CULLUM v. THE BRANCH OF THE BANK OF THE STATE OF ALABAMA AT MOBILE, 4 Ala. 21

GOLDTHWAITE, J. The facts of this case shown by the bill of exceptions, are supposed to present two prominent grounds of defence; the first arising out of the alledged fraud, and the other because of an entire failure of the consideration for which the note sued-on was given. Our first examination will be of the question respecting the failure of the consideration. 1. Most generally the inducement of a purchaser in treating for the acquisition of land, is to become its oioner.

We do not mean to assert that one person may not legally contract with another, who has merely the possession -of the land, although his title to it may be known to be imperfect, or even bad, but our intention is to show what are the prima facie intendments springing out of contracts for the purchase of land,-when there are no stipulations between the parties with reference to the title. In Ogilvie v. Foljambe, [3 Mere. 53,] Sir William Grant says, “the right to a good title, is a right not growing out of the agreement of the parties, but which is given by law.

The purchaser insists on having a good title, not because it is stipulated for by the agreement, but on the general right of a purchaser to require it.” Courts of equity govern their proceedings by this just rule, and-when an incumbrance is discovered previously to the execution of the conveyance, the vendor must discharge it, whether he has or has not agreed to covenant against incumbrances, before he can compel the payment of the purchase money. [Sugd. on Vend.

Chap. 9, § VI. 315, and cases there cited.] A similar rule obtains injhe courts of law, Avhere all titles, as between the vendor and purchaser, are declared either good or bad, according as their merits may be, for there is no middle term to designate a defective title; [Romelly v. James, 6 Taunt. 263 ;] and every title to be marketable must be good in equity as well as at law. [Maberly v. Robbins, 5 Taunt. 625.] 2.

Such are the rights of a purchaser when he has made no stipulations with respect to the title; but there is a period when the contract of ■ the parties is determined by its execution on the part of the vendor, and then the rule of caveat emptor applies with its utmost rigor. This'period is when the conveyance has been executed by all the necessary parties, and accepted by the purchaser; after this, if the purchaser is evicted by a title to which his covenants do not extend, he cannot reco.Vbr the purchase money, either at law or in equity. [Sugd. on Vend.

Chap. 9, §VI. 346, and cases there cited.] His neglect to look into the title is then considered his own folly, for which he has no relief, [ib. 347,] and this rule applies equally whether the money has been paid or is only secured to be paid. [Ib. 349; Thomas v. Powell, 2 Cox, 394.] The true rule with respect to the liability of the vendor, and. the obligation of vigilance imposed on the purchaser, is most appropriately stated by Mr.

Fonblanque, who says, “the principles upon which courts of law proceed upon the subject of warranty, so strongly tend to reconcile the claims of convenience with the duties' of good faith, that I cannot conceive the mean by which they can receive an additional extent, or be in any degree circumscribed, without endangering the interests which they are now so well calculated to preserve. To excite that diligence which is necessary to guard against imposition, and to secure that good faith which is necessary to justify a certain degree of confidence, is necessary to the intercourse of society.

These objects are attained by those rules .of law which require the purchaser to apply his attention to those particulars which may be supposed within the reach of his observation and j udgment; and the vendor to communicate those particulars and defects which cannot be supposed to be immediately within the reach of such attention.

If the purchaser be wanting of attention to those points where attention would have been sufficient to protect him from surprise or imposition the maxim caveat emptor ought to apply; but.even against this maxim he may provide, by requiring the vendor expressly to warrant that which the law would not imply to be warranted. If the vendor be wanting of good faith, jides servan-da is the rule of law, and can scarcely be more effectually enforced in equity than it is at law.” [1 Fonb. Treat, on Equity, 362, note h.] 3.

We do not understand the counsel for the plaintiff in error as disputing the principles just adverted to, butrather as insisting, that, there being in this case an express warranty covering the eviction, under which Andrews would be liable to the extent of the sum agreed to be paid him by the defendant, that therefore a recovery ought not to be permitted in favor of his assignee; and the more especially that it ought not to be allowed when Andrews is shewn to be insolvent, and thus unable to respond in damages.

Such a defence, whatever may be its merits, cannot be called a failure of the consideration for which the notes were given, because, if there was no warranty whatever, the defendant would be without relief. It follows, that if he is now entitled to a remedy, it must be in consequence of the warranty and the subsequent insolvency of the warrantor, by which the covenant intended for the purchaser’s security has become unavailable.

