Bloomer v. Henderson

8 Mich. 395, 1860 Mich. LEXIS 48

Opinion

Cheistiancy J.:

All the substantial allegations of the bill in this case, so far as relate to the contract between complainant and Jones and the whole transaction between him and Jones and Hoisington, as well as between the latter two, are substantially and satisfactorily proved; and the facts disclose, beyond all reasonable doubt, a gross fraud perpetrated by Jones and Hoisington upon the complainant.

But it is unnecessary to consider what might be the rights of complainant as to Jones and Hoisington; as they have allowed the bill to be taken as confessed, and have not appealed.

We are only to consider whether the complainant is entitled to the relief he asks, or to any relief, against Henderson, the purchaser of the mortgage fraudulently executed by Jones to Hoisington, and by the latter sold to Henderson.

From Henderson’s' answer, which is fully supported by the evidence, it appears that he purchased the mortgage in good faith, and without any actual notice or knowledge of the manner in which the deed had been obtained from complainant, or of any want of consideration for the deed, or of any fraud or intended fraud upon the com» plainant: that Henderson relied for his knowledge of the title and the validity of the mortgage entirely upon the abstract of the title made by the register of deeds, and had no actual notice of complainant’s possession. He paid for the mortgage one hundred and seventy-five dollars in cash, and a horse worth one'hundred and fifty dollars.

Though the complainant had improvidently delivered his deed to Jones before he had received the consideration agreed upon, and Jones had put the deed upon record, yet he insists, first, that the mortgage of Jones to Hoisington, being but a chose in action, ‘ Henderson, in the purchase of it, must be considered as having notice of all the equities existing between complainant and Jones, the mortgagor; Second, that the mortgage was void in the hands of Hoisington, as against Jones himself; being executed with the design of defrauding complainant, and must therefore be void in the hands of the assignee: and third, that at all events, as 'complainant remained in the open and peaceable possession of the premises, that possession was notice to Henderson of his equitable rights in the land.

In answer to the complainant’s first proposition, Henderson has undertaken to rely, first, upon evidence of a negociable promissory note, claimed (at the hearing) to have been given with and secured by the^mortgage, and which was not due at the time of the assignment; and second, he insists that if the note be entirely thrown out of the case, and the mortgage be considered purely as a chose in action, still he could only be bound, in purchasing the mortgage, to take notice of any equities existing between Jones, the mortgagor, and Hoisington, the mortgagee; and that as between the latter the mortgage was valid.

As to the first ground taken by the defendant, we think the case is not to be affected, in any respect, by any considerations connected with the promissory note. No note is mentioned or referred to in the mortgage, nor in the assignment. And if the evidence were admissible, we are by no means satisfied from it that any such note was given with the mortgage, or that it had an existence prior to the assignment. But we do not think it proper to discuss this evidence, as all evidence touching the note was objected to, £tnd was clearly inadmissible under the pleadings. The bill is silent on this subject; and the note is not mentioned or relied upon in the answer. It was not involved in the issue. See Warner v. Whitaker, 6 Mich. 133.

As to the second ground of defense to the complainant’s first proposition, we think the assignee of a chose in action takes it subject to all equities existing between the parties to the instrument, but not to any latent equities which some third person may have against the debtor, or party bound by the instrument. In other words, Henderson took this mortgage subject to any equities existing between Jones, the mortgagor, and Hoisington, the mortgagee (unless Jones was cognizant of, or assented to the sale): because, as to such equities, the instrument indicated upon its face that Jones was the debtor, and the proper party of whom inquiry was to be made, as to any equities he might have against it. But we do not think he Aras bound to inquire of the complainant (who was not a party to the instrument) as to any rights or equities he might hare against Jones, the mortgagor, or Hoisington the mortgagee; as there was nothing in the nature of the instrument, or upon its face, to indicate the propriety of any inquiry of the complainant. Hence, Are think Henderson took the mortgage discharged from any equities of the complainant, unless the possession of complainant is to be considered notice, a point we shall presently discuss. We are here considering the case independent of the question of possession: — See Murray v. Lylburn, 2 Johns. Ch. 441; James v. Morey, 2 Cow. 297; Bank of Niagara v. Rosevelt, 9 Cow. 409. The cases cited by complainant’s counsel, when carefully examined, Arill not be found to conflict with the rule here laid down.

But complainant insists that this mortgage was void as between Jones and Hoisington, because executed with the design, on the part of both, to defraud complainant.

Whether Jones would hare had the right to set up this defense against the mortgage in the hands of Hoisington, is a question Arhich may be considered as not fully settled by the authorities. For the affirmative, see Smith v. Hubbs, 1 Fairf. 71; Norris v. Norris’ Admr. 9 Dana, 317 ; Nellis v. Clark, 20 Wend. 24; for the negative, Bessey v. Windham, 6 Q. B. 166; Findley v. Cooley, 1 Blackf. 262; Fairbanks v. Blackington, 9 Pick. 93 ; Hawes v. Leader, Cro. Jac. 271; Doe v. Roberts, 2 B. & Ald. 367.

