Coster's Ex'rs v. Bank of Georgia , 24 Ala. 37 ( 1853 )

GIBBONS, J.

As the claim of Joseph Washburn is the one first arising upon the present record, we deem it proper to dispose of it before proceeding to the consideration of the other claims presented. The lien set up by Washburn is what is usually termed a vendor’s lien for the purchase money of real estate sold, but the purchase money of which still remains due and unpaid. This is sometimes termed an equitable mortgage, in favor of the vendor, in order to enable him to realize the payment of the money for which he agreed to part with his property.

It may safely be assumed as a principle, that the assignee or endorsee of a note given for the purchase money of real estáte, cannot stand in a better or higher position than the original payee or vendor of the property. Let us inquire, then, what would be the rights of Jerry Cowles, if he was the party seeking to enforce the vendor’s lien insisted upon by Washburn. — As against the Costers, who i-epresent the claims of John G. Coster, it could not prevail, because Cowles, when he became a member of the company^ recognized the right of John G. Coster to hold all the property of the company, and all that it might acquire, subject to his lien for his reimbursement for the advances which he nad made; and because Jerry Cowles had pledged his entire interest in the company, to indemnify the company for any loss which it might sustain in the purchase of the thirty thousand acres of land for one hundred and fifty thousand dollars. John G. Coster had guarantied the payment of the bonds given to Cowles in payment of this one hundred and fifty thousand dollars, and the executors of the said John G. had paid of these bonds seventy-five thousand dollars, with a large amount of interest, whilst the Georgia lands, which were to have been sold within five years, according to the covenant of Cowles, without loss, are yet unsold, and all the share of the said Cowles in said company, is subject to make good to said company the said covenant.

Cowles could not have insisted upon a vendor’s lien, as against the Costers, for another reason. He sold to Hamilton and the Hexiers, and they, for a bona fide and valuable consideration, sold and conveyed the interest which they thus acquired from Cowles to the Costers, the complainants, without notice of any such outstanding claim or equity. This would defeat Cowles' vendor’s lien, even if he had shown himself in other respects entitled to one.—Houston v. Staunton, 11 Ala. 412; 5 Monroe 195.

As against the Bank of Georgia, Hope & Co. and Carl Heine, Cowles could not have asserted a vendor’s lien, without proving that they advanced their money with notice of his lien. So far as respects the Bank of Georgia, we find the name of Cowles signed to the paper which authorized Hamilton to borrow the money and pledge the property of the company as a security for its repayment. As respects subsequent creditors, mortgagees or purchasers, Cowles, or Washburn who claims through Cowles, would have to establish the fact that such subsequent purchaser, mortgagee, or creditor became such with full notice of his existing equity over the property, before he could prevail agains t their rights. We look in vain through this whole record, to find any evidence on which the claim set up by Washburn can rest with any plausibility. The decree of the Chancellor was right in dismissing his cross bill, and he should also have dismissed his original bill. We do not deem it important to notice the question of practice as to the different cases presented by the original and cross bills, as, in our opinion, neither the one nor the other presents any case to be entertained in a court of equity as against the Bank of Georgia, the Costers, or Hope & Co. and Carl Heine. This bill is, therefore, dismissed with costs.

The question next arises as to what are the comparative merits of the claim of the Costers and that of the State Bank of Georgia.

From a careful inspection of the deeds and exhibits appended to the bill of the Costers, showing the objects and the various transactions of the company, we have come to the conclusion that the members of the association, constituting the “ Oswichee Company,” were partners so far as third persons were concerned. It is true, the partnership was a peculiar one; but still they were undoubtedly so far partners that the whole assets of the company would, in equity, be considered as pledged for the payment of the debts of the company, and the debts of third persons would have priority over the debts of its individual members. —Story on Part. §§ 606, 410, 77.

