Wood v. Holly Manufacturing Co. , 100 Ala. 326 ( 1893 )

HABALSON, J.

1. In the opinion of the Chancellor, (Coleman) it was very pertinently asked,—“Were complainants and Samuel B. Bullock authorized to make the contract of which Exhibit A. is a copy; was it a legal contract, and did it give complainants a lien upon the engines and connections as a semirity for the payment of the whole debt secured?” Answering, it was said,—“There can be no question of this. They were the absolute owners of the property, the subject of contract, were under no disabilities to make it, and were authorized and capable of making such terms and provisions as they saw proper. If this suit was between complainants and Bullock & Co. only, there would be no room for controversy. Can Samuel B. Bullock & Co. by any voluntary act on their part, amend and destroy the security thus given without the consent of the other party, or without some fault or negligence of the other ?”

Let us treat the case, for the time, therefore, as if it were between complainant and Bullock & Go., only, and the rights of intervening third parties become of easier solution.

2. The contract expressly reserved a lien on the engine, pumps and connections with the privilege of possession. The character of this lien has been the subject of much discussion, and is well settled in the books. There is but a narrow distinction so far as the security of the debt and its enforcement in a court of equity goes between a mortgage, as such, and what is denominated simply, an equitable lien or mortgage. A lien to be of the former class, must arise where the possession remains with the debtor. It is something more than a mere lien, or security. As said by this court in Jackson v. Rutherford, 73 Ala. 157, “No technical words are necessary to constitute a mortgage, which would be good at law, any more than in equity. Any words would be sufficient which serve to show a transfer of the mortgaged property as security for a debt. Whatever language may be used, if it shows that the parties intended a sale of the chattels as security, the instrument will be construed to be a mortgage.”—Jones on Chat. Mort., §§ 1, 8, 9. The court adds, “In some of our decisions expressions are used which seem to confound the distinction between legal and equitable mortgages, but there is no case in our reports which really conflicts with the principles declared in this decision.”

Again it was said in Kyle v. Bellinger, 79 Ala. 516, 521, that “A lien created by contract, and not sufficient as a legal mortgage, will generally be regarded as in the nature of an equitable mortgage. The form of the contract is immaterial. Though a lien may not be expressed in terms, equity will imply a security from the nature of the transaction, and give it effect as such, in furtherance of the agreement of the parties, if there appears an intention to create a security. Says Judge Story, “If the transaction resolves itself into a security, whatever may be its form, it is in equity a mortgage.” Neither is any particular form of words necessary to the reservation of a lien. Any words which manifest an intention to retain one, will be sufficient in a court of equity.”

An equitable mortgage, or lien in the nature of a mortgage, is enforceable alone in equity, and a legal mortgage, at law or in equity.—Newton v. McAfee, 64 Ala. 357; Jones v. Anderson, 77 Ala. 427, 431; Ala. State Bank v. Barnes, 82 Ala. 607, 620; Donald v. Hewett, 33 Ala. 534; 3 Pom. Eq. J., §§ 1233-1237; Gregory v. Morris, 96 U. S. 619.

It has been suggested in argument against the idea of a retention of a lien of any character by the complainant which could be made effective as a security, that the engines, pumps and their connections became fixtures to the freehold and incorporated into the system of the Water Company, and could not be removed; but the bill alleges and the proofs show, that the annexation of the chattels to thp realty, were, by the agreement, conditional. It was not intended, on either side, that they should become permanent accessions to the land—converted into a part of ■ it—until two conditions were complied with, viz. (1) that the engines, after being attached, as they were, should be subjected to a thirty day test, to ascertain if they came up to the guarantee of their builders, which they were required to do, before Bullock & Go. were bound to accept them; and (2) not before they -were paid for if they were found to be satisfactory. If they had proved to be failures, they would have had to be removed; and so, if not paid for, they might also, according to the agreement, be removed, if necessary in the enforcement of the lien reserved for their purchase price ; otherwise, the contract of the parties would be rendered nugatory,

One of the requisites to, convert a chattel into a part of the realty, is that it must be the intention of the party making the annexation, to make a permanent accession to the freehold, which will be implied, if he erects such structures as ordinarily attach to the land, without agreement to the contrary with the owner. But, reservation of the right by agreement of the parties is sufficient to remove a house, or machinery or other like erections, which in their removal do not materially injure the premises.—Harris v. Powers, 57 Ala. 139, 143; Tillman, v. Delacy, 80 Ala. 103; Vann v. Lunsford, 91 Ala. 576; Ware v. Hamilton, 92 Ala. 145, 151; Ewell on Fixtures, §§ 66, 316.

