Hart v. Farmers & Mechanics Bank

Redfield, Ch. J.

This is a bill in equity to compel the defendants to release to the plaintiffs their title to certain lands in Burlington. The plantiffs’ title is derived from one Scribner, by assignment by dead, with one witness, duly acknowledged and recorded, which is doubtless sufficient to convey an equitable title. The defendants’ title is by levy of execution against Cook, Lane & Corning. Scribner’s claim of title .grew out of his being the factor of Cook, Lane & Corning, for the sale of glass, with a del credere commission, and having sold to Benjamin Rathbone to the amount of some seventeen hundred and sixty dollars, and he being, or becoming, insolvent, Cook, Lane & Corning, learning of his having land in Burlington, made an attachment and levy upon it, with the understanding that it was to be ultimately for Scribner’s benefit, should he pay the debt upon his guaranty, and for their own security, until he did pay that and all other debts he should owe them.

Scribner made arrangements for payment, and endorsed notes which when paid were to be in full, before the levy, and which were paid before Rathbone’s equity in the land expired, and probably before the levy. But the creditors claimed a mistake in the settlement, and some other deficiencies in liis accounting to them, and it was understood between them and Scribner, that they had the right to retain the title to the land, until paid all that Scribner owed them, they claiming, at different times, from one hundred dollars to five or six hundred dollars. But on a reference to the master, in this case, it was reported that nothing is due them. The court are not prepared to say from the testimony in the case, that there is any such evidence of mistake or misapprehension by the master as to justify setting aside the report. We think there is not.

*263 It must be assumed then, that at the time of the levy, by the defendants, the equitable estate in the land was in Scribner; and that Cook, Lane & Corning held the legal title, as a naked trust for Scribner; having in fact no lien upon it, but a claim only, which was not well founded.

The question then arises, whether it was subject to be levied upon by their creditors; and whether Scribner’s equity could thus be defeated, upon the assumption that such creditors had no actual knowledge of the existence of such equity ?

There can be no doubt, we think, that in the case of a mere sale and conveyance of land by the absolute owner, without notice, either actual or constructive, or any change of possession, the land is still subject to levy, or attachment, upon the debts of the vendor. And the same is true of the sale of personal property, even after notice and the payment of the price, as has been held in this State by repeated decisions of this court. In that respect we give attachments an advantage above purchasers, who have paid the price of the articles, knowing of a former bona fide sale, and the payment of the price; but without any change of possession between the vendor and the vendee. And from the analogy between the change of possession in the ease of personal property by the delivery of possession by the vendor to the vendee, and its necessity in all cases of sale, pledge, mortgage or assignment, in order to protect it from attachment, and that of transferring possession of real estate by the delivery and recording- of a deed, which comes in the place of livery of seizin, it has sometimes been supposed that all land was liable for the debts of the party in whom was the legal title, at the time of the levy, or attachment, unless the creditor had knowledge of the equitable title being in another.

But we think no such doctrine is fairly deducible from our statutes in regard to conveyances and the levy of executions. All that seems fairly t.o be deduced from these statutes, in regard to this subject, is, that in the sale of lands, the deed shall be of no force until acknowledged and recorded, except as between the parties. And this exception has, by construction, been extended to privies, or those who have knowledge of the deed. This statute seems expressly to provide, that in such cases, the deed *264 ■whether absolute or conditional, by way of mortgage, shall have no effect upon any one except the parties, or privies, until recorded. And if the deed is to have no effect, the contract could have no greater effect, since it is the writing only which gives it any operation in regard to the title of land ; and being reduced to writing this merges the prior stipulations, so that no trust is thus created which can be recognized and enforced, aside from the deed, without a virtual repeal of the registry system.

