Savings Bank v. Creswell

APPEAL from the Supreme Court of the District of Columbia.

On June 20, 1870, the firm of S. P. Brown & Son made to Samuel P. Brown its promissory note for $10,000, payable to his order one year thereafter, which he duly indorsed to the Freedman's Saving and Trust Company. To secure its payment, he executed to Daniel L. Eaton, the actuary of the company, a deed of trust for certain lots of ground in Mount Pleasant, in the District of Columbia. Default having been made in the payment of the note, the trustee sold the property Oct. 12, 1872, and conveyed it to the company.

On March 3, 1870, John M. Jolly obtained in the court below a judgment against Samuel P. Brown. At various times in 1873 the company, for a valuable consideration, sold and conveyed a portion of said lots to different purchasers, giving to each its bond to save him harmless against said judgment. It still holds the remaining lots.

Some time about December, 1870, the National Savings Bank of the District of Columbia loaned to said Brown, or to said firm, moneys, to secure the payment of which he executed deeds of trust upon a number of other lots in Mount Pleasant. The moneys remaining unpaid, the bank, to protect its security against said judgment, purchased the same from Jolly, and, in July, 1874, issued an execution thereon, and caused it to be levied on the lots embraced by the trust-deed to Eaton.

This bill against the Savings Bank was filed by John A. J. Creswell, Robert Purvis, and Robert H. T. Leipold, the commissioners of the Freedman's Savings and Trust Company. It alleges that said promissory note remains unpaid, except so far as it has been reduced by the application of the proceeds of the lots so sold by the company, and that the latter is willing to pay its pro rata share to relieve from the lien of said judgment them and the remaining lots conveyed by Eaton, if it is in law or in equity bound so to contribute. It prays for an injunction restraining the Savings Bank and the marshal for said district, who was made a defendant, from selling said lots under said execution, and for general relief. By an amended bill, the purchasers from the company were made defendants. The National Savings Bank set up among other things in its answer that Brown, at the time of the rendition of said judgment, owned a considerable amount of property subject to the lien of said judgment other than that described in the complainants' bill, which property having been conveyed by him subsequently to his conveyances in trust to secure his debt to the defendant, the purchasers thereof are necessary parties in order to charge them with a pro rata share of said judgment.

The remaining facts are stated in the opinion of the court.

The special term decreed that the complaints were entitled to have all the real estate belonging to said Samuel P. Brown on the twentieth day of June, 1870, bound by the judgment at law in favor of John M. Jolly, sold in the inverse order of its alienation by said Brown, including that conveyed by him for the security of the National Savings Bank, before the lands conveyed for the security of the Freedman's Savings and Trust Company can be called upon to contribute to the payment of any part of said judgment. The defendants were also enjoined from in any wise interfering with any of said property for the purpose of collecting or satisfying the said judgment, or any part of it, until all the other real estate belonging to said Brown on said twentieth day of June, bound by said judgment, shall have been sold, and the proceeds applied to the payment thereof.

That decree having been affirmed by the Supreme Court of the District of Columbia at its general term, the National Savings Bank appealed to this court.

Mr. James M. Johnston for the appellant.

The rule that where several parcels of land, bound by a common charge, are conveyed by warranty deed to different purchasers and at different times, such parcels are charged with the paramount lien in the inverse order of their alientation, provided the junior purchasers have notice of the lien and of the prior conveyances of portions of the land bound by it, had never, previously to the decree in this case, been adopted by the Supreme Court of the District of Columbia.

On the contrary, this court, in Hughes v. Edwards (9 Wheat. 489), recognizes the opposing rule that, in marshalling real securities bound by a common charge, each piece of the incumbered property shall bear its share of the burden, in the proportion which the value of such parcel bears to the whole incumbrance, and irrespective of the order in which the several parcels may have been conveyed. That case constitutes a rule of property in the District of Columbia, and is conclusive in the case at bar.

The propriety of charging the paramount incumbrance on the parcels of land in the inverse order of their alienation was considered in Orvis v. Powell (98 U.S. 176), but there the court only followed the local rule in force in Illinois.

