Opinion
No. 26920.
April 9, 1928.
VENDOR AND PURCHASER. Purchaser with warranty deed knowing of outstanding incumbrance could not require vendor to secure release before paying balance of purchase price ( Hemingway's Code 1927, section 2473).
Where purchaser of land subject to mortgage accepted vendor's deed containing usual covenant of warranty under Code 1906, section 2817 (Hemingway's Code 1927, section 2473), with full knowledge of outstanding incumbrance against land, she was not entitled to relief from payment of purchase price evidenced by note secured by deed of trust on land until release of outstanding incumbrance was secured, since by accepting deed with usual covenant of warranty she was remanded to security and protection thereby carved out for herself.
APPEAL from chancery court of Hinds county, First district; HON. V.J. STRICKER, Chancellor.
Geo, Butler and Green, Green Potter, for appellant.
At the time the warranty deed was given by Judge COOPER to Mrs. Stokely, the existence of the mortgage, in favor of Mrs. Griffin, was an incumbrance within the meaning of covenant against incumbrances, and hence a breach of said covenant. Reed v. Pierce, 36 Me. 455, 58 Am. Dec. 761; Eastabrook v. Smith, 6 Gray (Mass.) 572, 66 Am. Dec. 445, and note; Williams v. O'Donnell, 225 Pa. 321, 74 A. 205, 36 L.R.A. (N.S.) 1094; Hanlin Estate, 133 Wis. 140, 113 N.W. 411, 126 A.L.R. 938, 17 L.R.A. (N.S.) 1189, all to the effect that a covenant such as we have here involved, was broken at the time of the delivery of the deed. 11 R.C.L. 1134; 7 R.C.L. 1134; 15 C.J., p. 1247, sec. 63. The covenant of Cooper against incumbrances, as soon as the deed from Cooper to Mrs. Stokely was given was broken, and the appellee, Moseley, ought not to be permitted to foreclose on the Stokely purchase money mortgage, without having first removed the outstanding incumbrances, viz: the Griffin mortgage. Moseley cannot be said to be a holder of the mortgage paper as a bona-fide holder without notice, for the reason that, whether he had actual notice or not, the fact that the Griffin mortgage was of record was constructive notice of Cooper's covenant against incumbrances, and of the fact that the said covenant had been breached. Under such circumstances, it would be unequitable to permit a foreclosure of the purchase money mortgage to proceed where the covenantor, or the party standing in the place of the covenantor, had not performed his part of the contract. Consider White v. Stretch (1877), 22 N.J. Eq. 76; Union Nat. Bank v. Pinner (1875), 25 N.J. Eq. 495, in both of which the New Jersey equity court held that, by virtue of the covenants against incumbrances, a grantee may deduct from the amount of the purchase money remaining unpaid, the amount of the tax liens or instruments outstanding against the premises, though at the time the action was brought to enforce the purchase money note, nothing had been paid by the vendee or his assigns to discharge such incumbrance. In Van Riper v. Williams, 2 N.J. Eq. 407, the court held: "And so if, upon a bill to foreclose a purchase money mortgage, covering lands conveyed with covenant against incumbrances, it appears that at the time of the conveyance the premises were subject to a prior mortgage, a decree of foreclosure or sale will not be ordered in equity until the mortgage be first removed; or so much of the proceeds of the sale as may be necessary for that purpose must, by the decree, be directed to be applied to pay off and satisfy the incumbrance, and the amount so applied deducted from the mortgage debt due the mortgagee."
The appellee, Tim E. Cooper, and Mrs. Stokely entered into the transaction, whereby the property in question passed from Cooper to Mrs. Stokely, by virtue of Cooper's representation that the outstanding Griffin mortgage would be removed by him. The parties consummated the sale on the assumption that he, Cooper, would disincumber the property. Where such covenant induces a bargain, and the parties relying thereon, enter into the transaction of sale, a court of equity will (and should) require the covenantor to specifically perform his covenant, by removing the said incumbrance. Kreinbring v. Mathews, 81 Or. 243, 159 P. 75; Fox v. Pinson, 289 S.W. 329; Funk v. Voneida, 11 Serg. R. (Pa.) 109, 14 Am. Dec. 617.
