Franklin Savings Bank v. Taylor

53 F. 854 | 7th Cir. | 1893

WOODS, Circuit Judge.

The rule that a decree against infants may be attacked by original bill for error of fact or mere mistake, as well as for fraud, is subject to an important qualification. Thus, in Lloyd v. Kirkwood, 112 Ill. 338, the court, after stating the general proposition, said:

“The rule thus established Is, of course, subject to the qualification that the decree of a court having jurisdiction of the subject-matter of the suit, and the person of the infant against whom it is rendered, will not be thus set aside as against third parties who have in good faith acquired rights under it; but as against original parlies to the suit, and their legal representatives, the rule as above stated will be enforced.”

The essential question before us, therefore, is whether or not the savings hank, under any of the decrees mentioned, had acquired rights which ought to he protected, notwithstanding the subsequent discovery of the error upon which the decree was founded.

There are two reasons why that protection cannot he claimed directly under the decree in the burnt records case. First, the bank was a party to tbat procedure; and, second, by the terms of the statute under which the decree was taken, it was made “binding and conclusive, except as against infants and insane persons;* implying necessarily, it would seem, that as against minors the do cree had the effect only of prima facie evidence, although, so long as the original deed remained undiscovered, it was likely to be regarded and acted upon as conclusive.

The second decree, rendered August 19,1878, is of more significance in the discussion. By it a new trustee was appointed, and in effect, though not in direct terms, authorized to obtain money either by selling or mortgaging the trust estate for the purpose of paying for the improvements which had been put upon the premises; and under that authority the loans were made, and the trust deeds or mortgages executed, which were the principal source of the appellant’s claim of title. Though obtained by use of the first decree* as evidence of the provisions of the trust, deed, and on that account subject to be reviewed and set aside, the decree was on its face regular and valid, and as the decision of a court of general jurisdiction it was, until set aside, binding upon all the parties to the same extent as any other decree or judgment, and was available for the protection of any who had acted upon it.

It was not, as has been contended, a supplemental decree, obtained in aid of that under the burnt records act, and therefore, like that, neither conclusive upon minors nor a source of protection to the bank. The purpose of the first procedure was fully accomplished in the reinstatement, as of record, of the provisions of the trust deed, and no supplement was needed. Besides, the second decree was procured upon an independent bill, which, while it recited the fact of the rendition and the scope of the former decree* contained original .and direct averments of the execution and provisions of the lost deed; so that, if the reference to the former decree had been omitted, neither the character nor sufficiency of the bill would have been affected.

While it is true that this decree was founded on an error of fact in respect to the powers of the trustee, it was not a palpable error, nor one of which the bank and its president were charged with notice. So long as the trust deed remained undiscovered, not only was the error not evident; there was nothing to suggest its probable existence. In substantial compliance with the requirement of the burnt records act that a decree under it against minors should set forth the evidence on which it was based, the master’s report, upon which the decree of March 29, 1878, was rendered, contained the full and explicit testimony of Prank 0. Taylor and other witnesses to the effect that the copy embodied in the decree was a true copy of the trust deed, and under the circumstances there was neither reason for suspecting nor means of finding out the contrary; and yet it is insisted, and it is the pivot of the argument for the appellees, that the Savings Bank all the while had constructive notice, and should be treated as if it had known that under the recorded and true deed of trust the trustee had no power to execute mortgages or to create liens. It would not be so held in a court of law, even. It is of course true that that constructive notice which results from the recording of a deed continues in force though the record be destroyed. That is a rule which has its proper and necessary place in public policy, but it is not of universal or inflexible application. The record of a deed, when produced intact, is not final or conclusive proof of the contents or tenor of the original instrument. It may be contradicted by the production of the deed or by other evidence; and it follows necessarily that the force of a record, as constructive notice, cannot prevail over that presumption of absolute verity which inheres in the judgment Or decree of a competent court. “Whether the record has been destroyed or remains unharmed, a lawful decree, declaring the terms or tenor of an instrument to be different from the record of it, supersedes or overcomes the latter as evidence; and upon the same principle the decree of August 19, 1873, superseded the destroyed record of the trust deed, or, as it may be better to express it, the decree became conclusive evidence of what that record had shown, and of the actual terms of the deed. It was in recognition of this fact that it was deemed necessary, after the missing deed had been found and re-recorded, to bring bills of review, in behalf of the infant parties, to obtain orders of the superior court setting its decrees aside; and accordingly they were set aside, except that the rights of the Savings Bank were not determined. Whether or not the same parties should be allowed, even by original bill, to make a second attack upon these decrees for the same cause, has not been mooted, and we do not stop to inquire.