Without now stopping to inquire whether these circumstances afford a reason for equitable interposition and relief, we think it clear that they do not make out a legal defence, even in a case where the recovery on the covenant of warranty ought to be equal, or larger, than the sum sued for. The reasons which induce this conclusion are these: In the first place, the damages-to be recovered on a covenant of warranty are, in their nature, unliquidated, and therefore are not the subject of a set off, according to our judgment in the case of Dunn v. White and McCurdy, [1 Ala. Rep. N.

S. 645.] Secondly, the covenant of warranty would not be extinguished by this de-fence. Thirdly, the covenant itself operates as an estoppel to the gvantor, and would have the effect to transfer to the purchaser or his assigns, any subsequently acquired title, which should be vested in the grantor. Fourthly, by the conveyance all covenants running with the land are, ipso facto, assigned to the purchaser.

This last reason, it is apparent, does not apply to this-case, because the breach of covenant is a consequence of the vendor’s own act, but it must so frequently apply to cases that it is decisive against the adoption of a practice which would be more like an exception than a general rule. But independent of these reasons, the facts of this case, (ex-eluding for the present all consideration of the matter of fraud,) bring it within the influence of the decision made by us .in Dunn v. White and McCurdy, [1 Ala. Rep. N.

S. 645,] in which we held that a pardal failure of consideration was not ¡¡an available- defence to an action for the purchase money of lands of which the purchaser retained the possession. It appears here that the defendant purchased the lot in October, 1836.' The conveyance then made transferred the possession to him as absolutely, in point of law, as if he had been invested by livery of se isin. [Bliss v. Smith, 1 Ala. Rep. N. S. 273.] This effect is produced by the operation of our statute, similar to the English statute of uses on the conveyance. [Aik.

Dig. 94, §37.] Under this conveyance the purchaser was entitled to retain the possession until the forfeiture of the condition of the mortgage, executed previously, by Andrews to McLoskey. This forfeiture did not take place until February, 1838, when the second note secured by it was dishonored, consequently, during the interval between these periods, the defendant is entitled to the usufruct, and can be made responsible to no one for rents or profits in any form of action. [4 Kent’s Com. 157; Stanard v.

Ehlridge, 16 John. 254.] If the defendant was seeking a recovery against Andrews by an action on the covenant of warranty, the measure of damages would be the price agreed to be paid, or-actually paid, with interest thereon, from the time at which the defendant would legally be responsible to another for mesne profits, together with the cost of the ejectment suit. [Bennet v. Jenkins, 13 John. 50 ; Caulklin v. Harris, 9 John. 324; Pitcher v. Livingston, 4 John. 1; Slaats v. Teneyke, 3 Caines, 111 ; Baldwin v. Muun, 2 Wend. 399 ; Wagers v.

Schuyler, 1 Wend. 553.] We have not considered it important to ascertain the exact period when the lot was abandoned to McLoskey, if indeed it was so abandoned, or whether the defendant was authorized to abandon to one claiming title, without suit, for the reason, (whatever may be the rights of parties with reference to this matter,) that we consider the sale and possession, under the decree of foreclosure, as equivalent to a legal eviction, it being á part of the case that the defendant was a party to that suit.

Nor is the circumstance that the defendant has paid the other two notes, if such is the proper inference to be drawn from the fact that he has them in possession, of sufficient importance to introduce a modification of the principles just ascertained. The true question,so far as a court of law is concerned being whether the defence asserted can be sustained without overstepping the boundary which divides the jurisdiction of law and equity, and not as to the amount to be recovered.

From what has been previously shown, it will be seen that all the consequences flowing from the conveyance and warranty will be the same, whether the defence is successful in whole or only in part. It is because a court of law cannot do complete justice between the parties by placing them in statu quo, that this defence, under this aspect, is properly referable to equity jurisdiction. 4. The question of fraud is not entirely novel in this court, although it never has been presented in the same imposing manner. In Christian v. Scott, [Minor 354, S.

C. again before the Court, 1 Stewart, 490,] one of the defences insisted on was, that the bond, the foundation of the action, was given in payment for land, to which the vendor represented he had a fair title, and that it was clear of all incumbrances. It was shown that the laud was incumbered with a deed of trust, executed by the vendor to secure the payment of a sum of money due from him, and there was no evidence that the purchaser was informed or. otherwise knew of it. The purchaser had taken possession of the land, and received a conveyance of it from the vendor.

One of the charges requested was, that although the vendor had made fraudulent representations as to his title, yet if the purchaser received the possession, and carried' the contract'into execution by taking upon himself the ownershijr of the land, payment of the bond could not be resisted. This Court reversed the judgment of the Circuit Court for refusing to give this charge. By this recital it will be seen that the case was similar in all respects to this, except that here the additional fact of eviction by reason of the inc'umbrancé is presented.

