Case ID: mo_151/html/0465-01.html
Source: Caselaw Access Project
Author: {"author": "MARSHALL, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

(No. 8322.)
    McKenzie et al. v. Donnell et al., Appellants.
    Division One,
    July 12, 1899.
    1. Contract of Insane Person: when voidable. The contract of an insane peison not in ward, is voidable only upon the restoration of the status quo of the parties.
    2. -: -: status QUO. It is held in this case, which is a suit to set aside a deed of trust made by an insane person not under guardianship, and the trustee’s deed made to defendants at the foreclosure sale, that the status quo can be restored and complete equity done, by requiring the insane man’s heirs (the plaintiffs) to repay such purchasers the price paid by them for their, trustee’s deed, the taxes, cost of protecting the property and interest on their outlay, and by charging them with rents and profits.
    3. -: -: bargains. A court of equity in attempting to restore the parties to status quo will not consider the profits arising from bargains acquired at the expense of insane persons.
    4. -•: ——: EIGHTS OE THIRD PARTIES: INNOCENT PURCHASER. The right of an insane person or his representatives to avoid a deed made by him can not be defeated by a conveyance of the land to an innocent third person for value and without notice, nor can additional terms be added to the right to redeem by the grantee mortgaging the property. The insane man is required to restore only the benefits he has received from the transaction, and not those received from the land by third parties. The grantee of the grantee of such insane grantor must rely on the covenants of his deed for restitution.
    5. --: -: -: two innocent purchasers. The doctrine that where one of two innocent persons must suffer, the loss must fall on him who made the condition possible, is not applicable to a deed made by an insane person.
    
      Appeal from Jackson Circuit Court. — Hon. John W. Henry, Judge.
    Aeeirmed {'with modification).
    
      William C. Eorsee for appellants.
    (1) Conceding, for argument, tbat McKenzie was non compos at tbe date of tbe deed in question, yet it does not follow tbat the deed is therefore voidable, even against bis immediate grantee, (a) “Tbe mere fact tbat a party to an agreement was a lunatic, will not operate as a defense to its enforcement, or as ground for its cancellation.” 2 Pomeroy, Eq. Jur., sec. 946; Bishop on Cont., secs. 956, 967, 970; Thorpe v. ITanscom, 64 Minn. 201; Bank v. Neely, 97 Tenn. 120; Arthurs v. Bridgewater Gas Co., 171 Pa. 532; Crawford v. Thompson, 161 111. 161; Oockrill v. Cockrill, 79 Eed. Rep. 143; Jackson v. King, 15 Am. Dee. 366. (b) But “a contract, executed or executory, made with a lunatic in good faith, without any advantage taken of his position, and for his own benefit, is valid both in equity and at law.” 2 Pomeroy Eq. Jur., sec. 946; Bishop on Cont., secs. 969, 233; Ex parte Hall, 7 Yesey, 264; Selby v. Jackson, 6 Beavan, 204; Snook v. Watts, 11 Beavan 105; Steadman v. Hart, Kay 607; Eitzgerald v. Reed, 9 Sm. & Marsh 94; 1 Story Eq. Jur. (13 Ed.), p. 242. (c) “And where a conveyance or contract is made in ignorance of the insanity, with no advantage taken and with perfect good faith, a court of equity will not set it aside if the parties can not be restored to their original position and injustice would be done.” This is the rule as between the immediate parties to the deed or contract. 2 Pomeroy Eq. Jur., sec. 946; Bishop on Cont., sec. 970; Blount v. Spratt, 113 Mo. 48; Wells v. Mutual B. Ass’n, 126 Mo. 630; Kiehne v. Wessell, 53 Mo. App. 671; Niell v. Morley, 9 Yesey 482; Sergeson v. Sealey, 2 Atk. 412; Molton v. Camroux, 2 Ex. 487; Shaolters v. Allen, 51 Mich. 529; Fecel v. Guinalt, 32 La. Ann. 91; Pay v. Burdett, 81 Ind. 433; Behrens v. McKenzie, 23 la. 33;’Smith’s Succession, 12 La. Ann. 24; Carr v. Holliday, 5 Ired. Eq. 167; Crawford v. Scovill, 13 Norris (Pa.) 48; Young v. Stephens, 48 N. II. 133; Wilder v. Weakley, 34 Ind. 184; Eaton v. Eaton, 37 N. J. L. 108; Matthie.son v. McMahon, 38 N. J. L. 536; Scanlon v. Cobb, 85 111. 296; Beals v. Sea, 10 Pa. St. 56. (2) Mrs. Donnell was a Iona fide purchaser. Conceding further, for argument, that McKenzie was non compos at the date of the deed of trust to Stewart, and that, as against Stewart, he or his heirs were entitled to avoid it, and that the facts and circumstances were such that an equitable rescission could be decreed and effected, yet, as the lands were sold under the provisions of that trust deed to an innocent purchaser, for full valuej there can be no rescission as against such purchaser. Bishop on Contracts, sec. 970; 2 Pomeroy, Eq. Jur., sec. 946; Ashcraft v. DeArmond, 44 la. 229; Crawford v. Thompson, 161 111. 161; Riggoss v. Green, 80 N. O. 236; Niell v. Morley, 9 Yesey 478. That she is an innocent purchaser is clearly shown by the record. The facts bring her status as such squarely within the strictest definition. She was a purchaser, first, in good faith; second, without notice; third, for a valuable consideration. Ins. Co. v. Smith, 117 Mo. 293; Young v. Schofield, 132 Mo. 660. If Mrs. Donnell is an innocent purchaser, she is entitled to retain the land. A decree awarding her merely the amounts paid by her, with interest, etc., does not restore her to her original position in the sense used by the authorities. Nor does it obviate that injustice which, the authorities declare, is a bar to any avoidance. If A innocently purchases land from B , who holds the record title, he is entitled to retain the land as against an unrecorded deed from B ; it would not be contended, in such case, that he must surrender the land to the holder of the unrecorded deed upon repayment of the purchase price, with interest and outlay. He is entitled to retain the land. He is entitled to his bargain.
    
