Perkins, C. v. Hays, Sloan, C.

3 Tenn. 163

• Court: Tennessee Supreme Court
• Decided: July 6, 1812
• Status: Published

Opinions

S. C., 1 Tenn., 509; Cooke, 189. This was a bill in equity brought by the complainant Perkins and John Taply in his lifetime against the defendants, to recover a tract of land.

The bill stated that a certain John Grinder enlisted as a soldier in the North Carolina State line during the revolutionary war, in which service he died some time in the year 1780; that for his services there issued to his heirs a land warrant, under the law of North Carolina, for one thousand acres; that at the time of his death he left a widow, Mary Grinder, and two sons, his only children Joshua Grinder and Robert Grinder; that a certain Sarah Grinder, falsely representing herself to be the only heir of the said John Grinder, assigned the warrant aforesaid to the defendant Hays, and that upon this warrant Hays made an entry and procured a grant for one thousand acres of land; that the said Hays conveyed, in fee, to a certain James Douglass, four hundred and forty-six acres of the said land, which was afterwards conveyed, in fee, by Douglass to one Maury, and by Maury in like manner to the defendant Walkup; that the defendants Sloan and Gurtre set up a claim to the said four hundred and forty-six acres, as deriving a title under the said Walkup.

The bill does not charge that the purchaser from Hays or any of the subsequent purchasers paid no consideration for the land, or that any of them had notice of the complainant's equity.

The bill further states that Joshua Grinder conveyed, for a valuable consideration, his interest in the claim to his brother Robert Grinder, by whom the same was sold for the like consideration to the complainants. Upon the death of Taply the suit, as to him, was revived in the name of his executors.

Hays and Sloan having failed to answer, the bill was taken for confessed against them.

Walkup answered that he was a fair and bona fide purchaser from Maury, for a valuable consideration, without notice of the complainants' equity, which he conceived would protect him; that he had sold two hundred acres, part of the four hundred and forty-six acres, to the defendant Sloan, and had executed a conveyance to him therefor, and that he had sold the residue to the defendant Gurtre, and was ready to make him a title when required. He stated that he had received a conveyance from Maury on the same day the contract was made, but the deed was not produced in evidence.

Gurtre answered that he was a bona fide purchaser from Walkup, for a valuable consideration, without notice, though he had not yet received a conveyance.

Neither Walkup not Gurtre answered as to the fraud charged in the bill, respecting the assignment of the warrant.

The case set forth in the bill was amply supported by proof.

Upon the hearing of the cause several questions were stirred.

1. It was objected by the complainants that it was necessary, to support the defence set up by the defendants, to produce the purchase deed of Walkup and Sloan, and that the answers filed were insufficient to maintain the defence, because they had not answered to the fraud in assigning the warrant. 1 Vern. 185, 246. That the defendant Gurtre could not avail himself of the defence set up, because the plea must show that he had no notice at the time he received his conveyance, and he had received no conveyance yet. 2 Co. Dig. 362. That Sloan could not be protected, because he had not set up any defence, either by way of plea or answer.

2. That if the Court should be of opinion, in a case like the present, a purchaser without notice would be protected, yet here was enough to put him upon inquiry; because by tracing the title, as the purchaser ought to have, back to the commencement, he could easily have ascertained that Sarah Grinder had no right to make the assignment on the warrant; which constructive or notional notice, it was contended, was sufficient to protect the equity of the complainants.

3. It was also contended that where a title originates in a fraud or forgery, as in this case, no kind of transfer could purify the transaction; and that therefore a bona fide purchaser, for a valuable consideration, without notice, must stand in the same situation as the parties to the fraud. It has been contended by the complainants' counsel, that the statements in the answers are not sufficient to entitle the defendants to the benefit of the defence which is set up by them. Without sopping at this moment to inquire into the facts alleged in the answers, it may be necessary, for the purpose of obviating any difficulty, to turn our attention to another part of the case. If a purchaser for a valuable consideration, without notice, can not have his right postponed, then it is necessary to inquire, whether in a bill framed in a case like the present, it is not necessary to charge notice, or a want of consideration? I am decidedly of opinion that these things should be charged in the bill. In such case, it is incumbent on the complainant to state every fact in his bill, the non-existence of which would disentitle him to a recovery. In those cases where equitable titles have prevailed against a title at law, it has been on the ground that the person who held the legal title had acted mala fide in the procurement thereof, and therefore in conscience he could not hold the property. It should appear in the bill that he can not conscientiously hold; that he is a volunteer, or had notice of the complainant's equity; in which case a court of chancery will decree, that he having acted with bad faith in the procurement of the legal title, his conscience is thereby affected; and that consequently he shall be compelled to do that which an upright and conscientious man would have done without compulsion. Amb. 446.