Some expressions are used by the learned Judge who delHi-s ered the opinion in the subsequent case of Wilson y. Jordán* [3 S. and P. 92,] from which it may be inferred- that a- change of opinion as to the defence had obtained in the com t at' that time; but when that' cáse iá examined we find the question of fraud was not' involved, either in the pleadings or proofs of the cause. Indeed all inference of fraud is rebutted by the statement that it was'not relied on as a defence. Independent' óf this, it'ban scarcely be supposed that the case of Christian v.

Scott, which had been twice before the court, would be ovéN ruled without'any reference to if. The course of decision ever since has beéti adverse to any investigation of thé' filie or’of any defect in the estate, when the possession is retained by thó; purchaser’, and the contract' is not rescinded. [Wade v. Killough, 3 S. and P. 431.] Even in contracts for the acquisition of personal property** fraud has never been admitted as a complete bar to a Suit for the purchase- money, unless the defendant has returned, of whenever practicable, offered" to return, the purchased chattel. [Cozins v.

Whitaker, 3 S. and P. 322; Barnes v. Bailey and Du Bard, 2 Ala. Rep. 749, and cases there cited.] There are-rhany distinctions between the rules'- which affect real and personal estates, which aré distinctive features of the-common law, and then ramifications extend so far that nú oné can clearly foresee' the’ consequences of overturning1 them. Amdng these not the- least important' are the different mod'e'S-’ of succession after the- death of the last' possessor, atid th'd-different effect of covenants respecting each species! of estáte.

If the defence of fraud was permitted-in this- easd, to-avoid.a recovery at law, fheré ismóthing in thé: récord to show'that: tlie contract has'Over been rescinded, and therefore- Andrews-héréafter might be! liable’ to an action on his Warrahtypor'itv the Case of á title -subsequently- acquired- by him, be-' eStdpp'edr by his covenant from asserting it.

Many other- difficulties' rriay be supposed Which do' not indeed- apply- to-this: particular casé, as itis presented-on the record, but which are conclusive* against the-admission Of this defence as a. general rule', Take' for instance, the'case of ail-eviction after the receipt.of large rents, or-profits, for which the purchaser is not responsible to the evictor; are these to remain unaccounted for, or must not the defence be denied under the influence of our previous judgment in Dunn v. White and McCurdy ?

Again, a case may be stated which seems to furnish an absolute test of the unsoundness of this defence at law. In the event of the death of the purchaser before eviction, and previous to payment of the purchase money, the estate would descend to the heir, whilst the personal representative would-be answerable for the debt. Which is entitled, the personal representative to defeat the action against him on the notes, or the heir to his action on the covenant of warranty ? 5.

This examination of principles and authorities leads us to the conclusion that the defendant has no available defence at law : but it is asked, whether it can be supposed that he is remediless, in a case where injury is so apparent ? We answer that no such consequence flows from the assertion of these rules. Assuming that the warranty was entered into in the most perfect good faith, we think relief must be given in Chancery, on the ground of Andrews’ insolvency, if the present holders of this note are not to be considered as its bona fide holders, a matter which we shall hereafter advert to.

When the defendant accepted of the covenant of warranty, it was doubtless considered as an effective security, and if he had been evicted before the payment of the purchase money, our impressions tend strongly to the propriety of not permitting Andrews himself, if insolvent, to receive that portion of the purchase money which he would be compelled to refund in an action on the warranty, though we are aware of decisions to the contrary; but however this may be, his insolvency furnishes a ground of equitable relief entirely within the influence of the case of Farr and Beck v. Reynolds, [3 Al.

Rep. 521.] It is useless to pursue an insolvent indorsement but it is quite too injurious to be allowed to pay him money which he will never refund. 6. As to the defendant’s relief in equity, upon the allegation of fraud, we think also there is no question, provided it is sufficiently made out by proof. Mr. Sugden says, in his Treatise an Vendors, [Chap;.7, §111. 309,] that when a vendor, gives a false description of the estate, the purchaser may at law rescind the contract; but this must bé understood to mean only those cases where the contract is executory.

To this extent and no further do the cases cited by him support his text. [Duke of Norfolk v. Westly, 1 Camp. 337; Fenton v. Brown, 14 Vesey, 144; Blank v. Christer, 1 Salk. 128; see also Sherwood v. Sammon, 2 Day, 128; S. C. in Equity, 5 Day, 439; Cottingham v.