But where a party proposes to take advantage of the literal application of the provisions of the registry system to perpetrate fraud, by levying upon the land, or purchasing it, after he has knowledge of an unregistered deed, the law interferes, by mere construction, and engrafts an exception, not named in the statute, but which it is necessary to imply, in order to defeat the fraudulent use of the provisions of the statute, which it is always safe to presume that the legislature did not intend.

So too if the party has constructive, or implied notice of an unregistered deed, he is not permitted to acquire a title from the grantor, which shall override it. As if he find the grantee in possession of the premises, or is informed of any other fact, which would naturally put a careful and prudent man upon inquiry, in a direction where he might obtain information in regard to the title, and he omit to pursue the inquiry; and some other similar cases.

It must be admitted that these exceptions, to a certain extent, infringe the symmetry of the general object and purpose of the registry of deeds. That undoubtedly was, to enable every one to know where to look for the title of land. And there are many instances, no doubt, where the courts of equity even will allow a trust estate in lands to pass by the deed of the trustee, to one who becomes a bona fide purchaser, without notice, and pays the full price. But even in regard to purchasers the courts of equity are vigilant, to see that such purchaser shall not be allowed to take any benefit resulting from any want of care and watchfulness. If there exist any circumstances of suspicion, whereby he might be said to be fairly put upon his guard, and he neglects to follow out the inquiry, he is affected with notice of all facts, *265 which such inquiry would have brought to his knowledge, and if he purchase with his eyes shut, he acquires only the title of his grantor impeded with its attendant equity.

But if nothing of this character exists, it is regarded as more in conformity to just principles of equity and fair dealing, that the estate of the cestui que trust should be extinguished by the deed of the trustee, than that the equal equity of the purchaser should be defeated, and thus the free and fair transmission of estates be embarrassed and placed under a cloud of suspicion and doubt. The equities of the parties being equal, the legal estate is allowed to prevail, and a rule of policy is at the same time subserved, by leaving the transmission of titles unembarrassed, as far as prac - ticable, thus inspiring confidence, rather than distrust, in the transmission of titles to real estate.

But this rule of policy has its limits. It should not be carried to the extent of working fraud and injustice upon others. And it is certainly a question of some difficulty to determine how far this rule of policy, by which the bona fide purchasers of trust estates are protected in their titles, can fairly be applied to a levying creditor. It must depend mainly upon the point, whether a creditor has the same, or as high an equity as a bona fide purchaser for value. There was a time, within my distinct recollection, when it was considered in this State, that the equity of a creditor was, in some respects, superior to that of a purchaser. It was understood that a purchaser after notice of a prior sale, being a volunteer, was not entitled to much indulgence, but that a creditor being already committed beyond recall, might stand upon the literal interpretation of the registry act, and treat the deed as wholly inoperative, except as between the parties, even when he had notice of it. And when it was decided by this court, that a creditor, who had knowledge, either actual or constructive, of the existence of a prior conveyance, could not hold the estate, by attachment and levy, it was at first looked upon as somewhat of an innovation upon the generally received notions, even among the profession. But that was very readily acquiesced in, being recommended by such obvious equity and justice. We are now asked to say that a levying creditor has not as much equity as a purchaser for value, without notice. And there is *266 certainly great reason to so regard the matter. This question is altogether aside of any question, affecting the endorsement of negotiable paper in payment of, or as security for a pre-existing debt. That rests upon the peculiarly negotiable quality attaching to the security. No such quality is attached to the assignment of personal chattels, as security for a debt. The assignee only takes the title of the assignor, subject to all equities, outstanding in other parties.

And in some respects this court has already established a distinction between the equities of creditors and purchasers, in favor of the latter. We held many years ago, that where a purchaser obtains goods by a fraudulent purchase, void between the parties to the contract, as where the goods are purchased under false pretences, that a bona fide purchaser of the fraudulent vendee for value, will acquire good title, as against the former vendor, but that an attaching creditor only comes into the precise place of the debtor, and must show his title good against the former owner. This doctrine has been repeatedly affirmed by this court, and is now fully established and generally acquiesced in. Poor v. Woodbury, 25 Vt. 234 ; Fitzsimmons v. Joslin, 21 Vt. 129 . We are not aware that it was adopted by the court, or has been received by the profession or the people, with any doubt or distrust.

