agreement of his testator. The appellee declined to accept this, because the land had been mortgaged to the Real Estate Bank of Arkansas, in 1837, by Notrebe, to secure the payment of his note for thirty thousand dollars, payable in October, 1861, with five per cent. interest annually, which Notrebe had given for three hundred shares of the stock of that bank. The appellee charges that the existence of this mortgage was concealed from him until after the conclusion of his agreement, and that afterwards he was deceived by misrepresentations of the condition of the title, until he had paid the whole of the purchase money. He prays that the title be examined, and that the defendants be required to remove the encumbrance, or to give him effectual indemnity against it, and that the distribution of the estate of Notrebe be restrained until this be done.

The defendants answered the bill, and have successfully repelled the imputations of fraud and misrepresentation, but admit the existence of the mortgage, and fail to impair its validity.

The Circuit Court, upon the pleadings and proofs, declare that the 'entire transaction' between Notrebe and the appellee 'was bona fide and free from fraud,' and that the latter had notice of the mortgage as a subsisting and operative encumbrance upon the land before he concluded his contract; but that Notrebe had agreed to convey the land free of encumbrance and with warranty of title, and that the vendee is entitled to the performance of that contract; but that the debt of the decedent, not being at maturity, and of a character not to be ascertained before that time, all that could be done would be to provide an indemnity against the peril it created.

The court proceed to require of the executors to remove the encumbrance whenever it can be done, and then to convey the land by a deed with warranty, and with the relinquishment of dower by the widow; and, meanwhile, that they should deposit with the clerk of the court bonds of the State of Arkansas, for the amount of Notrebe's note and the interest, ($61,500,) to be held and appropriated under the order of the court as indemnity, or that the executors might, in part or for the whole, convey to the clerk unencumbered real estate of the same value, for the same object and under the same conditions.

The Real Estate Bank was established on a loan by the State of Arkansas of its bonds, which the bank sold to form its capital. The principal and interest of these bonds were to be paid by the bank; and its means of doing so were afforded by the securities obtained from the loan of its capital and profits of business, and the bonds and mortgages of the stockholders, to the extent of their subscription of stock. Each stockholder having given a bond and mortgage to the bank corresponding to the pro rata amount of the State bonds issued to the bank, as compared with the stock, and which were pledged for the payment of the State bonds, the sum to be paid by any shareholder on this debt depends upon the degree of the insolvency of the bank. In case of the loss of its entire capital, the stockholder becomes liable to pay his entire debt.

The pleadings and proofs in this case show that the bank has suffered a loss of a portion of its capital, but no data are afforded to ascertain the amount of the loss. The decree of the Circuit Court assumes that the loss may be total; and the indemnity awarded was determined as if the fact would correspond with the possibility. This appeal was made to test the validity of this decree.

A court of chancery regards the transfer of real property in a contract of sale and the payment of the price as correlative obligations. The one is the consideration of the other; and the one failing, leaves the other without a cause. In Ogilvie v. Foljambe, (3 Mer., 53,) Sir William Grant says: 'The right to a good title is a right not growing out of the agreement of the parties, but which is given by law. The purchaser insists on having a good title, not because it is stipulated for by agreement, but on the general right of a purchaser to require it.'

Upon this principle, a vendor is allowed a lien or privilege for the price of the property against the vendee and his assigns; and the vendee is permitted to appropriate the purchase money, to exonerate his estate from a lien or encumbrance, and in some cases to compensate for original defects in the estate, as respect its quantity, quality, or extent of vendor's interest therein.

The cases cited on the part of the appellee support this doctrine, and confirm the argument that he was entitled, under his contract, (having no reference to extrinsic circumstances,) to the fee simple estate, without diminution. Galloway v. Findley, 12 Pet., 264; Burwell v. Jackson, 5 Seld., 535; Cullum v. Bank of Ala., 4. Ala. R., 21.

But such circumstances may very materially modify the situation of the parties, and indispose that court to interfere between them, even in cases within the jurisdiction of the court. If the contract has been executed by the delivery of possession and the payment of the price, the grounds of interference are limited by the covenants of the deed, or to cases of fraud and misrepresentation. 'The cases will show,' say this court, 'that a purchaser in the undisturbed possession of the land will not be relieved against the payment of the purchase money on the mere ground of defect of title, there being no fraud or misrepresentation; and that in such a case he must seek his remedy at law, on the covenants in his deed; that if there is no fraud and no covenants to secure the title, he is without remedy, as the vendor, selling in good faith, is not responsible for the goodness of his title beyond the extent of the covenants in his deed. Patton v. Taylor, 7 How., 132.

