Douglass v. Blount , 95 Tex. 369 ( 1902 )

The opinion of the court, as understood by the writer, holds that, as the effect of the assignment of one of the purchase money notes by Fortescue to Swilley and by him to the lumber company, the suit and judgment of foreclosure upon it by that company and the purchase by Douglass under such judgment, the legal title which remained in Fortescue when the original sale was made was cut off and determined; and, as a consequence, that Douglass, while refusing to pay the other notes and pleading limitation against one of them, may hold the land subject alone to the lien securing the note which is not barred. Not being able to assent to this view of the law of the case or to the result to which it leads, the writer regards the question as of sufficient importance to justify a statement of the reasons for his dissent.

That the original contract of sale was executory in form and left in the vendor, Fortescue, the legal title, with the consequent right, upon refusal of the vendee to pay the purchase money to rescind and reclaim the land as a means of enforcing his rights against the defaulting purchaser, is nowhere disputed. The opinion of the majority is not understood as holding that the assignment of one of the notes at once put the matter in such an attitude as to forever extinguish this right, or that under no circumstances could the holder of the legal title afterwards exercise it in case it became necessary for his protection. That such was not the effect of the assignment alone is put beyond question by former decisions of this court.

In White v. Cole, 87 Tex. 500, a sale of land was made, the vendee, for the purchase money, paying $1000 cash, assuming two notes owed by the vendor to a third party, and giving to the vendor a note for $1000, the deed reserving a lien to secure purchase money. This note was assigned by the vendor to Mrs. White, and, after it became barred by limitation, the vendor also conveyed to her all his right, title, and interest in the land, Cole, the purchaser, having previously paid the assumed notes. It was held that the right to rescind, upon the purchaser refusing to pay the $1000 note and pleading limitation against it still existed, and that Mrs. White, holding both the note and the legal title, could recover the land. It will be noted that part of the claim for purchase money was first assigned to the party whose notes were assumed by the purchaser, and part was retained by the vendor and afterwards assigned to Mrs. White. The necessary meaning of this decision, therefore, is that assignment of all or parts of the claim for unpaid purchase money, even to different persons, does not constitute such a final and irrevocable affirmance of the sale as to destroy forever the power of the vendor or of a holder of the unpaid notes and of the legal title, to assert it, whenever, by the refusal of the purchaser to pay the purchase money, it is made essential to the protection of those entitled to look to the land for enforcement of their rights.

In Crafts v. Daugherty, 69 Tex. 477, a decision quite as pertinent to the present discussion was made. There was a sale of land for $1500, $200 cash and the balance on time. To secure such balance the purchaser, at the time he received his deed, executed to the vendor a mortgage with power of sale, thus making the contract executory. He paid all but $600 and gave a note for that sum and a new mortgage in lieu of the first one to secure it. The vendor assigned the note to a third party and afterwards caused a sale under the mortgage to be made for the benefit of the assignee, and the latter purchased the land at such sale. The vendor then executed to the assignee a conveyance of the land. In a contest between the original purchaser and the assignee of the note, it was held that the sale under the mortgage was void, for reasons unimportant here, and that the purchase thereat by such assignee passed no right; but that the conveyance from the original vendor to the assignee vested in him the legal title which had always remained in the vendor and which could only be defeated by the original vendee by payment of unpaid purchase money.

These decisions lead to the proposition that when all of the purchase money notes and the legal title are held by the same person, and the vendee refuses to pay the purchase money, such holder still has the right of rescission, notwithstanding the fact that the ownership of the notes and of the legal title may have been previously separated and vested in different persons. The opinion of the majority of the court so holds, but states the doctrine to be that the assignment of one of the notes puts it beyond the power of the vendor to reclaim the land; but that if he reacquires the assigned note or conveys the legal title to the holder of it, the right is revived. It seems obvious to the writer that if this right or title ever passes for a moment from the vendor, a resulting right at once vests in the vendee, for these two are the only ones who have any character of title. That which remains in the vendor is undoubtedly a species, and an important species, of title. If it passes from him it vests in some other person and that other person must be the only one, besides the vendor, having any character of title, the purchaser. That it does not vest in the assignee of the note by the assignment thereof, numerous decisions hold. If it has once passed from the vendor, his subsequent conveyance to the assignee can not invest him with it, nor could a reacquisition by the vendor of the note restore it to him, for the plain reason that in neither instance would it be in the person undertaking to convey. The truth is that it is always in the vendor until the vendee has performed the condition upon which it is to vest in him, or until the vendor has conveyed it, or until he has in some way finally estopped himself from asserting it. The ways in which he may estop himself are discussed in Gardener v. Griffiths,93 Tex. 355. It is undoubtedly true that certain conditions must exist to entitle its holder to assert and enforce it, but this by no means proves that it has ever passed from him or ceased to exist. It is also true that by the assignment of a part of his claim for the purchase money, the vendor imposes certain limitations on his right to assert his legal title by rescinding and taking back the land, and the extent of these limitations is one of the principal questions in this case.

