Bankhead v. Owen

60 Ala. 457

• Court: Supreme Court of Alabama
• Decided: December 15, 1877
• Status: Published

Opinion

BRICKELL, C. J.

The primary question, rendering all others unimportant, presented by this record, is, whether a transferree by delivery of a promissory note, the consideration of which is the purchase-money of lands, — the transfer not being attended by any agreement, or by circumstances, which charge the vendor Avith a liability for the ultimate payment of the note, or of the consideration passing to him on the transfer, if the note is not available, — can assert and enforce the equitable lien of the vendor.

As a general rule, the holder of a promissory note, parting with it by mere delivery, must be understood to mean, he will not be responsible for its payment. A special indorsement, in the words usually employed, “ without recourse,” is an express declaration of the absence of responsibility. It is no more than the expression .of the implication of the law from a transfer by delivery merely ; and, except as passing the legal title to instruments which, under the statute, are made assignable, and are not by the law-merchant negotiable by delivery, its operation and effect, as between transferror and transferree, is that of a transfer by delivery. Assuming to transfer, whether by indorsement, or by mere delivery, necessarily implies the genuineness of the instrument, and the right to transfer; as is always implied, when power is exercised, that there is a right to exercise it, and a subject-matter over which it may be exercised. All this is implied in the ordinary transactions of business. A debtor may pay to his creditor bank-notes, and they may be accepted Avithout a word from the one to the other, — without any warranty of their genuineness ; yet, if they prove to be fictitious, the obligations of good .faith and conscience require that he should answer for their genuineness. "Without the imputation of criminality to him, and of gross folly, or of criminality to the creditor, it cannot be supposed he would tender, or the creditor accept, payment in spurious notes. But, if the notes are geuuine, and, without knowledge that the bank has failed and become insolvent, he pays, and the creditor receives, the loss falls upon the creditor. This has long been the settled law of this State.—Lowry v. Murrill, 2 Port. 282. So, if a promissory note is transferred, Avhether by delivery, or by a general indorsement, or a special indorsement declaring an absence of liability to answer for its ultimate payment, the law implies an obligation to answer for its genuineness, and an affirmation of authority to transfer. If the transfer is by delivery merely, and the genuineness of the note, or the authority to transfer, is not matter of dispute, the transferror ceases to be a party to the note, and incurs no responsibility. — Story on Prom. Notes, §§ 116-17; 2 Parsons on Notes and Bills, 37. A person cannot be charged as an indorser, unless his name appears in some way written on the paper, whatever other liability may arise _ from circumstances of which the paper affords no indication.—2 Parsons on Notes and Bills, 15; May v. Bell, 27 Ala. 515.

2. The equitable lien of a vendor of lands, for the payment of the purchase-money, though he has made a conveyance, expressing on its face the payment thereof, was first distinctly recognized in this court in Foster v. Trustees of the Atheneum, 3 Ala. 302. The preceding case of Dupphey v. Frenage, 3 Stew. & Port. 315, proceeds on the ground, that the lien was a part of the doctrine and principles of our courts of equity, but does not enter into a discussion of the question. "Without an express adjudication of this court, the profession, and the community at large, have doubtless, from the earliest history of the State, recognized, and advised, and entered into transactions, without doubting that the lien, as a matter of law, would be raised and enforced by a court of equity, for the protection and indemnity of the vendor, unless, from the nature and facts of the particular transaction, he has waived it. Adopting the language of the court in Foster v. The Trustees of the Atheneum, it must be regarded as settled in this State, that “ the vendor, in the absence of any agreement to the contrary, retains a lien on the land he has sold and conveyed, for the unpaid purchase-money ; and that this lien will be enforced against a purchaser with noticeand we add, against all persons, except bona fide purchasers without notice.

3. Whether the lien will accompany an assignment of the bond or note given for the purchase-money, is a question embarrassed by irreconcilable conflict of authority in those States, of the Union which recognize its existence. The question was first presented to this court in the case of Hall v. Click, 5 Ala. 363, in which the transfer of the note was by delivery, without indorsement. An error crept into the syllabus of the ease, which the statement of facts corrects, indicating that the assignment was expressly without recourse ; which has sometimes led to the conclusion, that the decision was limited to assignments of that character; but the assignment was by delivery without indorsement, as is expressly recited in the statement of facts. The court, determining the lien did not'pass to the transferree, say: “The facts of this case relieve us from the necessity of considering, whether, in any case, the equitable lien of a vendor should be enforced at the suit of an assignee. It is quite enough to say, that there has been no assignment of the lien, and that there is no liability, so far as the bill and answer inform us, on the -part of Dickerson (the vendor) “to pay Click’s” (the vendee) “note.”