4. It has been made to appear, therefore, that so far as complainant and Bullock & Go. are concerned, there was no legal impediment in the way of their entering into a contract; that there was nothing in the condition of the property and the character of the lien reserved which forbade them to contract as they did, and that, whether, as a matter of fact, the possession of the property was retained by complainant or delivered to Bullock & Go., makes no difference in the security, since a court of equity will enforce it in the one case as well as in the other, unless the security has been forfeited by transactions outside of the conditions in the original contract, which defendants contend has been done as to Bullock & Go. on two grounds, which we consider.

5. It is contended that pump No. 1, was fully paid for before the filing of the bill, and was therefore relieved of complainant’s lien; and that the pumps are necessary for public purposes, and can not be removed without stopping public works.

It is not denied that $25,003, of the $50,000 agreed to be paid for both engines, has been paid; that as the money was paid in instalments, as it was agreed it should be paid,' it went in payment of the first work done, and as done, which was on pump 1, and that the sums so paid were in full of the cost price of that pamp. But, while this is clear, yet not a word appears to have been said, when any or all the payments were made, that they should operate as a release of the lien on that pump, for the price of the two ; and the contract does not provide for a lien on each pump, separately, for its own price, and not for the price of both; but it is, on the other hand, expressly stipulated, “that the party of the second part (complainant) shall have a lien on all of said engines and connections, . . until the whole, amount of the purchase price of said engines and connections have been fully paid.” The lien was upon the whole, and not upon a part only, and no part of the security has been released. The construction contended for, would go to the extent of holding, that where a lien is given in writing on several articles sold, to secure the aggregate price of all, it operates only as a lien upon each article sold for its own price, which we are unable to sanction.

6. The second point mentioned, that of the forfeiture or loss of the lien, on account of the public inconvenience, is equally untenable. Public policy favors the enforcement of debts and the sustaining of credit, public as well as private. Water works, railroads, gas works, and other like enterprises, in which the public are so largely interested, are constructed mainly upon credit, which could not be obtained, if a lien or mortgage given to secure the credit were denied enforcement by the courts, because the public would be inconvienced by its assertion. Such a doctrine would be tantamount to the appropriation of private property to public use, without compensation, which is forbidden by the Constitution. If the principle were tenable, it would apply with as much force to the general mortgage given by the water company to secure it bonds, under which some of these defendants are claiming as against the complainant’s lien, for its foreclosure might work all the public inconvenience that the enforcement of complainant’s lien could possibly do.-—Hill v. L. C. & M. R. R. Co., 11 Wis. 214; Phil. on Mch. Liens, § 182.

7. Prom what has gone before, we may the better enquire and understand what rights third parties might have acquired, the nature of such rights and their effect upon complainant’s lien.

Prom the statement of facts, it has appeared that the Water Company is the principal debtor on the bonds, and is the mortgagor of the real estate to which the engines are said to be attached as fixtures. Hooper & Co., who, as agents, advanced the money for Bullock, and who are his successors, and Wood & Co. are holders of the bonds, the security of which will be diminished by the enforcement of complainant’s lien.

The other defenses set up for these parties as stated and argued by their counsel are, (1) that the lien of complainant is void as to each of them, because not recorded, (2) that Hooper & Go., as successors of Bullock, are bona fide purchasers without notice, (3) that Bullock & Go. were fully-paid by the Water Company, (4) that complainant did not retain possession of the pumps and the bond holders had no notice of complainant’s lien, and (5) that the second pump was erected after Bullock & Co. had conveyed to the Water Company the land to which it was attached.