But, proceeding .on the assumption that the second decree was one which should not be set aside to the injury of third persons, it is insisted that to the extent of the §30,000 first loaned to Taylor, which, with accrued interest, became pro tanto the consideration of the notes and mortgages which were foreclosed, the Savings Bank parted with no value upon the faith of that decree, and therefore can claim no protection under it. The position is not tenable. The note given by Taylor for the first loan and the trust deed executed by him and Mrs. Taylor to secure the debt were surrendered and released. It is not claimed that these were without value. Taylor still had credit, and Mrs. Taylor, by reason of her right to receive the income of the trust estate, had an equitable interest, which doubtless was subject to the mortgage. Blanchard v. Blanchard, 1 Allen. 225; Van “Rensselaer v. Read, 26 N. Y. 558; Monarque v. Monarque, 80 N. Y. 320. Besides, the debt was due, and upon the new loan a.n extended credit was given. Upon these facts the bank, being without knowledge of the actual powers of the trustee, was entitled to rely, and it is to be presumed did rely, on the authority declared by the decree under which the trustee assumed to act. This conclusion, however, does not rest upon the doctrine of Swift v. Tyson, 16 Pet. 1, Railroad Co. v. National Bank, 102 U. S. 14, and like cases, concerning the transfer of negotiable paper in payment or for the security of a pre-existing debt. That doctrine is peculiar to negotiable paper, and does not apply to transfers for like purposes of ordinary chattels or interests in real estate. It is so held in the case of Bank v. Bates, 120 U. S. 556, 7 Sup. Ct. Rep. 679, where the rule declared by Judge Story in Morse v. Godfrey, 3 Story, 389, is quoted with approval. According to that rule it is not enough that there shall be given “a simple collateral security for an old indebtment or liability of tbe parties;” tbe one claiming to be an innocent purchaser or mortgagee of personal or real property “must not only have had no notice, but he must have paid a consideration at the time of the transfer, either in money or other property, or by a surrender of existing debts or securities held for the debts and liabilities.” “There must be some new consideration moving- between the parties, and not merely a new security given for the old debts or liabilities, without any surrender or extinguishment of the old debts and liabilities or the old securities therefor.” That one who merely receives a mortgage of land for a pre-existing debt does not become a purchaser for value was held or recognized in Busenbarke v. Ramey, 53 Ind. 499, and Straughan v. Fairchild, 80 Ind. 598; but in Gilchrist v. Gough, 63 Ind. 584, it was held to be sufficient for that purpose that, in consideration of the new security, the túne for the payment of the debt had been extended. In Illinois the payment, or security, or extension of the time of payment, of a pre-existing debt has been declared sufficient. Butters v. Haughwout, 42 Ill. 18; McIntire v. Yates, 104 Ill. 491, 501; Bank v. Cheeney, 87 Ill. 602. And in Glidden v. Hunt, 24 Pick. 221, it was decided that when a creditor made a further loan to his debtor, and took a mortgage to secure both loan and debt, he became a mortgagee for value to the full amount of both, because the presumption was that he had parted with his money in order to obtain protection for the antecedent advances, as well as for those made at the time. We need not go so far. In the present case all the elements of good faith mentioned in the cases cited were combined. The old obligation and security were surrendered and released; the time of payment was extended; an additional sum was loaned; and in fact there was a change of debtor, the trustee becoming the principal in the new obligations, and Taylor and wife sureties only.