And in a late case in the county of Addison, Hachett v. Callender et al. 32 Vt. 97 , which was alluded to in the argument, it was decided that an attachment of land upon the debt of one holding- the record title, created no equity, which would stand in the way of the equitable owner of the estate, even where the Creditor had no knowledge of such equity. And if the attachment of the estate by one having no knowledge of the trust, creates ’ no title superior to that of the cestui que trust, neither would the levy, as it seems to us. For it is a settled principle of the law of attachment, that when the levy is completed, the title dates from the attachment, and is the same as if the levy had been completed at the very date of the attachment. It is not easy to make any appreciable distinction between the attachment and the levy, as to the equity thereby created, except that which results from the amount of expense incurred. For the levy being *267 by mistake upon land, not the property of the debtor, is no satisfaction of the debt. The only change then in the condition of the parties is the accruing of cost. This, we think, could scarcely be regarded as placing the creditor in the situation of a bona fide purchaser. This is not different in principle from the incurring of costs in levying upon personal property, which the debtor' holds in trust, as in the case of an executor or administrator,where the power to sell exists ; and where a bona fide purchaser, for value, even with notice of the trust, will acquire good title,since it is the duty of t,he trustee to make sale, and the purchase is therefore no violation of the trust, and will not therefore defeat the title. But nevertheless no title could be acquired by a levy of execution, upon such trust property, for the personal debt of the trustee, even by a creditor of such trustee who had no knowledge of the trust. Williams v. Fullerton, 20 Vt. 346 .

It is obvious therefore, that the mere fact that a creditor has incurred expense, liona fide, and without notice of any counter equity, in levying upon trust property, does not make him a pur-' chaser, or give him the same equity, as a purchaser. The reason of the distinction in the case of the executor or administrator is more obvious perhaps, than in some other cases, since there the duty of the executor 'may be to sell the property, and the purchaser may fairly conclude that the price will supply the place of the property, in carrying into effect the trust. But we apprehend the same rule would be applied to other cases of trust property of a personal nature, where it might be a violation of the trust to sell it. The purchaser without notice would acquire valid title, while a purchaser with notice might make himself tortiously a trustee, at the election of the cestui que trust, and a creditor, levying upon the trust property without notice, would acquire no title.

And the same rule prevails in England, and in many of the American States, as to the levy of an execution, a judgment lien, or an elec/it upon real estate, held in trust by the debtor. This is not questioned by any one, and was very properly conceded in the argument of this case. This is very perspicuously stated in Lord St. Leonard’s last edition of The Law of Vendors and. *268 Purchasers of estates, 423, and is supported by some American cases.

It has been urged with great plausibility, that to hold trust estates not liable to a levy of execution upon the debt of the trustee, where the creditor has no knowledge of the trust, will be such a modification of the proposed benefits of a thorough registry of land titles, as very essentially to lessen their practical importance and advantage. But by admitting the notice of the trust to defeat the right of creditors to levy upon the trust estate, we depart wholly from the strict application of the rule that the registry is to conclude all land titles. There are numerous other well established departures from the strict application of the results of the registry, as the conclusive evidence of land titles. The implied notice of one’s title, whether legal or equitable, resulting from possession, is of this character. The exceptions are established to prevent fraud and injustice. And it is certainly very much calculated to encourage both, when we allow the estate of one to be taken for the satisfaction of the debt of another, unless it be in cases where the debt was created in faith of the title of the estate being in the apparent owner. This argument ab inoonvenienbi is one of very frequent occurrence. It has an air of plausibility, but is not practically of a very conclusive character, since every general rule must have its exceptions. And it requires far more study and reflection, and far more wisdom and experience to determine the exceptions which are proper and necessary to be allowed in regard to all general rules, than it does to define or to defend the rule itself. And we think it very obvious that it was not the purpose of the statute establishing the registry of land titles in this State, to have it apply with absolute and unbending uniformity to all cases. The sense of justice, the very instinct of right and of fair dealing revolts at any such application of the registry system. And if any case can fairly be excepted from its operation it should be that of a clear trust, whether express or implied. A trust resulting from paying the consideration, as in the present case, and in every case where a judgment in the name of another, and not of the real creditor or owner, is levied upon land, is as much entitled to protection from *269 being taken upon the debts of the trustee as an express trust for charity, or any other purpose, and defined by deed not recorded, or other writing. It can make no difference what is the nature of the trust. And as this case stands upon the report of the master, it was a naked, dry trust, in the hands of Cook, Lane & Corning.