The real defense, which if good, complainant must fail in the litigation, and if not, these defendants must fail is that they are bona fide purchasers without notice.

8. So far as the Water Company may be protected by such á plea, it is scarcely worth the' while to discuss. It does not deny complainant’s lien, and its notice of it. It simply does not admit the lien and notice ; but, its attitude is that of a defendant in the interest of Hooper & Co. and Wood & Co. For them, it denied the said lien and notice of it, and claims in argument, that they are bona fide purchasers without notice. The Water Company was driven by force of the facts to, and very honestly assumed, this attitude in the litig'ation.

9. With respect to this transaction, the distinction between Bullock & Co., and the water company, is purely formal and fictitious. Bullock & Co. were the water company in every thing but name. They held the entire capital stock. The entire issue of bonds under the general mortgage was placed at their disposal. Without neglect of duty, the company must be presumed to have known what Bullock & Co. were doing towards the fulfillment of their contract. The proofs tend strongly to show, that the president, Dr. Ketch-urn, who resided then and afterwards in Mobile, had knowledge of complainant’s lien and of its retention of the possession of the property, before Bullock & Co. conveyed to the company the land on which the engines are located, and his deposition was not taken to rebut proof of notice, for the reason, we may presume, he could not rebut it. A fact important to be proved for the defense, capable of proof, and not proved, will be presumed not to exist.—Roney v. Moss, 74 Ala. 390; Carter v. Chambless, 79 Ala. 231.

10. As to the other defendants, for whom the plea is set up, two essentials are necessary to be borne in mind for the establishment of their claim, (1) that the pumping engines had become fixtures of the real estate covered by the mortgage of the water company, and (2) that these defendants are bona fide purchasers of said real estate, for value, Avitliout notice.

The complainant sets up no equity against all, but against a part only, of the property claimed to be covered by the mortgage, made to secure the bonds. This litigation does not raise the question of protection of the bonds. These might Avell be entitled to protection against secret trusts if any were sought to be fastened on them, but not to equities attached to the land, conveyed to secure them. If defendants claim the land as subject to their mortgage, by virtue of their being bona fide purchasers ol it, for value, without notice of complainant’s lien on it, which was prior to theirs, then, by their plea or ansAver, it was incumbent on them to make such claim as to the land itself, in the manner required by law. The defendants did make known their claim to the bonds, and how they acquired them, but whether in a manner as full as it is required by law, (Thames v. Rembert, 63 Ala. 561, 572), we do not find it necessary to decide; still, if sufficient as to the bonds, the answers are silent as to the material facts necessary to uphold the claim of bona fide purchasers of the land, on which it is claimed the engines Avere attached, in a manner to make them immovable fixtures. “The rule is settled in this State, that in such cases (defense of bona fide purchase) it.,is required of a defendant, who is a sub-purchaser, to aver in his plea or answer, clearly, distinctly and Avithout equivocation, and with proper circumstantiality of detail, the following facts, (1st), that he is a purchaser from one in actual or constructive possession, who was seized or claimed to be seized of the legal title, at the same time briefly setting out substantially the contents of the deed of purchase, with date, consideration and parties; (2), that he purchased in good faith ; (3rd), that he parted with value paying money or other valuable thing, assuming a liability, or incurring an injury, stating the nature of the consideration fully, (4th), that he had no notice of complainant’s equity, and knew óf no fact calculated to put him on enquiry, either at the time of the purchase, or at or before the time he parted Avith the consideration.”—Hooper v. Stahan, 71 Ala. 75, 79; May v. Wilherson, 76 Ala. 543, 545; Gresham v. Ware, 79 Ala. 192; Boon v. Childs, 10 Peters, 211. In the last case cited, the Supreme Court of the United States in announcing a similar doctrine say, that the conveyance must be a regular one; “for, the purchaser of an equitable title holds it subject to the equities, upon it, in the hands of the vendor.” And our court, in Gresham v. Ware, supra, 148, speaking of the same defense, and announcing the same doctrine as that stated above from Hooper v. Strahan, say of the party setting it up, “In no appropriate manner does he bring before the court the claim of a bona fide purchaser without notice, and his rights as such must be considered as elimated from the case.”

