Martin v. Poole

36 App. D.C. 281

• Court: Court of Appeals for the D.C. Circuit
• Decided: January 3, 1911
• Docket: No. 2211
• Status: Published

Opinion

Mr. Justice Robb

delivered the opinion of the Court:

The complainant places her objection to the decree on the ground, first, that said Richard Poole had constructive knowledge of the equitable rights of the complainant “by reason of the existence of the public records and the peculiar circumstances surrounding the entire transaction, and particularly surrounding his purchase of the note,” and, second, that said Poole “had implied knowledge by reason of the actual knowledge of Thomas R. Martin, his predecessor in title, and of Martin Brothers, who were his agents in the purchase of'the note and security therefor.” We will consider these propositions in the order advanced.

It is admitted that Mr. Poole, when he purchased the note now held by the defendant, acted in good faith and without actual knowledge of the equitable rights of the complainant. In such a situation the rule, as stated by the Supreme Court of the United States, is that to affect the purchaser with constructive notice it must appear that his failure to obtain actual notice “was an act of gross or culpable negligence.” Wilson v. Wall, 6 Wall. 83, 18 L. ed. 727. Again, in Townsend v. Little, 109 U. S. 504, 27 L. ed. 1012, 3 Sup. Ct. Rep. 357, the court said: “Constructive notice is defined to be in its nature no more than evidence of notice, the presumption of which is so violent that the court will not even allow of its being controverted. * * * As said by Strong, J., in Meehan v. Williams, 48 Pa. 238, what makes inquiry a duty is such a visible state of things as is inconsistent with a perfect right in him who proposes to sell.”

It is true that when Martin Brothers, as trustees and holders of the legal title of said lot, executed their release of the deed of trust securing complainant’s note, that note was not yet due, but it is also true that said release was recorded in ten days from its date, namely on June 25th, 1904; that the second deed of trust was executed on the same day and immediately recorded. When, therefore, Mr. Poole was offered this security in July, 1905, the record showed the prior trust to have been released more than one year previously; that the original or complainant’s note, if not paid, had been long since overdue; and that the second deed of trust had been of record and unchallenged for more than a year. Was there anything in the situation so inconsistent with the verity of the record as to put him upon notice? It is not an unusual occurrence for a negotiable note to be paid before maturity, and the release of a trust securing such a note naturally follows. The trustees in the recorded release certified that the note had been paid and that it had been shown to them so marked “and duly canceled.” It has since developed that this recital was false, but how was Mr. Poole to know this? The original deed of trust vested in the trustees the legal title to the land, and while the release of the land before payment of the note would be a breach of trust, such release would protect an innocent subsequent purchaser or mortgagee. Williams v. Jackson, 107 U. S. 478, 27 L. ed. 529, 2 Sup. Ct. Rep. 814. In that case Edwin A. Sweet and wife purchased a house in this city of Augustus Davis and gave him four promissory notes aggregating $8,000 for deferred purchase money, to secure which they executed a deed of trust to Chas. T. Davis and William Stickney. The notes were soon transferred for full value and before maturity to Jackson. Before the maturity of any of these notes and without Jackson’s knowledge, the trustees executed a release of the trust, Augustus Davis joining in the release. At about the same time the Sweets employed Chas. T. Davis, who was a partner of his father, Augustus, in the real estate business, to negotiate another loan, that they might pay the first and obtain an extension of credit. Williams was approached and agreed to loan $5,000 if satisfied with the title to the property. Davis furnished him with a certificate of a conveyancer that the title was good, subject to said first trust. Thereupon a new trust was executed in favor of Williams, he being presented with a second certificate showing the cancelation of the first trust and that the same was of record. At the time neither Williams nor the Sweets knew that August Davis was not the holder of the first notes. The court in its opinion said: “To charge Williams with constructive notice of the fact that the notes had not been paid, in the absence of any proof of knowledge, fraud, or gross or wilful negligence, on his part, would be inconsistent with the purpose of the registry laws, with the settled principles of equity, and with the convenient transaction of business. Hine v. Dodd, 2 Atk. 275 ; Jones v. Smith, 1 Hare, 43, 11 L. J. Ch. N. S. 83, 6 Jur. 6, affirmed in 1 Phill. Ch. 245, 12 L. J. Ch. N. S. 381, 7 Jur. 431; Agra Bank v. Barry, Ir. Rep. 6 Eq. 128, L. R. 7 H. L. 135, 21 Eng. Rul. Cas. 184; Wilson v. Wall, 6 Wall. 83, 18 L. ed. 727; Norman v. Towne, 130 Mass. 52.

“The equity of Williams being at least equal with that of the plaintiffs, the legal title held for Williams must prevail, and he is entitled to priority.”

Taking into consideration what the record disclosed to Poole when he purchased the second note, we certainly do not think that the mere fact that the first trust had been discharged prior to the maturity of the first note was sufficient to put him upon inquiry; nor do we attribute any importance to the fact that prior to Poole’s purchase of the second note, and prior to its maturity, an indorsement of $1,000 had been made thereon. Poole was dealing with Martin Brothers, one of whom was the holder and payee of the note, and the other of whom- one of the trustees under the deed of trust securing it. The indorsement had been made by the payee. The transaction on its face was perfectly regular, and not calculated in any way to arouse Poole’s suspicions.

There is nothing in this record, as we read it, to substantiate the contention that Martin Brothers were the agents of Poole. There is no evidence that he employed them, and the record apparently rebuts such a presumption, for it appeal’s that he paid them less than the face value of the note purchased, which would indicate that a slight discount was made him. The certificate of title furnished Poole was one year old at the time, and was evidently procured long prior thereto for use in selling this note. There is another cogent reason for holding that Martin Brothers were not Mr. Poole’s agent. Erom the letters to which reference has previously been made, it appears that Mr. Poole inquired of them whether they had any securities for ■sale, and that Thomas R. Martin, the holder of the note purchased thereupon, offered that note for sale. It is apparent, therefore, that Martin Brothers were representing Thomas R. Martin, a member of the firm, and that Mr. Poole was nothing more than a purchaser of the security which they offered him. In the cases relied upon by the complainant, agency was either admitted or clearly proved. Connecticut General L. Ins. Co. v. Eldredge, 102 U. S. 545, 26 L. ed. 245, is clearly not in point. There the accredited agent of the second purchaser had actual knowledge of existing equities when the second transaction was •consummated, and it was of course held that his principal was bound by his knowledge. The court was careful to confine its opinion to the precise point considered, saying: “To prevent misapprehension, it is proper to state that we do not wish to intimate any opinion upon the general question whether a purchaser of property may not rely upon a release of a previous mortgage or trust deed found upon the official records of the district where the property is situated, without further inquiry, whore he has no knowledge of the nonpayment of the indebtedness secured.”

Finding no error in the record, the judgment must be affixed, with costs. Affirmed.