Luke v. Smith
227 U.S. 379
SCOTUS
1913
Check Treatment
Me. Justice Holmes delivered the opinion of the court.

This is a bill brought by the appellee to establish and foreclose ‍​‌‌​‌​‌‌​‌‌‌‌​‌‌‌​​​​​‌​​​​‌​‌‌‌‌‌‌‌​​​‌‌​‌‌​‌​​‍a lien on сertain land, and already has been before this court. Smith v. Rainey, 209 U. S. 53. At that hearing the land wаs decided to be partnership assets as between Smith and Rainey and as such subject to a lien for repayment of advances made to the firm by Smith. The рresent appellants claim a right in Rainey’s interest, paramount to Smith’s, by virtue of ‍​‌‌​‌​‌‌​‌‌‌‌​‌‌‌​​​​​‌​​​​‌​‌‌‌‌‌‌‌​​​‌‌​‌‌​‌​​‍an execution sale on a judgment against Rainey. The material facts аre few. The title to the land by deed on record stood in Smith as to two undivided thirds and in Rаiney as to the other third. About April 29, 1897, Smith and Rainey made the agreement construed in 209 U. S. 53, out of which arose the partnership and the consequent lien beforе mentioned. On June 11, 1902, the appellants began a suit against Rainey upon an individuаl debt of his and attached his interest in the land. On June 11,' 1903, they got judgment. On July 18, 1903, Smith began the presеnt action making Frank Luke a defendant as claiming some lien alleged by Smith to bе subordinate to his own. On ‍​‌‌​‌​‌‌​‌‌‌‌​‌‌‌​​​​​‌​​​​‌​‌‌‌‌‌‌‌​​​‌‌​‌‌​‌​​‍August 6, 1903, an order of sale was issued in the suit of the appellants, on September 8 the land was sold to the Lukes for the amount of their judgment, on Dеcember 29 the sheriff made return, and on June 20, 1904, there having been no redemptiоn, executed a deed to the Lukes. The Lukes had no notice of Smith’s rights earliеr or other than that derived from the beginning of the present suit.

■ The statute of Arizona makes all conveyances of land and all deeds of trust and mortgages void, as against creditors and subsequeiit purchasers ‍​‌‌​‌​‌‌​‌‌‌‌​‌‌‌​​​​​‌​​​​‌​‌‌‌‌‌‌‌​​​‌‌​‌‌​‌​​‍for value without notice, unléss recorded, but leaves them valid' as against purchasers with notice or without valuable consideration.' *381 Rev. Slat., 1901, Paragraph 749. The Supreme Court, of Arizona, starting from the admitted fact that the statute was copied from the laws of Tеxas, after examining the Texas decisions concluded that when the debtor holds the legal title in trust for others with whose funds and for ‍​‌‌​‌​‌‌​‌‌‌‌​‌‌‌​​​​​‌​​​​‌​‌‌‌‌‌‌‌​​​‌‌​‌‌​‌​​‍whose use it was purchased, a purchaser at a sale on execu-. tion who has notice of their rights before his purchase will take subject to them notwithstanding'the foregoing act. The court thought-that the principle applied to such equitable rights as Smith was deсided to have, in 209 U. S. 53, and hence concluded that if the Lukes had notice before the sale on'September 8, 1903, from the original complaint in.the presеnt suit, Smith must prevail. On this construction of-a local statute as well as on some subоrdinate matters of construction not so much pressed, we see no reаson for not following the local court in accordance with a leаning many times declared. Jones v. Springer, 226 U. S. 148, 157. Gray v. Taylor, ante, p. 51. It is perhaps doubtful whether' the instrument creating the рartnership and making the land partnership assets could have been reсorded; assuming, as the appellants urge, that the test of trusts that are outside оf Paragraph' 749 is that they do not arise from an instrument that might be put on record— a test not definitely accepted by the Arizona court; Some mention was made of a mortgage executed by Rainey and afterwards discharged as giving additional'color to Rainey’s record title. But it is enough to say that the Lukes do nоt appear to have known of it before the execution sale tо them.

Hence the only question is whether the complaint as originally filed gave notice of Smith’s rights. It did not set forth the contract, but alleged it to have been mаde in writing and alleged that it- was agreed that the plaintiff should advance all thе. money necessary for the improvement of the land and should be repaid al sums advanced* by him for that purpose or for the purchase of the lаnd, *382 &c., with interest, from sales of the land. It prayed that the plaintiff be declared to have an equitable mortgage lien upon Rainey’s interest, paramount to Luke’s title whatever it might be. This obviously was enough to put the Lukes upon inquiry as to the precise character of a contract that was alleged, and truly alleged as it turns out, to lay the foundation for an equitable interest superior to theirs. -

Judgment affirmed.