The question was next discussed, though it did not arise, and, consequently, what is said is mere dictum, in White v. Stover, 10 Ala. 441; and the opinion is expressed, that the lien would pass to a transferree taking by delivery, without indorsement, the notes for the purchase-money. The judge delivering the opinion falls into the error of supposing that, in Hall v. Click, supra, the transfer of the notes was by indorsement expressed to be without recourse. "We can not perceive, if such had been the fact, that it would, in reason or principle, have justified any distinction in the two cases; for, as we have said, so far as the responsibility of the transferror is involved, it is not different, but the same in either case. It is enough to say, however, of that case, that the question was not involved. The vendor, having parted with the notes without indorsement, afterwards obtained them, on a valuable consideration, and he claimed to enforce the lien, not as an assignee, but by virtue of his original title, to which, with all its incidents and equities, he was remitted, when the notes were returned to him; subject, of course, to any defense, or equity, the makers may have acquired against the transferree, while the holder of the notes.—Page v. Green, 6 Conn. 338; Lindsey v. Bates, 42 Miss. 397; Cotton v. McGehee, 54 Ib. 570. Neither the transfer of the notes, nor his subsequent acquisition of them, operated an extinguishment of them ; nor was there any change of the relation existing between him and the vendee. The vendee stood as his debtor, holding his estate, which a court of equity would not, as between them, permit him to keep, without paying the consideration money. The case, in the light of its real facts — -and it is by these its authority as a precedent is to be determined — was that of vendor and vendee, not presenting any question of the rights and equities of a transferree.

The next case, in which an opinion on the question was expressed, is that of Plowman v. Riddle, 14 Ala. 169; in which the vendor had sold and transferred a mere equity, and had transferred the notes for the purchase-money by delivery, as collateral security for the payment' of a debt due from him to tbe transferree. The court say : “The rule is settled in this court, that the equitable lien of a vendor will pass to the assignee of a note, given in part payment of the purchase-money.” The only authority cited in support of the proposition is Roper v. McCook, 7 Ala. 318; which was not a case in which the vendor had an equitable lien, but in which he had reserved the legal title as a security for the payment of the purchase-money. Confounding this class of cases with the equitable lien of the vendor, and general expressions which extend beyond the case before the court, has involved the question we are considering in some embarrassment, and produced an erroneous impression, that there is no substantial difference recognized between the security a vendor provides for himself, by retaining the legal title, and the lien or trust a court of equity will raise and enforce for his security, after a conveyance of the legal estate. But of this we shall have occasion to speak more fully hereafter. The court proceed to say : “It is clear that the lien, in the case at bar, is not lost, even upon the authority of the case in 5 Ala. Rep.” (Hall v. Click); “for the facts as disclosed show, that Riddle” (the vendor) “being indebted, transferred the notes to the Burts as collateral security; consequently, the note is not transferred without recourse, for Riddle is liable for the debt until it,is paid.” The correctness of this decision cannot be doubted. The vendor had a direct and immediate interest in the payment of the notes, and there was nothing in the transaction to relieve a court of equity from the duty and necessity of raising and enforcing the lien for his protection and indemnity. If it was not raised and enforced, he would sustain loss to the same extent that he would have sustained if he had not parted with the notes. The debt, for which the notes were collateral security, may have been less than the amount of the notes; the surplus, when received, would have been money had and received to his use.

Reviewing the cases, in the order in which they have been presented, the case of Griggsby v. Hair, 25 Ala. 327, is the next case, in which the question was considered; and it was said: “It may safely be asserted, as a principle deducible from the decisions of this court, that when the vendor transfers a note, secured by a. lien of this nature, either by indorsement or delivery, and binds himself for its payment to the assignee or transferree, the lien on the land, unless expressly waived, is retained, and passes as an incident to the note, and may be enforced by the assignee.” Again, “It is true, if a note is assigned without recourse by the vendor, it amounts to an abandonment of the lien on his part, and his assignee can work out no equity to subject the land through him. But, whether or not the parties intended to abandon such lien, is a matter of fact to be gathered from the evidence, and the nature of the transaction.” The correctness of the latter sentence may well be questioned, if it is to be construed as importing that, whatever may be the intention of the parties, or their agreement, the lien will in any case pass to a transferree or assignee of the note for the purchase-money, unless the vendor remains liable for its payment; for it is because of his liability, and through him, as we shall presently see, and as is said in the sentence of the opinion, preceding that to which we are referring, an equity is worked out in favor of the assignee.

