Court Opinion

ID: 4004518
Source: CourtListenerOpinion
Date Created: 2016-07-06 11:05:43.213147+00
Date Added: 2024-06-11T13:56:42.758404
License: Public Domain

It seems to be settled law in this jurisdiction that a trust creditor, after having assigned the secured debt or a portion thereof, cannot legally release the lien and thereby destroy the rights of assignees, regardless of whether the rights of innocent third parties have intervened or not. Bank v. Coal Coke Company, 89 W. Va. 659; Thompson v. Bennett, 105 W. Va. 191;Myers v. Land Co., 107 W. Va. 632. In the Thompson-Bennett
suit, which was brought by Thompson, assignee of Bennett, to cancel a release of the lien of a deed of trust, which release was wrongfully executed by Bennett subsequent to assignment to Thompson, JUDGE LIVELY, speaking for the Court, said:
      "That Bennett had no authority to release the deed of trust which secured the notes assigned by him to Thompson and that such release was a fraud in law upon Thompson's rights, has been determined in our recent case of Bank v. Coal Company, 89 W. Va. 659. The record respecting the title to the lot showed that the trust deed was given to secure promissory negotiable notes none of which were due at the time Bennett attempted to release the lien. Subsequent purchasers or lienors were required to take notice of the fact that an assignment of these notes so secured assigned pro tanto the security of the deed of trust to that extent. As the law then was, it was the duty of a subsequent purchaser or lienor to ascertain if the original creditor, Bennett, *Page 470 
still had the notes at the time he released the lien which secured them, or whether those notes had been paid."
In the case at bar, wherein there was a wrongful release by the trustee under a deed of trust, distinction is sought to be made between such situation and a wrongful release by a beneficiary or payee himself. I am unable to perceive any sound basis for such distinction. In either case, the wrong done the assignee is the same; and, in either case, the third party who comes into the situation by placing reliance upon the fraudulent release which he assumes to be regular and legal, could effectively avoid embarrassment by making reasonable inquiry at the outset as to the whereabouts of the notes or bonds evidencing the indebtedness secured by the deed of trust.
In this case the trustee, Ross, was authorized by the deed of trust to execute a release "upon satisfactory evidence being produced to him that the aforesaid obligations have been fully paid." Now, if under former decisions of this Court, and particularly the Thompson-Bennett case, supra, it is the duty of a subsequent purchaser to inform himself as to whether the original creditor still owns the notes secured by the deed of trust, with all the more reason and necessity should such purchaser inform himself as to the ownership or whereabouts of notes or bonds payable to bearer; particularly where a trustee named in the deed of trust undertakes to release the lien of the trust. And the fact that such indebtedness was not due under the terms of the trust should operate as a danger signal to put the purchaser upon inquiry. It seems to me that ordinary prudence would have required the purchaser in the instant case to make inquiry of Ross as to the nature of the "satisfactory evidence" upon which he assumed to execute a release of the trust and to recite in his release that the obligations secured by the trust had been fully satisfied. A simple demand addressed to the trustee for production of the bonds would have resulted in disclosure of the fraud about to be perpetrated.
I cannot accord controlling weight here to the case ofWilliams *Page 471 
v. Jackson, 107 U.S. 478, 27 L. Ed. 529, cited in the majority opinion. It is true that in that case the plaintiffs, Jackson and associates, assignees of the notes secured by the original deed of trust which was wrongfully and illegally released, were denied relief. Their rights were held to be inferior to those of Williams who in good faith loaned money under a second deed of trust after the first one had been released. In my judgment that case did not turn upon an immutable principle of right and justice that should in conscience be followed here, but it was controlled by the facts of the case which clearly required the decision which was made, and which facts I think are materially different from the facts here in at least one important particular, and that is that under the law of the District of Columbia, Jackson and associates could have recorded their assignment and thereby have avoided the difficulty. The court said:
      "If the plaintiffs wished to affect subsequent purchasers with notice of their rights, they should have obtained a new conveyance or agreement, duly acknowledged and recorded, in the form either of a deed from the original grantors, or of a declaration of trust from the trustees, or of an assignment from Augustus Davis of his equitable interest in the land as security for the payment of the notes. The record not showing that any person other than Augustus Davis had any interest in the notes, or in the land as security for their payment, an innocent subsequent purchaser or incumbrancer had the right to assume that the trustees, in executing the release, had acted in accordance with their duty."
While the decision did not turn entirely upon the failure of Jackson and associates to record an assignment of their notes, the language of the court indicates, to my mind at least, that such failure entered in no small degree into the reasoning and conclusion of the court.
In answering the position taken by Jackson and associates that Williams was negligent in not making full inquiry as to whether the original indebtedness had been discharged, the *Page 472 
court said, in substance, that the trustees under the original deed of trust and the original holder of the notes secured thereby having executed a release in which they recited that the notes had been fully paid, and the original owner and his wife having apparently concurred therein, Williams was not required to inquire of any of those persons as to the truth of the facts recited in the release, and that there was no other person of whom he could make inquiry. In my judgment, that line of reasoning does not meet a situation such as here. The proposition involved is not a mere inquiry of a trustee as to the truth of recitals made by him in a release, but there should be demand for production and cancellation of the notes or bonds. This involves no hardship where the transaction is honest, but it will speedily disclose fraud. I, of course, do not take the position that in all cases it is incumbent upon a subsequent purchaser to seek the facts lying back of a release, but I do think that in circumstances such as at bar a subsequent purchaser cannot rely blindly upon a purported release without inquiry or reasonable effort to ascertain the facts.
I therefore say that in so far as there was failure to comply with the recordation statute of the District of Columbia, there was a very different background for the case ofWilliams v. Jackson from what we have here; and in so far as the language of the court would seem to indicate that a subsequent purchaser is excused for not making definite inquiry as to the whereabouts of the notes secured by the prior deed of trust because, indeed, it would be a vain thing to ask those who had executed a release whether or not they had told the truth when they recited in the release that the debt had been paid, I am simply not able to follow as a general principle because I do not believe it is a sound principle to be employed in a case of facts and circumstances such as at bar.
I am willing for the case to be decided on the principle of equity announced in the syllabus, but I consider the facts as presenting a different aspect from that which is adopted by a majority of the Court. It is true that the assignees of the obligations secured by the deed of trust adopted the terms of the trust when they voluntarily accepted the obligations assigned to them and that among the provisions of the trust *Page 473 
so adopted was the one which authorized Ross, trustee, to execute a release. But under such authorization he was empowered to execute a release only "upon satisfactory evidence". His authority to execute a release was not carte blanche. It was expressly conditioned upon sufficient evidence being produced to him. This requirement should have put a subsequent purchaser on guard to ascertain definitely if such evidence had been produced. I would say that the purchaser was derelict, and not the assignee. Applying the law of the syllabus of the case to this view of the conduct of the parties, I would affirm the trial chancellor.