126 F. 46 | 8th Cir. | 1903
after stating the case as above, delivered the opinion of the court.
On February 2, 1894, the Jefferson Investment Company held the legal title to the land here in controversy in trust (1) to pay $25,849, the unpaid part of its purchase price then evidenced by the notes and mortgage to Baker, and all moneys expended for the property; and (2) upon the repayment of these .amounts by the railroad company to convey the property to that corporation.
The Farmers’ Loan & Trust Company, under the after-acquired property clause of its deed of trust of 1890, had a lien upon the equitable title of the railroad company. It had a lien upon the right of the railroad company to pay the $25,849 owing for the land, and any other moneys expended for it, and to acquire the property by means of that payment, but it had nothing more. In reliance upon
This decree, does not impress one at first blush as either unjust or inequitable. Neither the Farmers’ Toan & Trust Company nor the bondholders paid any consideration for, or loaned any money upon the faith of, the tract of land here in question. This land was acquired by Newhouse and the investment company after all the bonds had been issued except those which were subsequently taken by New-house when he had complete knowledge of all the legal and equitable rights of the parties. The mortgage to Baker to secure the payment of a part of the purchase price was superior, in law and in equity, to the mortgage to the trust company. The latter attached to nothing but the equitable estate of the railroad company, and it was a condition precedent to the acquisition of the title by that company that it should pay the moneys expended for the property and the unpaid part of the purchase price. A mortgage of future-acquired property attaches to the interest obtained by the mortgagor only, and is inferior to junior liens, incumbrances, or equities under which the property comes to the mortgagor. U. S. v. New Orleans & Ohio Railroad, 12 Wall. 362, 20 L. Ed. 434; Central Trust Co. v. Kneeland, 138 U. S. 414, 423, 11 Sup. Ct. 357, 34 L. Ed. 1014. Why may not Hutchison, who holds the first mortgage upon the legal title, insist that the moneys taken from the proceeds of his loan, and applied to the payment of a part of the purchase price of the property, shall be repaid to him before his mortgage is subjected to the after-acquired property clause of the prior mortgage to the complainant? Counsel for the trust company urge many reasons why, in their opinion, the court could not lawfully impose such a condition, and why, in their judgment, the decree below is erroneous.
The next contention of counsel for the complainant is that the decree was wrong because the claim of Hutchison was barred by the statute of limitations of Colorado and by laches, so that it could not lawfully be enforced in a court of equity. They say that the equity of the defendant, if it exists at all, is nothing but his right to be subrogated to the rights of Baker; that this right arose on February 2, 1894, when his money paid Baker’s claim; that a suit was necessary to enforce this right and work the subrogation; and that such a suit was barred by the statute of limitations of Colorado before Hutchison pleaded the facts which disclose his right of subrogation. But in our view of this case, it is not necessary to consider or determine whether or not such a suit was barred by the statute, or to express any opinion upon that question. Even if such a bar had arisen, it did not prohibit a court of chancery from requiring a complainant who sought its aid to recognize and pay an equitable demand of a defendant, which the latter could not affirmatively enforce as a condition of granting the relief sought by the complainant if the established rules of equity jurisprudence imposed upon it the duty to do so. A court of chancery may, in a case in which the rules and principles of equity demand it, condition the grant of relief sought from it by a complainant with the enforcement of a claim or an equity held .by a defendant, which, by reason of the statute of limitations or otherwise, the latter could not enforce in any other way. Pomeroy’s Eq. Jur. §§ 386, 393, note 4; Brent v. Bank of Washington, 10 Pet. 596, 9 L. Ed. 547; De Walsh v. Braman, 160 Ill. 415; 43 N. E. 597, 600; Farmers’ Bank v. Iglehart, 6 Gill, 50, 57; Fievel v. Zuber, 67 Tex. 279, 280, 3 S. W. 273; Booth v. Hoskins, 75 Cal. 271, 275, 276, 17 Pac. 225; De Cazara v. Orena, 80 Cal. 132, 134, 22 Pac. 74; Hall v. Arnott, 80 Cal. 348, 354, 22 Pac. 200; Grant v. Burr, 54 Cal. 298, 301; McKeen v. James (Tex. Civ. App.) 23 S. W. 460, 464; Rodriguez v. Haynes, 76 Tex. 225, 232, 13 S. W. 296; Hartranft’s Estate, 153 Pa. 530, 533, 26 Atl. 104, 34 Am. St. Rep. 717; 19 Am. & Eng. Enc. of Law (2d Ed.) pp. 177, 178; Dimick v. Grand Island Banking Co., 37 Neb. 394, 399, 55 N. W. 1066; Gage v. Riverside Trust Co. (C. C.) 86 Fed. 984, 998;
