Lynch v. Hancock

14 S.C. 66, 1880 S.C. LEXIS 101

• Court: Supreme Court of South Carolina
• Decided: August 25, 1880
• Docket: CASE No. 904
• Status: Published

Opinion

The opinion of the court was delivered by

McIver, A. J.

A brief statement of the leading facts of this case will be necessary to a proper understanding of the questions to be considered.

The laud which is the subject matter of this suit, was sold by Fair and Marshall to Bauskett on January 2d, 1854, and to secure the payment of the purchase money the latter gave to the former seven bonds secured by a mortgage of the premises, which was •duly recorded. The entire interest in these bonds and this mortgage became vested in Fair, but how, or when this was ■effected does not appear. Prior to January 1st, 1855, Fair assigned one of these bonds, which became payable on that day, to Muller, but did not assign the mortgage. It is true, that in •the argument of one of the counsel for Hancock, it is contended that this bond was never legally assigned to Muller, but the fact of the assignment is found by the referee and affirmed by the Circuit decree, and there being no exception to •such finding, it is conclusive here. On January 10th, 1856, Bauskett sold and conveyed the land to Hancock, and, to secure the payment of the.purchase money, took his bonds, secured by ■a mortgage of the premises, which was likewise duly recorded. On March 21st, 1863, Hancock contracted, in writing, to sell and convey fifteen hundred acres of the land to Bhett, for the particular terms of which agreement reference must be had to ■the copy set out in the “case.” Under this contract Bhett went into possession, but no titles were ever made to him, and he •never paid the purchase money, though it is insisted that the ■purchase money was tendered and refused; nor did he ever give, •or offer to give, the bonds and mortgage to secure the payment of the.purchase money provided for in the agreement. On April 14th, 1863, Fair made an endorsement on the mortgage held by him in the following words: “ The lien and legal effect ■of the within mortgage is hereby released and discharged for■ever.” (Signed) “ Samuel Fair, for Fair & Marshall.” This endorsement was recorded in the same office in which the mort.gage was recorded, but whether at the same place in the record •book, or whether reference was made from one to the other does not appear. On January 19th, 1864, Bhett contracted, in writing, to sell and convey to Arthur and Johnston the said fifteen hundred acres in consideration of the sum of $50,000, then paid in cash. After this contract was made, but exactly at what date does not appear, Bhett offered to pay Hancock, in confederate money, the amount which he had contracted to pay him for the land, which Hancock refused to receive. Arthur and Johnston ■went into possession ofthelandimmediately after their contract with Bhett, and they and their heirs have since continuously remained in possession — Arthur having died February 27th, 1868, and Johnston April 20th, 1869. The remainder of the land was subsequently sold for taxes assessed against Hancock, and is now-held by his son-in-law, Sims, under a tax title. Bauskett having paid all the bonds given by him to Fair and Marshall, except two, one of which was held by Muller, and the other by Fair, filed the original bill in this case on February 18th, 1867, against Hancock, Bhett, Arthur and Childs, who was then supposed to be the owner of Johnston's interest, for a foreclosure of the mortgage given by Hancock to him. Bauskett died sometime during the year 1867, and, subsequently, a bill of revivor was filed by the plaintiff, as his executor, to which the executors of Arthur, who had also died, were made parties. In April,. 1871, Muller' brought suit against Wadlington, who was the surety of Bauskett on the bond assigned to him by Fair, and, having recovered judgment against him, assigned to Wadlington, on October 9th, 1874, all his right, title and interest in the mortgage given by Bauskett to Fair and Marshall, and subsequently, to wit, on April 13th, 1875, Wadlington paid to Muller the amount of the judgment recovered against him as surety for Bauskett. On June 30th, 1875, the plaintiff, by leave of the court, filed an amended complaint making as additional parties-the heirs of Arthur, the heirs of Johnston, (who, as it had been in the meantime ascertained, had not transferred his interest to Childs,) and Wadlington, who claimed the right to enforce the mortgage given by Bauskett to Fair and Marshall to the extent of the amount paid by him as surety of Bauskett upon one of the bonds secured by said mortgage.

