Case Name: SMITH, State Superintendent of Banks, Appellant, v. DANFORTH, et al, Respondent
Court: South Dakota Supreme Court
Jurisdiction: South Dakota
Decision Date: 1929-01-15
Citations: 54 S.D. 250
Docket Number: File No. 6551
Parties: SMITH, State Superintendent of Banks, Appellant, v. DANFORTH, et al, Respondent.
Judges: SHERWOOD, P. J., and POEUEY and BURCH, JJ., concur.
Reporter: South Dakota Reports
Volume: 54
Pages: 250–260

Head Matter:
SMITH, State Superintendent of Banks, Appellant, v. DANFORTH, et al, Respondent.
(223 N. W. 59.)
(File No. 6551.
Opinion filed January 15, 1929.)
McNulty, Williamson & Smith, of Aberdeen, for Appellant.
R. A. Dunham, of Clark, for Respondents.

Opinion:
MISER, C.
Originally this was a suit on behalf of the Raymond State Bank to quiet title to- a half section of land. All the defendants disclaimed any personal interest in the property, but respondent Russell intervened, setting up a vendor's lien and asking other relief. Russell formerly owned the land, and the evidence is undisputed' that the bank never paid anything to Russell for the property out of its own assets. The major question is whether Russell is entitled to the vendor's lien, as determined by the trial court.
On October 1, 1917, Russell -had contracted to sell the land to defendant Sehaller. On March 1, 1921, the unpaid notes given as part of this contract amounted to- $13,000. On that day, being heavily indebted to the Raymond' State Bank, Sehaller resigned as its cashier. He left with defendant Wallace M. Danforth, president of the bank, his contract with Russell. He made no assignment in writing. The trial court found that he "abandoned the said contract to the said bank and for the purpose of transferring to the said bank any profit therein." Wallace Danforth was at that time struggling to keep the bank open, and, although he continued to act as its president until it closed on January 4, 1924, the superintendent of banks had a special examiner in the bank, supervising, its affairs from March, 19211, until December, 1922. Defendant Wallace M. Danforth will be hereinafter referred! to as Wallace, and his son, Delmer T. Danforth, who was neither an officer, stockholder, nor employee of the bank, will be referred to as Delmer. Defendant Cagley was vice president of the bank.
Some time prior to October 5, 1921, Wallace told the special examiner that he had a chance to- sell the farm to defendant P'arker on contract for $24,000.. On October 5th, with the approval of the special examiner, Wallace, Delmer, and Cagley purchased the land from Russell, and received from him warrardy deeds naming Delmer as grantee. The agreed purchase price was $13,000-. The evidence is conflicting as to whether the unpaid Sehaller notes for that amount were then surrendered -by Russell; but, in any event, they were regarded as worthless and ignored.
At the time of the delivery of. the deed, Wallace, Delmer, and Cagley executed and delivered to Russell their notes for $7,000 of' the $13,000 purchase price, and, with the consent of Russell, Delmer executed and there was delivered to the Modern Brotherhood of America a mortgage of $6,000 on the land, the proceeds of which were deposited in the bank. This money was not deposited in the name of Russell, nor did he check thereon; but it ¡was understood by the special examiner that it was to be paid to Russell as he needed it. Out of this fund there was sent to Russell by Wallace an aggregate of $3,654.70. Although the balance of $2,345.30 was twice demanded of Wallace Danforth, its president, before the bank closed, it was never paid.
As -had been planned by Wallace and the special examiner before the land was purchased from Russell, and as theretofore negotiated with Parker, Parker entered into a written contract with Delmer on October 28, 1921, to buy the land and to pay for it in 20 annual installments. On this contract, Parker paid $1,145,-60 up to the closing of the bank, and he paid the further sum of $1,574.44 after the closing of the bank, and up to November 1, 1925, when he abandoned the contract. The former sum was paid to the bank; the latter sum was paid to the examiner in charge, and still remains unexpended in his hand's.
On May 29, 1922, Delmer executed and delivered to the bank a warranty deed to the premises. The bank paid nothing for this transfer, nor had the bank theretofore obligated itself in any way for the purchase of the land. On December 29, 1922, Delmer assigned to Wallace, Cagley, and himself the Parker contract, and on the same day they reassigned it to the bank. Both assignments confirm the testimony of Wallace that their notes for $7,000, given to Russell as part of the purchase price of the land, were to be paid out of the moneys to be received from Parker. Of all the foregoing facts, as well as the rights and equities of Russell, the bank at all times -had full knowledge. At no time did the bank pay any consideration for any of said transfers, nor did Russell ever receive in actual cash any part of the price for which he sold the land, except that, out of the $6,000 M. B. A. loan deposited in the bank, Russell was sent $3,654.70. None of the money paid by Parker ever reached Russell.