The authorities are not harmonious. In the following cases, what is known as the pro rata rule has been adopted and acted upon. Barnes v. Rackster, 1 Y. & Col. N. R. 401; 1 Hilliard, Mort. 310 (citing Bacon's Abr., title Execution, B. 4; Carter v. Bernardiston, 2 Eq. Cas. Abr. 224; Sir W. Herbert's Case, 3 Cox, 14; Harris v. Ingleden, 3 P. W. 98, 99); Averall v. Wade, 2 Llo. & Goo. 252; Story, Equity, sects. 477, 484, 1233 b; Adams, Equity, 270 (citing 2 Porter, 262; 2 Rand. 384; 4 id. 272; 3 J. J. Marsh. 44; 4 Monr. 76; 2 Ed. C. R. 297); Green v. Ramage, 18 Ohio, 429; Burke v. Chrisman, 3 B. Mon. (Ky.) 50; Dickey v. Thompson, 8 id. 318; Beverly v. Brooke, 2 Leigh (Va.), 425; 2 Humph. (Tenn.) 34; Massie v. Wilson, 16 Iowa, 391; Barney v. Myers, 28 id. 472.

If the pro rata distribution of the common charge is the proper mode, the decree below, directing the property to be sold in the inverse order of its alienation by Brown, is certainly erroneous.

If this was the only error in the decree, it might be modified by directing the judgment to be paid pro rata from the several parcels of land mentioned in the bill. The appellant set up in its answer, however, that the owners of the other property, formerly owned by Brown, are necessary parties, inasmuch as their property must bear its share of the common burden. No amendment to that effect having been made, the bill should be now dismissed. Shields v. Barrow, 17 How. 130.

The bill is defective in that it fails to allege that the appellant, when the conveyance under which it claims was made by Brown, had actual knowledge or constructive notice of the prior conveyance to the company of some of the lots on which the judgment was a lien.

If a vendee should purchase one of several lots, known by him to be bound by a common charge, he, until otherwise informed from some source, has a right to presume that the remainder of the property is still vested in his vendor; and to infer that the lot so purchased is the last to be seized to satisfy the charge. Brown v. Simmons, 44 N. H. 475, 479; Chase v. Woodbury, 6 Cush. (Mass.) 143; 2 W. & T. Lead. Cas. in Eq., pt. 1, p. 298.

Hence, in order to call into existence the equity appealed to by the complainants, it must appear that the junior vendee had notice of the paramount lien and prior conveyance. Startey v. Stocks, 1 Dev. (N. C.) Eq. 314; Lock v. Fulford, 52 Ill. 166; Iglehart v. Crane, 42 id. 261, 266; Insurance Company v. Bell, 22 Barb. (N. Y.) 56, 57, 63; Green v. Ramage, 18 Ohio, 428; Reilly v. Mayer, 12 N. J. Eq. 56-60; Mechanics' Association v. Conover, 14 id. 225; Orvis v. Newell, 17 Conn. 100; Brown v. Simmons, supra; Chase v. Woodbury, supra.

Indeed, to hold that a purchaser of real estate is to be prejudiced by a mere equity, not known to him from the land records or from any other source, would be entirely opposed to the spirit of our registry laws.

The bill of complaint contains no allegation that the deed from Brown to secure the loan mode by the Freedman's Savings and Trust Company was ever recorded.

However the truth may be, evidence to establish the fact of record would not be admissible, since the proofs must be confined to the allegations. Simms v. Guthrie, 9 Cranch, 25; Boone v. Chiles, 10 Pet. 209.

It is true that the original deed is filed as an exhibit with the bill of complaint, but it is not, for that reason, a part of the latter, nor can its contents be treated as a portion of the averments of the complainants. Terry v. Jones, 44 Miss. 542; Strathan v. Insurance Company, 45 id. 600; Caton v. Willis, 5 Ired. (N. C.) Eq. 335.

Even if it were competent to refer to that deed for the purpose of supplying allegations which are wanting in the bill itself, there is nothing on its face to indicate that it was ever recorded, much less that it was of record when the appellant loaned its money on the faith of Brown's title to the land taken as security. The title of a bona fide purchaser for valuable considerations is not to be affected by loose, vague, and uncertain evidence of the existence of the prior title. If a former owner neglects to record his title, every presumption is to be made in favor of a subsequent purchaser. Boggs v. Varner, 6 Watts & S. (Pa.) 469.

