Interstate Trust & Banking Co. v. National Stockyards Nat. Bank

76 So. 356, 78 So. 356, 200 Ala. 424, 1917 Ala. LEXIS 468

• Court: Supreme Court of Alabama
• Decided: May 24, 1917
• Docket: 2 Div. 644.
• Status: Published

Opinions

GARDNER, J.

Bill by appellee, complainant in the court below and a judgment creditor with a lien of the Pinson & Geiger Land Corporation, ■ an Alabama corporation, to enjoin the foreclosure of a mortgage executed by said corporation to the Interstate Trust & Banking Company, under the power of sale conferred by the mortgage or deed of trust, and to have same canceled and declared void and an order entered for the sale of the property embraced in said mortgage for the satisfaction of the judgment lien of the complainant. The mortgage was executed January 10, 1913, and filed for record the same day. The mortgagor, said corporation, became indebted to complainant on May 27, 1915, as evidenced by its promissory note, and on April 21, 1916, a judgment was recov ered on said note against the said corporation ; and on May 2, 1916, the certificate of said judgment was duly certified to by the clerk of the said court in the office of the judge of probate of Sumter county, and the same was duly recorded.

Complainant bases its right to relief upon the allegation that at the time of the transaction resulting in the execution of the mortgage by the Pinson & Geiger Land Corporation to the Interstate Trust & Banking Company the latter was a foreign corporation and had not qualified under the statute to do business in this state, as provided by sections 3642, 3644, 3651, and 3653 of the Code. The mortgage in question was to secure bonds in the principal sum of $109,000. The bill contained no offer on the part of complainant to refund to the mortgagee the money advanced on the faith of said security. The demurrer taking this point presents the question which is treated and considered by us as of prime importance on this appeal; and, while it was insisted by counsel for appellant that the complainant, being in no manner of privity with the transaction here attacked, cannot be held to question its validity, yet, having reached the conclusion that the bill is without equity for the reason just stated, we pass this by as unnecessary to be determined.

Conceding, without deciding, for the purpose of this case, that the complainant could maintain the bill, we have reached the conclusion that it is fatally defective in failing to offer a refund of the money advanced on the faith of the security under the familiar equitable maxim, “He who seeks equity must do equity.” Speaking of this maxim, our court in Grider v. Am. F. L. M. Co., 99 Ala. 281, 12 South. 775, 42 Am. St. Rep. 58, in which case the mortgagor sought the cancellation of the mortgage on the homestead for a fat-al defect in acknowledgment, said:

“We held in Mortgage Co. v. Sewell, 92 Ala. 163, 9 South. 143 [13 L. R. A. 299], and again in Security Co. v. Powell (present term) [97 Ala. 483], 12 South. 55, that a complainant seeking to cancel, as a cloud on his title, a mortgage executed by him to a foreign corporation, for money loaned, on the ground that the mortgage was void because the corporation had not complied with the laws of this state authorizing it to do business here, or because the mortgage, being governed by the laws of New York, was void for violation of the usury laws of that state, must offer in his bill to repay what he had received under and in faith of the. mortgage security as a condition of the relief sought. We intend to adhere to that doctrine. We cannot assent to the proposition that a person can obtain another’s money upon the faith and assurance of a mortgage security, and the next moment after he received and appropriates it go into a court of conscience, where the maxim that he who seeks equity must do equity has ever been vigorously upheld and applied, and ask that court to cancel the security as a cloud on his title, still retaining the money, and making no offer to return or repay it. If Grider needs and desires the aid of a court of chancery to clear his title of the void incumbrances, he must offer to repay the money he received, with'lawful interest. If he is unwilling to do this, he must stand upon his rights at law. Equity will not help him.”

This equitable maxim has been consistently adhered to by' this court, in cases of this character, as disclosed by the following decisions: Coburn v. Coke, 193 Ala. 364, 69 South. 574; Douglass v. Standard Co., 189 Ala. 223, 66 South. 614; Mitchell v. Baldwin, 154 Ala. 351, 45 South. 715; Marx v. Clisby, 130 Ala. 502, 30 South. 517; George v. Mortgage Co., 109 Ala. 548, 20 South. 331; Grider v. Mortgage Co., 99 Ala. 281, 12 South. 775, 42 Am. St. Rep. 58; Security Co. v. Powell, 97 Ala. 483, 12 South. 55; Mortgage Co. v. Sewell, 92 Ala. 163, 9 South. 143, 13 L. R. A. 299.