Under the authorities, supra, specific performance of the covenant against incumbrances has been decreed even though the plaintiff, the covenantee, had not tendered the amount due on the purchase money mortgage. The court will bear in mind that the said Cooper was in default, and has been in default in the performance of his covenants, from the very time the deed was delivered, and to require Mrs. Stokely to render or pay the balance on the purchase price would subject her to the risks of the insolvency of the said Cooper, and without the assurance that Cooper's obligations to discharge the unincumbered property would be carried out. It has been held that the general rule asserted in the court of law that the covenantee cannot maintain an action at law for substantial damages, for a breach of a covenant against incumbrances, unless he has paid and extinguished the incumbrance, does not control in a suit in equity; that in equity it is not an indispensable requisite that the plaintiff shall first pay and extinguish incumbrances. Boice v. Coffeen, 158 Iowa, 705, 138 N.W. 857; Van Riper v. Williams, 2 N.J. Eq. 407; White v. Stretch, 22 N.J. Eq. 76; Union Natl. Bank, v. Pinner, 25 N.J. Eq. 495; Kreinbring v. Mathews, 81 Or. 243, 159 P. 75.
The breach of the covenant having occurred at the time the deed was delivered, the statute of limitations began to run from that time, and the six-year statute of limitations applying, at the end of six years from the time of the delivery, Mrs. Stokely would thereby be barred of all right to recover in an action at law, for the said breach. Eleven notes of one thousand dollars each, secured by said Griffin mortgage were outstanding and not due, at the time the deed of Cooper to Mrs. Stokely was given, and at the end of six years there would still be thereof outstanding five thousand dollars for the payment of which, in a court of law, Mrs. Stokely would be without remedy. The covenantor, Tim E. Cooper, is now a very old man, about eighty-five years old, and according to all human probability, will not live the requisite time to discharge the Griffin mortgage, as and when the same becomes due and payable. His estate is not very large and at his death will descend to his heirs, several of whom are nonresidents, and to require the appellants to run the risk of his insolvency or the exhaustion of his estate during his lifetime, or to require them to assert their demand against his heirs after his death, is, in view of the peculiar circumstances of this case, unjust and unequitable. The breach of his covenant against incumbrances has caused appellees substantial damage in that the outstanding Griffin mortgage destroys the loan value of the property, a most valuable property right under modern conditions, and has fettered the alienation of said property to such an extent that the property cannot be resold at a fair value.
The argument is tersely stated in Funk v. Voneida, 14 Am. Dec. 617: "Transfers of the land are so very frequent; lands are so continually changing owners; the policy of our laws is so much in favor of removing every impediment in the way of alienation, and the hardship is so great on the grantee, who is entitled to the full benefit of his covenant, that I could feel a strong desire to relieve him, if by analogy to any principle of the common law, or any rule of equity, it could be done. For the grantee to wait until he is evicted, locks up all property, suspends all improvements; for who would be willing to make improvements, and wait until he is evicted? And when he, viz., the grantor, may be unable to make any compensation, the argument ab invoncenienti are unanswerable. And why should he not be obliged immediately to perform his covenant? If the buyer do not take a covenant, the rule of law is caveat emptor; let the buyer then take care to enter into this covenant."
R.H. Thompson, for appellee Cooper.
Complainant seeks relief from conditions and a situation wholly and solely attributable to her own defaults. No wrong or injury has been done her by the defendants or any one of them. No one of the defendants has violated any promise made to her or forfeited any warranty given her. This suit is one resisting the payment of a debt due and owing by the complainant. In its nature it is one to defeat or postpone the collection of the notes and is governed by the law applicable to a suit in equity seeking to enjoin an action at law on notes given for the purchase money of lands, based upon the covenants contained in the deed conveying the land. Judge Cooper's deed to Mrs. Reader, now Mrs. Stokely, does not contain an express warranty; its only warranties are implied ones, implied under sec. 2318, Code 1906. The covenant of freedom from incumbrances is the only one of Cooper's covenants of which complaint is made. The complainant had full notice and knowledge of Mrs. Griffin's incumbrance on the lands when she purchased them from Cooper; she carved out her security, her protection from that incumbrance and relied on her vendor's warranty against incumbrances to save her harmless therefrom. She now seeks to violate the terms of her contract, evidenced by the purchase money notes given by her to Cooper and the deed of trust on the lands executed to secure the payment of said notes, by asking this court to adjudge the notes are not now due and payable, notwithstanding their terms, or that their payment should be postponed until Cooper shall pay the notes owing to Mrs. Griffin; none of them being due and for which Mrs. Griffin, the payee, refuses to accept payment before their respective maturities, and Cooper, as was and is well known by complainant, is under no obligation to either Mrs. Griffin or to the complainant to pay said notes before their maturities.
