Murray v. Ballou

The Chancellor.

The purchase, by Ballou, of Winter was made in August, 1810. The lot purchased was held, at the time, by Winter, in trust, for Temperance Green $ and a suit was then, and for a year preceding, had been, pending in this court by Mrs. Green against Winter, charging him with a breach of trust, and praying that his authority, as trustee, might cease; and an injunction had been issued and served, enjoining him from any sale,, disposition, or use of any of the lands or securities held by him in trust. The plaintiff, Murray, was, afterwards, appointed receiver, with authority to sue; and upon a reference and report, which took place in the progress of the suit, Winter was found in arrear to the amount of 20,510 dollars; and the amount of the above sale to Ballou, as being invalid and .not binding on the cestuy que trust, was not allowed as a charge to Winter. By the final decree, Winter was ordered to convey and surrender to Mary Green and Henry Green, the *574 persons for that purpose appointed by Mrs. Green, all the property and interest whatever held by him in trust,

The suit so commenced against Winter, having been in a course 0f continued and diligent prosecution, and having been finally conducted to a decree by which the charges in the bill were established, a question arises, and has been discussed in this case, whether the purchase by Ballou, of part of the trust property, pendente lite, is binding on the cesiuy que trust ?

Ballou has, in his answer, denied any knowledge of the suit at the time of his purchase. There is no proof to contradict the answer, and it is to be taken for true. But though he had no knowledge of the suit, it is not pretended that he was ignorant of the existence of the trust; and it is to be presumed, from his silence, that when he purchased from Winter, he knew that Winter held and sold the land, not in his own right, but as trustee. The bill charges, that it was generally known, at the time of the sale, that Winter’s authority was questioned. The answer goes no further than to deny any knowledge of the chancery suit, or of the injunction, or of any suspension or defect of power in Winter tó sell. The answer of Hunt is to the same limited extent; and the probability is, that it was a matter of public notoriety at the time, that Winter held the largé'real estate in his possession as a trustee.

■ It has been said by the counsel for the plaintiffs, that Ballou was chargeable with notice of the trust, by means of the registry of the deed from Heatley to Mrs. Green, which recited the declaration of trust executed by Winter. This deed, containing this recital, was registered on the 9th of April, 1810, but I cannot perceive any justice in obliging Ballou to take notice of the contents of that deed. By what clue was he to be directed to look into the deed from Heatley to Mrs. Green? He was dealing with Winter; and supposing Winter’s trust to be, otherwise, totally unknown to him, he might as well be required to examine the contents of every *575 deed on record. If there had been any deed on record to which Winter was a party, he would have had a specific object and guide for inquiry ; casca regens Jilo vestigia. I have, therefore, not thought it reasonable to charge Ballou with a knowledge of the existing trust, by reason of the registry of Heathy's deed, but rather to infer that knowledge from what is charged in the bill, and from the silence and the strong implied admission in the answer. The inference from the answer is decisive. If a party means to defend himself, on the ground that he was a bona Jide purchaser for a valuable consideration, without notice of a trust, he must deny the fact of notice, and of every circumstance from which it can be inferred. (Bodmin v. Vandenbendy, 1 Vern. 179. Anon. 2 Vent. 361. 3 P. Wms. 244. n. 2 Vesey, jun. 458. 9 Vesey, jun. 32.) And if notice of the trust existéd when the purchase was made, then the general rule is, that the purchaser becomes himself the trustee, notwithstanding any consideration paid; (Saunders v. Dehew, 2 Vern. 271. 2 Fonb. 152, 153.;) and, though he may not, perhaps, be bound, in most cases, if the sale is fair, to look to the application of the moneys, yet, if the trust be suspended by process of the court, and the sale be made, as it was here, in contempt of that process, the purchaser, with notice, ought not to be allowed to defeat it. The question of notice of the trust is also material, inasmuch as the purchaser’s knowledge of it goes to lessen or destroy the hardship, if any there should be, in the application of the maxim, caveat emptor. If every man purchases at his peril, and is bound to look to the title and the competency of the seller, the duty is the stronger, if he knowingly purchases of one acting as agent or trustee for others, for then he is bound to look into the validity and the continuance of the authority, and to call for an explanation of the nature and existing circumstances of the trust.