But it is maintained that, even if that deed had been recorded, the appellant would not thereby be charged with constructive notice. The record does not show that Brown's title to the lots which the company subsequently owned was acquired by the deed or conveyance which passed the title to those he conveyed to secure the appellant. So far as the record shows, the parcels of ground came to Brown by different chains of title. But the appellant is not charged with constructive notice of any conveyance by Brown, unless it be in the chain of its title. Green v. Ramage, 18 Ohio, 429; Boggs v. Varner, 6 Watts & S. (Pa.) 469; Guion v. Knapp, 6 Paige, Ch. 42; Chase v. Woodbury, 6 Cush. (Mass.) 143; Hamilton v. Royse, 2 Sch. & Lef. 326.

Those courts which favor the rule that charges the lien on the several parcels of land in the inverse order of their alienation, rest their argument on the fact that the purchaser paid full consideration for the title, and received a general warranty deed. Bradley v. George, 2 Allen (Mass.), 392; Wallace v. Stevens, 64 Me. 225.

But a beneficiary, under a deed of trust, does not occupy this position, for he does not pretend to pay a full price for the property, and the trustee only receives a conveyance of the grantor's then interest in the land. Such a deed only operates by way of estoppel against the grantor, and does not profess to pass an absolutely perfect title, and for full value. In such cases the pro rata rule has been held to apply, even if, in the same jurisdiction, the opposite rule would hold in cases of warranty deeds. Ely v. Perrine, 2 N. J. Eq. 396; Pancoast v. Duval, 26 id. 445.

He who seeks to enforce an equitable right, especially if he appeals to the chancellor to grant him a mere benevolence, must allege in his bill all the facts necessary to make out his title to relief, and must show affirmatively that it would be equitable, in relation to all the parties, to afford him the relief asked. Cases supra; Tomlinson v. McKaig, 5 Gill (Md.), 276; Orvis v. Newell, 17 Conn. 100; Ridgway v. Toram, 2 Md. Ch. 308; Dorr v. Shaw, 4 Johns. Ch. 17; Sterling v. Brightbill, 5 Watts, 229, 231-233.

If the equities of the case are considered, complainants are not entitled to the relief which they seek, not having brought themselves fully within the rule on which they rely.

Both the complainants and the appellant are charged with constructive notice of the judgment lien, if either is. In this respect their claims are equally meritorious, for each purchased under a misapprehension of facts. The contracts were of the same character and for the same purpose, and the appellant had no notice of the conveyance now set up by the complainants.

But when the bill was filed in this cause the appellant had already seized, by an execution issued on the paramount judgment, a portion of the property now claimed by complainant.

Where the equities are balanced, the legal course of an execution is not to be disturbed. Miller v. Jacobs, 3 Watts (Pa.), 437. It is well settled that where parties have an equal claim to the consideration of the chancellor, the law will be allowed to take its course. Zeigler v. Louk, 2 id. 206; Erbs's Appeal, 2 Pearson & Watts, 296; McGinnis's Appeal, 16 Pa. St. 445; Wallace's Estate, 59 id. 401; Withers v. Carter, 4 Gratt. (Va.) 407.

Inasmuch, therefore, as the complainants have not alleged nor established the necessary jurisdictional facts, nor brought themselves within the rule of which they claim the benefit, nor established any equity which is so far superior to appellant's as to justify the court in interfering with a legal execution, the bill should be dismissed.

It is submitted that, even if the court below had the power to grant the complainants any portion of the relief prayed, it erred in the extent of that relief; for the complainants show no title to the land conveyed to the appellant before filing the bill, and the appellant asks no relief whatever.

Mr. Enoch Totten, contra.

The question arising in the case is, whether or not the judgment now owned and held by the National Savings Bank can be collected out of the property conveyed to the Freedman's Savings and Trust Company, until all the other property bound by the judgment and owned by Brown at the date of the sale to the company shall have been first sold and the proceeds applied to the payment of the judgment.