The next case which may be supposed to bear on the question, is that of Griffin v. Camack, 36 Ala. 695, which was a bill filed by an assignee of a judgment, founded on notes given for the purchase-money of lands. What was the character of the transfer of the notes, is not expressly stated; and there is nothing to indicate that it did not impose liability on the vendor for their ultimate payment; nor does it appear that the vendor had conveyed to the vendee. The court say: “We think the law is settled in this State, that the unqualified transfer of a note, given for the purchase-money of land, or of a judgment upon the pote, is a transfer of the vendor’s lien on the land for the payment of the note.” The law of the State seems to us expressed in this sentence, with clearness, certainty, and precision; and it cannot be qualified or limited by judicial decision. It is an imqualified transfer, which passes the lien, or carries it to the assignee. Indorsements of promissory notes are treated by Judge Story, who but follows the elementary writers generally, as of four kinds: general, or absolute, restrictive, qualified and conditional. The first is, when the indorsement is in blank, or filled up payable to the indorsee, or his order, without any restrictive, or qualifying, or conditional words. A qualified indorsement “qualifies the duties, obligations, and responsibilities of the indorser, resulting from the general principles of law. Thus, for example, an indorsement of a note to A., “without recourse,” or “at his own risk,” &c.— Story on Prom. Notes, §§ 141-146; Hailey v. Falconer, 32 Ala. 536. An unqualified transfer of a promissory note — a transfer Avithout restriction or limitation, certainly without an exclusion of all liability of the vendor for the ultimate payment of the note — is the kind of transfer to which the court referred in this case. A transfer by delivery, generally, is a transfer without recourse, and a qualified, as distinguished from an unqualified transfer. The case of Wells v. Morrow, 38 Ala. 125, was that of an unqualified transfer; or, if there was any qualification, it was not in limitation or exclusion, but in enlargement of the liability of the vendor for the payment of the note — he was “to stand good for it, until it is paid.”

The equitable lien of a vendor is in the nature of a trust, and the principle on which it rests is, “that a person who lias gotten the estate of another, ought not, in conscience, as between them, to be allowed to keep it, and not to pay the full consideration money.” — 2 Story’s Eq. § 1219. It is not, properly speaking, a matter of contract, nor is it strictly attributable to the intention of the parties. Eor, as is said in Foster v. Trustees of Atheneum, 3 Ala. 307, “so far as the presumed lien on the land for the purchasermoney rests for support on the supposed intention of the parties, it may be confidently stated that, in this State, it rarely, if ever, exists in the contemplation of the parties, when a conveyance of the land is made. A much more just and rational foundation for it appears to be the principle of equity and justice, which forbids one to enjoy the property of another, without compensation, where it can be accomplished without injury to third persons.” The nature and characteristics of the lien, as defined by Judge Story, have been more than once approved in this court. He says: “The vendor, having the lien, has not any estate in, or right to the land; and it has been very correctly observed of the lien of a judgment creditor, that he has neither a jus in re, nor a jus ad rem, and, therefore, though he releases all his right to the land, he may extend it afterwards. The lien of a vendor for the purchase-money is not of so high and stringent a nature as that of a judgment creditor; for the latter binds the land according to the course of the common law, whereas the former is the mere creature of a court of equity, which it moulds and fashions according to its own purposes. It is, in short, a right which has no existence until it is established by the decree of a court in the particular case, and it is then made subservient to all the other equities between the parties, and is enforced in its own peculiar manner, and upon its own peculiar principles. It is not, therefore, an equitable estate in the land itself, although sometimes that appellation is loosely applied to it .’’—Gilman v. Brown, 1 Mason, 221; see, also, Bayley v. Greenleaf, 7 Wheat. 46.