But it will not be necessary to rest the cause on this ground,, The other point, which has been pressed for consideration. *576 appears to be altogether conclusive. Admitting that Bab lou had no knowledge, in fact, of the suit of Mrs. Green against Winter, when he made the purchase, he is, never-chargeable with legal or constructive notice, so as to render his purchase subject to the event of that suit. |The established rule is, that a Ns pendens, duly prosecuted, land not collusive, is notice to a purchaser so as to affect and bind his interest by the decree; and the Ns pendens begins from the service of the subpoena after the bill is filed.

The counsel for the defendants have made loud complaints of the injustice of this rule, but the complaint was not pro - perly addressed to me, for if it is a well-settled rule, I am bound to apply it, and it is not in my power to dispense with it. I have no doubt the rule will sometimes operate with hardship upon a purchaser without actual notice; but this seems to be one of the cases in which private mischief must yield to general convenience; and, most probably, the necessity of such a hard application of the rule will not arise in one out of a thousand instances. On the other hand, we may be assured the rule would not have existed, and have been supported for centuries, if it had not been founded in great public utility. Without it, as has been observed in some of the cases, a man, upon t¡|fe the service of a subpoena, might alienate his lands, and prevent the justice of the court. Its decrees might be wholly evaded. In this very case, the trustee had been charged with a gross breach of his trust, and had been enjoined by the process of the court, six months before the sale in question, from any further sales. If his subsequent sales are to be held valid, what temptation is held out to waste the trust property, and destroy all the hopes and interest of the cestuy que trust ? A suit in chancery is, in such cases, necessarily tedious and expensive, and years may elapse, as in this case, before the suit can be brought to a final conclusion. If the property is to remain all this time subject to his disposition, in spite of the efforts of the court to prevent it, the rights of that helpless portion of the commit *577 nity, whose property is most frequently held in trust, will be put in extreme jeopardy. To bring home to every purchaser the charge of actual notice of the suit, must, from the very nature of the case, be in a great degree The only safe and efficient means of preventing such fraud and injustice, is to charge the purchaser with dealing with the trustee at his peril. The policy of the law does, in general, cast that peril upon the purchaser. Caveat emptor, is the settled maxim of the common law. It is his business to inquire and to look to the person with whom he deals. If he knows him to be a trustee, then let him inquire of the cestuy que trust, or let him ask at the register’s office, whether there be any suit pending against such trustee. He can always be safe if he uses due diligence; but the other party has no means of safety beyond his application to the court. Whatever may be thought of the rule, it appears to me to be less severe than that acknowledged rule of the common law, on which our courts have repeatedly acted, that a conveyance of land, without any warranty or covenant* of title, will not enable the purchaser to resort back to the seller, even if the title should fail; (Frost v. Raymond, 2 Caines' Rep. 188.;) and if he has covenants to secure his title, he can seek for no more than the consideration which he has paid, without any allowance for the rise in value of the land, or the value of the improvements. (Pitcher v. Livingston, 4 Johns. Rep. 1.)