In order for the complainant to be entitled to relief of any kind she will have to show herself entitled to a reformation of the contract between Cooper and herself; she seeks by this suit to restrain the collection of the debt due and owing by her under her contract as written, in violation of the terms of the notes given by her, without any pretense to the effect that they do not express the real contract made by her; she does not charge or pretend that the true terms of her contract are not properly written in her notes and the deed of trust securing them either by fraud or mistake. She is not entitled to reformation of her contract, nor should she be permitted to evade or postpone the performance of her obligations as written. Rawle on Covenants for Title (3 Ed.), p. 685. Mrs. Stokely has no right to a recovery against Judge Cooper, on any one of his covenants; she has suffered no damage and therefore could not recover in a suit at law or in equity, against Cooper for a breach of covenant. Brown v. Smith, 5 How. (Miss.), 387; Wilty v. Hightower, 6 Smed. M. 345; Hoy v. Taliofero, 8 S. M. 727; Duncan v. Lane, 8 S. M. 744; Dennis v. Heath, 11 S. M. 206; Johnson v. Jones, 13 S. M. 580; Wailes v. Cooper, 24 Miss. 208; Gartman v. Jones, 24 Miss. 234; Green v. Carroll, 24 Miss. 427; Burrus v. Wilkinson, 31 Miss. 537; Winstead v. Davis, 40 Miss. 785; Guice v. Sellers, 43 Miss. 52; Miller v. Lamar, 43 Miss. 383; Wofford v. Ashcraft, 47 Miss. 641; Dyer v. Britton, 53 Miss. 270; Green v. Irving, 54 Miss. 450.
We find no decisions by the supreme court of Mississippi between 1877 and 1924, and but two cases more recently decided. Sutton v. Cannon, 135 Miss. 368, 100 So. 24; and Simon v. Williams, 140 Miss. 854, 105 So. 487. In Sutton v. Cannon, the debt secured by the incumbrance on the land was past due before the vendee (Cannon) asserted any right against his warrantors. That case and the one at bar are entirely distinct, governed by different legal principles. In that case the vendee Cannon surrendered the possession of the land after the same had been advertised for sale under a deed of trust superior to his own title, and as the court decided, he assumed the burden of showing that the deed of trust was paramount to his own title, and this he did in his suit. Mrs. Stokely has not surrendered the lands sold to her by Judge Cooper, but she still occupies and enjoys the same, her occupation and enjoyment has not even been threatened by any person on this earth. No demand has been made on her for a surrender of the land. In the Sutton-Cannon case the advertisement of the lands for sale was an assertion of title adverse to vendee Cannon. The decision in Simon v. Williams, is decidedly favorable to the defendants in the case at bar. We quote from the opinion of the court: "A purchaser of land in possession under a deed containing a covenant of warranty of title cannot avoid the payment of the purchase money notes for the land by setting up an outstanding title in a stranger. And a representation of the vendor that his title is good is no more than is stated in more solemn form in the covenant of warranty in his deed; and such a representation, when there is an outstanding title will not enable the vendee in possession to avoid the payment of purchase money notes." See, also, Green Neville v. Hankinson's Adm'r, Walker Rep. 487; 3 Enc. Pleading and Practice, 600.
Powell, Harper Jiggitts, for appellee Mosely.
