Thomas Henderson and others v. Thomas J. Pilgrim and others, 22 Tex. 464

Bell, J. This suit was instituted in the court below, by Henderson, Terry & Co., the appellants, against William Means, Ferdinand B. Means, Thomas J. Pilgrim, Thomas R. Stewart, Samuel Coxe, and another, who was merely a nominal party, and whom it is unnecessary to name. The pleadings are very voluminous, and many points have been made and discussed by counsel before this court. In order to present the main question in the case, the decision of which will dispose of the whole controversy, we wilí state the prominent and important facts disclosed by the record.

On the 14th day of April, 1856, William Means and his wife Frances Means, conveyed to Ferdinand B. Means a tract of land, on the south-west bank of the Guadalupe river, in Gonzales county, for the consideration, as recited in the deed, of seventeen thousand and five hundred dollars. On the same day, (14th April, 1856,) Ferdinand B. Means executed to his vendor, William Means, two promissory notes for the purchase money of the land. One of these notes was for ten thousand dollars, due twelve months after date; the other was for seven thousand five hundred dollars, due two years after date.

On the same 14th day of April, 1856, Ferdinand B. Means executed a mortgage to William Means, on the land in question, to secure the payment of the two notes above named. On the same day also, Ferdinand B. Means executed a deed of trust upon the land, to secure to William Means the payment of the said two notes. In this deed of trust, one J. O. Wheeler was made the trustee. The mortgage and the deed of trust were both recorded in Gonzales county, soon after their execution. The note for ten thousand dollars, was used by William Means for the purpose of raising money in New Orleans.

The trustee in the deed of trust, J. O. Wheeler, endorsed the note, together with the payee, William Means, and placed it in the hands of one Barella, as collateral security for a sum of money obtained from him by William Means. William Means paid his debt to Barella, and retired (as the mercantile phrase is) the note for ten thousand dollars. J. O.

Wheeler’s name was then erased from the back of the note; and on the 26th day of March, 1857, which was before the maturity of the note for ten thousand dollars, William Means became indebted to the appellants, Henderson, Terry & Co., and deposited with them the note for ten thousand dollars, and the mortgage executed by E. B. Means to secure it, “relinquishing to Henderson, “Terry & Co. all his (William Means’

s) right, title and interest, “ as described in said mortgage, or so much of it as may be “found necessary to liquidate and satisfy the said note for ten “thousand dollars;” and “giving to Henderson, Terry & Co. “the same privileges that are allowed to me, (William Means,) “by the said mortgage, so far as the note for ten thousand “ dollars is concerned.” The whole agreement between William Means and Henderson, Terry & Co., was formally committed to writing; but Henderson, Terry & Co. did not qause it to be recorded in Gonzales county, nor did they give any notice to the mortgagor, Eerdinand B.

Means, of the quasi assignment of the mortgage to them. On the 1st day of April, 1858, which was nearly twelve months after the maturity of the note for ten thousand dollars, William Means and his wife, and Eerdinand B. Means and his wife, joined in a conveyance of the mortgaged premises, on the south-west bank of the Guadalupe river, in Gonzales county, to Thomas J. Pilgrim and Thomas R. Stewart, for the consideration of eight thousand dollars. On the 81st day of March, 1858, William Means executed a “release and discharge” of “a deed of trust, given by E. B.

Means to me, “dated April 14th, 1856, recorded in book K, pages 504 and “505, one of the land record books of said county, in the “ county clerk’s office in and for the county of Gonzales, said “State, and given to secure the payment of two promissory “notes, amounting to seventeen thousand and five hundred “dollars, the object and purpose of said deed of trust having “been accomplished; and the said notes having been paid off “ and satisfied, I, the said William Means, do hereby pronounce “ the said deed of trust null and void, and of no further effect “or virtue.” On the 1st day of April, 1858, which was the day of the sale by William Means and wife, and by Ferdinand B.

Means and wife, to Pilgrim and Stewart, the trustee in the deed of trust, J. O. Wheeler, executed a release and discharge of the deed of trust, executed to him by Fi B. Means, dated 14th April, 1856, recorded, &e. In the instrument, Wheeler stated that the deed of trust had accomplished its purposes, and that the two notes had been paid off and satisfied; and he pronounced the deed of trust null and void.

It was clearly proven by the county clerk, Chenault, that the instrument, recorded on pages 504 and 505 of book K of the records of his office, was in fact the mortgage of the 14th of April, 1856, from Ferdinand B. Means to William Means, and not a deed of trust, as recited in William Means’s instrument of release. Pilgrim and Stewart claimed to be purchasers in good faith, for a valuable consideration, without notice of the assignment of the note and mortgage to Henderson, Terry & Co., and there was no proof to show that they had any notice.