There can be no doubt, therefore, that, under the above-cited authorities, had the bill been filed by the mortgagor, failing thus to offer equity, it would have been held by this court to be without equity. _ The latest expression by this court upon cases of this character is contained in Coburn v. Coke, supra, where many of our authorities are collected.

The provisions of section 3653 of the Code have not been deemed sufficient, as held by this court, to abrogate this equitable maxim. That section and the two preceding sections are but codifications of the act of March 4, 1907 (Gen. Acts 1907, p. 290). None of the provisions of said act attempted in any manner to amend sections 3642-3644 of the Code, but merely impose an additional requirement upon such foreign corporations to secure from the secretary of state the permit therein specified; and the provision of section 3653, that upon failure to obtain such permit all contracts made with, by, or to such corporations shall be null and void, was but the equivalent of what this court had held in the above-cited cases as the result of failure on the part of the foreign corporation to comply with the provisions of section 3642, requiring the filing in the office of the secretary of state of an instrument in writing, designating at least one known place of business in this state and an authorized agent or agents residing thereat. Notwithstanding this court had held that contracts entered into by foreign corporations which had not complied with our laws were void, yet we have consistently given application to the above-noted equitable maxim, and required of the mortgagor, upon his becoming the actor, seeking relief in a court of equity, to offer to do equity by a refund of the money actually advanced as a condition to relief.

There is nothing in the above-cited act of March 4, 1907, codified as sections 3651-3653, Code 1907, which indicates any purpose on the part of the Legislature to abrogate this equitable maxim and dispense with its application. It is a maxim as old as equity jurisdiction itself that “he who seeks equity must do equity,” and it has been held that in its broadest sense it will be regarded as the foundation of all equity, since courts do not protect equitable rights unless such rights are in pursuance of settled juridical notions of morality, based upon conscience and good faith. 1 Pom. Eq. Jur. § 385. In regard to its application to the usury laws of the state, the courts required rather a plain expression of the legislative intent before dispensing with its application. Lindsay v. U. S. S. & L. Co., 127 Ala. 366, 28 South. 717, 51 L. R. A. 393; Barclift v. Fields, 145 Ala. 264, 41 South. 84. In the Lindsay Case, it was recognized that the power of a court of equity in the enforcement of the maxim is' not one conferred by statute, nor is it exercised for the purpose of enforcing any contractual right.- In the case of Barclift v. Fields, supra, it is pointed out that this rule was but the invention of a court of chancery for regulating its own procedure, and that the mortgagee had no vested right therein, and could not complain that the lawmaking power had enabled the mortgagor to have relief without paying interest. The rule being an invention of a court of equity, such court in its application exercises a discretion as conceived to be in the interest of equity and justice. Mo-Kan., etc., Co. v. Krumseig, 172 U. S. 351, 19 Sup. Ct. 179, 43 L. Ed. 474; 1 Story, Eq. Jur. (12th Ed.) § 301.

We think it clear therefore, that there is nothing in the history of section 3653 of the Code indicating a legislative intent that this equitable maxim be not given application in certain cases, just as had been done theretofore under numerous decisions of our court. That the provisions of said section have wrought no change in the application of the equitable maxim was presented and decided in the recent case of Douglass v. Standard R. E. Co., 189 Ala. 223, 66 South. 614, and we adhere to that ruling.

It is therefore clear that had the bill been presented by the mortgagor, it would, under these authorities, be held without equity. Indeed, learned counsel for the appellee do not in their brief seem to seriously controvert this .proposition, but they insist that they were not in privity with the mortgagor, but only a judgment creditor with a lien, in thg exercise of a lawful right to subject the property of the judgment debtor to the satisfaction of its lien, and that under no line of reasoning should the maxim, “He who seeks equity must do equity,” be applied to this complainant Some stress is laid upon the language of section 3649 of the Code, which reads as follows:

«He * * All contracts made in this state by any foreign corporation which has not first complied with the provisions of the two preceding sections, shall, at the option of the other party to the contract, be wholly void.”

