Case Name: Parker v. Randolph et al.
Court: South Dakota Supreme Court
Jurisdiction: South Dakota
Decision Date: 1894-07-18
Citations: 5 S.D. 549
Docket Number: 
Parties: Parker v. Randolph et al.
Judges: 
Reporter: South Dakota Reports
Volume: 5
Pages: 549–561

Head Matter:
Parker v. Randolph et al.
1. Respondent became the purchaser of notes and mortgages through defendant Emery, under general instructions to reinvest certain money then in Emery’s hands. There was a prior mortgage on the same premises, given by defendant Randolph to Emery, which Emery sold to appellant, and discharged before record of assignment.. He subsequently procured a quitclaim deed of the mortgaged premises, and by quitclaim deed conveyed the same to r-espondent, who, in consideration therefor, surrendered the mortgages. Held, in an action by appellant to foreclose his mortgage, that respondent’s quitclaim deed did not make him a bona fide holder of the title to the mortgaged premises. Corson, P. J., dissenting.
2. The transfer of a note secured by a mortgage carries with it the mortgage also, and when the original mortgagee and payee sells such note without assigning the mortgage to the purchaser of the same, and then takes subsequent mortgages upon the same property and fraudulently discharges the prior mortgage, he can gain no advantage thereby, either for himself or for one for whom he is acting as agent, in any of the transactions directly involving the property mortgaged.
(Syllabus by the Court.
Opinion filed July 18, 1894.)
Appeal from circuit court, Spink county. Hon. A. W. Campbell, Judge.
Action to foreclose a real estate mortgage. Judgment for defendant Lane, and plaintiff appeals.
Reversed.
The facts are stated in the opinion.
B. B. Hassell and John J. Myers, for appellant.
A purchaser by quitclaim deed is not bona fide and takes only the actual interest his grantor had at the time of the conveyance. Steele v. Sioux, 79 la. 339; Springer v. Bartle,- 46 la. 690; Gress v. Evans, 1 Dak. 387; Postel v. Palmer, 71 la. 157; Peters v. Carter, 80 Mich. 124; Eaton v. Trowbridge, 38 Mich. 454; Gesh v. Packwood, 34 Fed. 372; Woodward v. Jewell, 25 Fed. 691; Peaks v. Blethen, 77 Me. 510; ONeil v. Seixas, 85 Ala. 80; Garrett v. Christopher, 74 Tex. 453; Logan v. Neill, 128 Pa. St. 457; Leland v. Isenbeck, 1 Idaho, 469; Brown v. Jackson, What. 449; Dickenson v. Colgrover, 100 U. S. 578; Snow v. Lake, 20 Fla. 656; Martin v. Morris, 62 Wis. 418; McAow v. Black, 6 Mont. 601; Smith v. Pollard, 19 Vt. 272; Am. Mtg. Co. v. Hutchinson, 24Pac. 515; Derrick v. Brown, 66 Ala. 162; Hancock v. Fram, 70 Tex. 314; May v. LeClaire, 11 Wall 217; Oliver v. Pratt, 3 How. 410. A purchaser must take notice of the instruments constituting his chain of title, and is charged with a knowledge of their character and conditions. Gilbert v. Peteler, 38 N. Y. 195; Dean v. Long, 122 111. 447; Webb. Rec. of Title, 221; Amisby v. Budd, 72 la. 80.
After an assignment of the mortgage note the mortgagee cannot discharge the mortgage. Vandercash v. Boker, 48 la. 199; Hagerman v. Sutton, 4 S. W. 73; Bragley v. Ellis, 32 N. W. 254; Jones on Mtges., § 808; Smith v. Smith, 102 N. S. 442.
Horace Comfort, for respondent.

Opinion:
Fuller, J.
This was an action to' foreclose a mortgage on the premises in controversy, executed by the defendant William J. Randolph and his wife to C. F. Emery on the 27th day of December, 1884, to secure their promissory note of $1,200, of even date therewith. The complaint is in the usual form; and alleges on information and belief that the defendants George A. Poe, C. P. Emery, and I. Remsen Lane have or claim to have an interest in the premises, which interest is alleged to be subsequent to plaintiff's mortgage, and subject thereto. Upon the complaint and answer of defendant Lane the cause was tried to the court without a jury.' Judgment for defendant, and plaintiff appeals.