      Geo. F. Ballingal and Wm. Warner also for appellants.
    (1) Was the original transaction between McKenzie and Stewart valid? If this question is answered in the affirmative, then the subsequent transactions of all the defendants are necessarily valid and binding, and it becomes immaterial as to the subsequent mental capacity of McKenzie. First. Although a person may be of unsound mind, as a matter of fact, yet if not under guardianship, apparently sane, and has 'sufficient capacity to understand the nature and effect of the transaction at the - time of its execution, the contract is valid. Wills v. Covenant Mut. Ben. Ass’n, 126 Mo. 630; Eaton v. Perry, 29 Mo. 96; Davren v. White, 42 N. J. Eq. 569; Lozear v. Shields, 23 N. J. Eq. 509; Wright v. Jackson, 59 Wis. 569; McCormick v. Litter, 85 111. 62; Alexander v. Haskins, 68 la. 73; Riggan v. Green, 80 N. C. 237; Cutler v. Zollinger, 117 Mo. 92; Lancaster B. K. v. Moore, 78 Pa. St. 407; Ins. Co. v. Hunt, 79 N. Y. 541; Hovey v. Hobson, 55 Me. 256; Dennett v. Den-nett, 44 N. H. 531; Hedrick v. Bailey, 132 N. Y. 87; Searle v. Galbreath, 73 111. 269; Water Supply Co. v. Root, 56 Kan. 187; Thorpe v. Hanson, 64 Minn. 201; Elston v. Jasper, 45 Tex. 409. Second. Where a transaction is fair, in good faith, without notice, and no fraud practiced, the contract is binding. Scanlon v. Call, 85 111. 296; Bank v; Moore, 78 Pa. St. 407; Odom v. Riddick, 104 N. O. 515; Crawford v. Thompson, 161 111. 161; Ins. Co. v. Wiswell, 56 Kan. 751; Wells v. Ass’n Co., 126 Mo. 630; Rhoades v. Fuller, 139 Mo. 179; Cutler v. Zollinger, 117 Mo. 92; Blount v. .Spratt, 113 Mo. 48. (2) The defendant bank is an innocent party without notice. There is no evidence in the case at bar and none claimed by plaintiffs that Mason who made the loan to Donnell in July, 1886, for $15,000 or Mr. Dean, his trustee, had any notice, or that either had any knowledge or information upon the subject-matter of insanity of Mr. McKenzie, at the time of the Stewart transaction,nor at any other time before the institution of this suit had they or either of them any information that Mr. McKenzie, at the time of the Stewart transaction, had not sufficient capacity to know and 'to understand what he was doing, or the nature and effect of that contract. Yansickle v. Bean, 110 Mo. 589; Hume v. Hopkins, 140 Mo.‘ 65; Bray v. Campbell, 28 Mo. App. 516; Anderson v. McPike, 86 Mo. 293; Eunkhouser v. Lay, 78 Mo. 78; Whitfield y. Riddle, 78 Ala. 99; Fertilizer Co. v. L. G-. and Fer. Co., 82 N. Y. 484. (3) H the Stewart transaction and the sources of derivative title of defendant bank, are not valid and binding on plaintiffs, but are to be considered voidable, can they be avoided, unless defendants are put in statu quo ? But the trial court did not carry that doctrine far enough to restore the defendants to their original position, and carried the doctrine too far in holding that the bank’s title was subject to impeachment and voidable, and in extending to plaintiffs the right to redeem as to defendant’s mortgage, unless that mortgage was paid in full. Rhoades v. Fuller, 139 Mo. 179; Wells v. Mutual ■ Ben. Ass’n,126Mo. 630; Blount v. Spratt, 113 Mo. 48; Scanlan v. Cobb, 85 111. 296; Orawford v. Thompson, 161 111. 161; Odom v. Riddick, 104 N. O. 515; G-reenslade v. Dare, 20 Beav. 234; Hazard v. Smith, 6 Irish Rep. Eq. 429; Campbell v. Hopper, 24 L. J. Oh. 644; Moms v. Budlong, 78 N. Y. 543; Phillips v. Huslier, 20 N. J. Eq.; Eline v. Yogle, 90 Mo. 239; Henry v. McKerkle, 78 Mo. 428; Michles v. Dillage, 17 N. Y. 80; Martin v. Radcliffe, 75 Mo. 258.
    Wash. Adams and N. F. Heitman for respondents.
    (1) The doctrine of innocent purchaser for value and without notice has no application to this case. Dan’l Negot. Inst. (4 Ed.), sec. 210; Hovey v. Hobson, 89 Am. Dec. 705; Redden v. Baker, 86 Ind. 191; Jenkins v. Jenkins, 12 la. 195; Rannells v. Garner, 80 Mo. 474; Keihne v. Wessell, 53 Mo. App. 667; Hughes v. Jones, 116 N. Y. 67; Cochran v. Van Surley, 32 Am. Dec. 574; Phillips v. Moore, 100 U. S. 212; Wadsworth v. Sharpstein, 4 Selder 388; Pearl v. McDowell, 20 Am. Dec. 199; L’Amoureaux v. Curby, 22 Am. Dec. 655; Leonard v. Leonard, 14 Pick. 280; 1 Greenleaf Evi., sec. 550; Imholp v. Witmer, 31 Pa. St. 245; Foster v. Means, 42 Am. Dec. 332; Wright v. Fisher, 8 Am. St. Nep. 574; Cor-bit v. Smith, 71 Am. Dec. 431; Breckenridge v. Ormsby, 19-Am. Dec. 71. Nor is there any estoppel. Weiland v. Kobick, 51 Am. Nep. 676; McMorris v. Webb, -17 S. O. 558;. Tucker v. Moreland, 10 Peters-57; Hurd v. Sack, 81 Mo. 615;. Bishop v. Hunt, 24 Mo. App. 376; Collins v. Trotter, 81 Mo. 276. Where there is no benefit there is no liability. Hostler v. Beard, 54 Oh. St. 398; Dickerson v. Davis, 111 Ind. 433; McClain v. Davis, 77 Ind. 419; Davis v. Tarver, 65 Ala. 98; Howard v. Simpkins, 70 Ga. 322; Tiedeman on Com. Paper, sec. 280; Mustard v. Wohlford’s Heirs, 15 Grat. 229; Harrod v. Myers, 21 Ark. 592; Jenkins v; Jenkins, 12 la. 195; Miles v. Lingeran, 24 Ind. 385; Sims v. Smith, 86 Ind. 577. The doctrine of innocent purchaser does not apply to such cases. Moore v. Hershes, 90. Pa. 196; Wirebach v. • Bank, 97 Pa. 543; Van Patton v. Beals, 46 la. 62. Nor is there any bona fide purchaser here.' Anglo Ola. & Bk. v. Ames, 27 Fed. Nep. 727; 1 Daniel Neg. Inst. (4 Ed.), sec. 210; Burke v. Allen, 29 N. H. 106. On restitution, see In re DeSilver, 5 Nawle, 111; Gibson v. Soper, 6 Gray 279; Vanchusen v. Sweet, 51 N. Y. 378; Dexter v. Hall, 15 Wall. 9; McClain v. Davis, 77 Ind. 419; Wadsworth v. Sharpstein, 4 Seldon 388; Hovey v. Hobson, 53 Me. 451. One is bound to inquire as to the capacity of another with whom he deals. As to Dean and Mason, and the bank, and the records, see Hill v. Anderson, 5 Smedes & M. 216; Howard v. Simpkins, 70 Ga. 322; Tiedeman on Com. Paper, sec. 280; Mustard v. Wolford’s Heirs, 15 Grat. 340; Harrod v. Myers, 21 Ark. 592; Jenkins v. Jenkins, 12 la. 200; Miles v. Lingeran, 24 Ind. 385; Sims v. Smith, 86 Ind. 577; McMorris v. Webb, 17 S. O. 558; Hull v. Luth, 109 Incl. 315; Hovey v. Hobson, 53 Me. 451.
   MARSHALL, J.