The evidence in the record, we think, neeessarily induces the conclusion that the agent, Hamilton, had ample authority to borrow money for the company, and to pledge or mortgage the property of the company as a security for the faithful payment thereof. This authority has the names of all the members of the company at the time affixed to it, that of John G. Coster amongst the others. This authority was shown to the Bank by Hamilton at the time he borrowed the money, and was, according to the testimony, influential in causing the Bank to part with its money and make the loan. We think the inference entirely legitimate, from the bill of the Bank and the proofs upon the subject, that the Bank parted with its money upon the understanding that it was to have a lien of some kind upon the property of the company for its security, or a pledge of some kind of the property for the same object. Else why should Hamilton have drawn up the paper in the form in which it now appears, and let it lie amongst his papers for several years without its being delivered. We consider then the fact as established, that the Bank loaned its money upon the faith of the property of the company, and not upon the credit of the individual members thereof, through whom the negotiation was effected; and so far as the members of the company are concerned, tbe Bank is to be considered a mortgagee of the property of the company for the security of their debt, and this on the principle, that equity will consider that as done which ought to be done. See Story’s Equity 64 g.

This view would place the claims of the Bank of Georgia above those of the Costers, as the latter represent John G. Coster and the claims which they have paid as executors since the death of the said John G. In the view of the case that we have taken, we deem it entirely unimportant whether the counsel of the Costers, Mr. Johnson, is held to his admission that the paper, No. 6, which is one of the exhibits to the cross hill of the Bank of Georgia, and which purports to be the mortgage itself of the Bank, was executed and delivered at the time it purports to have been or not. We do not rest the claim of the Bank upon this admission, hut upon the fact that the Bank trusted the company, loaned its money on the faith of the property of the company ; and as between the Bank and the members of the company, equity will consider the Bank as mortgagees, with a lien upon the property of the company until its debt is paid.

We see no error, however, in the court’s holding counsel to the admission which they had made relative to the execution of the paper in question; but, in our opinion, with or without such an admission, the law would have been the same. Our conclusion, therefore", is, that the Bank of Georgia, so far as its claim is concerned, as compared with the Costers, has the better right, and to that extent the Chancellor below correctly decided the law.

We next present the claims of the Bank of Georgia in juxtaposition with those of Hope & Co. and Carl Heine, with a, view of determining their relative superiority.

It is contended on the part of the Bank of Georgia, that, inasmuch as the mortgage of Hope & Co. and Carl Heine was irregularly recorded, being acknowledged before the American consul in Amsterdam, and such an acknowledgment not authorizing the same to be recorded, therefore it is to be considered in all respects, so far as the Bank is concerned, as unrecorded; and that being unrecorded, and subsequent in point of time to the mortgage of the Bank, it is a mere equitable lien upon the property, and therefore inferior to the lien of the Bank. To this it is replied, that the mortgage of Hope & Co. and Carl Heine is in all respects a regular legal mortgage ; that its execution and delivery are perfect; its consideration bona fide, and that they, the mortgagees, loaned their money without any notice whatever of the mortgage set up by the Bank, and" therefore claim that the penalty of nullity is denounced by the statute against the mortgage of the Bank, so far as Hope & Co. and Heine are concerned ; and therefore they claim to hold priority, as between their claim and that of the Bank of Georgia.

We deem it of some importance to regard for a moment the forms of the two conveyances, under which Hope & Co. and Heine and the Bank claim. The instrument in writing under which the Bank of Georgia claims, and the circumstances attending its execution and delivery, make it an equity merely to have their debt paid out of the assets of the company, but it does not place in the Bank the legal title to the assets or any portion of the assets of the said company; whereas the mortgage of Hope & Co. is in all respects legal and regular, except that it is acknowledged before the American consul in Amsterdam. The granting clause of the mortgage is, “ granted, bargained, sold, aliened, conveyed and released;” and it was regularly executed and delivered, but irregularly acknowledged and recorded. By the mortgage of Hope & Co. the legal title passed, and after the law day ejectment would lie. The question then arises, what is the effect of our acts of registration upon the two instruments by which Hope & Co. and the Bank of Georgia claim 1 and how do the said acts affect the one in reference to the other ?