Neither Fortescue nor Blount ever reacquired the assigned note, but in this action Blount proposed and was permitted to do that which, in the judgment of the writer, he had the absolute right to do, and which, for all the purposes of the case, was equivalent to such a reacquisition, viz., to pay the note to those entitled to receive the money upon it and thus to disincumber his title and make perfect his right against the purchaser refusing to pay the purchase money.

In order to sustain this proposition, it is important to ascertain definitely the attitudes and rights of each of the parties as they existed after the assignment of the note to Swilley, and this may be sufficiently done from the decisions of this court.

The vendee acquired no new rights. The contract of sale remained executory, and under it he could only acquire title by payment of all the notes. The rights acquired by the assignee of the note were subtracted wholly from those which resulted to the vendor from the contract of sale and added nothing to those of the vendee. White v. Cole, Crafts v. Daugherty, supra; Russell v. Kirkbride, 62 Tex. 456. It is true that, in any rescission by the vendor, he would have to protect the vendee against the assigned note, but, as will appear further on, such protection would result from the only exercise the vendor could make of his right of rescission.

The assignee of the note obtained by the transfer the right to collect the amount of it, and, as security, a lien on the land coequal with that of the vendor, securing the notes retained by him. It is unnecessary here to consider any question of priority of lien, as this opinion does not depend on any such question. That such was the extent of the right of the assignee is established by the decisions of this court. Russell v. Kirkbride, supra; Stephens v. Matthews, 69 Tex. 341; Loan Co. v. Beckley,93 Tex. 273.

From this statement of the rights of the vendee and of the assignee, it is obvious that, as the vendor by his assignment of one of the notes passed none of his original rights to the vendee, they remained after such assignment the same as they were before, except as they were diminished by those conferred upon the assignee. He remained possessed of the legal title, and, as he retained some of the notes, of a lien upon the land to secure their payment, which, waiving questions of priority, was equal to that of the assignee. To speak more accurately, he had, to secure his notes, the same lien as that which secured the assigned note, for such a lien is an entirety and charges all of the notes equally upon all of the land. The legal title was held upon certain trusts for the holder of the assigned note and for the vendee, but also as a means by which the vendor might enforce the right retained by himself. The only impediment to the assertion of this legal title, upon refusal of the vendee to pay the purchase money, was the right of the holder of the assigned note to have it paid. This right, in the opinion of the writer, was demonstrably an incumbrance upon the title of the vendor, as well as upon that of the vendee, which either had the right to remove by paying off the outstanding note. It is said in the majority opinion that such a legal title is held only in trust and is not a property right in the land that could be incumbered by the transferred note. The answer is that after default by the vendee, the title remaining in the vendor becomes, as between him and the vendee — the only persons who have any title — the superior one, in fact, the legal and equitable title. This is necessarily true because the purchaser has acquired no new right in the land and the assignee of the note has acquired only a lien upon it. When the purchaser refuses to pay, the right and title of the vendor becomes paramount to all claims except the outstanding lien of the assigned note. When the vendee will not pay any of the notes for purchase money, no right of his exists to prevent rescission, except the right to be protected against personal liability on the notes, and this would be fully guarded by the vendor paying off the assigned note and then rescinding the contract; and, as the assignee of the note has no right but to receive the amount due on it, that right is satisfied by payment; and, under such circumstances, no reason is perceived why the vendor has not the right accorded to all persons whose titles are incumbered to satisfy the incumbrances and clear their titles.

A passage from the opinion of Judge Stayton in Whitehead v. Fisher, 64 Tex. 641, will serve to illustrate the proposition that the assigned note was an incumbrance on the title of both vendor and vendee. Whitehead, the vendor in an executory contract of sale of land, had assigned one of the purchase money notes and retained the other. The case is unlike this in its facts, but the remarks of the learned judge show his views as to the effect of such a transaction and state one of the propositions on which he bases his conclusion. "Under a long line of decisions in this State, the legal title to the land remained in Whitehead (the vendor), as between himself and Fisher (the purchaser); but as he made the lien operative in the hands of Garrity Huey (the assignees of the note) by his own contract, it must be held that this lien was a lien upon the land and not a lien merely on theinterest in the land held by Fisher. By the transfer of the note secured by the express lien reserved in the face of the deed by which the land was conveyed to Fisher, it must be held that Whitehead impliedly contracted that whatever title he or Fisher or both had in or to the land, in default of payment of the note transferred, should be subjected to the payment of the transferred debt. In this way only could the person taking the note have the security which Whitehead had and evidently intended should pass with the transfer."