The facts and proceedings in this case are sufficiently set out in the opinion in case No. 8314, wherein these respondents were the plaintiffs in error and these appellants were the defendants in error. The defendants (appellants here) contend that notwithstanding Jedediah E. McKenzie may have been insane when he executed the deed of trust to Stewart on the first of April, 1875, still Stewart acted in good faith and was guilty of no fraud upon Jedediah, and therefore the plaintiffs can not be allowed to recover the land without refunding the benefits received by Jedediah from that contract, and without restoring the status quo of the parties, which they claim requires not only that the Donnells shall be reimbursed what they paid for the land at the sale under the Stewart deed of trust, and what they have since paid for taxes, repairs and legal expenses in protecting and preserving the property, with interest on these sums, less the value of rents and profits, but also that the Mason deed of trust for $15,000, now held by the bank, shall be also paid before the plaintiffs shall be allowed to recover. They contend that under the doctrine of Blount v. Spratt, 113 Mo. 48, Wells v. Mutual Benefit Ass’n, 126 Mo. l. c. 637, and Rhoades v. Fuller, 139 Mo. 179, this is the true equity principle applicable to the case, if plaintiff can be allowed to redeem at all, but they also assert that the Donnells are innocent purchasers, under the Stewart deed of trust, for value and without notice of McKenzie’s infirmity, and hence they are entitled to retain their bargain.