This rule, experience has shown, reconciles the claims of convenience with the duties of good faith. The purchaser is stimulated to employ vigilance and care in reference to the things as to which they will secure him from injustice, while it affords no shelter for bad faith on either part.

The intermediate cases-those in which the parties have advanced in the completion of their contract, and are still willing to abide by it, and there arises a real inability or a wellfounded apprehension of danger, in that stage of their proceedings, to the completion of the contract-have created much embarrassment. Some of these cases have been settled upon terms of compensation, in which the court of chancery has exercised a doubtful jurisdiction, in modifying the conditions of the contract according to the supervening circumstances. White v. Cuddon, 8 Cl. and Fin., 766; Thomas v. Dering, 1 Keen, 729; Dart, Vend. and P., 499, et seq.

We have met with no case in which a vendee, in possession under a contract of purchase or a deed with covenants, has been permitted to reclaim the purchase money already paid, to be held as a security for the completion or protection of his title. The Roman law permitted the vendee to retain the purchase money in his hands, as security against an impending danger to the title; but denied a suit for restitution, after payment, for that cause. 'We must not,' says Troplong, 'hastily break up a contract which the vendor may at last be able to fulfil. There is no analogy between the case in which the purchaser is allowed to retain the price as security, and that in which he would force the vendee to restore it for that purpose. Between the right of retention and that of restitution of the price, there is the distance between the statu quo and rescission. Trop. de Vente, No. 614; Dalloz Juris., gen. tit. de Vente, sec. 1170.

The decree of the Circuit Court does not direct the restitution of the purchase money to the vendee, nor its application by the vendor to assure the attainment of the object of the contract; but it sequestrates property of the vendor of four times the amount, to be held or disposed of by the court in its discretion, to assure the accomplishment of that object. In the case of Milligan v. Cooke, 16 Vesey, 1-14, Lord Eldon made an order that the purchaser should be compensated for the difference in the value between the title contracted for and that exhibited; and if that difference could not be ascertained, the master was directed to settle the security to be given by the defendant as indemnity to the purchaser against disturbance or eviction; and a similar order was made in Walker v. Barnes, 3 Mad., 247. But there were conditions in the contract that authorized the order.

In Balmorno v. Lumley, 1 V. and B., 224, and Paton v. Brebner, 1 Bligh. P. C., 42, the cases in which such a relief could be granted appear to be limited to that class. In the latter case Lord Eldon said: 'This suit is in substance or effect (allowing for dissimilarities between English and Scotch proceedings) in the nature of a suit in a court of equity in England for the specific performance of a contract. In such a suit, if it turns out that the defendant cannot make a title to that which he has agreed to convey, the court will not compel him to convey less, with indemnity against the risk of eviction. The purchaser is left to seek his remedy at law, in damages for the breach of the agreement.'

In Aylett v. Ashton, 1 M. and C., 309, the master of the rolls, upon the authority of the cases cited, said: 'Parties no doubt may contract for a covenant of indemnity; but if they do not, the court cannot compel a party to execute a conveyance and to give an indemnity.' To the same effect is Ridg way v. Gray, 1 Mac. and G., 109.

The appellee does not seek to rescind this contract; not does he disclose any imminent peril of disturbance or eviction, as the effect of the existence of the mortgage. The record shows that the widow and heir of Notrebe, whose covenant of warranty has been offered to the appellee, are either of them able to respond to the damages that would be awarded upon the breach of that covenant. The appellee had notice of this encumbrance when he made and performed his agreement of purchase, and did not stipulate for any additional indemnity to that resulting from the covenant of warranty. We must therefore conclude that he was willing to abide the settlement of the affairs of the Real Estate Bank, and to rely upon the protection afforded by the covenants in his deed. We have no reason to suppose that the vendor would have consented to deposit in the hands of a stranger four times the value of the property he sold, as a security for the fulfilment of his contract; nor can we superadd this to the other obligations he has assumed.

Our opinion is, that the decree of the District Court is erroneous, and must be reversed.

The deeds tendered seem to be in conformity with the stipulation of the vendor in the agreement. The vendee may elect to take these, or he may retain the agreement. In either case, his bill will be dismissed with costs; and for this purpose the cause is remanded.