In Brent v. Bank of Washington, 10 Pet. 596, 9 E. Ed. 547, Robert Brent died on September 7, 1819, the owner of 650 shares of stock of the bank. He was an indorser on promissory notes held by it for $667, $400, and for other amounts, which aggregated $2,067, and the charter of the bank provided that its stock was transferable only on the books of the bank by the holder of the stock. When Brent died he was deeply indebted to the United States. In 1820 his executors applied to the bank to transfer the stock which Brent had held, and the bank refused to make the transfer unless the notes which Brent had indorsed were paid. In the meantime the bank had sued the executors upon the two notes for $400 and $667, respectively, and upon a plea of the statute of limitations a verdict and judgment had been rendered against it. In 1827 the surviving executor brought a bill' in equity, for the use of the United States, still a large creditor of the estate of Brent, to compel the bank to transfer the stock to pay the debt due to the government, and alleged the prior lien of the United States. The bank filed a bill in which it asserted a lien upon the stock to pay its debt, and the court decreed a sale of the property, and the application of the proceeds, first, to the payment of the debt to the bank; and, second, to the payment of the debt to the United States. On appeal, counsel for the United States insisted that all right of the bank was barred by the statute of limitations, and by the verdict and judgment against it upon the plea of that statute. But the Supreme Court said, “In Bank of United States v. Donnally, 8 Pet. 361 [8 L. Ed. 974], this court laid it down as an established principle that the act of limitations operated only to bar the remedy, not to extinguish the right or cause of action,” and it affirmed the decree. In De Walsh v. Braman, 160 Ill. 415, 43 N. E. 597, 598, the claim of the defendant for the $1,118.77, which he had expended in making improvements upon the property, was barred by the statute of limitations, the land was in the possession of the complainant, and he presented a declaration of trust signed by the defendant to the effect that he held the land for the complainant, so that there was no way in which the defendant could have enforced his equity by an action or proceeding at law or in chancery; and yet, when the complainant asked a court of equity to compel the defendant to convey the title, the Supreme Court of Illinois conditioned that relief with the requirement that the complainant should do equity by paying back to the defendant the money which he had advanced to improve the property, with interest upon it. In Booth v. Hoskins, 75 Cal. 271, 276, 17 Pac. 225, Booth brought a suit to quiet title, and to set aside a deed to Hoskins which had been given to secure the payment of money advanced by him to the complainant. The claim to recover this money and the suit to foreclose the mortgage evidenced by the debt were both barred by the statute of limitations of California. Nevertheless the court required the plaintiff to do equity. It required him to pay the outlawed debt as a condition of granting him the equitable relief he sought. Our conclusion is that the statute of limitations constituted no bar to the right of the court to condition the relief which the trust company asked with the
Moreover, the defendant is not fairly chargeable with laches in any degree, because he had a first mortgage upon the legal title to this land, and it was only by an appeal to equity that either the railroad company or the trust company could deprive him of his paramount lien. He was content. He needed no relief from a court of equity, and he sought none. Non constat that the railroad company or the trust company would ever endeavor to- enforce their equities. He might well await their action, secure in the basic principles of equity jurisprudence that no court of chancery would ever direct him' to recognize or respect the equities of the trust company or of the railroad company without at the same time requiring them to admit and respect his equity, and to pay back to him the money which he had advanced on the faith of the mortgage, and without which neither the railroad company nor the trust company could have acquired the title to the property. One who holds the legal title, or the paramount lien upon the legal title, to real estate, is not guilty of laches which will prevent him from asserting his equities therein in defense of a suit in chancery to compel him to surrender his title or lien, by the fact that he did not institute any suit or commence any action to avoid or foreclose the equities of the complainant. It is time enough for him to present his equities to a court of chancery when his legal title is there assailed.