Wadlington, by paying the bond on which he was surety,, became subrogated to all the rights of Muller, who, as assignee of one of the bonds, was, in equity, also the assignee of a proportionate part of the mortgage, with Fair as his trustee. Muller v. Wadlington, 5 S. C. 343. See, also, 1 Jones on Mortgages, § 822, where it is said that this is the generally received doctrine. This proceeding may, therefore, be regarded as an action by a junior mortgagee to foreclose his mortgage, brought against the mortgagor and those claiming under him, to which the senior mortgagee has been made a party with a view to the adjudication of his rights also, and the enforcement of any lien which he may be able to establish.

There can be no doubt but that Hancock, at the time he purchased from Bauskett, took his title subject to the encumbrance of the Fair mortgage, which was duly recorded, and, therefore, notice to the world; and there is as little doubt that those who claim under him have no higher rights than he has, unless they can sustain their claim by adverse,possession, or as purchasers for valuable consideration without notice of the equity set up by Wadlington as senior mortgagee, which will be hereinafter considered. If Hancock took his title thus encumbered, at the time he obtained it, has anything subsequently occurred to remove that encumbrance ? The endorsement made by Fair on the mortgage could not have that effect so far as the assignee, Muller or Wadlington, is concerned, for that was made long after the conveyance to Hancock, and could not, therefore, have ■formed any part of• the inducement to or consideration for the purchase by him from' Bauskett. As is said in 2 Jones on Mortgages, § 957 : “An entry of satisfaction by a mortgagee, after he has parted with his interest in the security, will not discharge the mortgage in favor of one who acquired an interest in the land before the discharge was made. He is no worse off than he supposed himself to be when he acquired his interest, and there is no reason, in equity, why the person really entitled to the mortgage should not have the benefit of it so far as he is concerned.” So far then as Hancock is concerned, the endorsement made by Fair on the mortgage was a nullity, except, perhaps, as to any interest which Fair then retained in the mortgage, as to which we are not now called upon to express any opinion. The same is true as to Rhett, who made his contact for the pur■chase of the land before the endorsement was placed upon the mortgage. But, in addition to this, Fair, as trustee, could not ■release a lien intended for the benefit of his cestui que trust, and, if he did so, it would be a breach of trust, in which all persons who had actual notice of the trust, or of such facts as would put them on the inquiry, would be regarded as participants, and ■could therefore claim no benefit from it. Here the mortgage, which was spread upon the records, not only gave notice to the public that there was a lien upon the land, but that such lien was for the benefit of two persons, and was intended to secure-the payment, not merely of one but of seven separate bonds... The fact that seven bonds were given instead of one, payable in seven installments, pointed very naturally to the conclusion that the object was to make use of these bonds separately by a transfer of them. Common prudence would therefore suggest to a purchaser the propriety of an inquiry as to whether all of " the bonds had been paid, or the lien to secure their payment properly released, and such inquiry would have led to the discovery of the fact that one of these bonds had been transferred to a third person, and that, therefore, Fair had no right to release the lien of the mortgage so'far as that bond was concerned.. It is clear, therefore, that Hancock held the legal title, subject to the encumbrance of the Fair mortgage, and whatever rights he may have in the land can be subjected to the payment of the-amount which Wadlington has been compelled to pay as the surety of the original mortgagor, Bauskett. What his rights-are will next be considered.