The situation is then as follows: The bank has a fee-simple title to the land, against which there is the M. B. A. mortgage of $6,000, which Russell concedes to be a first lien. Out of the proceeds of the $6,000 mortgage, it has $2,345.30 which the tidal court found it had converted to its own use. It has $1,145.60 paid it by Parker prior to the closing of the 'hank on January 3, 1924. The examiner in charge has unexpended in his hands $1,574.44 paid by Parker after the bank closed. It seeks to quiet title against Russell, who has received the notes of Wallace, Delmer, and Cagley for $7,000, no part of which has been paid to Russell, and in addition thereto has received from $6,000 proceeds of the -M. B. A. loan, deposited in the bank to the account of "Other Real Estate," $3,654.70 thereof. Russell filed no claim against the bank after it closed. Indeed, he testified that, until two days before the trial on June 25, 1926, he did not know that the bank had closed.
The trial court found that no part of the purchase price had been paid, except the sum of $3,654.70; that the balance of the $13,000, plus interest and less said $3,654.70, was $12,384.55; that of this'balance Russell was entitled to an equitable lien for the $1,574.44 paid by Parker to the examiner after the closing of the bank, and which sum remained unexpended in the hands of the superintendent of banks; and that, for the remaining $10,710.11, Russell should have a vendor's lien against the premises, -which it ordered sold. From the judgment entered thereon, and from the order denying motion for new trial, this appeal is taken.
Section 1689, R. C. 1919, is as follows: "One who sells real property has a special or vendor's lien thereon, independent of possession, - for so much of the price as remains unpaid-, and unsecured otherwise than by the personal obligation of the buyer."
In discussing section 3046, Civ. Code Cal., which is identical with section 1689, supra, the California court says: "The principle upon which this lien has been established by courts of equity is that a person who has gotten the estate of another ought not, in conscience, as between them, to be allowed to keep it and not pay the full consideration money." Selna v. Selna, 125 Cal. 357, 360, 58 P. 16, 73 Am. St. Rep. 47. See, also, Rogers v. Real Estate Inv. Co., 159 Cal. 735, 115 P. 936, 35 L. R. A. (N. S.) 543; Story's Eq. Jur. (14th Ed.) § 1625.
As to whether the lien is waived by taking the notes of the purchasers, although there are decisions contra, it is usually -held that this -does not affect the lien, in the absence of an agreement that there should be satisfaction. 35 R. R. A. (N. -S.) 91. "The lien is not waived or repelled by the taking of the purchaser's independent obligation or promise to pay the purchase money, such as his note, as these are regarded as mere evidence of the indebtedness." 27 R. C. L. 576, "Vendor and Purchaser," § 319.
In the case at bar, if Wallace, Delmer, and Cagley were not the buyers, the notes for $7,000 would not be "the personal obligation of the buyers." If they were the buyers, Russell did not waive his lien, if otherwise entitled to it, by taking their notes.
Appellant contends that the bank was the buyer. Respondent contends that Wallace, Delmer, and Cagley were the buyers within the meaning of the statute. Both contentions find support in the evidence. Beyond question, it was intended by Wallace, Delmer, and Cagley that the bank should have the prospective profit of $11,000 on the sale, for which negotiations had been -made before the land was bought from Russell. Moreover, Russell knew that, although he had deeded! to Delmer, the profit on the resale then contemplated was to go to the bank. While it was not contemplated by the Danforths or 'Cagley that they should have to pay their notes for $7,000, it was fully contemplated that the notes should be paid from the profits of the purchase from Russell and sale to Parker. On the other hand, while the Danforths and Cagley were legally obligated to pay them, any obligation on the part of the bank to pay them, except from the receipts from Parker, was scrupulously avoided. No useful purpose would be served by an extended review of the testimon)'-, much of which is consistent with the theory that the bank was the buyer and much of which was consistent with the theory that Wallace, Delmer, and! Cagley were the buyers. The trial -court found that the land was sold to Wallace, Delmer, and Cagley; that they were the purchasers thereof; that the bank paid no consideration therefor; that in all the negotiations heretofore set out the D'anfo-rths and Cagley were acting for and on behalf of, and with the complete -knowledge of, the bank.
As to the testimony which appellant cites as tending to support his theory that the bank was the buyer, and- therefore the taking of the notes of the Danforths and Cagley would waive a vendor's lien, the language of the Illinois court in Schoonmaker v. Plummer, 139 Ill. 612, 29 N. E. 1114, quoted by this court in Cook v. Cook, 24 S. D. 223, 227, 123 N.W. 693, 694, is peculiarly apt: "Great reliance, however, seems to- be placed upon the testimony of a considerable number of witnesses produced by the -complainants, who testified to various statements by Plummer, both-before and after the purchase was made, as to the purposes for ¡which he was about to or had made it. It would serve.no useful purpose for us to rehearse the testimony of these witnesses in detail. As to many of them, all we need [to] say. is, that what they testify to is not necessarily inconsistent with .Plummer's version of the transaction. They testify to statements of Plummer that he was about to purchase or had purchased said- house and lot for his -daughter.' Testimony of this character does not militate' against the theory that he bought said-property merely for the purpose of furnishing his daughter a home. In a very important sense, such purchase might; be said to be made for her." That the Danforths and Cagiey intended: to pay for this land out of their own funds, and then give it to the bank, is'not-consistent with the testimony. That they did intend to buy it, make a loan upon it that would bring $6,000 of much-needed cash into the coffers of the bank, sell it at a paper profit of $11,000, give that profit to the bank on condition that their notes should be paid out of the proceeds of the sale, and then give a deed to the bank, is consistent with the testimony and with the findings of the trial court.