On the contrary, the whole record, taken together, shows very clearly that they had no notice whatever of the secret assignment of the mortgage by William Means. The testimony showed that Pilgrim and Stewart had paid a part of the purchase money of eight thousand dollars, in cash, and had become responsible to the judgment creditors of William Means, for the balance of the eight thousand dollars, in such manner that William Means was entirely released from responsibility for that amount.

Jones, presiding judge, charged the jury, that if Stewart and Pilgrim were purchasers, for a valuable consideration, without notice of the claim of the plaintiffs, the plaintiffs could not recover as against them, and could not subject the land to the payment of their demand against William Means and E. B. Means.

The judge charged further, that the record of the mortgage, under which the plaintiffs claimed, would not affect the rights of Pilgrim and Stewart, unless they had notice, before they paid the purchase money, that the note for ten thousand dollars was in the hands of the plaintiffs, or was an outstanding claim against the land. The judge also charged the jury, that if Pilgrim and Stewart had passed the whole amount of the purchase money to William Means’s credit, in discharge of his previously existing debts, that would make Pilgrim and Stewart purchasers for a valuable consideration.

The jury were instructed, that the plaintiffs were entitled to recover against William Means and Eerdinand B. Means, on the note for ten thousand dollars, to the extent of the indebtedness of William Means to the plaintiffs. The jury found a verdict for the plaintiffs, against William Means and Eerdinand B. Means, for the amount of money claimed by plaintiffs, and returned their verdict for Stewart and Pilgrim, for the land which was sought to be made liable. Judgment was rendered in accordance with the verdict. The plaintiffs and Eerdinand B. Means moved for a new trial. The motions were overruled.

The plaintiffs perfected their appeal. Eerdinand B. Means did not. It will be perceived, from this statement of the case, that the main question presented for our consideration is, whether or not Henderson, Terry & Co. have any rights, by virtue of the assignment of the mortgage to them, which they can enforce against the mortgaged premises in the hands of Pilgrim and Stewart, who claim to be bond fide purchasers, for a valuable consideration, without notice. We are of opinion that there was no error in the judgment of the court below.

It is true, that very embarrassing questions have frequently been presented to the courts of this country and of England, in reference to the rights of assignees of mortgages, and there is some apparent contrariety of decision on this subject. But a careful examination of the authorities, convinces us that the principle of the decisions is uniform.

We have not been able to find any well considered case, where protection has been refused to one who has dealt in good faith with a mortgagee, without notice of a previous assignment, and where the purchaser from the mortgagee, has used proper diligence to inform himself of all the facts of the case. In the cases of Matthews v. Wallwyn, and Williams v.

Sorrell, reported in 4 Vesey Jr., it was settled by Lord Chancellor Loughborough, that the assignee of a mortgage, takes it subject to the account between the mortgagor and the mortgagee, and that payments made by the mortgagor to the mortgagee, without notice of the assignment by the mortgagor, must be allowed by the assignee. And in the case of Williams v. Sorrell, it was also held, that the registry of the assignment of the mortgage, was not such notice to the mortgagor, as would deprive him of the right to have payments allowed, that were made after the assignment.

These cases have been followed, both in England and in the United States. In the case of James v. Johnson, 6 Johns. Ch. Rep. 417, Chancellor Kent quotes, with approbation, the rule laid down in the case of Williams v. Sorrell.

He says, that “it is an “obvious principle of equity, that all dealings with the mort- “ gagee, even in his character of mortgagee, before notice of an “assignment, are valid.” In the same case, the Chancellor said, “the abuse to which these clandestine assignments of “mortgages are subject, ought to impose upon persons who “traffic in such securities, the duty of making their assign“ments, as soon as possible, matter of record.

If they do “not, it is their own fault or negligence, and they ought to “suffer, rather than the subsequent purchaser, who is deceived “by appearances, and who has no notice or record to guide “him.” It is true, that the Court of Errors of the State of New York, reversed the judgment of the Chancellor in the above named case; but the reversal of his judgment cannot take away from his observations their intrinsic weight, and in fact can detract but little from the authority which his great name carries with it.

Hot to consume time, by referring to other cases, we think it is the obvious policy of our registry laws, to require all instruments concerning lands to be recorded in the proper county. (Hart. Dig. Art. 2752, 2757, 2760, 2770, 2775, and 2787.) We are of opinion, that an assignment of a mortgage is “a lien affecting the title to land”—“a written contract in relation to land”—“an agreement”—“an instrument of writing of or concerning land,” within the meaning of our registry laws, such as ought to be recorded, to make it effectual against subsequent purchasers, for a valuable consideration, without notice.

In the present case, it will be observed, that the purchasers, Pilgrim and Stewart, used all the means that prudence and caution could suggest, to inform themselves of the true state of the title which they were about to purchase. They found the mortgage of the 14th of April, 1856, to William Means, and the deed of trust of the same date to Wheeler, among the records of the country. They were informed by William Means, that the mortgage had no longer any vitality; that it had served the purposes of its execution, and was virtually dead. They took his solemn declaration in writing to that effect.