If we apply to them the act of 1823, (Clay’s Digest 154 § 18,) wc shall see that the penalty of nullity is pronounced upon the mortgage of the Bank, so far as respects Hope & Co. and Carl Heine. The language of the act is, that, as against<s a subsequent bona fide purchaser, or a mortgagee for a valuable consideration, not having notice thereof,” such deed or conveyance shall be void and of no effect. That Hope & Co, are mortgagees, is undoubted. Their claim is based upon the technical bond and mortgage. This act of 1823 makes no requirement of the subsequent mortgagee, that he must record his mortgage, or stand in the same predicament as the first mortgagee with his unregistered mortgage. The act simply declares the first unrecorded deed void, as against the subsequent mortgagee,' Iona fide, and upon valuable consideration, where such mortgage is contracted without notice of the prior incumbrance^/ Suppose, then, the case of two mortgages of real estate, both regular upon their face, but neither recorded, and that the last has been contracted in ignorance of the existence of the first. Can there be any doubt that the last mortgage would override the first ? We consider it plain, that it would. The second mortgagee, in not recording his mortgage, runs the risk simply of being overridden by some subsequent mortgagee or incumbrancer, and in that case the statute would declare the nullity of his mortgage, and prefer the subsequent one, as it prefers his to the previous one.// A different rule would prevail, if the statute gave the preference to the mortgage first recorded ; but that is not so, nor does the act require the second mortgage to be recorded at all, but it pronounces the second mortgage, on its execution and delivery, if executed and received in ignorance of the first mortgage, its»» superior. And we apprehend the result will be the same, if we"^ apply to these instruments the act of 1828, which speaks of deeds of trust of personal property to secure debts. Under this act, a deed not recorded for 30 days, if of personal property, and for 60 days if of real estate, is pronounced void, as against creditors and subsequent purchasers without notice. Applying this act to the two deeds under which the parties claim, we cannot perceive any difference in the result. Hope & Co., it is conceived, are, under their mortgages, creditors, if not subsequent purchasers; and the nullity of the Bank mortgage, as to them, is as distinctly declared under this act as under the act of 1823, where we are disposed to think the deeds legitimately fall. The vice of the argument of the counsel in favor of the Bank of Georgia, consists in supposing that, the latter mortgage remaining unrecorded, the mortgages in that respect stand on the same level. Whereas the truth is, that the act itself, whether we apply to them the act of 1823 or the act of 1828, makes the first mortgage null and void so far as the second is concerned, and neither act imposes upon the second mortgage the necessity of being registered in order to give it priority over the first. In this respect our acts are different from tl e acts of the State of New York and Virginia, on which is founded the decision in 2 Johns. Ch. 608, and 2 Lomax’s, Digest 866. These acts were copied from the 2d of Anne, chapter 4th, which, after describing the kind of conveyances to which it extended, and saying that the memorials of them should be registered in the manner directed, added, that (i every such deed or conveyance shall be adjudged fraudulent and void against any subsequent purchaser or mortgagee for a valuable consideration, unless such memorial thereof is registered as by the act directed before the registering of the subsequent deed or conveyance.” The early registry acts of Virginia, and a portion of those of New York, contained clauses similar to the one quoted from the 2d of Anne, and making it necessary to have the second mortgage registered before nullity of the first mortgage is declared. The more modern acts of those States do not contain any such clause, and consequently the decisions in those States upon the effect of the registry acts upon the first conveyance, is to the effect that they are void as to the second, ^respective of the fact whether the second mortgage has been recorded or not.—19 John 281; 2 Lomax’s Dig. 370; 17 Ohio 226; 6 Barb. S. C. R. 60; 1 Peters S. C. R. 552. This we think the true construction to give to our acts; so that whether we apply to the mortgage of • the Bank of Georgia the act of 1823 or the act of 1828, that mortgage, so far as respects Hope & Co. and Carl Heine, would be void ; and so far as this Bank is concerned, the position of Hope & Co. and Heine is in no respect changed from what it would have been if their mortgage, had in all respects been recorded according to the statute/ The only risk which they run in failing to veeord their mortgage properly, was as to subsequent creditors and bona fide purchasers without notice. The statute itself fixes their condition as to prior incumbrances, and the courts of the country, when called upon, must enforce it. Our conclusion, therefore, is, that Hope & Co. and Carl Heine have a lien superior to that of the Bank of Georgia, and are to be preferred to said Bank in the distribution of the funds of the company,/j

We haffe not thought proper, in this opinion, to dwell upon the effect of the attachment and judgment obtained by the Bank of Georgia against James Hamilton individually, nor upon the effect of the judgment confessed by the counsel of the Oswichee Company, in favor of Hope & Co. Neither of these judgments, in our opinion, ought .to have any material influence in the decision of the case. It is true, the legal title of the property was in James Hamilton, but the equitable title was in the members of the company ; and under such circumstances, the lien acquired by the judgment must necessarily be subject to the equities already existing over the property.—1 Paige 279, 280 ; 4 ib. 9. For a similar reason, the judgment in favor of Hope & Co. v. the Oswichee Company could not be efficient as a lien, because the legal title to the land was in James Hamilton, and the judgment lien, as we understand it, only operates upon the legal title.