11. When the general mortgage was made, the water company had not acquired and did not own the legal title to the land to which the engines are attached. The claim of defendants rests on the extension of the mortgage, to “after acquired property.” Such a mortgage does not pass the legal title to after acquired property; it is only an equitable mortgage, operative on such property as soon as it is acquired. “In other words it seizes the property or operates on it by way of estoppel, as soon as it comes into existence and is in the possession of the mortgagor.”—1 Jones on Mortgages, § 152.

12. To the proposition that a prior general mortgage, which in terms covered after acquired property, attached to rolling stock as soon as acquired, to the displacement of a contractual lien on it, the Supreme Court of the United States, by Justice Bradley, said, “The doctrine is intended to subserve the purposes of justice and not injustice. A mortgage intended to cover after acquired property can only attach itself to such property, in the condition in which it comes to the mortgagor’s hands. If that property is already subject to mortgages or other liens, the general mortgage does not displace them, though they may be junior to it in point of time.”—United States v. New Orleans Railroad Co., 12 Wall. 362. And it was added, that such a prior lien or equity does not come within the reason of the registry laws, which are intended for the protection of subsequent, not prior purchasers and creditors. This court, touching the same matter, in Shorter v. Frazer, 61 Ala. 81, quotes approvingly, the language of C. J. Marshall in Hinds v. Vallier, 7 Pet. 271 that, “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 equity. They do not protect a person who acquires no semblence of title. Even the purchaser of an equity is bound to take notice of any prior equity.” And in the same case, the court hold, that if the purchase is of a mere equity, which can be enforced only through the instrumentality of a court of equity, there is no reason for a ■departure from the general principle, that priority in point of time, creates priority in point of right, and that the transfer or conveyance must be limited to the interest of the grantor.—2 Story Eq. § 1228; 1 Jones on Mortgages, § 158; Fosdick v. Scholl 99 U. S. 235; Meyer v. Car. Co., 102 U. S. 1; Cenlral T. C. v. Kneeland, 138 U. S. 414, 423.

The chancellor in his opinion in this case, used language so apt in this connection, we quote it here : “If the principle contended for by respondents be law, it is unsafe to contract with any body for improvements, and rely upon the improvements for a contract lien as security. The land owner, whose property is being improved, has only to wait until the improvements are nearly completed, and sell out to some one who has given a “walking mortgage,” and the unsuspecting part}' will find himself stript of his property and security.” '

These defendants when they acquired the bonds, parted ■with the valuable consideration which they here set up as a defense. If at that time, their vendor, the "water company, had no legal title, they acquired nothing more than the title their vendor afterwards acquired, subject to existing equities.

13. The deed from Bullock & Co. to the water company was a quit-claim deed. It passed only such interest as Bullock & Co. had, subject to all liens and incumbrances. As has been repeatedly held, one who holds under a quit-claim deed only, can not claim protection as a bona fide purchaser without notice.—Derrick v. Brown, 66 Ala. 162; Smith v. Perry, 56 Ala. 266-269; McMillan v. Rushing, 80 Ala. 402, 407.

14. As to whether or not defendants, Hooper & Co. and Wood & Co. had notice of complainants’ lien, as a matter of fact, is scarcely open to discussion. As to when they acquired notice is the subject of dispute and the evidence is somewhat conflicting. Those firms, however, from the very beginning, stood in-close and very important business relations to Bullock & Co., as respects the building of the water company’s works, and it was the natural and business like thing to do, for them to have become fully informed in regard to all of Bullock & Co.’s arrangements, for carrying out their contract with the water company.