It follows that, regardless of the compromise agreement, the Savings Bank was entitled to the decree of foreclosure, which it obtained, for the full amount of its demands, and that upon all the facts alleged in the bill no valid reason is shown for setting the decree aside, or for annulling the mortgages on which it was based. Error is not apparent on the face of the record; and, in view of our conclusion that the mortgages were valid as against all who were bound by the decree of August 19, 1873, the objection that the guardian ad litem in the foreclosure case had given unwarranted consent to a compromise loses significance, if, indeed, it does nQt bring support to the decree, because by the compromise there was saved to the children one fourth of the property, and a corresponding portion of accrued rents, which otherwise in all probability would have been forfeited to the bank. It is to be observed, too, that upon its face it was not a consent decree. The guardian ad litem, though he had withdrawn a special answer, had filed another in the customary form. Ho fact was admitted; no proof waived; and every essential fact shown in the special answer, which was withdrawn, and all the facts on which the claims of the infants are now asserted, were distinctly set forth in the appellant’s supplemental bill, upon which the decree was granted. It is not alleged, nor has it been suggested, that any fraud or deceit was practiced, to keep from the court a knowledge of the facts so averred. Consequently, at the hearing below, it was not only not to he presumed, it would not have been, competent to prove, that in the foreclosure case the court proceeded to a decree without knowing the contents of the bill; or that had the facts touching the validity of the securities sought to he foreclosed and enforced been presented to it, the court would have held the securities invalid, and dismissed the suit. Besides, it is in proof that after the Saving's Bank, in compliance with, the compromise, had assigned its certifica to of purchase, at the foreclosure sale, of one of the lots to the guardian ad litem, the latter in a petition for instruction, to which he made, his wards defendants, reported the settlement and the relevant fads to the circuit court of Cook county, and that court, after a hearing at which the infants were represented by a guardian ad litem appointed for the purpose, ordered a transfer of the certificate and of the property to the children in esse, with a provision that after-born children should he admitted lo share with those named; and, the certificate having been transferee! as ordered, the master in the foreclosure case reported to the court for approval a deed for the conveyance of the lot described directly to the Taylor children, by name, and that deed the court approved. It is evident, therefore, that the compromise agreement received the deliberate approval of the local circuit court, which as a court of chancery had cognizance of the affairs of minors; and, by necessary implication from the last order made in the case, it had the approval of the court in which the decree of foreclosure was obtained. If that decree had been taken upon default of the infant defendants, or if upon its face it appeared to have been taken in pursuance of a, compromise which was not shown to have had the explicit approval of the court, it may be that it would have been subject to review without inquiry into the merits of the compromise; but when, without impugning the fairness of the proceedings in court, it is proposed to set aside a decree which upon its face is in all respects regular, because of an alleged agreement or consent of the guardian ad litem which is not referred to in the record, we are strongly inclined to think it should be alleged and proved, not only that the agreement had been made, bu t that it was not beneficial to the infants concerned, or for some other reason ought not to have been made'. See Walsh v. Walsh, 116 Hass. 377. The maxim that equity regards substance rather than form would seem to he applicable to such cases.

Concerning the Gilsdorif decree a single question is presented. When the contracts were made, and the work done and materials furnished, which were the foundation of the liens thereby declared, the decree in the burnt records case not having been entered, the parties were chargeable with constructive notice, and when the Savings Bank took an assignment of the decree it had actual knowledge', of the provisions of the trust deed. There is, therefore, no reason why that decree is not reviewable in this action for the error of fact upon which it was founded, unless it he because' it had been affirmed by the? supreme court of the state, without the right being reserved or leave obtained of that court to bring the suit. Upon that question, in Southard v. Russell, 16 How. 547, 570, it is said:

“The better opinion is that a bill of review will not lie at all for errors of law alleged on the face of the decree after the judgment of the appellate court * * * Nor will a bill of review lie in the case of newly-discovered evidence after the publication, or decree below, where a decision has taken place on appeal, unless the right is reserved in the decree of the appellate court, or permission be given on an application to that court directly for the purpose. This appears to be the practice of the court of chancery and house of lords in England, and we think it founded in principles essential to the proper administration of the law, and to a reasonable termination; of litigation between parties in chancery suits.”

