Havighorst v. Bowen

Mr. Presiding Justice Stein

delivered the opinion of the court.

At the time appellees Frillman and Creighton purchased • from the bank the two notes and trust deeds of the Neills, dated respectively August 4 and August 6,1894, the deeds appeared of record to be first liens upon the premises, the release of the trust deed under which appellant is claiming having been filed shortly before. This release, however, was executed July 25, 1894, and the indebtedness secured by the released trust deed did not mature until April 3, 1895. As appears from the foregoing statement, the trust deed and the notes which it secured were then held by Mathes as collateral, and remained in his hands until he sold them to appellant nearly six years later; Mathes not having authorized the release and indeed not knowing of it until after the sale. It is therefore contended that the usual rule under which subsequent purchasers and incumbrancers, where- the trust deed or mortgage has been released after maturity, may rely on the record, a,nd under 'which as to them, in the absence of notice to the contrary, the indebtedness is to be considered paid and discharged, although it may not be so as a matter of fact, does not apply; that appellees, being charged by the record with notice of the execution of the release by Neill of the Bowen trust deed before maturity, wrere put upon inquiry, and' that if they had inquired they would have learned that Bowen’s notes were still outstanding.

In Ogle v. Turpin, 102 Ill. 148, the facts were that Bunyan held several notes payable to himself, made by Allen, dated July 31, 1874, payable in one, two and three years and secured by mortgage of even date on lands in Cook county. For a valuable consideration Bunyan, before maturity, indorsed the notes to the appellant, Ogle, and delivered them with the mortgage to him. In the spring of 1875 Allen conveyed the equity of redemption to Bunyan, wTho thereupon, before the notes were due, released the mortgage of record and borrowed $20,000 from the Fidelity Savings Bank and executed to it his notes and a trust deed to Tripp to secure the same. A bill filed by Ogle against the bank to foreclose the mortgage which Bunyan had released was dismissed, and the decree of dismissal was affirmed by both the Appellate Court and the Supreme Court. The latter say (pp. 151 and 152):

“Neither party denies the validity or fairness of the debt of the other, as against Bunyan, or that both were liens on the property when the deed of trust was executed and delivered to Tripp, but the question is whether the bank did not obtain a superior lien bjr that deed, or took their lien subject to Ogle’s, and the whole question seems to resolve itself into one of whether there was negligence on the part of the bank. Appellant claims that the bank had no right to rely alone on the record of the title to the property, which showed that it was clear, but as the notes given by Allen were not then due, that it should have made inquiry as to whether or not they were paid, and were not, as the fact proved to be, in the hands of an innocent holder and the bank having failed to exercise ordinary care, it should have its claim postponed to that of appellant. On the other side it is claimed, that when it appeared that Runyan had procured Allen’s equity of redemption in the property, and had released and satisfied his mortgage, the bank had a right to rety on the record, and was not bound to make further inquiry, and it took the preferred lien.

It has not been suggested of whom the bank should inquire. It inquired of Runyan, and he said the title was good for the property. Had the bank inquired of Allen, he could only have given information that he had not paid the notes, but could not have referred the bank to any person as assignee of the notes, and it was not required to go into the commercial world to find a holder. The mortgage showed the notes were payable to Runyan, and when he released the mortgage the bank had the right to presume the notes were paid, or if not, that he had waived and released the mortgage security, and was willing to look to the responsibility of the maker, or had obtained other security. We think the mere fact that the time of payment had not arrived, was not sufficient to put the bank on inquiry, or to charge it with notice that the notes had been indorsed to appellant, and were unpaid, and to give his claim a preference the bank must have had notice in fact, or of circumstances pointing to notice.”

Williams v. Jackson, 107 U. S. 478, is very much like the case at bar. A trust deed was there involved as here, and a release was executed and placed on record before the maturity of the debt and without the knowledge of the holder of the notes. The pa\ree named in them, Augustus Davis, joined in the release although he had already assigned them to a Tyona fide purchaser. In discussing that feature of the case the court say (p. 483): “The record not showing that any person other than Augustus Davis had any interest in the notes or in the land as security for their payment, an innocent subsequent purchaser or incumbrancer had the right to assume that the trustees in executing the release had acted in accordance with their duty.” True, in the case at bar, Euphemia J. Neill, the payee of the notes, did not join in the release, but two days before its execution, Bowen, the maker of the notes and trust deed, had conveyed to her the equity of redemption, thereby giving rise to the presumption, based upon the appearance of the record, that there had been a merger in her of both interests; in other words, that the conveyance to her operated as payment or satisfaction of the notes payable to her order. This presumption was materially strengthened by the record showing the execution of the release immediately after the conveyance to Mrs. ¡Neill.