Footnotes

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But it is unnecessary to determine whether Jones could have set up such a defense against Hoisington, as we are all of the opinion that he could hare no right to set up his own fraud against Henderson, who purchased the mort-. gage without notice of the fraud, relying in good faith upon the title as it appeared of record. An assignee of a chose in action can not be bound to inquire of the maker of the instrument Avhether he had not, in concert with the other party, executed the instrument for the purpose of committing a fraud upon others. He, at least, can not be heard to complain if an assignee has chosen to act upon the presumption that it was executed for an honest purpose, and by an honest man. To hold otherwise, would be to encourage fraud, rather than to suppress it. But there is still another reason why Jones would not be allowed to defend against Henderson, on this ground. It is clear from the evidence that the mortgage was made by him for the very pmpose of sale, to enable him to reap the advantage of his fraud. He himself attempted to sell it before Hoisington sold it to Henderson. No court could sustain such a defense in his behalf without giving direct aid in the consummation of the fraud.

But the complainant insists that his continuance in the open and peaceable possession of the premises, must be considered constructive notice to Henderson of all his rights and equities in the premises.

We do not think the doctrine of constructive notice from possession can safely be carried to this extent, or appled at all to a case like the present. Where a party enters and holds possession under a contract of purchase, or a deed not recorded, or some other claim of right, and continues to hold open and peaceable possession under such claim, such possession is, I think, very properly held to be notice to the world of the right or claim under which he holds. Possession in such cases raises a reasonable presumption that the party in possession has some right in the premises; and it is but reasonable to require those who undertake to acquire a right or interest in the land from any other person, to take notice of the possession, and to inquire of the party in possession as to the nature and extent of his rights. Such, I think, is the spirit of the rule to be deduced from the authorities; and I think it correct in principle; but, as the point is not here involved, my brethren reserve their opinion whether this doctrine should apply as against a party ignorant of the possession.

But the object of the law in holding such possession constructive notice, .where it has been so held, is to protect the possessor from the acts of others who do not derive their title from him: not to protect him against Ms own acts/ and especially against his own deed. If a party executes and delivers to another a solemn deed of conveyance of the land itself, and suffers that deed to go upon record, he says to all the world, “whatever right I have, or may have claimed to have in this land, I have conveyed to my grantee; and though ' I am yet in possession, it is for a temporary purpose, without claim of right, and merely as a tenant at sufference to my grantee.”

This is the natural inference to be drawn from the recorded deed; and in the minds of all men, would be calculated to dispense with the necessity of further inquiry upon the point. All presumption of right or claim of right is rebutted by his own act and deed. One of the main objects of the registry law would be defeated by any other rule. See Scott v. Gallagher, 14 S. & R. 333 ; Newhall v. Pierce, 5 Pick. 450; N. Y. Life Ins.‘Co. v. Cutler, 3 Sandf. Ch. 116 ; Lead. Cas. in Eq. Vol. 2 pt. 1, p. 118. The cases cited by complainant’s counsel may, I think, all be reconciled with this view of the rule.

This rule works no injustice in the present case, but is as just in its application, as it is clear in principle.

A gross fraud was committed by Jones and Hoisington. The loss must fall either upon complainant or Henderson. Upon principles of equity, which of them should bear this loss ? If the conduct of each had been equally prudent and Unexceptionable, and neither had contributed more than the other to put it in the power of the wrong doers to commit the fraud, the equities of both might be equal, and the court might leave the parties where they have placed themselves without aiding either. But if either, by gross carelessness, has'put it in the power of the wrong doers to commit a fraud, which must result in a loss to himself or to some innocent third person, he should bear the loss who thus improvidently enabled the wrong doers to commit the fraud.

The complainant, in utter disregard of the dictates of common prudence, delivered his deed to Jones before he had received the consideration, and before the arrangement, upon which it was to be delivered, had been perfected; and with equal improvidence, chose to trust to the verbal assurances of Jones, or Jones and Hoisington, that it should not be binding, or should be given bach, if the arrangement should not be carried out. He thus put it in the power of Jones to place the'deed on record, and to exhibit himself to the world as the owner of the land, and authorized all persons to deal with him as such. Jones then executes the mortgage to Hoisington, who offers it for sale to Henderson. The latter, like a prudent man, requires an abstract of the title, and, after obtaining it, goes to the register to assure himself of its correctness; and being assured of its correctness, makes the purchase. He is guilty of no negligence ; he relies in good faith upon the record. If he was misled, it was by the complainant’s own act; and it would violate every principle of justice to allow the complainant to throw the loss, occasioned by his own culpable carelessness, upon Henderson, who had acted with due caution and in good faith.

The decree of the court below, so far as it relates to the defendant Henderson, must be reversed, and the bill, as to him, dismissed.

The other Justices concurred.

See Quirk v. Thomas, 6 Mich. 100, 104, 107, 108.