In June, 1887, an agreement was entered into between Hooper & Co. and Bullock & Co., in reference to the furnishing of moneys for the completion of the water works at Mobile, in specifying, among other things, that said Hooper & Co., having already procured advances to Bullock & Co. of 50 per cent, of the $750,000 agreed to make other advances to them on the completion of said works and their acceptance by the city, “clear of all liens or encumbrances other than the first mortgage under which the bonds on which these advances are made and to be made.”

On the 2nd of October, 1887, for considerations therein expressed, Bullock & Go. agreed to give to Walter Wood of the firm of Wood & Co., a controlling interest in the construction of the water works company, after the moneys for which the bonds specifically placed with Hooper & Go. and Wood & Go., together with such expenditures as were necessary to pay for the labor required and to furnish the supplies, materials and machinery for the completion of the works, should be paid.

Said Walter Wood testified that the firm of Wood & Go. were informed in August, 1887, that complainant was to furnish the engines and pumps to Bullock & Go., and Harry S. Hooper, testified, that Hooper & Co. were so informed in September, 1887, and in' that month, they show, that Bullock & Go. furnished them, each, with a detailed statement of the estimated cost of the works, in which was included an item of $50,000 for “pumping engines to the Holly Manufacturing Go.”

By the third item of the “tripartite agreement,” (between Hooper & Co., Wood & Co. and Bullock & Co.) dated 26th of Octobei, 1887, Wood & Co. agreed to complete the works therein mentioned, “according to specifications clear of all liens ahead of the securities held by Hooper & Co., with the utmost diligence and without delay.”

Bullock testified, that advances were made to his firm, after that agreement was entered into, by Hooper & Go., to the extent of $200,000 and by Wood & Co. for at least $100,-000. He also testified, that he furnished to Hooper & Go., between August and October, 1887, all the papers relating to the various plants in which his firm was concerned, including that at Mobile, and turned them over to them; and prior to October 26, 1887, the date of the tripartite agreement, he called Walter Woods’ attention to his contract with complainant, and gave him a copy of it.

After all this, what doubt can remain, that these defendants were fully informed and had notice of complainants’ lien on the engines and pumps long before the land on which they were erected was conveyed to Bullock & Go. by quitclaim, to the water company ?

15. There is much evidence, also, tending strongly to show, that complainant, by its agents, was in the open and notorious possession of the property, from the beginning up to the time of the filing of the bill. This evidence, however, was in conflict with much introduced by the defendants, tending to show to the contrary. We will not review it, since it is unnecessary.

16. As to the defense set up, that the second pump was erected after the conveyance by Bullock & Co. to. the water company, it is sufficient to say, that the first engine and its connections had been placed on the land, before the conveyance, and the placing of the second had been commenced, was then going on, and was soon thereafter completed, and that the fact that some of the parts of the second engine were attached after the conveyance, can not affect the question of complainants’ security, which was reserved upon the whole and not upon a part of the property. The complainant had, as against Bullock & Co., under their contract with them, an equity to proceed with the completion of their contract, which was to put both engines on the ground ready for use,and this equity a court of chancery recognizes. The water company and its mortgages as we have shown, acquired only such rights in the land as Bullock & Co. had, subject to all equities, with which it was burdened, including this one of the complainants, to complete its contract. In contemplatian of law, the complainants’s rights and equities, as to both engines and their connections are the same, as if both had been put in place, before the date of said conveyance.

17. Still anther defense is interposed, that Bullock & Co. had been fully paid by the water company all that it contracted to pay them, and if they did not pay complainant, the bond holders ought not to be held to lose a part of their property covered by their mortgages, concerning which, it need only be said, that they hacl no mortgage which was prior to complainants’ lien, and if by their carelessness they failed to see that this lien, of which there is every reason to believe they were informed, was not paid off, so as to allow their mortgage to become operative on the machinery in question, it would be inequitable and against all good conscience, to require complainant to surrender their prior lien on it, for the- benefit of defendants.

18. We deem it unnecessary to notice any other questions raised or the objections to evidence with which the case is burdened, because on the legal evidence in the cause, the complainant is entitled to recover.

The demurrer to the bill was properly overruled, and it is our judgment, that the decree of the Chancery Court be

Affirmed.