In that case, the note was assigned with the agreement that it should have priority over that retained, but that circumstance is not made the reason for the proposition quoted, to the effect that the assigned note constituted a lien upon the titles both of vendor and vendee. The agreement evidently was not determinative of that point, as it could only affect the grade and not the fact of incumbrance.

The discussion by the same learned justice of the case of Russell v. Kirkbride, supra, involves the same conception of the rights of the assignee of purchase money notes and their effect on those of the vendor and vendee. In that case, land was sold under an executory contract and the vendor assigned one of the notes, retaining others. Afterwards, he and the vendee rescinded the contract without consulting the assignee. The opinion says: "The vendee, under such conveyances, can acquire title to the land only by payment of the purchase money, and the fact that one or all the notes which he may have executed has been transferred to a third person by his vendor in no manner affects his interest, right, or title in the land. Nor does the assignee or indorsee of a note given for land, by the fact that he becomes the holder of a note secured by lien, acquire any title or possessory right to the land for which the note was given. In such case, the lien which the vendor had to secure the note, and the right to enforce it, passes with the note to any one who becomes its legal holder. A vendor, however, may defeat his right to annul such a contract to the prejudice of another to whom he has transferred notes given to secure the purchase money," etc.

When a vendee, having only the right to obtain title by payment of purchase money, has failed and refused to perform that condition, and the assignment of the note has created no new right in him, and the assignee has only a lien upon the land to secure payment, it may be asked: Upon whose title is such lien an incumbrance, unless upon that of the vendor; and, if upon that, why has not the vendor the absolute right to take up the incumbrance?

It will be noticed that Judge Stayton does not say that such a contract may not be rescinded at all, but that it may not be rescinded to the prejudice of the assignee. If the assigned note be paid, a rescission, whether by agreement between the vendor and vendee, or by the act of the vendor alone, prejudices no right of the holder of such note. If the vendor and vendee should agree upon a rescission of such a sale, with one of the notes outstanding in the hands of another, their action would not be allowed to prejudice his right, and he could enforce it by subjecting the land in the hands of the vendor; but the rescission would be effectual as against everyone else, and, when the vendor paid the debt due to the assignee, his right would be satisfied. This seems self-evident and is recognized throughout the opinion last quoted from. If so, why is it not equally true that the vendor, when, by reason of the refusal of the vendee to pay any of the notes, he has, as against such vendee, the right of rescinding by his own action, may do so by paying off the outstanding note? If it be suggested that it is not his obligation but that of the vendee, the answer is furnished by the language of Judge Stayton quoted above, that by assigning it he has made it an incumbrance on his title, from which it follows that he is entitled to take it up in order that he may disincumber that title, and that by so doing and rescinding the contract, he relieves the vendee, as he is bound to do, of his liability upon it as well as upon other notes not assigned.

This right of redemption from the lien of the assigned note has been discussed, perhaps, at undue length, but it is the point upon which the case hinges. For if it existed before the suit, judgment, and sale under which Douglass bought, it was not taken away by those proceedings, because Fortescue was not a party to them. The opinion of the majority holds that the holder of the Swilley note had the right to sue the maker of it and foreclose against him the lien on the land and sell it out, and thereby cut off the legal title and the right of rescission. The holder undoubtedly had the right to obtain judgment against the party liable on the note and to sell any interest he had in the land. Whether or not it was correct practice for the court to permit a foreclosure of a lien which, as an entirety, secured other notes held by a person not a party to the suit, if that fact was made to appear, may be doubted. That, however, is a mere question of practice which need not be dwelt upon. The proceedings were valid as between the parties to them and still bind each as to the others. But no right which Fortescue had was taken away or impaired by them, for the reason that he was not before the court and no right of his could be put in issue. It is conceded that Fortescue's lien was not thereby affected or impaired. Why should it be held that another right more important for his protection, that is, the right to redeem and assert his title, was taken away? It is conceded that the assignment of the note was not an affirmance of the contract of sale which precluded a rescission if the vendor could get back the assigned note. It is believed that he had the absolute right to get it back by redeeming it from the assignee, and that is what he offered and was permitted by the trial court to do. If this right departed from him in the judicial proceedings, it was by acts done in his absence by others. In other words, while he has not affirmed the sale, others have done it for him through proceedings in court in which he had no hearing and opportunity to set up his rights. If it be said that by assigning the note he empowered the assignee to proceed upon it and thereby put an end to his title, the answer is that the right conferred on the assignee was simply that of enforcing the lien and collecting the note by proper proceedings, and not to preclude his rights by a judgment of foreclosure to which he was not a party. If the assignee was thus empowered to terminate his right of redemption, no reason can be given why he could not equally destroy or impair his lien. It is true, he never assigned the whole of the debt secured by the lien; but it is equally true that he never parted with his title. The lumber company foreclosed upon and Douglass bought no right of Fortescue. There passed to Douglass by his purchase only the title of the defendant in the suit, the original purchaser, with such additional right as the plaintiff therein could impart by his foreclosure against such defendant. The foreclosure could not comprehend any right of one not a party. Robertson v. Guerin,50 Tex. 323; McDonough v. Cross, 40 Tex. 251 [40 Tex. 251]; Delespine v. Campbell, 45 Tex. 628 [45 Tex. 628]. This so called foreclosure was, as against Fortescue and Blount, no foreclosure at all.

