Bank of Orleans v. Flagg , 3 Barb. Ch. 316 ( 1848 )

The Chancellor.

The bill in this cause was not proper ly framed to enable the complainants to litigate the question whether they were entitled to a preference over the contract of Graves, as bona fide mortgagees, without notice of his rights. To enable them to litigate that question, instead of alleging, falsely, that he had or claimed some interest in the premises, which had accrued subsequent to their mortgage, the bill should have stated that he claimed an interest under a contract or a pretended contract to purchase, prior to the mortgage. • And then the complainants should have alleged that if he had any such interest they had no notice thereof at the time they took their mortgage, and they should also have stated the necessary facts to entitle them to protection as bona fide purchasers. The bill, therefore, ought to have been dismissed as to Graves, even if the complainants had made the necessary proofs to show that they were bona fide mortgagees without notice.

But in this case they were not entitled to protection as bona fide mortgagees without notice. For the evidence clearly shows that at the time of the giving of the mortgage, Graves was in possession of the premises by his tenant; who had been put in actual possession of the house and lot, by Graves, prior to the date of the mortgage. This, in equity, was constructive notice of the rights of Graves; and if the officers of the bank had made the proper inquiries of the tenant in possession, they would, necessarily, have been led to the knowledge of the fact that Graves had, or claimed, some interest in the premises.

The decree is clearly erroneous as to the appellant, as it com pels him to make the payments under his contract, without getting the title to the premises which he contracted for, or to lose, not only his costs of defending this suit, but all interest under the contract. After he shall have made all the payments under the contract, he may be subjected to great trouble and expense, and perhaps of a chancery suit with an insolvent, to obtain title to the premises. By the terms of the contract Graves was entitled to a warranty deed of the premises, free from incumbrances, before he was bound to pay, or secure the payment of the residue of the purchase money of the premises. The proper course for the complainants, instead of making Graves a defendant, and making a false charge against him as having acquired an interest in the premises subsequent to their mortgage, would have been to give him notice of their rights, as mortgagees, to the unpaid purchase money upon the contract, so that he might not pay it to Flagg; and then, to file his bill against Flagg and his wife, alone, to foreclose the mortgage. The purchaser, upon a sale under the decree in such a suit, would have acquired the legal title to the land, and all the right which Flagg before had to the unpaid purchase money. Such purchaser under the decree would then have been in a situation to give a good title to the premises, and could have compelled Graves specifically to perform the contract which ho had made with Flagg. Or he might have ejected Graves from the premises, if he refused to comply with the terms of the contract on his part.

The same decree, in substance, could and ought to have been made, upon this bill; so as to protect the legal and equita ble rights of both parties. The decree appealed from must therefore be reversed, with costs, so far as it affects the rights of Graves under his contract; and the bill must be dismissed, as to him, with costs. Tlie decree must direct a foreclosure and sale of all the interest of the other defendants who have suffered the bill to be taken as confessed ; with the usual decree over against Flagg for the deficiency, if any. The decree must also declare that the dismissal of the bill shall be without prejudice to the rights of the complainants, or the purchasei under the decree, as against the other defendants, to demand and compel a specific performance of the contract of the 18th of April, 1842, by the defendant Graves, or any person claim ing the premises under him; or to bring any suit, either at law or equity, or under the code of procedure, for relief, upon giving or offering to give to him a good and unincumbered title to the premises, with covenants of warranty, as specified in such contract.