In the arguments and briefs of counsel much time and labor have been devoted to the consideration and discussion of the question whether or not Hutchison was entitled to be subrogated to the rights of Baker. If this land had been conveyed to the railroad company when the notes to Baker were paid, and if the deed of trust to secure Hutchison had been made by that corporation, instead of by the investment company, this question might have been interesting and important. But in view of the fact that the legal title never passed to the railroad company, but remained in the investment company, charged with and conditioned by the original trust to convey it to the railroad company only on condition that the latter paid the purchase price and all moneys expended for the property, this question of subrogation is not determinative of the rights of these parties, and a discussion and decision of it would be only a work of supererogation. The right of Hutchison to the repayment of that part of his money which paid the debt for a portion of the purchase price of this land rests on higher ground than his right to be subrogated to the rights of Baker. It rests on the fact that he has the first mortgage of the legal title to the land, while the lien of the trust company, as we have already seen, covers only the equitable right of the railroad company to obtain this title on condition that it first pays the moneys expended for the property, including the purchase price. When Hutchison took his mortgage, the only interest of the railroad company in the land was its equitable right to obtain the title to it by paying the part of the purchase price evidenced by the unpaid notes to
Counsel for the trust company persuasively argue that the railroad company fulfilled this condition and paid this part of the purchase price when the notes to Baker were satisfied with the money which was obtained from Hutchison upon the mortgage made by the investment company, and upon the joint note of that company and the railroad company. But this contention is not tenable. There is no doubt that the purchase price and the notes to Baker were paid. But the condition precedent to the right of the railroad company to divest the investment company and its assign of the legal title was not that the notes or the price should be paid, merely. It was that they should be paid by the railroad company or by its assigns. Payment by Newhouse, by the investment company, by the assign of the investment company, was no compliance with this condition. But neither the railroad company nor the trust company ever paid the debt for that part of the purchase price which was evidenced by the notes to Baker on February 2, 1894. The checks which paid that debt were not those of the railroad company. They were the checks of Newhouse upon the money of Hutchison. It was the title, the note, and the mortgage of the investment company, and the money of Hutchison advanced in reliance upon these securities, which made these checks effective. Nor was it the signature of the railroad company upon this note to Hutchison that induced him to make this loan. He knew that that corporation was unable to pay any of its obligations. He loaned his money in reliance upon the note and mortgage of the investment company. Now, since the condition precedent to the right of the railroad company to the title to this land was the payment by it of the purchase price of the property, and since the title to it was in the investment company for the express purpose of enforcing this condition, and preventing the lien of the trust company’s mortgage from attaching to the property until this condition was fulfilled, neither the railroad company nor the trust company could become entitled to take this title, or to subject it to the latter’s mortgage, as against either the investment company or its assigns, until there had been an actual, substantial compliance with that condition upon their part. The investment company had the right to pay the notes to • Baker which it had assumed with its own money, or with money which it borrowed from others; and, if it had done so, it would have had the right to retain its title to the property until the railroad company or its assign, the trust company, reimbursed it for the money it advanced for that purpose, or until they paid any obligation which it incurred to raise the money to make the payment. The investment company had the undoubted right to assign or mortgage the title which it held for the purpose of raising the money to make this payment, and the assignee or the mortgagee who advanced his money on the faith of such a deed or mortgage for tbe purpose of paying, any part of the purchase price necessarily acquired the same right which the investment company would have had if it had paid the same part of the price to hold the title to or the lien upon the land, as against the railroad company and the trust company, until he was reimbursed
The argument of counsel that the debt and mortgage of Hutchison have been paid, because at his trustee’s sale he bid the land in for $40,000, and secured the trustee’s deed of it, and because he has bid in some collateral of doubtful value which he held for amounts which aggregated about the amount of the remainder of his debt, is not worthy of serious consideration. If the foreclosure of the trust deed to Newhouse was effective, the trustee’s deed to Hutchison added all the rights of the mortgagor, the investment company, to his rights as mortgagee. If it was not effective, it left his rights as mortgagee unimpaired. He did not at the instant he bid in the property lose all his equities in it, and pay his debt by his loss of them, without receiving anything of value for his action. His equity was ample to sustain the condition in his favor which the court below inserted in the decree before the trustee’s sale to him, and, whether that was void or valid, his position was no weaker after it was completed.
