161 N.E. 306 | Ill. | 1928
Lead Opinion
This case comes to this court on a petition forcertiorari to review a judgment of the Appellate Court for the Fourth District reversing a decree of the city court of East St. Louis in favor of plaintiffs in error in a mortgage foreclosure proceeding.
The facts are undisputed and are substantially as follows: Robert E. Wahl and Myra Wahl, his wife, were the owners of certain real property here involved, and made application to John W. Renshaw's Sons, a real estate firm of East St. Louis, for a loan. On May 16, 1914, the Wahls executed to Henry T. Renshaw, trustee, their promissory note, and a trust deed securing the same, for $1700, due in three years, with interest at six per cent. The note and trust deed were delivered to Renshaw, who had the trust deed recorded. Later, during the same year, Renshaw endorsed the note and sold it and delivered the trust deed to Adam Eitzenhefer, who has since retained title thereto and had possession thereof. No written assignment of the trust deed was executed or recorded and no notice of such assignment was given to the Wahls. The Wahls paid to Renshaw the interest due on the note until its maturity, and he paid the same to Eitzenhefer. After the note became due Renshaw continued to pay interest thereon to Eitzenhefer until the Renshaw firm failed, in August, 1922, but no part of the principal has been paid. When this loan, *138 which we shall designate as No. 1, came due, in 1917, the Wahls, who were not aware of the sale and delivery of the note and trust deed, gave to Renshaw a new note for $1700, secured by a trust deed to Renshaw as trustee. This loan No. 2 was given for the express purpose of renewing loan No. 1, and Renshaw, without the knowledge of Eitzenhefer, after maturity, entered upon the public record a marginal release of the trust deed under loan No. 1. The trust deed under loan No. 2 was recorded, and during October, 1917, Renshaw sold this note and trust deed to E.F. Voightlander, who paid him the full amount of the note and has since retained title to and possession of the papers under that loan. No written assignment thereof was executed or recorded and no notice thereof was given the Wahls, who paid the interest to Renshaw upon loan No. 2 until May, 1922, and he paid the same to Voightlander, but no part of the principal has ever been paid. The money received by Renshaw for the sale of the note and trust deed under loan No. 2 was converted to his own use. Until 1922 Renshaw paid interest on loan No. 1 to Eitzenhefer and interest on loan No. 2 to Voightlander. During May, 1922, the Wahls, supposing that their first note and trust deed had been fully paid by the note and trust deed under loan No. 2 and that Renshaw still held the papers under the second loan, executed to Renshaw a third note for $1700, secured by a trust deed on the same property, for the sole purpose of renewing loan No. 2. The note and trust deed as described in loan No. 1 were not taken up and delivered to the Wahls, nor were the note and trust deed taken up or canceled under loan No. 2. Renshaw entered on the record, after maturity, a marginal release of loan No. 2 without the knowledge of Voightlander, who was at that time the owner and holder of the note and trust deed under that loan. The trust deed under loan No. 3 was recorded, and instead of using the note and trust deed under loan No. 3 for the purpose intended, Renshaw, during July, 1922, sold and assigned that *139 note and trust deed to William and Nellie Connor, plaintiffs in error here, and they took a written assignment thereof from Renshaw and placed the same of record. At the time they purchased that note and trust deed they relied upon a certificate of title which showed that the prior trust deeds designated herein as Nos. 1 and 2 had been released. The real estate firm of John W. Renshaw's Sons failed during August, 1922, and finally went into bankruptcy. Thereafter the parties interested in the securities discovered the fraud and rascality of Henry T. Renshaw, and William and Nellie Connor filed a bill in the city court of East St. Louis to foreclose the trust deed under loan No. 3. Eitzenhefer filed a cross-bill to foreclose his trust deed under loan No. 1, and Voightlander filed an original bill to foreclose the trust deed under loan No. 2. The suits were consolidated and issues joined. The Wahls set upinter alia that the second note and trust deed were given for the purpose of taking up the first loan, and that the third note and trust deed were given to take up the second note and trust deed, and that none of them was used by Renshaw for the purpose for which they were delivered to him. Upon reference to the master he filed his final report finding the facts substantially as heretofore stated, and recommended a decree for the foreclosure of the first trust deed, that the release thereof be set aside and that the Connor and Voightlander bills be dismissed for want of equity. Objections were filed to the master's report, which were overruled and allowed to stand as exceptions. The court found the trust deed under loan No. 3 to be a first lien, the trust deed under loan No. 2 to be a second lien, and the trust deed under loan No. 1 to be a third lien, and ordered a sale of the property and a distribution of the proceeds accordingly. Eitzenhefer and the Wahls appealed to the Appellate Court for the Fourth District, where the decree was reversed and the cause remanded to the city court of East St. Louis, with directions to enter a decree foreclosing the first trust deed under loan *140 No. 1 and dismissing the bills of Voightlander and the Connors. The Connors have brought the case here for review uponcertiorari.
The principal question in dispute is as to the priority of liens as between the owners of the trust deeds and notes under loans Nos. 1, 2 and 3. The Connors contend they should have preference because they are bona fide purchasers of the note and trust deed under loan No. 3 without notice of any prior incumbrance upon the property, and because the written assignment to them of the trust deed was recorded and the other two assignments were not of record. They argue that they had a right to rely upon the record as disclosed by the certificate of title showing that the two trust deeds under loans Nos. 1 and 2 had been released. They refer to section 30 of the Conveyance act. The Wahls claim that plaintiffs in error took the assignment of the third trust deed and note subject to all defenses which existed between the Wahls and the trustee; that a fraud was committed by the trustee, and as the trustee could not foreclose, therefore plaintiffs in error cannot foreclose.