Wo have, therefore, placed our decision upon other grounds. Besides, if we could give to the attachment and judgment of the Bank of Georgia an effect superior to what we have done, it is still very doubtful if its position before the court would enable it to derive any benefit from it. The Bank filed a cross bill, and by that it is supposed to have made its case, by which it is willing to be judged. In that crossbill, its attachment and judgment are no where named or relied upon ; and the only information the court has upon this subject, from the pleadings, is, that it is stated in the bill of the Costers, and confessed in the answer of the Bank to that bill. The Bank having undertaken to file a cross bill, and not setting up this attachment and judgment therein as one of the grounds upon which it relies for its superiority, how can it derive any benefit from it so far as Hope & Co. aro concerned ? As to the Costers’ bill, to which the answer of the Bank was responsive, a different rule would perhaps prevail; but as against Hope & Co. and Heine, we apprehend the Bank w ould be confined to the case made by their cross bill. On this point, however, we make no decision ; as we have already stated, our decision is placed upon other grounds. As to the effect of the judgment of Hope & Co., we do not deem it necessary to decide, because, even without that, we consider their lien superior to that of the Bank of Georgia, and consequently to that of all other parties before the court.

Our conclusion, therefore, is, that of the claims before the court in this cause, that of Hope & Co. and Carl Heine stands first; that of the State Bank of Georgia, second; and lastly, that of the Costers, who only represent the stock of the company, or, in other words, who are themselves the stockholders. As to the claim of Washburn, we have already shown that it cannot be supported, and, as above stated, his bill is dismissed with costs. The decree ox the Chancellor, so far as it is inconsistent with the views above expressed, is reversed, and so far as it is in accordance with them, it is affirmed. The cause must be remanded, with directions to the Chancellor to proceed with it, ami distribute the funds in accordance with the views above expressed.

We think there was no error in the Bank of Georgia making Hope & Co. and Carl Heine parties to their cross bill. They had not been made parties, it is true, by the Costers, in their bill; but it is clear that they had a direct and very important interest in the litigation, and were important parties before the court. Under such circumstances, we apprehend it matters little at whose instance they are brought in. If it wei’e necessary to have them before the court, the court would even order them to be brought in, in order to enable it to proceed to a final decree in the cause.

It is also objected, that the infant heirs of John G. Coster are not made parties in a legal mode, according to the rules of chancery practice. The will of John G. Coster is not set out, so that we cannot see whether these infants are necessary parties or not. Assuming that they are necessary parties, the third and forty-first Rules of Chancery Practice direct in what manner they shall be brought before the court. The record does not, in our opinion, furnish evidence that these requisitions have been complied with. We nowhere see in the record the evidence that the requirements even of the order of publication have been complied with, so far as these infants are concerned. If, therefore, the Bank should think it necessary to bring these infants formally before the court, we should feel compelled to decide that they were not so at present.—16 Ala. 509; 5 Ala. 158; 6 Ala. 452; 1 Ala. 879 ; Code 716. As the cause has to be remanded for errors in the main decree, we have deemed it important to say this much upon the point, as to the mode in which these infants have been brought before the court. In the future proceedings before the Chancellor, the parties will have an opportunity to correct any errors of this kind wnich may be found to exist.

It but remains to add that Washburn must be taxed with the costs of this court and of the court below, so far as his hill and cross bill are concerned. He must also be taxed with his own costs in the cases of the Costers and the Bank, And the balance of the costs in this court, must be equally divided between the Bank of Georgia and the Costers, and also of the court below up to the present time; leaving the court below, however, free to make such disposition of the costs to accrue in the future proceedings in the cause, as shall be,just and proper.