Nor is it material, as counsel contend, that Hutchison did not make a loan of the exact amount which was used to pay the debt for the purchase price, but made a general loan of $50,000 for the purpose of paying debts of the railroad company; as well as the debt of Newhouse and the investment company to Baker. The trust deed to Newhouse conveyed the title of the investment company to the former to secure payment of $50,000 to Hutchison. If the title of the investment company had been free and perfect, all the property thus conveyed might be lawfully applied to the payment of the entire $50,000. But the deed to Newhouse conveyed only the title which the investment company had, and that was a title defeasible upon the payment by the railroad company or its assigns of the amount which the investment company or its assigns furnished and paid in satisfaction of the debt to Baker for the purchase price of the property. Upon the payment of that amount to Hutchison by the railroad company or the trust company, they are entitled to the benefit of the property, and until that payment is made they have no right to draw the legal title pledged to Hutchison to the support of their equity.
The difficulty of the complainant is not more the strength of Hutchison’s equity than it is the weakness of its own. It has the equitable title of the railroad company. A condition precedent to the enforcement of that title is the payment to the holder of the legal title of the amount which he has advanced on the faith of it, to pay, and which has been used to pay, the purchase price of the land. The trust company asks the enforcement of that equity. It must fulfill the condition precedent before its prayer can be granted. The court below might
The decree is just and equitable. The bondholders whom the complainant represents did not loan their money in reliance upon this property, because it had not then been acquired. They have paid nothing to obtain it. They ask that the payment of the part of the purchase price by the money which Hutchison loaned on the security of the legal title to this land be made to inure to their benefit. If they are not required to repay this money to him-, he loses all that he has thus expended, and they gain not only that amount, but the entire value of the land. In equity and good conscience, and by the express terms of the trust under which the investment company and its assign, the trustee, Newhouse, took and held the. title to this property, the power was vested in, and the duty was imposed upon, the court below to condition its grant of the relief sought by the complainant with the repayment to Hutchison of the amount of the purchase price which had been paid out of the money which he loaned upon the security of that title.
The mortgagee under the after-acquired property clause in a prior mortgage of an equitable title to land, which is subject to the condition that the mortgagor shall pay that portion of the unpaid purchase price which the holder of the legal title owes, before divesting him thereof, may not enforce a conveyance of the legal title, or subject to- his mortgage a subsequent mortgage of that title to another to secure the payment of a loan, a part of the proceeds of which was applied to the payment of the unpaid part of the purchase price, except upon the condition that the moneys so applied shall be repaid to the subsequent mortgagee out of the proceeds of the sale or otherwise.
We turn to the appeal of Hutchison. He insists that his money paid $4,800 more of the debt to Baker than the $21,049 allowed to him in the decree. The facts are that the debt to Baker for the purchase price was $25,849; that $21,049 it was paid directly to the First National Bank, which held the notes of Baker, by means of the check of Newhouse upon the money loaned by Hutchison; and
The conclusion of the whole matter is that the decree below must be reversed, with costs in favor of the defendant Hutchison, in both appeals, and this case must be remanded to the court below, with directions to enter a decree for the separate sale of the shop tract, for the application of the proceeds of its sale in the first instance to the repayment to Hutchison of the $25,849 paid to extinguish the unpaid debt to Baker for the purchase price out of the moneys he loaned, and to the repayment of the $1,479.62 which he paid on account of taxes upon the tract in question, together with the interest upon these amounts from the times they were respectively paid, and for the other relief granted in the decree challenged by these appeals which was not questioned thereby; and it is so ordered.