They learned, also, from Wheeler, that the deed of trust was no longer of any force; that it, too, had performed its office; and they took Wheeler’s declaration, in writing, to that effect. It will be observed, that these transactions took place, very nearly a year after the maturity of the note for ten thousand dollars, and when the note for seven thousand five hundred dollars was within a few days of its maturity.

It will be observed, too, that nothing was said about the note for seven thousand five hundred dollars; and there can be but little doubt, that it was perfectly understood by all parties, at the time of Pilgrim and Stewart’s purchase, that the whole transaction between William Means and Ferdinand B. Means and Wheeler, was a contrivance to enable William Means to procure money, by negotiating the note for ten thousand dollars. Here the purchasers, Pilgrim and Stewart, looked to the records of the country. They found nothing there to inform them that any assignment had been made of the mortgage.

They were dealing both with the mortgagor and the mortgagee, the party who held the legal estate, and the party in whom was the equity of redemption. As far as the records of the country, and the declarations of the mortgagee, could inform the purchasers, they were informed that they were purchasing both the legal and the equitable estate; and but for the secret assignment, there would have been united in the purchasers, both the legal and equitable estates, by virtue of the conveyance from both mortgagor and mortgagee.

There is no pretence that the purchasers had notice of the claim of the appellants, except that which is founded on the testimony of Nicholson, the clerk of the District Court.

That witness was not able to say whether his conversation with Stewart, in which he mentioned the claim of Henderson, was before or after the purchase by Pilgrim and Stewart; and aside from this, the remark made by the witness, Nicholson, to Stewart, was not such as to give him any information of the fact that the mortgage had been assigned to Henderson. “The claim of some person in New Orleans,” of which the witness, Nicholson, spoke, might very well be understood, by Stewart, to refer to the former deposit of the mortgage and note for ten thousand dollars, with Barella, a transaction about which Stewart was informed.

We think it clear, from the record, that Pilgrim and Stewart had no notice whatever of the assignment to Henderson, Terry & Co. Had they, then, paid the purchase money, before they received notice of the assignment to Henderson, Terry & Co ? The testimony shows that the payment of the whole purchase money was complete, to William Means, at the time of the execution of the deed from William Means and wife, and F. B. Means and wife, to Pilgrim and Stewart.

The purchasers, Pilgrim and Stewart, paid the judgment debts of William Means, to the amount of the whole of the purchase money, in such manner that the judgment creditors were satisfied, and William Means released from responsibility. This made Pilgrim and Stewart purchasers for value, just as much as if they had paid the purchase money in dollars and cents. The appellees, Pilgrim and Stewart, are found then to be what they claim to be in their pleadings, bond fide purchasers, for a valuable consideration, without notice. Their position is, perhaps, the most favorable one in which a defendant can stand in law.

Their defence is, so to speak, the Gibraltar of defences—an impregnable fortress. Nor does their claim to protection rest upon any merely technical ground. It is founded in the strongest equity, and supported by the strongest considerations of public policy. It is contrary to sound policy, and to the spirit, if not the letter, of our registry laws, that secret assignments should be permitted to pass from hand to hand, and to operate as liens upon lands, to the disturbance of the honestly acquired titles of the country.

Another view of this subject is, that in reality, the appellants ai*e obliged to invoke the aid of equity, to assert their claim under the assignment to them. Their right, under the assignment, is not a naked legal right, upon which they can insist, to the overthrow of equities in another. At law, a mortgage passes the legal estate; and but for the interposition of equity, the legal estate would become absolute in the mortgagee, upon the failure of the mortgagor to perform his obligation, according to the letter of his contract.

Equity treats the mortgage as a mere seóurity, however, and keeps alive the equity of redemption in the mortgagor, after his failure to perform. How, it is only because equity treats the mortgage as a security, and as incidental to the debt, that the assignment of the debt carries with it the mortgage, as a continuing lien upon the land. It is in equity, that the assignment of the debt carries with it the lien upon the land, and is treated as conveying the legal estate to the assignee.

At law, the legal estate could only be passed by a deed; and the deed, to affect bond fide purchasers, without notice, would have to be recorded. The assignees of the mortgage, therefore, are driven to ask the aid of a court of equity, to enforce their lien upon the land; and in the present case, they are met by parties having equal equities. The appellants took the assignment of the mortgage, on the 26th March, 1857. The defendants, Pilgrim and Stewart, purchased on the 1st of April, 1858. More than a year elapsed, during which the assignees left it in the power of the mortgagee to practice a fraud upon others.

We do not think that they can be heard to invoke the aid of a court of equity, to grant them relief against purchasers in good faith, without any knowledge of the assignment, and who have paid a valuable consideration. The judgment of the court below is therefore affirmed. Judgment affirmed.