Williams v. Jackson Jackson/Opinion of the Court

This is a bill in equity, filed by Benjamin L. Jackson and others, partners under the name of Jackson, Brother & Co., and heard on the pleadings and proofs, by which the material facts appear to be as follows:

On the first of January, 1875, Edwin J. Sweet and his wife     purchased and took a deed from Augustus Davis of a house and      land in Washington, and executed and acknowledged a trust      deed thereof, in which they recited that they were indebted      to Augustus Davis in the sum of $8,000 for deferred payments      of the purchase money, for which they had given him their      four promissory notes of the same date and payable to his      order,-three for the sum of $1,833.33 each, and payable in      one, two, and three years respectively, and one for the sum      of $2,500, payable in three years, and all bearing interest      at 8 per cent.,-and by which deed, in order to secure the      payment of those notes as they matured, they conveyed the      land to Charles T. Davis and William Stickney, and the      survivor of them, their and his heirs and assigns, in trust      to permit the grantors to occupy the premises until default      in payment of principal or interest of the notes; and upon      the full payment of all the notes and interest, and all      proper costs, charges, and commissions, to release and convey      the premises to Mrs. Sweet, her heirs and assigns, with a      power of sale upon default of payment, and a provision that      the purchaser at the sale should not be bound to see to the      application of the purchase money. That deed of trust was     recorded on the fourteenth of January, 1875. The notes     secured by that deed were indorsed by Augustus Davis and      Charles T. Davis, had on the margin the printed words,      'Secured by deed of trust,' and were, soon after their date,      transferred by the indorsers for full value and before maturity to the plaintiffs, and have since been held by them,      except the one due at the end of the first year, which was      paid by the indorsers. Charles T. Davis was a son and a     partner of Augustus Davis, and was a broker and real estate      agent.

On the fifteenth of September, 1876, before any of the other     notes fell due, and without the plaintiffs' knowledge, the      trustees, Davis and Stickney, executed a deed of release of      the land to Mrs. Sweet, reciting that the debt secured by the      trust deed had been fully paid and discharged, as appeared by      the signature of Augustus Davis, who joined in the execution      of the release.

At or before the same time, Sweet and wife employed Charles     T. Davis to make some arrangement by which they could take up      those notes and give others running for a longer time. He     went to Samuel T. Williams, and offered him the land      unincumbered, as security for a loan of $5,000, payable in      four years, and bearing 9 per cent. interest; and Williams     agreed to make the loan if satisfied by a conveyancer's      abstract of title that the land was free of all incumbrance,      but not otherwise.

On the twenty-seventh of September, 1876, a deed of trust,     containing provisions like those in the first deed of trust,      was executed by Sweet and wife to Robert K. Elliott and      Charles T. Davis, to secure the payment of a note for $5,000      in four years to Williams, with interest at the rate of 9 per      cent. On the twenty-eighth of September, the deed of release     and the second deed of trust were recorded. Charles T. Davis     furnished Williams with certificates of a conveyancer that he      had examined the title on the fourteenth of September and      found it good, subject to the first trust deed, and again on      the 28th, when the only changes were the release and the      second deed of trust; and Williams thereupon gave to Davis      his check, payable to Davis' order, for $5,000, (which Davis      applied to his own use,) and received from him the note of      Sweet and wife for the same amount, and the trust deed to      secure its payment. Neither Williams nor Sweet and wife then     knew that, at the time of the execution of the release,      Augustus Davis was not the holder of the notes secured by the      first trust deed. On the twenty-ninth of September, Sweet and     wife executed another trust deed to Charles T. Davis to      secure the payment of six promissory notes to Augustus Davis      for $530.26 each, payable at intervals of six months from      their date.

the note to Williams not having been paid, the trustees,  Elliot and Davis, sold the land by auction for the sum   of $6,325 to Eli S. Blackwood, who paid them $1,325 in   cash, (which was applied to the payment of the interest   and of other charges,) and gave them his note for   $5,000, secured by a trust deed of the land.

The bill, which was against Williams, Sweet and wife,     Augustus Davis, and Blackwood in their own right, against      Charles T. Davis and Stickney in their own right and as      trustees, and against Elliott as trustee only, prayed that      the release by Stickney and Charles T. Davis, as well as all      the subsequent conveyances, might be declared void as against      the first trust deed, and the trust created by that deed be      declared to have priority over all subsequent incumbrances;      that Charles T. Davis be removed from his trust and a new      trustee be appointed in his stead; that the land be sold and      the proceeds applied, under order of the court, to the      payment of the notes held by the plaintiffs and of any other      lawful claims; and for an injunction, a discovery, an      account, and further relief.

The judge before whom the case was first heard made a decree     declining to set aside the release or to declare that the      first deed of trust had priority over the second; adjudging      that the first deed of trust was fraudulently and negligently      released by Augustus Davis and Charles T. Davis, and      wrongfully and negligently released by Stickney, and      therefore ordering that the plaintiffs recover against      Augustus Davis, Charles T. Davis, Stickney, and Sweet and      wife, the amount due on the notes held by them, with      interest; declaring that the note for $5,000, held by      Williams, was the first charge on the land; and ordering the      land to be sold, and the proceeds to be distributed in paying      off the incumbrances in the order thus established.

The court at general term reversed those parts of the decree     which declined to set aside the release, and which declared      that Williams was entitled to priority; and also that part      which adjudged that the plaintiffs recover against Stickney      the amount of their debt; affirmed it in other respects; and      ordered the proceeds to be first applied to the payment of      the plaintiffs' debt. Williams appealed from so much of this     decree as gave priority to the plaintiffs' claim; and the plaintiffs      appealed from so much as reversed the decree against      Stickney.