The lots bound by this judgment, and subsequently mortgaged or sold by Brown at different times to different persons, are chargeable in the inverse order of their alienation; that is to say, the parcels last sold are to be charged to their full value, and then go backwards until the judgment shall have been fully paid.

This doctrine is now fully established in this country. It was firmly settled in Clowes v. Dickinson, 5 Johns. (N. Y.) Ch. 285; s. c. 9 Cow. (N. Y.) 403. See also Gill v. Lyon, 1 Johns. (N. Y.) Ch. 447; Sturtevant v. Hall, 2 Barb. (N. Y.) Ch. 151. It has been followed in nearly all the States in the Union where the question has arisen. Shannon v. Marselis, Sax. (N. J.) 413; Shepherd v. Adams, 32 Me. 63; Holden v. Pike, 24 id. 427; Cushing v. Ayre, 25 id. 383; ''Com. Bank v. Western Res. Bank, 11 Ohio, 444; Cummings v. Cummings, 3 Ga. 460; Pallen v. Agricultural Bank'', 1 Freem. (Miss.) Ch. 419; s. c. 8 Smed. & M. 357; Gist v. Pressley, 2 Hill (S.C..), Ch. 318; Stoney v. Shultz, 1 id. 500; Bank v. Howard, 1 Strobh. (S.C..) 173; Wright v. Atkinson, 3 Sneed (Tenn.), 585; Conrad v. Harrison, 3 Leigh (Va.), 532; Lyman v. Lyman, 32 Vt. 79. See also 2 Lead. Cas. in Eq. (Am. notes) 237; Cary v. Folsom, 14 Ohio, 365; Gates v. Adams, 24 Vt. 70; Watson v. Barr, 7 Md. 117; Hamilton v. Schwehr, 34 id. 107; Titus v. State, 17 Wis. 248; Wynn v. Carter, 20 id. 107; Hurd v. Eaton, 22 Ill. 122; Orvis v. Powell, 98 U.S. 176. For a list of cases and remarks on this doctrine see 2 Lead. Cas. in Eq. (1877), pt. 1, p. 291.

Mr. Justice Story, in his learned work on Equity Jurisprudence, inclines to doubt the justice of the doctrine as established in America, and seems to prefer the doctrine which charges the original incumbrance ratably upon the land of subsequent purchasers. He says the doctrine has been so 'asserted in the ancient as well as the modern English cases on the subject.' 2 Story, Eq., sect. 1233 b. He cites Averall v. Wade (11 Eng. Ch. 252), as an authority sustaining this view. Upon an examination of that case it will be found that it sanctions the American rule as above laid down. Hamilton v. Royse (2 Sch. & Lef. 315) is to the same See Cowden's Estate, 1 Pa. St. 267.

Where an individual, owning two or more pieces of land bound by a personal judgment against him, sells a part of them, it is well settled as a rule of equity that the part retained shall be primarily chargeable with the debt. 2 Story, Eq., supra. It is clearly right and just, that on his alienation of a part the remainder should become immediately burdened with the entire debt. He cannot escape from the rule, and, in order to pay the judgment, enforce contribution against his vendee. This is conceded in all the cases. How, then, can he sell to a third person a privilege or right which he himself does not possess? The second purchaser 'sits in the seat of his vendor,' has precisely the same rights, and incurs the same obligations. Clowes v. Dickinson, supra. The judgment was notice to the world, and every purchaser or mortgagee was bound to ascertain what lands the debtor had alienated subsequently to its rendition. Every conveyance by Brown of land bound by the judgment directly and materially affected the lots whereof he retained the ownership, by releasing from the lien the parcels so conveyed, and transferring a corresponding additional burden to the remainder of them.

The deed of trust was in effect a mortgage, and every subsequent mortgagee was bound to take notice of its registration in the proper office. Lyman v. Lyman, 32 Vt. 81.

A judgment of the Supreme Court of the District of Columbia binds the defendant's lands. Tayloe v. Thompson's Lessee, 5 Pet. 358.

MR. JUSTICE MILLER delivered the opinion of the court.