Appellant contends that Delmer took the deeds as trustee for the bank Certainly no trust in this land was created by a written instrument, nor -did the bank pay the consideration therefor, but scrupulously avoided becoming obligated for any part of the purchase price; and even after receiving the -deed from Delmer, it was not the deed,, but the contract with Parker, that -was treated by the bank as an asset. To have the bank, which paid nothing, declared the buyer of this property in equity, in -order that the bank may thereby defeat Russell's vendor's lien for the unpaid purchase price, is offensive to equity. We are therefore of the opinion that the finding of the trial -court that the D'anforths and -Cagiey were the buyers is amply supported by the evidence, and that there is no clear preponderance of the evidence against it.
But appellant contends that, even though originally entitled to a vendor's lien, Russell waived it by his acts. The favor accorded the lien and the amount of proof required to- show waiver are shown by the following opinions -based on statutes, in the one case identical, and in the other almost identical, with our own:
In Brown v. Kahn, 176 Cal. 159, 167 P. 869, the California court, after reviewing prior cases, says: "The true doctrine as outlined by these authorities in this state, and as fully sustained by the great weight of authority in other states, would seem to be that in order to constitute a waiver of a vendor's lien there must be some act or omission on the part of the vendor inconsistent with his assertion of the lien and evincing his intention to waive it, and that it must be such an act or omission as would render it inequitable to thereafter attempt to assert it."
The Circuit Court of Appeals of the Eighth Circuit, in Rader v. Star Mill & Elevator Co., 258 E. 599, 604, opinion of Sanborn, cites section 3847, Rev. Laws Old. 1910, in holding that the legal presumption is that one who has a legal and equitable lien on property intends to maintain and enforce it, and his abandonment thereof may not be adjudged without clear and convincing evidence of his intention to abondon. Section 3847 is the same as our section 1689, R. C. 1919, and Civ. Code Cal. § 3046, with the addition of the words "subj ect to the rights of purchasers and incumbrancers in good faith, without notice," added thereto. Certainly, if Russell had a vendor's lien, the terse language of our section 1689, as well as the decision of courts of equity, place upon appellant the burden of showing a waiver thereof.
Did the trial court err in finding that only $3,654.70, and not the entire $6,000, proceeds of the M. B. A. mortgage, have been paid to Russell. On this point, the trial court found- that Delmer, Wallace, and Cagley agreed- with Russell to negotiate a loan of $6,000 on the premises, and to pay over to Russell the proceeds thereof; that the proceeds thereof were placed in the Raymond State Bank; that only $3,654.70 thereof has been paid! to Russell; and that appellant bank has used and converted to its own use the balance. The evidence, although not free from conflict, supports these findings. The money was not deposited to Russell's account; but the special examiner says the book entry thereof was either "Other Real Estate" or some other wrong entry. Russell's letters to W. M. Danforth show that he looked to him for the payment of the balance of the $6,000. The bank is in no position to contend, in an equitable suit to quiet title, that the original buyers, through whom its title is deraigned, have paid the vendor the entire $6,000, when $2,345.30 is still retained by the bank. Story's Eq. Jur. (14th Ed.) 1625, 1631, 1637. We do not believe that sec tion 1689, which is the statutory enactment of a rule of equity, permits a holding so grossly inequitable.
Tested by the rule as stated in Braun v. Kahn, supra, the evidence in this case does not show a waiver of the vendor's lien to which Russell was entitled under the clear and explicit language of section 1689, Pie would, therefore, have been entitled to have adjudged to 'him a vendor's lien for so- much of the purchase price as remained unpaid, unless the lien was lost by the transfer of the title from the buyers to'the bank. Inasmuch as the bank, through its president and the special examiner, not only had full knowledge of all the facts, but actively participated in the negotiations with Russell, no equitable reason is apparent why the lien should not be as effective against the property when owned by the bank as when owned by Delmer, Wallace, and Cagley. Story's Eq. Tur. (14th Ed.) § 1625, 1631, 1635.
Appellant also contends that he should not have been ordered to pay over to- Russell the $1,374.44 paid by Parker to the examiner in charge after the bank closed. Plow much of this was paid after the time limited in the notice to creditors for presentation of claims -does not appear. All of it was paid after the bank had been taken over by the superintendent for liquidation. Russell presented no claim for the $2,345.30, which was kept by the bank out of the $6,000; nor -did Russell present a claim for the $1,145 paid by Parker to the bank, and which should have been paid to Russell before the bank closed. The superintendent was not ordered to pay such sums. All that he was ordered to- pay was the $1,574.44, which, by the express language of the assignments of the Parker contract, was to be paid, just as the court ordered it to be paid, to 'Russell. Russell's right to- the $1,574.44 paid 'by Parker to the examiner in charge after the closing of the bank is not affected by section 8933, 'R. C. 1919.
The judgment and order denying motion for new trial are affirmed.
SHERWOOD, P. J., and POEUEY and BURCH, JJ., concur.