Under his contract with Rhett, the latter stood in the position* of mortgagor to Hancock as mortgagee, and Rhett could not therefore convey the land, free of such encumbrance, to Arthur and Johnston, unless the mortgage debt, as it might be called,, was satisfied by payment, or the lien of the mortgage discharged or released. There is no pretence that such debt was ever, in fact, paid, but it is contended that the lien was discharged by a tender. There is no doubt but that a tender of the mortgage debt at the time it is due discharges the lien of the mortgage,, though it does not extinguish the debt; and it will, therefore, be necessary to inquire whether Rhett ever made such a tender to Hancock. Assuming that he offered to Hancock the full amount of the purchase money in confederate treasury notes, this-cannot be regarded, legally, as a tender,, for such notes never-were made a legal tender. The written contract did not provide for the payment of that kind of currency, and while it is quite true that parol evidence may be resorted to for the purpose of showiug'that the contract was made with reference to confederate treasury notes, as a basis of value, with a view to determine the-actual value to be paid, we know of no authority which authorizes it to be received for the purpose of showing that the offer of such currency would amount to a legal tender of the debt and produce the legal consequences of such a tender. A contract which is proved to have been made with reference to such a currency may be discharged by the payment in actual money of the amount which the number of confederate dollars mentioned in it may be proved to have beeu worth at the time the contract was made, or a creditor may, if he chooses, accept payment in confederate treasury notes, and if he does so it will discharge the debt, upon the principle that anything accepted as payment will operate as such ; but it is a very different thing to say that a creditor can be compelled to accept anything in payment of his debt except actual money, or that if he refuses he will be saddled with the consequences attendant upon a refusal to accept a legal tender of his debt. But, in addition to this, the offer of $27,000 in January, 1861, could not, in any view’ of the matter, be regarded as a tender of the amount secured by the contract made in March, 1863, as the currency was constantly depreciating in value. Rhett, therefore, occupies the position of one who has contracted to purchase but who has not received a title, nor has he paid or tendered the purchase money.

The position of Arthur and Johnston will next be considered. They bought from Rhett, whom they knew at the time had no title, and no right to demand a title until he had complied with the terms of his agreement with Hancock, which he has never done. If they paid the purchase money to him and went into possession under a mistaken reliance upon the effect of what is claimed to have been a tender by Rhett to Hancock they must bear the consequences of their own mistake. They bought land which, as the records showed, was encumbered by two mortgages, from a person whom they knew had no title at the time, and they took the risk óf showing that the land had been relieved from both of these mortgages, and that their vendor would acquire a title, or be able to show himself entitled to demand one. Have they done so ? First, as to the Fair mortgage. It is very certain that the debt secured by this mortgage has never yet been fully paid, and ffsis not so pretended; but it is eon-tended that the land has been discharged from the lien of the mortgage by the endorsement placed upon it by Fair. Assuming that Fair, as one of the joint mortgagees, could, by this endorsement, without any consideration, so far as appears, release Ihc lien of the mortgage, he certainly could not thereby affect ibe rights of his assignee, Muller, or Wadlington, who now stands in the shoes of Muller. And though their right to the mortgage may be nothing more than an equity, yet it is an equity long prior in point of time to any equity which Arthur and Johnston can lay claim to, and is, therefore, the superior right. Jfor it will be remembered that Arthur and Johnston (passingf 3>y for the present their claim of title by adverse possession) have mot got the legal title and can only claim an equity. The question as to whether the land has been relieved from the second mortgage — that of Hancock to Bauskett — depends upon other considerations which must be the subject matter of further inquiry. It is quite clear, as we have seen, that Bhett, the immediate-vendor of Arthur and Johnston, has not only never acquired flic legal title, but has never placed himself in a position to demand such title, as he has never paid or tendered the purchase money, nor has he ever offered, nor does he now offer to comply with the terms of his agreement. It follows, therefore, that the land in the possession of Arthur’s and Johnston’s heirs must be subject to these various encumbrances, unless they can make good their claim to hold by adverse possession, or as purchasers for valuable consideration without notice.

. As to the claim by adverse possession, we agree with the Circuit judge that it cannot.be sustained; first, because there is no ¡proof of the adverse character of the possession, and, next, because the possession was not for a sufficient length of time. Since the case of Norton v. Lewis, 3 S. C. 25, affirming the previous case of Wright v. Eaves, 5 Rich. Eq. 81, it must be regarded as the settled law of this state that the mere fact of the ¡possession of land covered by a mortgage, for the statutory ¡period, by a purchaser from the mortgagor, with notice of such mortgage, will not constitute a bar to the action for foreclosure. Here the only thing relied upon to show the adverse character of the possession of Arthur and Johnston, as against the Fair mortgage, is the endorsement placed upon it by him. How that act, in which Arthur and Johnston had no participation, and which was done some time before they claim to have acquired any interest and before their possession commenced, can be said to give any character to their possession, it is difficult to understand. But, even giving it all the efficacy claimed for it, how can it affect Muller or Wadlington, who knew nothing about it — the former until 1871, and the latter until the fall of 1867 or springs of 1868, and dating from either of these periods the possession would be less than the ten years required by the statute before Wadlington was made a party to this action.