It is insisted that this is a dictum, and ought not prevail against the weight of authority and reason to the contrary. But it is quoted with approval in Kingsbury v. Buckner, 134 U. S. 650, 671, 10 Sup. Ct. Rep. 638; and we are not disposed to disregard it. We consider it applicable, too, to a decree which has been affirmed, as well as to one entered upon the order of the appellate court. In Durant v. Essex Co., 101 U. S. 555, it is said:

“On a mandate from this court affirming a decree, the circuit court can only record our order, and proceed with the execution of its own decree as af-' firmed. It has no power to rescind or modify what we have established.” '

And the fact that the relief is sought by an original bill instead of bill of review proper should, we think, make no difference. The ground: of relief is the same whether it be sought in one way or the other. Even j when there has been no appeal, the rule is that the granting of a bill of review for newly-discovered evidence is not a matter of right, but it j rests in the sound discretion of the court. “It may, therefore, be re- j fused, although the facts, if admitted, would change the decree, where1 the court, looking to all the circumstances, shall deem it productive. of mischief to innocent parties, or for any other cause unadvisable.”, Story, Eq. PL § 417. Accordingly, in some jurisdictions* though not in all, special leave of court must be obtained for bringing the bill. :

Concerning the objection that the G-ilsdorff decree was entered without service of process on the infant - defendants, it may be remarked that, if the decree could be attacked on that ground in any court except that in which it was rendered, it has not been attempted in the bill before us, which alleges nothing on the point. The court in which the decree was obtained being one of general powers, the presumptions are in favor of its jurisdiction in any matter of which it has taken cognizance; and, besides, this decree, as it is presented in the record before us, shows a finding that process had been duly served. It is true that in the reporter’s statement of facts preceding the opinion in Bank v. Taylor, 131 Ill. 376, 23 N. E. Rep. 397, it is said that “no summons was ever served upon either of the defendants;” but that statement is not evidence here, and would not be if it had been made by the court instead of the reporter. It is, moreover, inconsistent with the opinion and judgment of the court, in which, while it is held that the decree was not binding upon the appellee Julia S. Taylor, because she was not a party, it is said that it was “of course * * * res judicata as to the parties then before the court;” and when the case was directly before that court on appeal — Taylor v. Gilsdorff, 74 Ill. 354 — the chief dispute was whether “the interest in remainder in the estille held by the trustee for the heirs of Taylor” could “be subjected to a mechanic’s lien.” But, if none of the children had been served with process, the question was not presented, and, it is to be presumed, the court would not have considered it, and would not have affirmed the decree; since, if process liad not been served, the decree was, in respect to the minor defendants, void upon its face. It follows that the title of the Savings Bank, acquired through the sale under the mechanic’s lien decree, should not, upon the facts averred in the bill, have been disturbed.

The question remains whether or not the children born after the rendition of any of these decrees are bound thereby, if so, it is because they are to he considered as having been represented in the suits by those who were parties. Upon that subject we quote from the opinion in McArthur v. Scott, 113 U. S. 340, 391, 400, 5 Sup. Ct. Rep. 652, where the authorities were reviewed:

“The general rale in equity, in accordance with the fundamental principles of justice, is that alt persons interested in the object of a suit, and whose rights will be directly affected by the decree, must be made parties to the suit. Kxcepiiotis to this have been admitted, from considerations of necessity or of paramount convenience, when, some of the persons interested are out of the jurisdiction, or not in being, or when the persons interested are too numerous to be all brought in; but in every case there must be such parties before the court as to insure a fair trial of the issue in behalf of ail.”