1 have said that the lis pendens was, of itself, notice to the purchaser, and it xvill now be proper to show that this rule is well established in our law. It is no more than an adoption of the rule in a real action at common law, where, if the defendant aliens after the pendency of the writ, the judgment in the real action will overreach such alienation. It was one of the ordinances of Lord Bacon, laid down for the better and more regular administration of justice in the court of chancery, that, “ no decree bindeth any that cometh in bona fide, by conveyance from the defendant, be *578 fore the bill exhibited, and is made no party, neither by bill nor order: but where he comes in pendente lite, and while the suit is in full prosecution, and without any colour of allowance or privity of the court, there regularly the decree bindeth.” (Lord Bacon’s works, vol, 4.511.) Here we find the rule declared above two centuries ago, and by the highest authority to which we can appeal; and it will appear to have received support and application down to this day. In the case of Martin v. Stikes, (cited by Lord Nott ingham, in his Prolegomena, of Equity, and, again, in 11. Ves. 200.,) the bill was filed in 1640, and was abated, by death, in 1648 ; and a bill of revivor was filed in 1662, and the purchase was made in 1651, and yet, as the purchase was, by relation of the bill of revivor; made pendente lite, the purchaser was held bound, and by no less a character than Lord Clarendon. I cite this case, not with approbation, but merely to show the great extent to which the rule has been anciently carried. When this very case was, afterwards, in a new shape, brought before Lord Keeper Bridgman, (1 Cas. in Ch. 150.,) he observed, that it was not form, but the substance of a decree, that all are bound by it who come in, pendente lite. The case of Culpepper v. Austin, which was a few years subsequent, (2 Ch. Cas. 115. 221.,) is a strong determination on the same point: in that case the testator had conveyed his lands to his executors, in fee, to pay his debts; and after his death the defendant purchased the lands of the executors for a valuable consideration. The heir brought his bill, to have the land, on the ground that the lands were not wanted to pay debts ; and the Lord Chancellor held, that the suit pending between the heir and the trustee, to have an account, was sufficient notice, in law, without actual notice of the suit, and the party purchased at his peril; so that if, in the event of the suit, it appeared that the sale was unnecessary and improper, the heir would recover against the purchaser. It turned out, afterwards, that the defendant lost his purchase, though he *579 had no actual notice of the suit, and though he had purchased and paid the same day the bill was exhibited. (Vide, as to this result, what was said by the Chancellor in Baens v. Canning, 1 Ch. Cas. 301.) The case of Fleming v. Page and Blaker arose during the time of Lord Nottingham, (Rep. temp. Finch, 321.) These were purchases made by the defendants for a valuable consideration, but they were made pendente lite, and for that reason the purchasers were decreed to reconvey and deliver up the writings. The same general principle, that all persons who come in as purchasers, pendente lite, though they are no parties to the suit, they and their interests shall be bound and avoided by the decree, is laid down as the known law, in several eases to he found in Vernon, and to which it will be sufficient only to refer. (Preston v. Tubbin, 1 Vern. 286. Anon. 1 Vern. 318. Goldson v. Gardner, cited in Self v. Madox, 1 Vern. 459. Finch v. Newnham, 2 Vern. 216.)

If we come down to more modern times, when the principles of equity may be supposed to have been more highly cultivated, and more precisely defined, we shall find the rule recognised with equal force. Thus, in Sorrel v. Carpenter, (2 P. Wms. 482.,) the defendant purchased an estate, pendente lite, from one Ligo, after subpoena served on Ligo, and before answer, for the full value, and without any notice of the plaintiff’s title, or actual notice of the suit. This was the strongest case that could be imagined, and under circumstances far more favourable to the purchaser than the present; and Lord Ch. King said, that it was a very hard case to set such a purchase aside, yet he admitted that such was the rule, and that it was taken from analogy to alienations pending a real action at law. This doctrine came frequently under the review of Lord Hardwicke, and he always held that a purchaser, pendente lite, was bound by the decree in the suit. The pendency of the suit was, of itself, notice; and he observed, that the rule was to prevent a greater mischief that would arise by people’s purchasing a right under *580 litigation. (Garth v. Ward, 2 Atk. 174. Worsley v. Scarborough, 3 Atk. 392.) Lord Camden, afterwards, enforced the same rule. “I hold it,” he said, “as a general rule, that an _ alienation pending a suit is void.” (Walker v. Smalwood, Amb. 676.) I shall conclude this view of the English authorities with noticing the observations of the Master of the Rolls in the case of The Bishop of Winchester v. Paine, (11 Ves. 194.) “He who purchases during the pendency of the suit, is bound,” says Sir William Grant, “ by the decree that may be made against the. person from whom he derives title. The litigating parties are exempted from the necessity of taking any notice of a title so acquired. As to them it is as if no such title existed. Otherwise, suits would be interminable, or, which would be the same in effect, it would be in the pleasure of one party at what period the suit should be determined. The rule may sometimes operate with hardship, but general convenience requires it.”