■ The fact that this endorsement was spread upon the records ■could not operate as constructive notice, because it was not such a paper as, by law, was required to be recorded, and, therefore, the recording of it would not operate as notice. Harper v. Barsh, 10 Rich. Eq. 149. The statute which is relied upon to show that this was a paper proper to be recorded, (Act of 1817, 6 Stat. 61; Gen. Stat, Ch. LXXXII., p. 427,) provides: “That each and every person who shall have received full payment or satisfaction, or to whom a legal tender shall have been made, of his or their debt, damages, costs and charges, secured by mortgage of real estate, shall, at the request of the mortgagor * * * enter satisfaction in the proper office on such mortgage, which shall forever thereafter discharge and satisfy the same.” It will be observed that this provision applies only where full payment or satisfaction of the debt, secured by the mortgage, has been made, or where there has been a legal tender of such debt, and to extend it to anything else would be an unwarrantable addition to the terms of the statute. The doctrine of constructive notice, by recording, is not to be extended to all papers which are in fact recorded, but only to those which are authorized or required to be recorded. 1 Story’s Eq. Jur., § 404. As there is no statute which authorizes or requires such a paper as the endorsement in question to be recorded, the fact that it was put upon the record will not make it constructive notice. We see no evidence, therefore, that gives to the possession of Arthur and Johnston a character adverse to the Fair mortgage, and certainly none that give it such a character as against the mortgage from Hancock to Bauskett.

But in addition to this, we do not think the possession was of a sufficient length of time to bar the action for foreclosure even of the Fair mortgage. The right to bring this action was suspended by the stay law until December 21st, 1866, and from that time to July, 1875, when Wadlington was made a party, the ten years had not elapsed. Certainly, as against the Hancock mortgage, the statutory period had not elapsed before the commencement of the action fo foreclose that mortgage.

Nor do we think that Arthur and Johnston can successfully maintain their claim as purchasers for valuable consideration without notice. For, to say nothing of the effect of their failure to plead this defence in the manner required by law, it is manifest that they have not got the legal tille, and, at most, only an equity to demand title, and that though they may have paid the purchase money to their immediate vendor, whom they knew did not have the legal title, yet the purchase money has never been paid or tendered to Hancock, the person whom they knew did hold the legal title. As is said by Dunkin,'Ch., in Bush v. Bush, 3 Strob. Eq. 134: “The protection of a purchaser for valuable consideration stands on this, that he has bona fide acquired the legal title and paid the purchase money before notice of the plaintiff’s equity. If he has acquired the legal title but has not paid the purchase money before notice, his plea fails. So, if he has paid the purchase money, but has acquired no legal title, and then receives notice of the plaintiff’s equity, he cannot defeat that prior equity by procuring the legal title.”' And, as is said by Marshall, C. J., in Vattier v. Hinde, 7 Pet. 271: “ The rules respecting a purchaser, without notice, are framed for the protection of -him who purchases a legal estate and pays the purchase money, without knowledge, of an outstanding title. They do not protect a person who acquires no semblance of title. They apply fully only to the purchaser of the legal estate. Even the purchaser of an equity is bound to take notice of any prior equity.” For, as is said by the same distinguished judge in Boone v. Chiles, 10 Pet. 210: “It is a general principle in courts of equity that where both parties claim by an equitable title, the one who is prior in time is ■deemed the better in right.” Again, at page 211, speaking of the protection afforded bona fide purchasers, without notice against a prior equity, says such an equity “ can be barred or avoided only by the union of the legal title with an equity,.' arising from the payment of the money and receiving the conveyance without notice and a clear conscience.” In view of these authorities it is very clear that Arthur and Johnston cannot maintain their claim as purchasers for valuable consideration without notice of the prior equity of Muller or 'Wadlirigtbn.