Briefly stated, the facts are as follows, and undisputed: At the time the mortgage described in the complaint was executed, the mortgagor, William J. Randolph, was the owner of the premises. This mortgage was dated December 27, 1884, and recorded December 31, 1884, and on the 4th day of February, 1885, Emery sold the same, together with the note for $1,200, secured thereby, to the plaintiff. The note was indorsed as follows: "Pay to the order of J. E. Parker. G. F. Emery". On October 15, 1887, the defendant Randolph and his wife transferred the premises by quitclaim deed to the defendant George A Poe, which deed was recorded May 19, 1888. Before recording his deed, and on the 1st day of May, 1888, the defendant Poe mortgaged the premises to the defendant Emery, the consideration mentioned in the mortgage being $1,000; and on the following day Poe gave Emery another mortgage on the same premises, and the consideration mentioned therein was $800. The $1,000 mortgage was recorded May 19, 1888, and the $800 mortgage on July 25th of that year. Without the knowledge or consent of the plaintiff, and on the 22d day of June, 1888, the defendant Emery executed a discharge of the mortgage securing the $1,200 note which he had previously sold to plaintiff, and on the 17th day of July following caused the same to be recorded, and said mortgage was thereby satisfied of record. The plaintiff, J. E. Parker, testified upon the trial that he bought the note and mortgage described in the complaint and offered in evidence from the defendant Emery, and paid him $1,200 therefor, and that said note and mortgage are still in Ms bands, unpaid and unsatisfied, and owned by bim; tbat be bad no knowledge of tbe execution of tbe discharge of the mortgage, and had never authorized Emery or any one else to make and execute or record a satisfaction of tbe mortgage. Tbe defendant Lane testified that be bought tbe $1,000 and the $800 mortgages from tbe defendant Emery some time during tbe year 1888, and tbat afterwards, and on the 29th day of January, 1889, said Emery, to satisfy said Poe's mortgages, amounting to $1,800, conveyed the premises to bim by quitclaim deed; and tbat be had no notice of plaintiff's mortgage; and tbat tbe title to said land, so far as be could see from an abstract, appeared clear, and was vested in the defendant Poe at the time be gave tbe $1,000 and $800 mortgages to tbe defendant Emery. "Q. You purchased tbe mortgages in July, 1888, and took a deed in January, 1889? Yes. Q. Did you, at tbe time tbe deed was given, make any payment in addition to tbe previous advances on tbe mortgages? A. None whatever. Q. How did tbe deed come into your possession? A. It was sent to me by Mr. Emery. Q. Had it. been recorded before you received it? A. Yes. Q. What was tbe consideration you paid for the mortgages? A. In the month in which these mortgages were purchased I bad a loan of $2,500 paid off, and under general instructions to Mr. Emery tbe amount so paid off was reinvested. Q. Then this was a part of tbe $2,500? A. Yes." It is conceded tbat no part of the amount for which plaintiff seeks to foreclose tbe mortgage has ever been paid, and tbat he never authorized the defendant Emery to discharge the mortgage securing tbe same. If plaintiff took an assignment of tbe mortgage from Randolph to Emery at tbe time he purchased tbe same, together with tbe note in suit, such assignment was never recorded. Tbe interest of Randolph was conveyed to Poe by quitclaim deed, subject to plaintiff's mortgage; and at tbe time Poe executed mortgages amounting to $1,800 in favor of the defendant C. P. Emery, plaintiff's mortgage for $1,200 was of record, and tbe lien thereof was paramount to such subsequent mortgages. It appears from the evidence that the defendant Emery was the agent of the defendant Lane in the month of July, 1888, with full authority, under general instructions, to collect and reinvest his principal's money; and that during said month he became the owner of the above-described mortgages, amounting to $1,800, through his said agent, C. P. Emery, although the same were not assigned to him until late in the month of November following. It also appears that after said Emery purchased the $1,000 and $800 mortgages from the defendant Poe, and before the $800-mortgage had been recorded, and in the month of July, 1888, and apparently while said Emery was acting as the agent of defendant Lane, he fraudulently discharged plaintiff's mortgage for $1,200, and satisfied the same of record, and turned the Poe mortgages over to his principal, with an abstract of title to the premises, from which it appeared that the mortgagor, Poe, at the time of the execution of the mortgages, held the property ur der a quitclaim deed from Randolph, the original mortgagor. Emery subsequently took-from Poe a quitclaim deed, and by quitclaim deed transferred the premises to the defendant Lane, in satisfaction of the mortgages for $1,800. Defendant Lane examined the abstract before he purchased the property, and observed that all prior conveyances were by quitclaim deeds, and it also appeared therefrom that his agent had taken the two mortgages, amounting to $1,800, and soon afterwards discharged plaintiff's mortgage for $1,200, and took a quitclaim deed from Poe to himself; and the record was therefore sufficient to put the defendant Lane on inquiry, as a grantee in a quitclaim deed is not a bona fide purchaser. Such deed simply conveys all the interest, if any, which the grantor has in equity at the time of its execution; and in this case defendant's mortgages were taken by his agent, subject to plaintiff's lien, which should not be defeated by the fraudulent acts of such agent.