It has been fully pointed out in the opinion iñ case No. 8314, wherein these appellants were defendants in error, that the contract of an insane person, not in ward, is voidable only, and will only be avoided, in any case, upon the insane person or his representatives restoring the benefits-received by him from, the contract, that is, upon condition that the status quo of the parties be restored, but that it. will not be avoided at all if this can not be done or if in avoiding it injustice would be done to the other party. The application of these principles of law to the facts presented by this record determines this case.

Stewart’s connection with this transaction was fair, manly and beyond adverse criticism. He knew Jedediah had been adjudged insane in 1869, and had also been adjudged sane in 1870. The deed of trust to secure Stewart for indorsing Jed.ediah’s note was made in 1875. It was not hastily done. It was made a matter of consideration and discussion in the McKenzie family and with their friends for quite a while before it was done. Stewart derived no benefit from it. McKenzie got the money from the bank (as to which no knowledge of McKenzie’s condition is shown), and he invested it in business, which was carried on for four months, when, upon information of his partner, McKenzie was again adjudged insane. Stewart had to pay the note ($3,000) to the bank. The sale was not made under the deed of trust until February 20, 1877. The Donnells purchased the property at that sale for $2,105, and held it, paying taxes and carrying charges, until July 26, 1886, when they borrowed $15,000 on the ■ property from Mason, and secured it by a deed of trust, which is now held by the Citizens National Bank, both of whom acted in good faith and without notice of McKenzie’s condition. There is a vast volume of testimony preserved in the record in this case as to McKenzie’s mental capacity to contract when he made the Stewart deed of trust. It is not necessary to consider any of the questions arising upon the trial or the rulings of the court upon them, as appellants do not urge them here now. We are concerned only with two questions, 1st, are the plaintiffs, under the facts here shown, entitled to redeem at all; and, 2d, if the plaintiffs can redeem, upon what terms should it be allowed in a court of equity.

