WILLIAM CONNOR et al. Plaintiffs in Error, vs. ROBERT E. WAHL et al. Defendants in Error.
No. 17335
Appellate Court reversed; city court affirmed.
Opinion filed April 21, 1928.
330 Ill. 136
2. MORTGAGES—purchaser of subsequent trust deed may rely on record of release of prior encumbrance. As the trustee in a trust deed has power to release the lien so as to re-vest the legal title in the grantors, a release of a trust deed, although unauthorized, is ineffective only as to the original parties or subsequent purchasers with notice, but the purchaser of a subsequent trust deed given to renew a prior loan may rely on the record showing a release of the prior encumbrance after its maturity, where he had no notice of the trustee‘s lack of authority. (Olds v. Cummings, 31 Ill. 188, distinguished.)
3. SAME—when a purchaser of third trust deed has prior lien. A purchaser of a trust deed and note who relies upon the record, which shows a due release, after maturity, of two earlier trust deeds by the same maker, and who records a written assignment to himself of the trust deed and note so purchased, is entitled to a prior lien on foreclosure involving the three trust deeds, where it appears that the releases by the trustee were made without the knowledge of the legal owners of the notes, which were payable to the order of the trustee, who converted the proceeds of the second and third notes to his own use though he continued to pay interest on the first two notes to the holders, neither of whom recorded any assignment to them or gave any notice of ownership to the mortgagors, who executed second and third trust deeds and notes supposing the original note was being renewed.
4. DEEDS—purchaser is entitled to rely on public records. The public records of conveyances and instruments affecting the title to real estate are established by statute to furnish evidence of such title, and 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.
HEARD, C. J., and FARMER, J., dissenting.
D. E. KEEFE, and H. G. MILLER, for plaintiffs in error.
C. E. POPE, and H. F. DRIEMEYER, for defendant in error Adam Eitzenhefer.
Mr. COMMISSIONER PARTLOW reported this opinion:
This case comes to this court on a petition for certiorari 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,
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 defеnses 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 cite Olds v. Cummings, 31 Ill. 188. In that case Cummings executed a note and mortgage to Preston, who assigned them to Olds, who claimed the assignment was made before maturity. Olds filed a bill to foreclose the mortgage. Cummings filed an answer setting up usury against Preston, alleging that the note was assigned to Olds after maturity, that the assignment was colorable, only, and not bona fide, was made to prevent the defense of usury, and that the mortgagor could raise the question as against Olds as assignee. The trial court held that there was usury and that Olds had notice. Olds appealed to this court and the decree was affirmed. This court held that it was not necessary to determine whether Olds was a bona fide purchaser before maturity; that choses in action, including mortgages, are not assignable either by the common law or under the
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
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 thеy 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, 183 Ill. 523, are very similar to the facts in the case at bar. On September 30, 1886, Thomas conveyed certain property to Schintz, as trustee, to secure a note for $4000, due in five years, with ten coupon interest notes, each for $130. The notes were transferred to John Lobstein. On September 30, 1891, the principal note was extended in writing to September 30, 1896, upon the execution of tеn new interest notes for $130 each. On October 12, 1891, Schintz sold the principal note and the ten new interest notes to appellant, Mann. The trust deed had been filed for record on October 5, 1886, and no change was ever made in that record showing the assignment to Lobstein, Schintz or Mann or the extension of the time of payment. About August 30, 1896, Thomas applied to Schintz for a further extension, and was informed that the holder wanted the money but another party would take the loan upon the execution of new papers and
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
In support of the holding in Mann v. Jummel, supra, Williams v. Jackson, 107 U. S. 478, is cited. In that case, by a trust deed duly recorded, land was conveyed to trustees in fee, and they were authorized to release the trust deed to the grantor upon the payment of the negotiable promissory note thereby secured. Beforе that note was paid or payable, and after it had been negotiated to an endorsee in good faith for full value, a deed of release reciting that it had been paid was made to the grantor by the trustees, who were the payees of the note, and the release was recorded. The grantor executed and recorded a like trust deed to secure the payment of a new note for money loaned to him by another person, who had no actual notice that the first note had been negоtiated and was unpaid, and who required and was furnished with a conveyancer‘s abstract of title showing that the deeds were recorded and the land free from encumbrance before he would make the loan. It was held that the legal title was in the trustee under the second trust deed, and that the note thereby secured was entitled to priority of payment out of the land. The only distinction between the case at bar and the Williams case is, that in the case at bar the three trust deeds were all executed to the same trustee, while in that case the second trust deed was executed to a third party; but the decision in the Mann case holds that this distinction makes no difference in the equitable rights of the parties.
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
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 hаd no notice of any lack of authority on the part of Renshaw to release the first and second trust deeds.
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 wrоngdoer 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.
Per CURIAM: 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.
HEARD, C. J., and FARMER, J., dissenting:
The opinion of the court in this case appears to be based upon a misconception of thе 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
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. In Olds v. Cummings, 31 Ill. 188, it is said: “We have not met with a single case where remedy has been sought in a court of chancery upon a mortgage by an assignee, in which every defense has not been allowed which the mortgagor or his representatives could have made against the mortgagee himself, unless there has been an express statute authоrizing the assignment of the mortgage itself.” The assignee of an equitable title, to enforce which he must resort to a court of chancery, takes such title with all the equities and infirmities existing against it and can claim nothing under it in a court of chancery which his assignor could not have claimed. Fortier v. Darst, 31 Ill. 212; Peck v. Bligh, 37 id. 317; Walker v. Dement, 42 id. 272; Sumner v. Waugh, 56 id. 531; Cramer v. Willetts, 61 id. 481; Haskell v. Brown, 65 id. 29; Thompson v. Shoemaker, 68 id. 256; Colehour v. State Savings Institution, 90 id. 152;
This case differs from Mann v. Jummel, 183 Ill. 523, cited in support of the conclusion reached by the majority. In that case the contest in this court was not between the mortgagor and the assignees of the notes secured by the instrument sought to be foreclosed but was a contest betwеen lienors. In the opinion of the court it is said: “The sole contention between the present parties is which shall have the prior lien. They do not disagree as to the material facts, but each insists that under the law applicable to those facts his is the prior security.” It is evident from reading the opinion in that case that the question here raised by the Wahls was not presented to the court, as it is not mentioned in the opinion. The question of the priority of liens or of the effect of the recording laws does not entеr into the question here involved. Since in this case, in equity, the trust deeds sought to be foreclosed are subject to all the equities and defenses of the Wahls as against Renshaw, and as the evidence shows that the Wahls have an equitable defense as against him, and as under the unbroken line of authorities in this State any equitable defense which the Wahls have against Renshaw is good as against his assignees, Voightlander and the Connors, neither Voightlander nor the Connors are entitled to a decree of foreclosure, and so no question of priority can arise here. The Appellate Court correctly applied the law to the facts of this case, and its judgment should be affirmed.