That'section, however, refers expressly to the two preceding sections, wliiclTrelate solely to the question of franchise taxes. Sections 3651-3653, have no reference whatever to those provisions, but that portion of section 3649 above quoted is an exact reproduction of section 1323 of the Code of 1896.

Counsel for áppellant insist that in no event can the rights of a judgment creditor with reference to the property of the debtor on which he has a lien rise higher than any rights a judgment debtor could exercise at the time the judgment was recorded, citing in support Union Dime Sav. Inst. v. Wilmot, 94 N. Y. 221, 46 Am. Rep. 137; Smith v. Gott, 51 W. Va. 141, 41 S. E. 175; Shirk v. Thomas, 121 Ind. 147, 22 N. E. 976, 16 Am. St. Rep. 381; Lindsay v. Cooper, 94 Ala. 170, 11 South. 325, 16 L. R. A. 813, 33 Am. St. Rep. 105, among other authorities.

We need not inquire whether in some instances the judgment creditor with a lien might acquire a right which the judgment debtor could not exercise, but we do conclude in this particular case that upon no sound principle or good reason can it be held the right of this complainant rises superior to that of the judgment debtor. It has suffered no injury, nor changed its attitude in the least on account of the transaction. The mortgage of respondent was of record long prior to the creation of the mortgagor’s debt to complainant.

As previously pointed out, the equitable maxim, “He who seeks equity must do equity,” is an invention of the court of equity in the furtherance of right and justie'e, and is given application, not as an inflexible rule, but in. the exercise of a discretion. We therefore need not be so much concerned with the question as to whether or not there is privity of estate between the judgment debtor and creditor, or other questions of that character. Here the judgment creditor seeks through a court of equity to have this property sold in satisfaction of its lien, and in furtherance of such purpose to have the mortgage to respondent declared void and canceled. Unquestionably, the mortgagor could not maintain the bill without an offer to do equity. The judgment creditor seeks to subject the title of the debtor to the satisfaction of his judgment. True, the creditor himself has received no money on the strength of the security which he here seeks to cancel, but he nevertheless seeks to subject the title of his debtor who did obtain the money on such security. Will a court of equity, in the application of the maxim which is applied in the interest of right and justice, permit the creditor under such circumstances to be exempt from the rule, with, the result that the debtor retains the monej and the creditor obtains the property freed from incumbrance? We are of the opinion that it would indeed he taking a narrow view of the rule, so broad in its scope, so useful in its purpose, so strong in the defense of right and justice, to so hold; and a court of equity under such circumstances will permit no mere legal niceties to stand in the way of its application.

We therefore conclude that the complainant in this cause, seeking the aid of a court of equity to clear its title, must offer to do equity. If it is unwilling to do this, then it must stand upon its rights at law. Equity will lend no aid.

> The case of Evans v. Faircloth, 165 Ala. 176, 51 South. 785, 21 Ann. Cas. 1164, relied upon by counsel for appellee, does not at all militate against the conclusion here reached. Under the provision of our statute the wife is prohibited from ¡becoming surety for the husband’s debts either directly or indirectly, and any attempt to do so is void, and in said case it was held a junior mortgagee may maintain a bill for cancellation of a mortgage given by the wife to secure the husband’s debt’. The equitable doctrine here involved, “He who seeks equity must do equity,” has never been applied by this court to cases of that character, and of course was given! no consideration in said case, poubtless the controlling reason why the maxim was not applied is stated in Shook v. So. B. & L. Ass’n, 140 Ala. 580, 37 South. 409, of the opinion as follows:

“The debt attempted to be secured by the void deed of trust was not complainant’s. She was neither morally nor legally bound for it. Just why she should be required to offer in her bill to pay it in order to have her equity enforced against her husband, and to have the void conveyances held by the respondent association canceled as a cloud upon her title, we confess our inability to see.”

The debt was not that of the wife, but she was a mere surety, and to have applied the maxim in such cases would have left no field whatever for the operation of the statute, and in fact would have effectually repealed or abrogated the same.

We hold that the ¡bj.ll was wanting in equity for the reason herein discussed, and the decree appealed from will be reversed, an‘d one here rendered sustaining that assignment of demurrer raising this point and reversing -the cause.

Reversed, rendered, and remanded.

MAYFIELD, SAYRE, SOMERVILLE, and THOMAS, JJ., concur. ANDERSON, O. J., and McCLEDLAN, J., dissent.