Pitts, 9 Porter, 675.] That this is Mr, Sugden’s own view of the jurisdiction is apparent when he subsequently says, [in Chap. 9, §VI, 564,] “ although the purchase money has been paid, and the conveyance is executed by all the parties, yet if the defect (of title) does not appear on the face of the title deeds,and the vendor was aware of the defect, and concealed ii from the purchaser, or suppressed the instrument by which the incumbrance was created, or on the face of which it appeared, he is in every such case guilty of a fraud, and the purchaser may either bring an action on the case or file his bill in equity for relief.” [See also Brice v.

Holback, Doug. 654; Early v. Garrett, 9 B. and C. 522.] But the bill in Chancery in most cases will be found to be a better remedy ; it will lead to a better discovery of the concealment and the circumstances attending it, and may in some cases enable the court to create a trust in favor of the injured purchaser. [3 Coke Litt.

H. and Butler, note 384, a.] It is urged, however, that there is here no evidence of fraud, and that the purchaser either knew or is chargeable with notice of the incumbrance, because it was not only registered, but was in fact disclosed when the title was known to come to Andrews from McLoskey, who would have retained an equitable mortgage so long as the purchase money was unpaid to him.

It cannot be denied that the defendant was in error, in not making an examination of the register, and also in not ascertaining from the previous vendor, whether he pretended to any lien; but this does not exculpate the vendor. 7. In all cases of purchase there is a trust and confidence reposed by the purchaser in the vendor, that the estate is not impaired in value, or incumbered by any act done by him.

Indeed, by offering to sell an estate, the vendor virtually represents it as not iucumbered by himself, or, if incumbered he, will free it before the sale is executed ; and if he wishes to discharge himself from the consequences of this implied representation, it lies with him to show that the purchaser was informed or otherwise knew of the incumbrance. In the case of Harding v.

Nelthorpe, [Nelson, 118,] an issue was directed to ascertain whether the vendor knew of an in-cumbrance charged on the purchased land, but this course of proceeding in that case, shows that the incumbrance must have been created by some other person than the vendor. The case of Cater v. Pembroke, [1 Bro. Ch. C. 301, S. C. on appeal; 2 ib. 281,] also bears on this poin?, and we infer from it tire English Courts of Chancery'recognize the rule we have just laid down. 8.

There arp cases in which the mere concealment of an in-cumbrance, created by the grantor, may not be sufficient cause to rescind'a contract, although such a concealment certainly is a breach of the good faith which ought to be observed in all contracts; but these cases rest on .the principle that no injury has been sustained by means of the incumbrance. Of this class is Hunt v.

McConnell, [1 Monroe, 219,] which decided that the omission of the vendor to disclose the fact of an incumbrance created by himself when he is not actuated by a fraudulent intention, and when the purchaser sustains no injury from it, is not a sufficient ground to rescind the contract, provided the incumbrance is removed before the hearing. J3ut it is said the. matter would assume a more imposing aspect if the incumbrance had proved injurious to the purchaser. The same doctrine was recognized in the subsequent ease of Campbell v.. W'hittingham, [5 J. J.

Marshall, 96.] These case§, resting on the principle we have adverted to, have no tendency to restrict the rule declared in the leading case of Pasley v. freeman, [3 Term, 51,] where it said that the concurrence of fraud and injury is necessary to sustain an action on the pasp for p. deceit.

There is np question here as to the. injury, because the let has been taken from the defendant in consequence <?f the foreclosure and sale under, the mortgage, therefore, if the fact of the existence of that incumbrance was unknown to him, he is eptitled, in our opinion, to.a rescission of the contract, whether there was or was not any fraudulent intention on the part of the vendee to work this injury to the purchaser. 9. In the case of Edwards v. McLay, [Cooper 308, S.

C. on Appeal; 2 Swanst. 287,] the purchaser was held entitled tp recover the purchase money with interest, from the time when he quitted the valuable occupation of the land, together with what he had expended for repairs, &c. This seems to indicate that if the occupation has been of any value to the purchaser, then the vendor, upon the rescission, would be entitled to interest on the purchase money, as a remuneration for the occupation from the time of the purchase until the offer to rescind and until the abandonment. We regret that we have not had access to the report of the case of Small v.

Atwood, [Young 408,] and the same case on appeal to the House of Lords, in which we understand all the English cases upon the rescission of contracts for the purchase of real estate, are examined, as it would probably shed much light on this somewhat obscure branch of the science, and especially upon the manner in which courts of equity mete out justice to both the purchaser and vendor, 10.

Without the aid of precedent to guide us, we can arrive at no other conclusion than that the purchaser has the right, when an incumbrance has been concealed from him, to require a prompt removal of it, and if this is not effected, he is entitled to seek a rescission of the contract; and may abandon the possession, unless he chooses to retain it for the purpose pf charging the land with a trust to reimburse himself for money paid; nor is it under any circumstances essentially necessary that he should abandon the occupation, as the only effect of retaining it until a decree of rescission, even in cases where the occupation is of any value, will be to charge him with the! interest on the purchase money.