In Steele v. Bank, 79 Iowa, 339, 44 N. W. 564, it is said that ' 'one who takes a mere quitclaim deed for real estate is conclusively presumed to have notice of prior equities, and takes subject thereto; and so an unrecorded bond for a deed takes precedence of a subsequent quitclaim deed, though the deed is based upon a valuable consideration, and is taken without actual notice of the bond." In Peters v. Cartier, 80 Mich. 124, 45 N.W. 73, the court says: 'Under the cloak of quitclaim deeds, schemers and speculators close their eyes to honest and reasonable inquiries, and traffic in apparent imperfections in titles. The usual method of conveying a good title — one in which the grantor has confidence — is by warranty deed. The usual method of conveying a defective title is by quitclaim deed. The rule is wise and wholesome which holds that those who take-by quitclaim deed are not bona fide purchasers, and take only the interest which their grantor had. It is therefore immaterial whether or not Cartier had notice or knowledge of complainant's title. He must be held to have purchased at his own risk, and, Douville having no title, conveyed none to him. " A quitclaim deed is sufficient to put a person on inquiry. Goddard v. Donaha, 42 Kan. 754, 22 Pac. 708. In Gest v. Packwood, 34 Fed. 368, it is held that ' 'one who takes a mere conveyance of another's interest in real property, or a quitclaim de'ed thereto, is not a purchaser for a valuable consideration, within the rule in equity which protects such a purchaser against prior conveyances or rights of which he had no notice; for by the very terms -of his conveyance he has notice that he is purchasing nothing more than the interest or right his vendor then had, and the assignment of a mortgage thereon for an antecedent debt does not make the vendee or assignee a purchaser for a valuable' consideration, so as to protect him against a prior conveyance of, or a right in or to, such property." Notice sufficient to prevent the purchase from being bona fide is said to inhere in the very form of this kind of conveyance. 2 Pom. Eq. Jur. 753.
It is conceded by counsel for respondent that the quitclaim deed alone would give the defendant no standing in court, but he contends that his title rests upon the two mortgages from Poe to Emery, of $1,000 and $800, respectively, which were assigned to him by said Emery. The defendant Lane testified that Emery had general authority to invest and reinvest at least $2,500 of his money, and that all the business transacted in purchasing these mortgages was done through said Emery, and that he took the quitclaim deed to the premises in satisfaction of these mortgages; and it therefore clearly appears that the defendant Lane intended to extinguish the mortgages, and that the same thereby became merged to the extent of his interest in the premises. Plaintiff's mortgage directly affected the premises in controversy at the time Emery, as the agent of Lane,-was acting in relation thereto; and the fact that it was a valid and subsisting lien, paramount to the Poe mortgages, was well known to the said agent; and the defendant Lane is charged with a knowledge of that fact, as the same was directly involved in matters within the scope of Emery's authority. At the time defendant's mortgages were executed, and for nearly three months thereafter, plaintiff's mortgage was of record, .and remained so until the same was fraudulently released. Emery, who was acting for the defendant Lane, had at the time actual notice and knowledge of its existence, which in law became the notice and knowledge of his principal, the defendant Lane, who is presumed to have taken his mortgages and quitclaim deed subject to plaintiff's lien for $1,200. Jones v. Bamford, 21 Iowa, 217; May v. Borel, 12 Cal. 91; Boone, Mortg. 69. The transfer of a note secured by mortgage carries with it the mortgage also, and when the original mortgagee and payee sells such note without assigning the mortgage to the purchaser of the same, and then takes subsequent mortgages upon the same property, and fraudulently discharges the prior mortgage, he can gain no advantage thereby, either for himself or for one for whom he is acting as agent, in any of. the transactions directly involving the property mortgaged. Walker v. Schreiber, 47 Iowa, 529. In Downer v. Miller, 15 Wis, 612 Paine, J., speaking for the court, said: "Where a prior mortgage or judgment has by wrong or fraud been discharged of record, a subsequent mortgagee, whose rights existed at the time of such discharge, cannot claim to be injured by allowing it to be set aside and the prior mortgagee to be restored to his rights. " From Banking Co. v. Woodruff, 2 N. J. Eq. 117, we quote without comment the following: "The cancellation of a mortgage on the record is only prima facie evidence of its discharge, and leaves it open to the party making such allegation to prove that it was made by accident, mistake, or fraud. On such proof being made, the mortgage will be established, even against subsequent mortgagees without notice." A court of equity will grant relief in cases like the present by considering a mortgage fraudulently discharged of record In full force, as the interest of justice are thereby best subserved. Barnes v. Camack, 1 Barb. 392; Eggeman v. Eggeman, 37 Mich. 436; Banta v. Vreeland, 15 N. J. Eq. 103. All the business transacted in procuring these mortgages and the quitclaim deed was done through Emery, as the agent of the defendant Lane;.and under the doctrine of principal and agent he is charged with a knowledge of the acts of Emery with reference to the matters over which his authority extended, and which directly affected the premises in controversy; and, under all the circumstances of this case, the defendant Lane is not a 'bona fide owner of the premises discharged of plaintiff's mortgage, and the judgment of the trial «court is therefore reversed, and a new trial is ordered.