In this point of view, if the present bill had been demurred to, I am inclined to believe that the demurrer would have been sustained.

But if everything necessary to deprive the defendants of their defence had been charged in the bill, I am not satisfied that the answers are insufficient.

The moment an innocent man, for a valuable consideration, without notice, purchases a legal title, that moment does the trust which remained in the hands of the person committing the fraud cease to exist. Where a person by fraud obtains a legal title to that which equitably belongs to another, he shall be considered in the light of a trustee to that other, and will be compelled in a court of equity, to convey to him his legal title; but if a third person, bona fide, purchases in this legal title, without notice, in his hands the trust is discharged and done; and if once discharged it can never be revived. It follows, therefore, that as Walkup stands in a situation by which he could protect himself, a purchaser from him must remain in the same situation, although he has notice. It is, consequently, perfectly immaterial whether Sloan and Gurtre purchased innocently andbona fide or not. But supposing the answers are insufficient, can advantage be taken of that defect upon the hearing of the cause? Certainly not. If an answer is put in which the complainant judges defective, he should except to its sufficiency; but if he replies to it, he thereby admits it is good, and can not afterwards say the answer is defective, and therefore the defence set up by the defendant shall not prevail. It is just like a plea. If that be replied to, you can not object to its sufficiency; and if you judge it to be insufficient, it should not be replied to, but set down for argument. 1 Har. Ch. 263.

It has been also contended that there was enough in this case to put the defendants or purchasers upon inquiry, which is a sufficient constructive or notional notice. If there really is enough appearing upon the papers to lead a purchaser to a discovery of the fraud, and he does not make the necessary inquiry, yet he shall be considered as having notice. But is that the case here? Take the case of Walkup for example. Maury proposes selling to him, but he refuses to buy until he sees how the title is situated. Maury then procures his deed from Douglass and also shows the deed from Hays to Douglass, as well as the grant to Hays. Walkup is still unwilling to buy, — he wishes to know how Hays procured the grant. Search is made, and it is discovered to be made upon an entry in the name of Hays, founded upon a warrant issued to the heirs of John Grinder, and assigned by Sarah Grinder, purporting to be the heir of John Grinder, to Hays. Shall Walkup go farther back than this? Shall it be said that he must go on and ascertain, without any intimation to the contrary, whether Sarah Grinder is the heir of John Grinder? I conceive that no such duty devolved upon him. And, indeed, I have no hesitation in saying that when a man is about to purchase a legal title, he is not bound to inquire farther back than the grant, and no sort of necessity devolves upon him to make any inquiry about either the entry or warrant. I am also of opinion that constructive notice should not be enlarged. I do not feel disposed to disturb the doctrine on that subject; but if I were at all to interfere, it would be rather to abridge than enlarge the rules and principles upon which constructive notice is founded.

With respect to the third point, which has been much labored by the complainants' counsel, and which is confessedly of great importance, we feel very little difficulty. I am clearly of opinion that where a grant has issued, upon its face purporting to be fair, a purchaser from the grantee, or any subsequent bargainee, for a valuable consideration, without notice of an equity before he receives his conveyance, is eased of the trust which might have attached to the land in the hands of the bargainor. The issuing of a grant confers upon the grantee a legal title to the land; and when an innocent purchaser, without notice, pays the consideration and receives his conveyance, he not only has a legal title in him, but he has an equity also; and although the bargainor may stand in such a situation that, if the legal title had remained in him, a conveyance could have been compelled in favor of an equitable claimant; yet the moment such a transfer is made, as I have just described, the thing transferred is discharged, and the transferee can not be compelled to give up his legal and equitable right, because his conscience is not affected.