That the land may be made ehargeable with such a trust is recognized in Cater v. Pembroke, [1 Bro. Ch. C. 301; 3 Coke on Litt. H. and Butler’# note 381 a.] ' 11. It has been argued that the purchaser has po relief in any forum for the fraud, inasmuch as he has taken a covenant from the vendor, which covers the precise injury sustained. We have examined the case of Leopard v.

Pitney, [5 Wend. 30,] where it is put with a query whether an action on the case will lie where the purchaser has accepted a deed without warranty; but independent of many cases in the books to the contrary, we consider the matter at rest in this Court, in consequence of the judgment given in Cozens v. Whitaker, [3 S. and P. 330.] That was case for a deceit in the sale of a personal chattel, where there also was a warranty, but we can perceive no satisfactory reasons for any distinction to be made in the sale of lands. The case of Cater v.

Pembroke before cited, is satisfactory to show that a court of equity may relieve for a fraud in the sale of lands, although there is also a warranty. 12.

It has also been strongly urged that this defence is but •an attempt to procure relief from a hard bargain; that there is nothing to show that the defendant has paid the other notes given for the land, though he has them in his possession; and ■the incumbrance could and would have been discharged if the defendant in reality had paid any one of the notes: it is said furthermore,-that the defendant himself could have paid off this incumbrance, and might have retained the sum paid out of that due to Andrews. All these matters may be as supposed, and yet the right of the defendant to relief is not impaired.

When the facts of this case are considered in the most favorable aspect for Andrews, he was bound at all hazards to prevent a breach of his covenant of warranty; and if he was sued for that breach, he would not be permitted to assert, or show, ■that the defendant might have avoided eviction, either by paying off the incumbrance, or by purchasing in an outstanding title. These were privileges which the defendant might exercise if he would, but his omission furnishes no excuse to the vendor.

On the other hand, it will be quite in time for the plaintiff to show that this defence is a mere pretence, and that the defendant acquiesced in the purchase after a knowledge of the fraud, and until circumstances had rendered it desirable to avoid the purchase. Equity requires diligence and promptness in urging a rescission on the ground of fraud, and frequently presumes a waiver, or leaves the party to his remedy at law. [Hardwick v. Forbes, 1 Bibb, 212 ; Robinson v. Galbraith, 4 Bibb, 183; Colyer v.

Johnson, 2 Munroe, 16.] 13.- The right of the defendant to urge this defence against the present bolder of the note arises out of the circumstances-stated in the bill of exceptions, dnd these show that no new . consideration was given by the bank when it acquired the property in the note, but that it was transferred to them as collateral security, to secure a precedent debt due from Andrews.- A decision on this point is not required, in consequence of1 the conclusions at which we have already come ; but it may be said that all the authorities concur in admitting this defence under the circumstanses shown in evidence.

How the law would be if it shall appear that the note is not held merely as collateral security, but that a netv consideration was given by the discharge of other paper, or of other parties, by the acceptance of this note previous to its' maturity, and without notice, are matters which we decline now to consider, and we Only advert to them to show that these questions are not involved in this case as presented. 14. One other question remains to be considered.

It is said the second and fourth pleas are supported by the evidence, and therefore it is insisted that the charge should have been given, whatever may be our opinion upon the abstract merits of these pleas. From what has been said it will be seen the second plea is not in fact sustained, because it asserts that the defendant never had possession ot the lot; but the fourth plea is sus-presents any legal defence according to the principles we have,, tained by the proof in every allegation. Neither of these pleas declared.

We do not question the right of the defendant, even under such a state of defective pleading to require the Court to instruct the jury to find a verdict on the proper issue sustained by his proof, because, in that event, the plaintiff would be placed in a condition to extricate himself from the vicious plea by a motion to enter a judgment non obstante veredicto. [Stephens on Plead. 129, and cases there cited.] The defendant did not pursue this course, but asked a charge which, if given, would have led to a general verdict, and the plaintiff would, in that case, have been remediless, (as under the issue of non assumpsit,) the reason on which the verdict was founded could not have been ascertained.

We wish our decision on this point to be understood as re- ■ stricted to the. precise case which appears,'for if a general charge is asked when all the pleas are good, we cannot see clearly how either party can be prejudiced. We cannot perceive that the defendant has been injured by the refusal to give the charge requested, or by that actually given, therefore the judgment of the County Court is affirmed.