In Williams v. Jackson, supra, cited and reviewed with approval in Mann v. Jummel, 183 Ill. 523, the court say further (pp. 483 and 484):

“ It was suggested in argument that as the first deed of trust showed that the notes secured thereby were negotiable and were not yet payable, and that the land was not intended to be released from this trust until all the notes were paid, Williams was negligent in not making further inquiry into the fact -whether they were still unpaid. But of whom should he have made inquiry ? The trustees under the first deed and the original holder of the notes secured thereby having expressly asserted under their own hands and seals that the notes had been paid, and Sweet and wife having apparently concurred in the assertion by accepting the deed of release and putting it on record, he certainly was not bound 'to inquire of any of them as to the truth of that fact; and there was no other person to whom he could apply for information, for he did not know that the notes had even been negotiated, and' he had no reason to suppose that they had not been cancelled and destroyed.

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 willful 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 and 1 Phillips 244; Agra Bank v. Barry, Irish R. 6 Eq. 128, and Law Rep. 7 H. L. 135; Wilson v. Wall, 6 Wall. 83; 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. The decree appealed from is in this respect erroneous and must be reversed.”

Lennartz v. Quilty, 191 Ill. 174, substantially differs from the case at bar only in that the note secured by the trust deed was payable “ on or before” maturity. It was held that the release of such a deed before the note had become absolutely due “is not a circumstance to excite inquiry.” The subsequent purchaser, the court say, “ was under no obligation or duty to see that the note was paid or cancelled.” “Her only duty was to ascertain the condition of the title.” In other words, she was not obliged to inquire whethe^ the maker of the note had availed himself of his option to pay before maturity.

It is pertinent to consider of whom appellees Frillman and Creighton could or should have inquired as to the $1,800 note before or at the time they purchased their notes from Dreyer & Go. A quit-claim deed had been given by Bowen to Mrs. Neill, the payee of record in said note, and both the quit-claim and the release of the trust deed securing the note filed of record. On the record, as we have seen, there was a merger of title; that is, Bowen presumably gave the quit-claim to Mrs. Neill in payment of his $1,800 note to her, and the trustee two days thereafter released the same, making the title apparently clear. From whom, then, should appellees have inquired? Not from Mrs. Neill, because her interest of record as the payee of the note had been merged in the Bowen quit-claim deed and a release executed and filed of record of the trust deed securing that note. Appellees could not be expected to go into the world at large and inquire of different persons whether or not they had purchased that particular note. There was no circumstance to put them on inquiry, unless it be the mere fact that the trust deed was released before the maturity of the note; and this we do not think sufficient in view of the uncontradicted proof that they were bona fifia purchasers without notice of any want of authority in hieill to release the trust deed unless such want of authority appears in the record. But, as was said in Battenhausen v. Bullock, 8 Brad. 312: “The mere fact that the debt is outstanding and unpaid at the time the release is executed, cannot of itself alone, be regarded as presumptive evidence of fraud, or as tending to establish accident or mistake. We know from ordinary observation, that the release of a part or all of the mortgaged premises while the debt is unpaid or even before it matures, is not an unusual occurrence. It is frequently done by way of substituting new securities, or of carrying out some other new arrangement between mortgagor and mortgagee, and is in no way inconsistent with perfect good faith, or a full knowledge and understanding of the nature and effect of the instrument at the time of its execution.”

It is proven and not denied that appellees bought the notes from the bank in the usual course of business and without any knowledge other than the record disclosed.

As between appellant and appellees the equities of the case are strongly with the latter. They acquired the two notes and trust deeds which are the source of their title in regular course and for full value. On the other hand appellant bought on March 6, 1900, for $100, a promissory note for $1,800, made on April 3, 1893, due two years thereafter, together with the four interest notes for $54 each, none of which had been paid; and the trust deed securing them stood released of record ever since August 29, 1894. When appellant bought, appellees were in possession of the premises, claiming title thereto of record adverse to all claimants under the Bowen trust deed. Just why appellant bought the notes and trust deed except to bring this suit either in his own interest or in that of somebody else, is hard to discover. The parties to the paper were all insolvent, and he bought it, as he himself testifies, simply because Mahnke had told him “it was a first mortgage on the property” and without looking at the records or having them, searched. It is difficult to believe that he made the purchase in good faith. His own. attorney, Rollins,' says it was a speculation." He was an employe of a hardware firm with whom .Neill and Mahnke did business, and it looks somewhat as if he were acting as a catspaw for these parties or one of them in an effort to revive a stale and apparently abandoned claim.

The decree appealed from is affirmed.

Affirmed.