As to the mortgage from Hancock to Bauskett, we propose to-say but little, as we agree with the Circuit judge that the questions whether anything, and if so, how much, is still due thereon,, should be recommitted to the master, as the conclusions of the-referee, based upon the incompetent testimony derived from the. declarations of Arthur, and Hancock’s testimony as to transactions-with the deceased Bauskett cannot be sustained. We think, however, that the whole matter in reference to this mortgage, including the question whether Bauskett, by his conduct or declarations, induced Arthur and Johnston to purchase by holding out to them the idea that the debt due him by Hancock was paid, or that the lien of the mortgage would be released, should be left open with liberty to all parties to introduce any competent testimony as to all these matters, allowing all proper credits to Hancock at their value in legal currency, unless the testimony to be adduced shows that there was an agreement between Hancock and Bauskett that the various articles furnished were to be-credited on the mortgage debt at their value in confederate money at the time they were delivered. The discount claimed on account of the amount alleged to have been collected by Bauskett on the Lewis note must be further inquired into, as we do-not think the testimony adduced sufficient to establish the claim.. As to the discount claimed on account of the Kirkland note, that also must be the subject of further inquiry. There is no doubt but that the claim of a surety for indemnity against the principal is founded, not upon contract; but upon a principle of natural equity and justice. This equity springs up at the time the relation is entered into, and consummated when the surety pays the debt. Hence, as the Circuit judge has held, a mortgagee will not be permitted, in equity, to foreclose his mortgage .against his surety without allowing such surety the benefit of a ■credit for any amount which he may have actually paid for such mortgagee; but the surety can only claim the benefit of such ■credit to the amount actually paid by him. If he has compromised the debt he can only claim the amount of such compromise — in other words all he can claim is indemnity — nothing more. See the American notes to the case.of Dering v. Earl of Winchelsea, 1 W. & T. Lead. Cas. in Eq. 105, where these principles are laid down and fully supported by the cases there collected. The inquiry, therefore, in this case should be what is the amount which Hancock has actually, not nominally, paid ■on the Kirkland bond, and for such amount he is entitled to have credit. The mere fact of giving a note or due-bill for the whole amount of the bond is not sufficient without proof that he has paid or has the means to pay it. A mere pretensive payment would certainly constitute no foundation for the equity upon which the claim must rest. The case of Peters v. Barnhill, 1 Hill 234, which has been relied upon to support a contrary view, was an action at law, and cannot be regarded as controlling this case. As to the ground taken by the counsel for the plaintiff that a payment made by a surety after the death of the principal cannot, in an action by the executor of the principal, be set off against an obligation given by the surety to the principal, we do not think it can be sustained; for, besides being directly opposed to the decision in Hinds ads. David, Harp. 423, the proposition contended for manifestly restsupon theideathat the claim of the surety is founded upon contract, which as we haveseen, is not the case, but that on the contrary, it rests upon an equity which springs up when the relation of principal and surety is entered into, and is consummated when the surety pays the debt; and that it is upon a principle of equity rather than as a set-off that the principal will not be permitted to enforce the payment of a debt or the foreclosure of a mortgage in disregard of such equity.

The order of sale ignores the fact that the mortgaged premises are now held by different persons, under different claims acquired at different times. When such is the case the rule is that the several parcels shall be sold in the inverse order of the sales made by the mortgagor. Norton v. Lewis, 3 S. C. 25. The order of sale must, therefore, be modified so that the tract held by Sims should be first sold, and if the proceeds of such sale should be insufficient to satisfy the various liens which have or may be established, together with the costs, then the remainder of the land in the possession of the heirs of Arthur and Johnston should be sold.

The judgment of the Circuit Court, except as modified herein, is affirmed, and the case is remanded to that court for such further proceedings as may be necessary.

Willard, C. J., and McGowan, A. J., concurred.