It would be impossible, as I apprehend, to mention any rule of law 'which has been established upon higher authority, or with a more uniform sanction; and I should have thought it necessary to apologize for wasting so much time on the point, if I had not found the rule, ancient and stable as it is, questioned and resisted by plausible considerations addressed to the feelings. I may, also, be permitted to add, that as I am without the aid of any public reports, or any distinct knowledge of the decisions of this court during the time of my predecessors, I am obliged, in almost every case, to reassert, expound, and vindicate the principles of our equity jurisprudence. Many a point is now raised which would, probably, never have been disturbed, if the means had been afforded to learn the doctrines of the court; and it cannot be too often repeated, and too deeply impressed, that established principles in equity can no more be dispensed with than the rules of law, and for this plain reason, that I am not clothed with a dispensing power.

*581 The persons in whose behalf this suit was instituted are, eonsequently, entitled to a conveyance of the land sold to Ballou, equally as if the title had remained in Winter. The suit is, also, against Hunt, the assignee of the bond and. mortgage given by Ballou ; and the counsel for the plaintiffs seek either the land or the proceeds of the sale, and appear to be equally willing to accept of either. Hunt purchased the bond and mortgage, as he says, without knowing or inquiring as to the consideration for which they were given; and though he took them subject to all the equitable claims of Ballou, yet, as between him and the plaintiffs, the question may not be the same; and I think it will be unnecessary for me to decide, at present, whether the doctrine of this case reaches him, so as to protect from assignment all the bonds and other securities taken by Winter in his character of trustee.

This point underwent much discussion in the house of lords, in Redfearn v. Ferrier and others ; (1 Dow's Rep. 50.;) and it was there held, on appeal in a Scotch case, that a latent equity, in a third person, shall not defeat a Iona fide assignee of a right without notice, except it be an assignment by an executor, which carried on the face of it notice of his fiduciary character. (See p. 54. 59, 60.66. 72.)

The claim raised by the bill against Ballou, for the land, and against Hunt, for the proceeds of the sale, are inconsistent with each other; for the one annuls, and the other affirms, the sale. The claim to the land is clear of all difficulty, and comes within all the cases; and the only use I shall make of the demand in the alternative, for the lands or the proceeds, will be to relieve Ballou as far as it is possible from the loss of his improvements, by giving him the alternative, to convey the land, or keep the land, and pay the amount of the consideration he gave, together with the interest thereon.

I shall, accordingly, decree, that the defendant, Ballou, within 40 days from the service of a copy of the decree, *582 convey, in fee, the lot in question to Mary Green and Henry Green, to be held by them, in trust, &c. unless he shall, within that time, elect to pay, and actually pay, or tender, to the said trustees, the amount of the bond he gave to Winter, with interest thereon, to the date of this decree.

As Ballou is not charged with actual, and only with constructive, notice of the suit, here is no real fraud in the case; and though the purchase cannot be permitted to stand, there is equity in not carrying the doctrine of constructive notice in this case so far as to charge him with costs. I shall, therefore, not award costs to either party, as against the other § and the bill, as to the defendant, Hunt, must be dismissed. But as there was probable ground for bringing him into court, and as he has no more real equity to protect him than the other defendant, I shall dismiss the bill, as to him, without costs.,

Decree accordingly.