“The cases in courts of general chancery jurisdiction, cited in behalf of the defendants, * - * naturally range themselves in several classes. Some of them were of mere changes of investment, leaving undiminislied the interests of all parties in the property in its new form. * * To the same class belong suits for partition, which are either for a <livisioH in severalty of lands before held iu common, or else for a salt! of the whole land, and a division or investment of the proceeds fqr the benefit of those who. but for the sale, would have had interests iu the land. * * * Another class of cases is that of creditors, who are entitled. to present payment of their debts, whoever may lie the future owner of the estate. Ifor instance, in a bill to enforce a debt charged upon real estate devised to one for life, with contingent remainder to his unborn son, the executor and the tenant for life are sufficient parties, because, as was said long ago by Lord llardwieke, if there is no one In whom the estate of inheritance Is vested, ‘ it is impossible to say the creditors are to remain unpaid, and the trust not to be executed, until a son is bom. if there is no first son in being;, the court must, take the facts as they stand.’ * * * Tn some other cases, when all the interests are legal, and not equitable, the owner of the first estate of freehold, representing the whole estate, and identified in interest with all who come after him, sufficiently represents those yet unborn. In case of an estate tail, for instance. Lord Itedesdale held it to be sufficient, iu order to bind contingent remainder-men, to bring before the court I lie first tenant in tail, (although an Infant. Inca liable at law of barring remainder-men,) and, If no tenant in tail in being, the first person entitled to the inheritance, and, if no such person, then the tenant for life. But Hie reason assigned by that great master of equity was 1 that where all the parties are brought before the court that can be brought before it, and the court acts on the property according lo file rights that appear, without fraud, its decision must, of necessity be final and conclusive.’ Giffard v. Hort, 1 Schoales & L. 386, 408; Calv. Parties, 55-60. The necessity of the case being die only reason for this, it follows that where the successive estates are equitable, and supported by a legal estate- devised in trust, the trustees also are necessary parties. Hopkins v. Hopkins. West Ch. 606, 619, 1 Atk. 581, 590; Gholmondeley v. Clinton, 2 Jac. & W. 1,133; Mullins v. Townsend, 5 Bligh, N. R. 567, 591, 2 Dow & C. 430, 438; Ex parte Dering, 12 Sim. 400; Calv. Parties, 253, 327.”

By the deed of June IS, 1871, the entire legal estate was vested in the trustee, and the present beneficial interest in Mrs. Taylor, the rights of other beneficiaries being all remote and contingent. It is to be observed, too, and in this the case may be distinguished from Breit v. Yeaton, 101 Ill. 252, the trustee, with the consent of Mrs. Taylor and husband, had power “to sell and to give discharges for the purchase money and for the rents and profits of the estate.” Bank v. Taylor, supra. So that if this trust had been created by devise, instead of deed, it would be literally, as it is essentially, within the forty-ninth equity rule of the Supreme Court, by which in such cases the trustee represents the beneficiaries, who need not be made parties, unless at the hearing the court shall require it. In Breit v. Yeaton, supra, cited in behalf of the appellees, a marriage settlement had been made whereby the property of the future wife was conveyed to trustees for the benefit of the husband and wife during their joint lives, and for the benefit of their children after the death of the wife. After the birth of one child the husband and wife brought a bill making the trustees, only, parties defendant, seeking to incorporate into the marriage settlement certain powers of sale which it did not contain in its original form. The original property (certain stocks or bonds) was subsequently sold under the power thus introduced, and the proceeds invested in lands belonging to the husband, and of which the husband subsequently repossessed himself by conveyance from the trustees. The suit was to compel a conveyance to the heirs at law, including after-born children, and for partition. Treating the question of parties as if the interests involved were all legal, the court said:

“Counsel for the plaintiffs in error seem to concede that X Southgate (the child in esse) should have been made a party, but contend that it was competent to render a decree in that proceeding, binding upon those not in being, and they cite Story, Eq. PI. §§ 145, 792, where it is said: ‘As it is sufficient to bring the first tenant in- tail before the court, if in being, whether he be plaintiff or defendant in the suit, so, if there be no such tenant in tail in being, the first person in being entitled to the inheritance - should be made a party, and, if there be no such person in being, then the tenant for life; and in such cases the decree made will bind the other persons not in being.’ This is upon the principle that where the interest of one person is involved in that of another, and that other possesses the legal right, so that the interest may be asserted in his name, it is not necessary to bring both before the court. Marshall, C. J., in Hopkirk v. Page, 2 Brock. 42. Manifestly, then, the rule can have no application here. There is here no prior estate of inheritance, and the interests of the heirs at law are not involved in that of another, but, on the contrary, are adverse to all other interests to be derived under and by virtue of the power. The decisions hold that the heirs at law, in cases like the present, are purchasers, and no decree will affect their rights to which they have not been made parties.”