The equitable lien of the vendor has not, in the course of our decisions, been carefully distinguished at all times from 0the security the vendor carves out for himself, by retaining in himself the legal estate until the payment of the purchase-money. The two are often spoken of, as if they were of the same character and operation; and yet they have no common element, except that each is a security for a debt — the one, by the contract of the parties; the other, by operation of law, and under a decree of a court of equity. There can be no just and proper distinction drawn between a mortgage to secure the payment of the purchase-money, executed contemporaneously with the conveyance of the land, and a reservation of the legal estate, as a security for its payment.—Graham v. McCampbell, Meigs, 52. The cases of Roper v. McCook (7 Ala. 318), Conner v. Banks (18 Ala. 42), Kelly v. Payne (18 Ala. 371), Haley v. Bennett (5 Porter, 452), Chapman v. Chunn (5 Ala. 397), Owen v. Moore (14 Ala. 640), Burns v. Taylor (23 Ala. 255), Bradford v. Harper (25 Ala. 237), Driver v. Hudspeth (16 Ala. 348), Relfe v. Relfe (34 Ala. 500), and Magruder v. Campbell (40 Ala. 611), all concur that, when the vendor retains the legal title as a security for the purchase-money, all the essential incidents of a mortgage attach. The vendor, retaining the legal estate, has tice right to and in the land, on which he may maintain ejectment for the recovery of possession, compelling the vendee to resort to equity for a redemption, or, rather, for a specific performance. He may sue at law on the note, or bond, or bill given for the purchase-money, or seek a foreclosure in equity ; and these remedies may be pursued concurrently. The only remedy of the vendee is in equity for a specific performance; and the court can not intervene for his relief, unless he aver, and if the averment is not admitted prove, payment of the purchase-money, — the part of the contract he was bound to perform. The vendee, who has obtained a conveyance, of course is under no necessity of seeking any relief against the vendor. No right to, or interest in the land, remains in the vendor, and, consequently, he can not maintain ejectment for itg recovery. All the remedy he may pursue, other than an ordinary action at law, for the recovery of the purchase-money, is in equity for the enforcement of the lien or trust the court raises and enforces for his protection and indemnity. The difference, in right and remedy, between the equitable lien and the security the vendor creates for himself by retaining the legal estate, is so apparent, that it is matter of surprise they should be so often spoken of as if they were identical. Another difference may be remarked: that the title of a Iona fide purchaser without notice will prevail over the equitable lien, while there can not be a bona fide purchaser entitled to protection when the vendor retains the legal estate.

An assignment or transfer of the bond or note given for the purchase-money, when the vendor retains the title, will pass the security, without regard to its character. The transaction is then, in effect, a mortgage; the debt is the principal, and the security an incident. The vendee can never acquire the legal estate, until the debt is paid. The equitable lien is a trust, or a security for the vendor only, raised' and enforced for his benefit, and only on the equity existing between him • and the vendee, that the one should not lose, and tlie other should not keep the estate, without payment of the consideration money. The equity continues when the transfer of the note or bond involves him in liability for its payment. The transferree to whom he is liable is, by a court of equity, subrogated to the lien; and the court enforces it at his instance, in the payment of the debt, and to the relief of the vendor. But, when he parts with the debt, incurring no liability for its payment, the ground of equity ceases. The interest in the debt passes to the transferree, who has no equity superior to that of any other creditor.— 1 Lead. Cases in Equity, 454. This is the theory of the decisions in Hall v. Click, and Griggsby v. Hair, supra, and is asserted in Plowman v. Riddle, supra. At the last term, it was, after mature consideration, asserted in Hightower v. Rigsby; nor is it in conflict, as is earnestly insisted by the counsel for the appellee, with any direct adjudication of this court. The cases supposed to be in conflict (except White v. Stover, and Griffin v. Camack, supra) are all cases in which the vendor had retained the legal title, and covenanted to convey it only on the payment of the purchase-money.

It is on the principle of subrogation, when the transfer involves the transferror in liability, that the lien passes to the transferree. A party claiming subrogation to a security for a debt, which another party has obtained, either by operation of law, or by contract, if the security is not for the payment of the debt, but for the personal indemnity of the party obtaining it, is not entitled to it, if, as to such party, the debt or liability for it has ceased to exist.—Houston v. Br. Bank Huntsville, 25 Ala. 250.

Without valuable consideration, by gift, and by mere delivery, the appellee obtained the note for the purchase-money, from a transferree by delivery of the vendor; and at her suit the equitable lien of the vendor can not be raised and enforced.

The decree must be reversed, and a decree here rendered dismissing the bill. The next friend of the appellee must pay the costs in this court, and in the Chancery Court.