Conceding that the Donnells are innocent purchasers for value and without notice, it does not follow that McKenzie must lose his property. Complete .equity can be done by putting them in the same position as if they had never purchased the property. By repaying them the purchase price they paid, with the taxes, cost of protecting it, and interest on their outlay, and charging them with rents and profits, they will be in as good condition as if they had never purchased. They will not profit by their bargain, it is true, but a court of equity does not respect bargains acquired at the expense of insane persons, who can not adequately protect- themselves. By following the method of adjustment of equities just pointed out, and requiring, the plaintiffs to refund the amounts so paid out by defendants (the Donnells) the status quo of the parties is restored — the plaintiffs will have returned the bénefits Jedediah has received from the transaction, and the defendants (the Donnells) will be repaid all the expense they have incurred and plaintiffs will be entitled to recover the land. There is thus no difficulty in doing equity between the plaintiffs and the Donnells. But it is insisted that Mason and the bank are innocent parties, who acted without any knowledge of McKenzie’s condition, and that the $15,000 loaned by the bank must be refunded by the plaintiffs before the status quo is restored. Mason and the bank may be regarded as innocent persons, but what benefits did McKenzie receive from them which his heirs ought to refund in order to avoid the contract ? The error in appellant’s contention lies right here. McKenzie got no benefit from them. The Donnells got the fifteen thousand dollars. It was no benefit to McKenzie or to the land. It does not even appear that any part of it was spent in improving the land. Presumably the Donnells spent it or have it still. The land was used as security from the Donnells to Mason for the loan, but if Donnell’s title to the land failed, Mason would lose his security. If this happened, Mason could not attribute bis loss to McKenzie, for be bad nothing to do with the matter, and received no benefit from the transaction which a court of equity could require him to refund in order to get back his land. Unless it be the law then that where the grantee of land acquired from an insane person sells the land to an innocent third person for value and without notice, the insane person can not recover it at all and the title is perfect in the third person, these plaintiffs are entitled to recover this land on the terms contained in the decree of the circuit court (as modified by the court in case No. 8314 as to the $375).

Without reviewing the multitude of cases which .the industry and research of the able counsel have collected in this case, we conclude that the right to avoid, upon equitable terms, a deed made by an insane person, can not be defeated by a conveyance of the land to an innocent third person for value and without notice, nor can additional terms to the right to redeem, be added by the grantee encumbering the property. To deny the right to avoid the deed because the property had passed into the hands of an innocent purchaser for value and without notice, would in effect deny the right to avoid at all, and would nullify the beneficent protection which courts of equity throw around those'who are so afflicted that they can not protect themselves.

It would be an easy matter for a grantee of an insane man to sell the property, pocket the proceeds and look with indifference upon subsequent litigation, if by so doing he could convey a perfect title to any third person. It would be a queer law that, pretending to be a shield to the helpless, should thus put a sword in the hands of a p.erson sui juris to help him wrest property from a person non compos mentis, by such simple means. Adequate justice and complete equity is done when the insane man is required to restore the benefits he has received from the transaction, and there is neither right, law nor morality which/would require him to restore benefits which some one else has received from the land, but not from the insane man’s contract.

The fact that Mason loaned the money upon the faith of the land, and that the proper records showed the title to be in the Donnells and gave no notice of McKenzie’s condition when he wrote the Stewart deed of trust under which Donnell acquired title, in short, the fact that Mason was an innocent party and parted with his money without notice as to McKenzie’s condition, is wholly immaterial. The doctrine that where one of two innocent persons must suffer the loss must fall on him who made the condition possible, has no application to cases of this character, for an insane person can not be held responsible for consequences which he-could not understand or prevent. Where an insane person is entitled to avoid a conveyance as between himself and his immediate grantee, he is also entitled to avoid it as between himself and any grantee or mortgagee holding under his grantee, and the terms to be imposed are the benefits that flowed from the grantee to the insane man, and not such benefits as the insane man’s grantee received from any other person to whom he granted or mortgaged the land. [Rogers v. Blackwell, 49 Mich. 192 ; Hull v. Louth, 109 Ind. 315 ; Hovey v. Hobson, 53 Mo. 451 ; Chew v. Bank, 14 Md. 318 ; German Savings & Loan Society v. DeLashmutt, 67 Fed. Rep. 399 ; Dewey v. Allgire, 37 Neb. 6.] As was said in Hovey v. Hobson, 53 Mo. 451, the bona fide grantee of the grantee of an insane person must rely on the covenants of his deed for restitution, and it is not necessary that he should be placed in status quo by a plaintiff in a suit to vacate the conveyance. The record showed that Donnell had title, but it did not prove that he had right of title as against the claims of an insane man who had no legal capacity to convey a right to the title.

The decree of the circuit court proceeded upon correct legal principles and required restitution of all the plaintiffs could properly be required to restore as a condition precedent to their right to recover the land, and modified by striking out the $375 referred to in the opinion in case No. 8314, it does complete justice and equity between the parties, and is therefore hereby affirmed.

All' concur.

Extension oe Time to Redeem. — The foregoing judgment is hereby modified so as to direct the circuit court to enter a judgment extending the time stated in its original judgment within which the plaintiffs were granted the privilege to redeem, so as to grant the right so to redeem within ninety days after August 1st, 1899, and so as to strike out the $375 above indicated. In all other respects the judgment of the circuit court is affirmed.