The quotation from Story, manifestly, is applicable only when tbe interests are legal and not equitable; and of tbe cases cited in support of tbe last proposition one only is explicit upon tbe point. In Parks v. White, 11 Ves. 219, it is said, concerning a marriage settlement wbicb provided contingent remainders for children, that the parents took as purchasers for tbe children; but in none of them is anything said upon the subject of parties by representation. In Graham v. Houghtalin, 30 N. J. Law, 552, there is a dictum to the effect that the rights of the unborn were not, and could not have been, affected by the decree there in question; bub the point ruled was that the decree was void, even as against children in esse who were parties,, because the court was without jurisdiction of the subject-matter. Conceding that the beneficiaries of contingent interests take as purchasers, and that they should be made’ parties to any procedure designed to affect their rights, it does not follow that unborn beneficiaries may not be partáis by representation.

While it is true that the interests of those who are to share an «estate or fund are in a sense adverse, inasmuch as every addition to the number of participants diminishes the share of each, yet when the litigation is not between the members of a class, but between the class as a whole and other parties claiming adverse rights, it is evident that a defense made by or in behalf of one of the class must inure to the benefit of all the members alike; and in such cases, where the rights of unborn persons are involved, it is not unreasonable that They should be deemed to be represented by the living parties who are identified with them in interest. But when, as in this case, the successive interests are all equitable, and supported by a legal estate devised or granted to a trustee, the latter is an indispensable party, and when before the court may well be regarded, we think, as representing, for the purposes of the suit, the remote and contingent interests of beneficiaries who cannot be joined. Certainly the representation ought to be deemed sufficient when the trastee, and all in esse of the class to which the unborn belong, are before the court. If Mrs. Yeaton, in the case referred to, could not, as against unborn and unbegotten children, have the alleged mistake in 'her antenuptial agreement corrected, (lain as against such parties how could a decree be obtained for the annulment of a forged deed, or one procured by duress or fraud? Xo doctrine or rale of practice can be sound or tolerable which involves such possibilities.

The further objection is made that both in the burnt, records case and in that for the appointment of a, trastee it was alleged in the petition or bill that (lie children made defendants were the only ones interested; that the allegation was not denied; and consequently the court was not called upon, as it should have been, to consider whether or not the interests of unhorn children were properly represented. But the provisions of the trust deed whereby those rights were created were fully aud fairly set forth in each case, and, as lias been already said in another connection, it is not to be supposed that the court entered the decrees without knowing the contents of (lie hills upon which it was proceeding. In respect, however, to the second decree, rendered August 19, 1873, it should he noted that while Scott and Peabody, the trustees appointed by the deed, were made defendants, it was alleged that they had resigned, and were refusing to act; farther as trustees. They were therefore only nominal parties, and in fact They did nothing in the case which was, or was intended to be, repre* sentative of any interest. The proper course, we think, for the court to have taken under the circumstances, was first to appoint the new trustee and cause him to be made a party, and then to proceed with the case in the regular order. As it was, there was only a nominal representative of the legal estate before the court when the decree was entered. In all the other cases the parties necessary for the representation and protection of all interests were properly before the court; and it follows that the title acquired by the appellant through the Gilsdorff decree was good against the present attack of the complainants, who were born after its rendition, as well as against the cross complainants, who were defendants in the case, and in whose name the appeal to the supreme court was prosecuted.