In support of their contention defendants in error citeOlds v. Cummings,
The only question before the court in the Olds case was whether the defense of usury, which was good as against the mortgagee, could be enforced against his assignee, with or without notice. There was no question in that case as to the effect of the release of a trust deed by the trustee, or the failure of the mortgagor to take up the first note and mortgage before he executed the second note and mortgage, or the right of the assignee to rely on what the public record showed with reference to the title. There was no evidence showing any equities between the mortgagor and the assignee except that the mortgagor claimed usury as *142 against the mortgagee. The mortgagor had not by any negligence on his part defeated or curtailed his right to impose that defense against the assignee. On account of these additional questions which enter into the case at bar, the Olds case is not conclusive of the questions raised in this case.
It is insisted that under the rule announced in Olds v.Cummings, supra, it was the duty of plaintiffs in error to inquire of the Wahls whether there was any reason why the note and trust deed should not be paid. The evidence shows that such inquiry would have been of no avail as far as the discovery of equities was concerned. The Wahls executed the third trust deed and note, which they had not paid. If inquiry had been made of them with reference to the legality of these instruments they would necessarily have answered that the instruments were valid and subsisting claims, that they were unpaid, and that the two prior trust deeds had been released. Such inquiry would not have led to discovery of the fraud practiced by the trustee.
The facts in Mann v. Jummel,
The question in the Mann case was whether Schintz, who held the legal title in trust under the first trust deed for the benefit of Mann, the owner of the note secured by *144
it, had the power, without the consent of the holder of the note, to make the release of the first trust deed. On page 531 this court said: "A trustee in deeds of trust of this kind has the power to release the lien so as to re-vest the legal title in the grantor, even though he does so without the consent of the cestui que trust and in violation of the obligations of his trust. (Walton v. Follansbee,
In support of the holding in Mann v. Jummel, supra, Williams
v. Jackson,
In the case at bar the Wahls executed trust deed No. 2 and the note which it secured, without requiring the trustee to surrender trust deed No. 1 and the note which it *146
secured, which were not owned by or in the possession of the trustee. Trust deed No. 3 was executed in the same manner. By so doing they placed it within the power of the trustee to commit the fraud which caused innocent purchasers to suffer. If they had not so acted the trustee would not have been able to secure either the second or third trust deed without the surrender of the prior trust deeds and notes which they were intended to cancel, and the fraud would have been avoided. Where one of two innocent persons must suffer by reason of the fraud or wrong conduct of another the burden must fall upon him who put it in the power of the wrongdoer to commit the fraud or do the wrong. Springer v. Kroeschell,
Before plaintiffs in error took an assignment of the third trust deed and the note which it secured they took the precaution of securing an abstract of the title which showed that the third trust deed was the only lien on the property. They took a written assignment of the deed and placed it upon the public records. Any inquiry of the Wahls would not have revealed the fraud. Plaintiffs in error did all they could be expected to do to inform themselves as to the condition of the title. It is conceded that they took the title by assignment without notice of existing prior trust deeds, both of which had been released. An unbroken line of decisions holds that a release of a trust deed unauthorized by the terms of the trust, or by the cestui que trust, affects only the right of the original parties or subsequent purchasers with notice. Since in law the trustee has power to release a lien so as to re-vest the legal title in the grantors, even though he does so without the consent of the cestui que trust and in violation of the trust, it follows that the releases in question in this case, which were executed after the notes were due, were good as to plaintiffs in error, who had no notice of any lack of authority on the part of Renshaw to release the first and second trust deeds. *147
The public records of conveyances and instruments affecting the title to real estate are established by statute to furnish evidence of such title. A purchaser has a right to rely upon such records unless he has notice or is chargeable with notice of some title, conveyance or claim inconsistent therewith. (Lennartz v. Quilty,
Since the first and second trust deeds are still outstanding by reason of the negligence of the persons who executed them to demand that they be surrendered on executing a renewal trust deed and since they are held by purchasers thereof in good faith, the burden must fall upon him who put it in the power of the wrongdoer to commit the fraud or to do the wrong. The third trust deed was a first lien, the second trust deed was a second lien, and the first trust deed was a third lien.
The judgment of the Appellate Court will be reversed and the decree of the city court will be affirmed.
Dissenting Opinion
The opinion of the court in this case appears to be based upon a misconception of the issues raised by the pleadings. It states: "The principal question in dispute is as to the priority of liens as between the owners of the trust deeds and notes under loans Nos. 1, 2 and 3." The question raised *148 by the answer of the Wahls is not a question of the priority of liens, but is whether the owners of the trust deeds and notes are entitled in equity to foreclose their trust deeds at all. Voightlander seeks to foreclose trust deed No. 2 as the assignee of Renshaw. The Connors seek to foreclose trust deed No. 3 as the assignee of Renshaw. The answer of the Wahls sets up facts which would be good defenses if Renshaw himself were asking to foreclose them. These defenses, as against Renshaw, are established by the undisputed evidence. The question, therefore, is, Can Voight-lander and the Connors foreclose trust deeds which their assignor, Renshaw, could not?
At common law choses in action were not assignable. By statute in this State promissory notes are made assignable by endorsement thereon, and in equity, and in equity only, such endorsement constitutes an assignment of a trust deed or mortgage given to secure such note. He who buys what is not assignable at law, relying upon a court of equity to protect and enforce his rights, takes it subject to all infirmities to which it is liable in the hands of the assignor. InOlds v. Cummings,
This case differs from Mann v. Jummel,
Addendum
The foregoing opinion reported by Mr. Commissioner Partlow is hereby adopted as the opinion of the court, and judgment is entered in accordance therewith.
Judgment of Appellate Court reversed. Decree of city court affirmed.