"We see therefore no other course, but to decree a release of the title by the defendants, unless we are prepared to admit that all trust estates are liable for the debts of the trustee, unless the trust appears upon the face of the deed, as registered, or is otherwise known to the creditors. And we see no reason why we should adopt this rule, which does not apply, with equal force to a levy upon personal property, held in trust, or to the case of a mere attachment of real estate held in trust, by a creditor not informed of the trust, both of which have been held to create no title as against the real owner, legal, or equitable, as the case may be, while in both cases, it is admitted that a bona fide sale for value is valid to convey the title clear of all equities outstanding in others.

The statute defining estates, subject to levy of execution, uses a phraseology, in regard to the debtor’s title, as being in Ms own right, which is strongly indicative of the sense of the legislature, as not intending to make trust estates liable for the debts of the trustee. It is true this form of expression will be satisfied by giving it an application to such trust estates, as are so defined upon the registry, or such as are known to be trust estates by the creditor. But if such had been the only purpose of the statute, it is certainly remarkable that it should have been expressed in this general and unqualified form, making estates of the debtor held m his own right only, subject to levy of execution.

In every view we can take of the question we think it more in accordance with the principles of equity law, both in this country and in England, and more consistent with the decisions of this court upon the analogous subjects already referred to, to hold that this estate, being a mere naked trust, was not subject to the levy of execution against the trustee, holding the legal title for the benefit of another.

And in doing this we have no apprehension that we are dpingj *270 injustice in the particular case, or that we are establishing a rule, which will be likely to work injustice in other cases.

The present case may be taken as a fair illustration of the general application of the rule here established. There is no certain evidence that the creditors had positive knowledge of the trust. That must be so in all cases, or it will defeat the effect of the levy beyond all question. But here, as in most cases, it is certain the creditor by the slightest inquiry in the proper quarter, and in the quarter where one would naturally look, might have learned the true stale of the title. The debtor’s attorney, who held the possession of the estate for his use, knew of the claim of the cestui que trust, and the ground of it. Any inquiry of him would have led at once to the discovery of the real facts in the case. This was not done. But he was adopted as the attorney of the creditor to make the levy and he was taken of coarse, cum onere, that is, with his present knowledge of the title, That he was bound to communicate to the creditors, as much as if he had originally received it, while acting as the defendant’s agent. For Scribner, the cestui que trust, having given him notice of some claim on his part, and this the attorney admits, if that still remained in the mind of the attorney, it surely did not need to be repeated by Scribner to become notice to the defendants. This is clearly the present English rule and one which seems reasonable and just.

But there is no great doubt, in my mind, that Mr. Kasson did communicate this knowledge, whatever it was,'to the bank. He says indeed as much. But neither he nor the bank supposed the fact was as it turns out to be, that Scribner was the real owner of the land. But they might have learned enough to show that this might be so. They are therefore affected with notice to that effect, and being so, they are bound to abide the result of the judicial inquiry upon this point by the master.

Decree of chancellor affirmed, and remanded to court of chancery.