By his purchase, Douglass could acquire, as against Fortescue, no right not held by those under whom he purchased, the plaintiff and defendant in the proceeding. The plaintiff had only a lien on the land, and, as the foreclosure of it was ineffectual as against Fortescue, it remained, with respect to him and his rights, no more than a lien. Consequently, when the rights of Douglass are compared with those of Fortescue, the former, as purchaser under the lumber company, the owner of such debt and lien, is to be regarded only as purchaser of an interest in it, and this merely by subrogation to a part of its right, because, as against Fortescue, the foreclosure fails. As defendant in the suit, the original purchaser had no more than the right to acquire title by paying the purchase money. Douglass acquired only this right from him, with this difference: that, as the lumber company was the holder of one of the notes for purchase money and would be estopped in Douglass' favor from setting it up against him, he could have obtained full title to the land by paying off the other notes. This he was allowed the opportunity and declined to do. In this he ignored the fact that Blount, through Fortescue, still had the legal title to the land, with the right, as the writer contends, of removing the incumbrance of the outstanding note, leaving Douglass with no title.

That Douglass, by his purchase, acquired, as against Fortescue, only an interest in the note and lien held by the lumber company, and the right of the defendant in that action to pay for the land and thus obtain title, necessarily results from the fact that those rights were all that the parties to the suit possessed. The case is easily distinguishable from those cited in the opinion, in which the vendor holding the legal title, as well as the lien for the purchase money, himself sued and foreclosed the latter. Gardener v. Griffiths, 93 Tex. 355; Thompson v. Robinson,93 Tex. 170; Foster v. Powers, 64 Tex. 250 [64 Tex. 250]. Here the plaintiff who sued to foreclose never had any character of title to the land, but the title which Blount asserts was in another and could not be cut off by any judgment to which he was not a party.

It is said in the opinion: "Redemption by Blount would impose upon Douglass the burden of paying the entire judgment under which he purchased the land as well as the notes held by Blount himself, or to surrender his right acquired from the original vendee and from the assignee of the note and receive alone that which he paid." Not at all. Blount's whole suit could have been defeated by payment of the notes held by him, the holder of the other note being estopped, by the judgment to which he is privy, to assert against Douglass any claim to the land. That judgment can be disregarded only by Blount, whose grantor was not a party to it. Blount can not redeem and still enforce against the land any claim for the purchase money, because he can only redeem in the assertion of his title to the land, and his right of rescission; and the assertion and enforcement of such right at once discharges all claim for purchase money. In such rescission, he pays off the outstanding claim for money against the land and leaves no charge against it. This answers another question raised by the opinion, viz: "If the owner of the assigned note could not compel the trustee (the original vendor holding the legal title in trust) to execute the trust and assert the title in execution of the trust, then by what rule can it be held that the trustee could compel the beneficiary (the assignee of the note) to assign and transfer its debt to him for his own benefit?" The difference between the holder of the legal title, also holding notes for purchase money, to be protected by its use, and the assignee of one of the notes, having only a lien on the land, is deduced from the decisions already referred to. The holder of the title has the right to discharge it of incumbrances, while the purchaser of the note did not buy with it any title to the land, and therefore has no right to have it conveyed to him.

An effect of the decision is to permit Douglass to defeat part of the purchase money by the plea of limitation. If an original purchaser under such a contract, when sued upon the notes, should set up such a defense, numerous decisions of this court hold that the vendor might thereupon fall back upon his legal title and recover the land. Now, it is only by virtue of his acquisisition of the right of such purchaser that Douglass is entitled to plead limitation. The right which he acquired from the lumber company was only an interest, by subrogation, in its debt and lien, which, as held by the opinion, is only co-ordinate with that asserted by Blount, and, as a part owner of it, he could not assert this defense. Columbia Ave., etc., Co. v. Strawn, 93 Tex. 48.

There is no doubt that Douglass, as the successor of the original purchaser, had the right to plead limitation against the note, but in so doing, he did an act which would have subjected such purchaser, if done by him, to a judgment for recovery of the land.

The reason why one purchasing such a title should acquire all the rights and be subject to none of the obligations of him whose rights he purchased is not perceived.