By the statutes regulating the conveyance of real estate in the District of Columbia, all deeds of trust and mortgages, duly acknowledged, take effect and are valid, as to all subsequent purchasers for valuable consideration without notice, and as to all creditors, from the time of their delivery to the recorder for record; whereas other deeds, covenants, and agreements take effect and are valid, as to all persons, from the time of their acknowledgment, if delivered for record within six months after their execution. Any title-bond or other written contract in relation to land may be acknowledged and recorded in the same manner as deeds of conveyance; and the acknowledgment duly certified, and the delivery for record, of such bond or contract, shall be taken and held to be notice of its existence to all subsequent purchasers. Rev. St. D. D. §§ 446, 447, 449.

The first deed of trust from Sweet and wife did not give the trustees merely a power to release the land on payment of the notes secured thereby, and to sell on default of payment; but it vested the legal title in them. A release of the land before payment of the notes would be a breach of their trust, and would be unavailing in equity to any one who had knowledge of that breach. ''Ins. Co. v. Eldredge'', 102 U.S. 454. But it would pass the legal title. Taylor v. King, 6 Munf. 358; Canoy v. Troutman, 7 Ired. 155. The legal title in the land, being in the trustees under the first deed of trust, passed by their deed of release to Mrs. Sweet, and from her by the second deed of trust to the trustees for Williams.

The first deed of trust having been made to the trustees therein named for the benefit of Augustus Davis, and to secure the payment of the notes from the grantors to him, and the plaintiffs, upon the transfer and indorsement to them of those notes, having taken no precaution to obtain and put on record an assignment of his rights in such form as would be notice to all the world, the recorded deed of release, executed by him as well as by the trustees, reciting that the notes had been paid, and conveying the legal title, bound the plaintiffs, as well as himself, in favor of any one acting upon the faith of the record and ignorant of the real state of facts. If the plaintiffs wished to affect subsequent purchasers with notice of their rights, they should have obtained a new conveyance or agreement, duly acknowledged and recorded, in the form either of a deed from the original grantors, or of a declaration of trust from the trustees, or of an assignment from Augustus Davis of his equitable interest in the land as security for the payment of the notes. The record not showing that any person other than Augustus Davis had any interest in the notes, or in the land as security for their payment, an innocent subsequent purchaser or incumbrancer had the right to assume that the trustees, in executing the release, had acted in accordance with their duty.

Williams is admitted to have had no actual knowledge that the notes secured by the first trust deed were held by the plaintiffs, or that they were unpaid. The knowledge of those facts by Charles T. Davis, through whom Williams made the loan, does not bind him, because upon the evidence Charles T. Davis appears not to have been his agent, but the agent of Sweet and wife. Williams took every reasonable precaution that could have been expected of a prudent man, before advancing his money to Charles T. Davis for Sweet and wife. He declined to lend his money until after he had been furnished with a conveyancer's abstract of title, showing that the deed of release from the trustees under the first deed of trust, and from the original holder of the notes secured thereby, as well as the second deed of trust to secure the repayment of the money lent by Williams, had been recorded, and that the land was not subject to any incumbrance prior to the second deed of trust.

It was suggested in argument that as the first deed of trust showed that the notes secured thereby were negotiable and were not yet payable, and that the land was not intended to be released from this trust until all the notes were paid, Williams was negligent in not making further inquiry into the fact whether they were still unpaid. But of whom should be have made inquiry? The trustees under the first deed and the original holder of the notes secured thereby having expressly asserted under their own hands and seals that the notes had been paid, and Sweet and wife having apparently concurred in the assertion by accepting the deed of release and putting it on record, he certainly was not bound to inquire of any of them as to the truth of that fact; and there was no other person to whom he could apply for information, for he did not know that the notes had ever been negotiated, and he had no reason to suppose that they had not been canceled and destroyed.

To charge Williams with constructive notice of the fact that the notes had not been paid, in the absence of any proof of knowledge, fraud, or gross or willful negligence on his part, would be inconsistennt with the purpose of the registry laws, with the settled principles of equity, and with the convenient transaction of business. Hine v. Dodd, 2 Atk. 275; Jones v. Smith, 1 Hare, 43, and 1 Phill. 244; Agra Bank v. Barry, Irish R. 6 Eq. 128, and L. R. 7 H. L. 135; Wilson v. Wall, 6 Wall. 83; Norman v. Towne, 130 Mass. 52.

The equity of Williams being at least equal with that of the plaintiffs, the legal title held for Williams must prevail, and he is entitled to priority. The decree appealed from is in this respect erroneous, and must be reversed. But that decree, so far as it refuses relief against Stickney personally, is right. The main purpose of the bill is to set aside the deed of release and to satisfy the plaintiffs' debt out of the land. The attempt to charge Stickney with the amount of that debt, by reason of his negligence in executing the release, is wholly inconsistent with this. The one treats the release as void; the other assumes that it is valid. In the one view Stickney is made a party in his capacity of trustee only; in the other, it is sought to charge him personally. The joinder of claims so distinct in character and in relief is unprecedented and inconvenient. Shields v. Barrow, 17 How. 130, 144; Walker v. Powers, 104 U.S. 245.

The result is that the decree appealed from must be reversed, and he case remanded with directions to enter a decree in conformity with this opinion, and without prejudice to an action at law or suit in equity against Stickney.

Decree reversed.

HARLAN, J., did not sit in this case, and took no part in the decision.