A technical breach of grantor's covenant against incumbrances does not give the grantee any right to enforce the payment of the purchase money or to enjoin the foreclosure of deed of trust securing the purchase money. Simon v. Williams, 140 Miss. 854, holds that where a grantee is suing on a covenant against incumbrances and the incumbrance is outstanding that there is a mere technical breach of the covenant. The record clearly discloses that the Griffin deed of trust is still outstanding and that Mrs. Stokely has not satisfied it or attempted to satisfy it nor has she been threatened or evicted under it. Therefore this is a mere technical breach, if any, of Judge Cooper's warranty. This authority cited above, maintains the second part of our proposition, to-wit: That a technical breach of grantor's covenant against incumbrances does not give the grantee any right to enjoin the foreclosure of a deed of trust securing the purchase money. The record clearly shows that there is no fraud in this transaction and that the purchaser is in possession. From the authorities cited we see that Judge Cooper contracted with Mrs. Reader that she should have possession of the property involved in this lawsuit and that if she should be evicted or held out of possession by an adverse title or adverse possession that then Judge Cooper would protect her and her title. But Judge Cooper did not contract, did not agree, to do anything until Mrs. Stokely had been evicted or held out of possession by an adverse title or adverse possession.
Moseley stands in a position like unto a holder in due course and was entitled to foreclose the deed of trust after the assignment irrespective as to Cooper's breach of warranty. At the time the assignment of these notes to Moseley was executed Mrs. Stokely had no defense whatever against the payment of such notes or foreclosure of deed of trust and having no defense Moseley stands in a position before this court like unto that of a holder in due course and had the right to enforce payment of the notes. If he had the right to enforce the payment of the notes, it certainly cannot be denied that, being the legal holder of the deed of trust securing said notes, and that a breach of the terms of the deed of trust had been committed by Mrs. Stokely, Moseley had the right to have said deed of trust foreclosed.
We further say that the unbroken line of authorities holding that, although an outstanding incumbrance against a piece of property constitutes a mere technical breach of covenant against incumbrances where the purchaser of said property is in possession and has not been evicted or molested or his possession threatened in any way, this rule has become a rule of property in Mississippi. Even if this court should not decide that this long and unbroken line of authorities was an improper construction of the law and feel that it must overrule these decisions, nevertheless Moseley having relied on this rule of property, is entitled to have this case affirmed even though the said authorities be overruled.
This suit was instituted in the chancery court of the First judicial district of Hinds county by Mrs. Ella Rawles Reader Stokely, formerly Mrs. Ella Rawles Reader, seeking to enjoin Tim E. Cooper, Niles Moseley, and A.Y. Harper, substituted trustee, from foreclosing a certain deed of trust executed by the complainant in favor of the defendant Cooper. A temporary injunction was issued, and at the final hearing this injunction was dissolved, damages awarded, and the bill of complaint dismissed, and from this decree, this appeal was prosecuted.
The facts shown by the pleadings and proof are substantially as follows:
The land involved in this suit is a two hundred six and seven-tenths acre tract, lying just north of the city of Jackson. In November, 1916, Mrs. R.M. Griffin sold and conveyed this land, with other lands, to Royal Trawick, and Trawick executed a deed of trust on said land to secure twenty purchase-money notes due and payable annually, the first three being for one thousand and fifty dollars each, and the remaining seventeen being for one thousand dollars each, all bearing interest at the rate of six per cent. per annum from maturity. Thereafter, by mesne conveyances, George C. Swearingen and T.E. Cooper became the owners of this land, and assumed the payment of the indebtedness due Mrs. Griffin, and, on January 9, 1923, by written agreement, the lands were partitioned between the said Swearingen and Cooper, Cooper becoming the sole owner of the lands involved in this controversy. Under this agreement, Swearingen assumed the payment of the entire balance of the purchase money then due Mrs. Griffin, and a vendor's lien was reserved on the land conveyed by Cooper to Swearingen to secure the payment of the balance of the Griffin indebtedness.
Thereafter Swearingen sold to Mrs. Cully a portion of the land that had been conveyed to him, and she likewise assumed the payment of the indebtedness to Mrs. Griffin. On the 4th day of November, 1924, the defendant, Tim E. Cooper, for a consideration of fourteen thousand dollars of which one thousand four hundred dollars was paid in cash, conveyed the land involved in this suit to the complainant. For the balance of the purchase money, the complainant executed nine promissory notes of one thousand four hundred dollars each, payable annually for nine successive years, and to secure the payment of these notes she executed, in Cooper's favor, a deed of trust on the land. The deed from Cooper to the complainant was a general warranty deed, and the complainant immediately went into possession of the land. Cooper has paid or caused to be paid at maturity all of the Griffin notes that have become due, leaving ten of said twenty notes still unpaid, none of which are yet due.
