Court Opinion

ID: 8256618
Source: CourtListenerOpinion
Date Created: 2022-10-16 15:32:19.957419+00
Date Added: 2024-06-11T16:43:00.945605
License: Public Domain

Mr. Justice Handy
delivered the opinion of the court.
This bill was filed by the appellee in the superior court of chancery, to foreclose a deed in trust executed by the appellant on the 17th March, 1840, conveying certain real estate in the town of Port Gibson to trustees, to secure the payment of two promissory notes made by the appellant, and afterwards transferred to. the appellee. The facts necessary to be taken into view, in considering the questions presented for determination, are as follows: —
The notes secured by the trust deed were due in January and February, 1841; and in November, 1842, a judgment at law was rendered upon them against Bush, which judgment and the deed in trust were afterwards trsnsferred to the appel-lee, and remain unpaid. The deed, in conveying the property, contains the words “ grant, bargain, and sell,” but contains no other covenant of warranty in express terms.
The appellant was discharged as a bankrupt in February, *6111843; and in October, 1844, be purchased the property embraced in the deed in trust at sheriff’s sale, under an execution on a judgment rendered in June, 1838, against the appellant, and which was unsatisfied, for the sum of $1,033, by means acquired by him after his discharge as a bankrupt; and in virtue of that purchase, he now claims to hold the property by title paramount to the lien of the deed in trust. On the contrary, the appellee claims that the property is subject to the payment of the debt secured by the deed in trust, notwithstanding the discharge of the appellant as a bankrupt, and that the appellant’s purchase, under the prior incumbrance, cannot be set up by him to defeat the security of the deed in trust.
The first question to be settled is, whether the discharge of the appellant from the debt, by his certificate as a bankrupt, extinguished the deed in trust.
It is insisted, on his behalf, that the deed w;as but a mere incident to the debt, and that whatever discharged the debt necessarily destroyed the deed, because the security could not exist where the debt, which was its foundation and support, was discharged. This is undoubtedly well sustained by modern decisions, as a general rule; but it is not without exceptions. It is held to apply in all cases where the debt has been actually paid, or where it was not supported by a valid legal consideration, or where the debtor ex cequo et bono is discharged from its payment. But it is held not to apply to a case where an action upon the debt has been barred by the statute of limitations, and that the creditor may proceed to foreclose his mortgage, notwithstanding the bar of the debt by the statute. Miller v. Helm, 2 S. & M. 697; Miller v. Trustees of Jefferson College, 5 Ib. 650; Bank Metropolis v. Gultshtick, 14 Peters, 19; Thayer v. Mann, 19 Pick. 535.
In addition to this, the objection is fully met by the second section of the bankrupt act of Congress of 1841, which provides, that “nothing in the act shall be construed to annul, destroy, or impair any lawful rights of married women or minors, or any liens, mortgages, or other securities on property, real or personal,” &c. From this it is manifest that, while the privilege was granted to the debtor to be personally discharged *612from the debt, any security which the. creditor might have, consisting of a lien on property, was left in as full force as though the debtor had never been discharged from the debt, for the security of which, the lien was made.
The second question, then, presented is, Whether Bush is es-topped by the deed from setting up his title acquired under the judgment, which was a lien existing at the date of the deed, in opposition to the title conveyed by the deed ? This is a question .of great importance, in its direct and collateral bearings; and it has been carefully considered by the court.
It is undoubtedly true, that a vendor or mortgagor will not be permitted to purchase in or setup outstanding incumbrances in derogation of the title conveyed by his deed, and of the assurances contained in it, and that if he purchases an outstanding title, it enures to the benefit of his vendee. Hardeman v. Cowen, 10 S. & M. 486; Champlin v. Dotson, 13 Ib., and cases there cited. And it is held that, under our laws, the terms “ grant, bargain, and sell,” in a deed of conveyance, of themselves import covenants of general warranty of title, and against incumbrances and for quiet enjoyment, as effectually as though such covenants had been expressly contained in the deed. 7 S. & M. 422; lb. 727; lb. 744.