There is a broader and more equitable view of the case which leads to the same conclusion. The value of the trust property as it was left by the fire, according to the estimate put upon it by Frank 0. Taylor in his application for the first loan, was $25,000, and there is no evidence that it was worth more. The sublots, afterwards platted, were therefore of the average value of $5,000, and the houses built upon them each cost a little more than twice that sum, making the value of each house and lot about $15,000. That was the consideration for which one of the properties was conveyed to Julia S. Taylor; and according to the decision in Bank v. Taylor, supra, that sale was regular, and the proceeds, it is to be presumed, went to the proper uses of the trust. As the result of the compromise agreement another lot, with improvements of equal value, was conveyed to the Taylor children, and the remaining three lots, worth without improvements not more than $15,000, were conveyed to the Savings Bank. In other words, when this suit was brought, as a result of the transactions complained of, the trust estate had been enhanced by the sum of $5,000 ; and the bank, in return for $20,000 of its money expended in improving two lots for. the benefit of the appellees, had received three lots worth but $15,000. The aim of the suit is that those lots, with the houses on them, erected at a cost of $30,000, which the bank and its assignors, the mechanic’s lien holders, contributed, shall be surrendered to the trustee for the use of the appellees, and that for its outlay of half a hundred thousand dollars the bank shall receive nothing. The proposition involves not merely a hardship to the bank, which, according to the opinion of the circuit court, could not be remedied without making a precedent for defeating the rights of minors; it means, in our opinion, an injustice so unconscionable, in view of all the circumstances, as to make judicial sanction of it at once unnecessary and impossible.

When the trust deed was found, and the.mistake made evident, which had prevailed concerning the powers of the trustee, it was doubtless competent, as it would have been plainly just and right, for the parties in conformity with the authority which the trustee had, to convert their loans and mortgages into an outright sale to the bank of a part of the property equal in value to the money received and expended upon the estate; and that is practically what was accomplished by the compromise agreement, and by the conveyances which followed the foreclosure sale, including the deed of quitclaim which Mulliken, as trustee, and Frank C. and Mrs. Taylor joined in executing to the president of the bank; and, so long as no proffer is made of adequate recompense to the hank in some other mode, there can be, in onr opinion, no good reason for disturbing the result, — unless it should he to require a conveyance to the trustee of the lot which was conveyed to the Taylor children, whereby they were given a title in fee simple and a present right of possession, when they were entitled only to the remote and contingent interest defined by the trust deed. That, however, is a matter between them and their mother, in which the bank is not concerned.

If the mortgages to the hank be regarded as void, it is still true that the trustee received and used the bank’s money for the purpose of improving the property, or paying for improvements already put upon it under circumstances which not only justified, but required, the expenditure. It was within the trustee’s power to make improvements and to sell portions of the property for that purpose; and the fact that the money was obtained and expended without a previous bargain for the sale of any part of the property did not preclude the making of a subsequent contract to that effect. There is nothing in the terms of the trust which forbade if. and, if there were, in view of the mistake, sanctioned by two decrees of court,, under which the money was obtained, equity, if it would not have compelled a settlement of the character suggested, certainly should not intervene to annul one which was fairly made by the parties, on terms to which, they might in the first instance have rightfully agreed.

On the theory of our conclusion that the mortgages were valid and enforceable, the Savings Bank was never under any necessity, and therefore, possibly, had no right, to seek relief on the ground of mistake; hut. on the assumption that for any of the technical objections made to them the mortgages were invalid, we deem it clear that the money obtained of the bank was furnished under such a mistake of fact as to warrant equitable relief, which could have been properly granted, in the way already indicated, by compelling the trustee and Frank C. and Mrs. Taylor to convey to the bank enough of the trust property to liquidate its demands. Between the principal parties — the bank and the trustee — it was plainly a case of mutual mistake; and if there was no mistake on the part of Frank C. Taylor, then his conduct was a fraud upon the hank, which was no less available as a ground of relief. It was upon Ms testimony, corroborated by other witnesses, that the two decrees of the superior court were procured which declared the authority of the trust,ee to execute mortgages; and if it be conceded that those decrees were founded upon an error of fact, for which they were subject to he set aside, even as against the appellants or any third party claiming to have acquired rights under them, the very concession demonstrates the mistake, which, within the recognized rules of equity, makes the granting of relief in the manner stated both possible and proper. The decree of the circuit court should therefore he reversed, and the cause remanded, with instructions to dismiss the hill and cross-bill; and it is

So ordered.

Case Details

Case Name: Franklin Savings Bank v. Taylor

Court Name: Court of Appeals for the Seventh Circuit

Date Published: Jan 18, 1893

Citation: 53 F. 854

Docket Number: No. 5

Court Abbreviation: 7th Cir.