At the time of her purchase of the property, the complainant was fully advised as to the outstanding incumbrance in favor of Mrs. Griffin, and she offered testimony tending to show that, before the conclusion of the sale and her acceptance of the general warranty deed, Cooper verbally promised to secure a release of the property sold to her from the deed of trust in favor of Mrs. Griffin. This release has not been secured, and there is testimony tending to show that Mrs. Griffin refused to accept payment of the balance of the notes before their maturity, and refused to release any part of the property. After the first one of the notes executed by the complainant to the said Cooper had become due and was unpaid, Cooper assigned all the series of notes to the defendant Niles Moseley, and, after two of the notes were past due and unpaid, in pursuance of the authority conferred by the terms and provisions of the deed of trust securing the payment of such notes, the said Niles Moseley, assignee of the notes and deed of trust, declared the entire indebtedness due and payable, and appointed a substituted trustee in the deed of trust, who advertised the property conveyed thereby for sale to satisfy the indebtedness.
Upon the advertisement of the property under this deed of trust, the complainant filed her bill in the chancery court against Tim E. Cooper, Niles Moseley, and the substituted trustee, seeking to restrain them from collecting said notes, foreclosing said deed of trust, or assigning said notes and deed of trust, until the incumbrance thereon in favor of the said Mrs. R.M. Griffin was satisfied and discharged; and also prayed that the defendant, Cooper, be required within a reasonable time to specifically perform his obligation and undertaking to remove said incumbrance, and that a receiver be appointed to take charge of and hold the purchase money due by her for said property until said incumbrance is discharged and removed.
The bill of complaint set forth the facts as to the purchase of the land by her, as above stated, and averred that before she accepted the deed, Cooper agreed to have the property released from the Griffin deed of trust, and represented to complainant that he had arranged for such release; that relying upon this representation she accepted the deed, made the cash payment, and executed and delivered the notes and deed of trust securing the same. It was further averred that the complainant desired to retain the property, and is able, ready, and willing to pay the notes at such time as the said Cooper shall clear the title to the property by securing a release from the deed of trust in favor of Mrs. Griffin; that she had theretofore offered to pay the past-due notes and interest whenever the said Cooper cleared the title to said property by securing the said release; and that if the said property was sold, as advertised, she would be irreparably damaged by reason of the facts that she would lose the cash payment made by her, the taxes for the year 1925, and the profit which had accrued to her on account of the enhanced value of the property.
By an amendment to the bill of complaint, among other things, it was averred that the covenant of freedom from incumbrances contained in the warranty deed from Cooper to the complainant was a personal covenant, and was breached immediately upon the execution and delivery of said deed; and that complainant's right of action against the said Cooper for and on account of said covenant would be barred in six years from the date of said deed, and before all of the Griffin notes had matured; and that if default should be made in the payment thereof after the lapse of six years from the date of said deed, and the complainant should be forced to pay the remaining notes or should be disturbed in or ousted of her possession and title by reason of her failure to pay the same, she would have no right of action or recourse on the said Tim E. Cooper, by reason of the covenant contained in the deed, and would thereby sustain irreparable injury and damage, and in order to protect her title she would be forced to pay a sum of money in excess of that contracted to be paid, with no chance of reimbursement.
It was further alleged that on account of the great age and physical condition of the said Cooper, he would probably not live long enough to personally see that said notes were all paid and the lien discharged; that it was probable that by reason of the death of the said Cooper, and the distribution of his estate among his heirs, the estate would be dissipated and consumed or placed beyond the reach of the complainant. The amendment then set forth, in detail, facts which it was alleged caused the said incumbrance to constitute an impediment to the alienation of said property, and to reduce the value thereof, thereby injuring and damaging the complainant.
The defendants answered the bill and the amendment thereto, and at the final hearing of the cause upon the amended bill, answers, and proof, the chancellor granted a decree dissolving the injunction theretofore issued and dismissing the bill of complaint, and from this decree the complainant prosecuted this appeal.