If the grantor in this deed had not been discharged by bankruptcy from the debt, there can be no question but that he could not set up the title under the judgment against the covenants in the deed. The question, then, arises, Are the covenants in the deed still in force, and is he bound by them, notwithstanding his discharge under the bankrupt law; and is he'entitled, by reason of his discharge, to take the position of a mere stranger in relation to the property conveyed by his deed ?
By the 4th section of the bankrupt act, the certificate of discharge is to be “ deemed a full and complete discharge of all debts, contracts, and other engagements of such bankrupt, which are provable under this act.” We have above seen that mortgages and-liens on property were preserved ; and by this portion of the act, the extent to which the personal discharge of the party from his debts, contracts, and engagements was *613intended to go, is limited and defined; and we have only to inquire, then, whether the covenants in the deed were “ debts, contracts, or engagements,” provable under the bankrupt act.
It is insisted, in behalf of the appellant, that the covenants were merely incidental to the debt, and as the debt was provable, so was its mere incident or security. This argument would apply with equal force to the deed as a security for the debt, as to the covenants contained in it; but we have seen above that it does not apply to the deed. The deed contains two essential and distinct qualities : first, it conveys the property as a security for the debt; and secondly, it covenants that the grantor has good right to convey it, that it is free from incum-brances, and that he will defend the title against the claims of all persons whatever. The pledge of the, thing to pay the debt, and the covenant that the party has the right to make the pledge, are wholly distinct from each other; one is executed, the other executory; If, when the creditor seeks to avail himself of the property which the debtor has conveyed to secure his debt, he finds that it has been subjected to other incum-brances, he is entitled to his action against the covenantor for damages for the breach of his covenant; and this right of action accruesmpon covenants against incumbrances at the time when the incumbrance is enforced, or the adverse title asserted. This is a right superadded to the conveyance of the property, as the conveyance gives a right in addition to the debt; it is a security to the conveyance, as the conveyance was a security for the debt.
Nor can the covenants be regarded as an obligation to pay the debt, thereby reducing the claim to a form or character to render it provable in bankruptcy. It amounts merely to an obligation to pay to the creditor whatever damages he may sustain by the property being taken by adverse claims, or subjected to prior incumbrances. The property may be worth more' or less than the amount of the debt at the time of the incumbrance suffered. There is no covenant as to its value, and if it is subjected and sold in satisfaction of the debt without adverse claim or incum-brance, the covenants are satisfied, without regard to the value of the property, or the amount of its avails. The claim of the *614creditor, therefore, is one purely for damages, not reducible to any certain and specific amount, and which could not be properly ascertained but by the verdict of a jury; and it is well settled, that such claims cannot be proved in bankruptcy, either in England or in this country. Eden, Bankrupt Law, 132, 133, and casest here cited; Murray v. De Rottenham, 6 Johns. Ch. R. 52; 1 Wash. C. C. R. 13; 4 Binney, 269.
In this case, the breach of the covenant against adverse claims, and for quiet enjoyment, did not take place until after the appellant had been discharged as a bankrupt. Though the prior lien existed before the discharge, it might never be enforced, and the creditor could not assert any right in a legal point of view, upon the assumption that it would be enforced. Certainly the amount of damages could not be ascertained, even by a jury, until the lien was enforced. This shows conclusively, that it was not such a claim as could have been proved under the bankruptcy.
It follows from this view of the subject, that the appellant was not discharged from his covenants in the deed, and consequently that he is estopped from setting up his subsequently acquired title against the claim of the appellee. As a legal proposition this conclusion is well sustained by expositions given to the bankrupt laws by very high authorities. In an equitable point of view, the position of the appellant would not be more favored. After having pledged the property as a security for the payment of the debt, he would scarcely be heard, in point of mere equity, to set up a claim to the same property, founded on the existence of a prior lien which he had covenanted against, and thereby deprive his creditor of the security he had given, and appropriate the property to himself.
The decree of the chancellor is affirmed.