The complainants' counsel have insisted that "he who is first in point of time is best in point of right;" and that, inasmuch as the equity of the Grinders existed prior to the equity of the defendants, the complainants' must prevail. To this I reply, that the maxim is one which exists in equity, and is only applicable to rights merely equitable. If both parties have merely an equitable claim, he who is first in time will succeed; but if one has an equitable right, and the other has also an equity, and in addition possesses a title at law, the maxim will not apply, and the prior equity will be postponed. Where the equity is equal the law shall prevail. In this case the Grinders have an equity, and the defendants also have an equity added to a legal title; the legal title must therefore stand unimpeached. The maxim that "he who trusts most shall lose most," also applies to right merely equitable, as in the case of two mortgages. If the first mortgagee fails to take possession of the title-papers, and afterwards a second mortgage is executed to another person, who receives the title-papers, the first mortgagee shall be postponed. But neither of these maxims were ever applied so as to affect a person holding the legal estate, who also had an equitable interest.

It has been contended that the title of the defendants was originally derived through the medium of a fraud and forgery; and that therefore the transaction never can be purged of that impurity. In support of this position, the counsel have cited a variety of books, — we shall notice those only that have been chiefly relied on. The case cited from 4 T. R. 28, was where the plaintiff derived title, directly though innocently, from a fraud and forgery. The person who assigned to the plaintiff the bill of exchange, had no right to it, either in law or equity. The bill was drawn payable to Henry Davis, — another Henry Davis, who had no sort of title to the bill, got possession of it and assigned it to the plaintiff. The Court very properly determined that the plaintiff could not recover, inasmuch as the person who transferred to him the bill of exchange had no kind of title to it. But suppose, although the transaction had been originally fraudulent, that the Henry Davis, the person who assigned the bill, had a legal title to the paper, would it then have been determined that the innocent assignee should be affected by an outstanding equity? Surely not.

The cases in 1 Har. Ch. 18, 19, are relied upon. It is there laid down, that if a bond is fraudulent in its creation, no subsequent assignment can purify it. It will be well to observe that by the laws of England, a bond is not a negotiable paper; and that consequently the assignee can by assignment possess no legal title; his right to the paper or the money which it draws, is only in equity; and it is because the interest of the assignee is only an equitable one, that he takes the paper subject to all prior equity. In such a case both the interests are merely equitable, and then the maxim applies, "he who is first in point of time, is best in point of right." But it is urged that by the act of the Virginia Legislature, passed in 1748, bonds were made assignable, so as to give the assignee a title at law, and a right to bring suit in his own name; and that still the Courts of that county have determined, if an equity once attached to the bond, it followed it into the hands of the assignee. 2 Wash. 233. To the case produced, and the argument founded upon it, we will barely remark that the Court who gave the opinion, went upon the idea that the Legislature did not intend to alter the nature of the bond; but only to authorize a suit to be brought in the name of the assignee.

These observations also apply to the case in Hardin's Reports, 531. It is true May had possession of the horse; but he had neither an equitable nor a legal title to him; and therefore the rightful and legal owner had a right to recover of Chism, the purchaser. The legal as well as equitable right was in Woods, the owner; and it never had been divested.

In Hardin's Rep. 37, there was some proof of notice both to Currens and Coburn. It must have been because of such proof that the Court decreed the land to Hart. If the decree was pronounced upon any other principle, I am not prepared to sanction it.

Upon the whole case, I am of opinion that where a purchaser for a valuable consideration without notice procures a legal title, his conscience is not affected, and he can not be compelled to surrender his legal and equitable estate to one who has an equitable interest only. 1 Caine's C. E. 490; Amb. 230, 313; 2 Ves. jr. 437, 440; 2 Vern. 599, 751; 2 Fon. 307, 308, 309; 1 Johns. 556; 2 Eq. Ca. 244; Cowp. 278; 2 Com. Dig. 718; 2 Atk. 397, 630; 1 Vern. 246; Mitf. 215; 2 Ves. 271; 3 Atk. 407, 650;1 Wash. 41, 217.

It remains now to determine what is to be done with the case so far as respects the defendant Hays. It is not charged in the bill that he was guilty of any fraud in procuring the assignment from Sarah Grinder. But I have already said, and it is an opinion in which I am very clear, that where a purchase is made, though innocently, from a person who has no title either in law or equity, the rightful owner, as relates to such purchaser, will not lose his property. In this case, Hays purchased from Sarah Grinder, who had no legal right. I am therefore of opinion that the complainants are entitled to a decree against Hays for that part of the land which he has not conveyed; and that as to the residue, a jury be empanelled to ascertain its value, which shall be paid by Hays to the complainants, after deducting a locator's part.

And at a subsequent day of the term the following written opinion was delivered.