The pleadings and proof show that when the complainant accepted Cooper's deed conveying the lands to her, she was fully informed as to the nature, character, and amount of the incumbrance of which she now complains. There was some testimony tending to show that prior to the execution and delivery of the deed, Cooper verbally promised to secure, or attempt to secure a release of the lands conveyed, from this incumbrance; but this promise, if made, was merged in the written contract, as evidenced by the deed. The granting clause of this deed uses the words "convey and warrant," and thereby it embraces the five covenants known at common law, as covenants of seisin, power of sale, freedom from incumbrance, quiet enjoyment, and warranty of title; since it is provided by section 2817, Code 1906 (section 2473, Hemingway's 1927 Code) that "the word `warrant' without restrictive words in a conveyance shall have the effect of embracing all of the five covenants known as common law, to-wit; seisin, power to sell, freedom from incumbrance, quiet enjoyment and warranty of title."
When, with full knowledge of the outstanding incumbrance against the land, the complainant accepted Cooper's deed, she carved out her security, her protection, from the incumbrance, and relied on her vendor's warranty against incumbrances to save her harmless therefrom; and the proof showed that Cooper was entirely solvent and fully able and willing to protect his warranty by paying off and discharging the sum to become due under, and by reason of this incumbrance. Upon receipt of this deed with warranty of freedom from incumbrances, the complainant immediately went into possession of the land conveyed thereby, and she has been continuously in possession thereof since that time, and her possession has not been disturbed or in any manner threatened by any one. In addition to the solvency of the Cooper estate, by which, under the warranty in her deed, complainant is protected from loss, her possession is also protected by the personal liability of Swearingen and Mrs. Cully for the indebtedness due Mrs. Griffin, and by a lien on other lands of a value greatly in excess of the balance due Mrs. Griffin.
In the case of Simon v. Williams, 140 Miss. 854, 105 So. 487, 44 A.L.R. 402, it was held, that where there had been no eviction by reason of a removable incumbrance, and the vendee has not extinguished such incumbrance and it is still outstanding, there is a mere technical breach of the covenant, and the damages recoverable on the covenant are but nominal, and the court said that "in a very large sense the rights and obligations under the law as between covenantor and covenantee under a covenant against incumbrances are the same as those of the covenantor and covenantee under a covenant of title."
In the early case of Brown v. Smith, 5 How. (Miss.) 387, the High Court of Errors and Appeals held that — "it is well settled that if upon the sale of personal or real property, the vendee protects himself by covenants of warranty, and is let into possession, he cannot defend himself against the payment of the purchase money without a previous eviction, unless in cases where there has been fraud."
In the case of Wailes v. Cooper, 24 Miss. 208, after an examination of the prior decisions bearing upon the question, the court held that it was the established rule in this state that, "where the vendee, at the time of his purchase, knew of the defects of title, or the existence of incumbrances on the estate, and took a deed with covenants of warranty, he cannot at law avoid a recovery, even after eviction, but must rely upon the covenants. Nor will a court of chancery in such a case, as a general rule, grant any relief; but will remit the party to his covenants, such being the remedy provided for himself," unless the vendor was insolvent.
In the case of Wofford v. Ashcraft, 47 Miss. 641, the same doctrine was announced in the following language:
"Equity will not relieve a purchaser in possession under warranty deed, from payment of the purchase money in the absence of fraud, on the ground of defect of title, unless there has been an eviction, or unless the covenants of title afford no indemnity by reason of the insolvency."
Other cases sustaining the same principle and announcing the rule in varying language are: Wilty v. Hightower, 6 Smedes M. 345; Hoy v. Taliaferro, 8 Smedes M. 727; Duncan v. Land, 8 Smedes M. 744; Dennis v. Heath, 11 Smedes M. 206, 49 Am. Dec. 51; Johnson v. Jones, 13 Smedes M. 580; Gartman v. Jones, 24 Miss. 234; Burrus v. Wilkinson, 31 Miss. 537; Winstead v. Davis, 40 Miss. 785; Dyer v. Britton, 53 Miss. 270; and in view of these decisions, and especially the case of Simon v. Williams, supra, in which this rule was expressly held to be applicable in a case where there is a mere technical breach of the covenant against incumbrances, we are of the opinion that the complainant, who, with full knowledge of the outstanding incumbrance, accepted the deed with the covenant of general warranty, must be remanded to the security and protection which she carved out for herself when she accepted the deed; and since there had been no eviction of the complainant, and her possession had been in no way disturbed or threatened by reason of the outstanding incumbrance, the decree of the court below dissolving the injunction and dismissing the bill of complaint was correct, and it will be affirmed.
Affirmed.