Bluefield Nat. Bank v. Bernard
| Decision Date | 07 October 1930 |
| Docket Number | 6690. |
| Citation | 155 S.E. 306,109 W.Va. 459 |
| Parties | BLUEFIELD NAT. BANK et al. v. BERNARD et al. [*] |
| Court | West Virginia Supreme Court |
Submitted September 16, 1930.
Syllabus by the Court.
As between two innocent persons, loss must fall on one whose conduct or omission rendered injury possible.
"When one of two innocent persons-- that is, persons each guiltless of an intentional moral wrong--must suffer a loss, it must be borne by that one of them who by his conduct, acts, or omissions has rendered the injury possible." Norfolk & W. Ry. Co. v. Perdue, 40 W.Va. 442, 3rd pt. syl., 21 S.E. 755, 759.
Additional Syllabus by Editorial Staff.
Loss resulting from fraud of trustee in releasing unpaid deed of trust lien must fall on bondholders, rather than on one purchasing land in reliance on release.
The release fraudulently executed and recorded by the trustee was in conformity with the power to release given in the trust deed, and recited that the obligation secured by the trust deed had been fully satisfied. The holders in due course of the bonds were charged with knowledge of the terms of the trust and, by accepting the bonds, accepted the trustee. Thus while both the bondholders and the purchaser of the land were innocent of any wrong, the former made the loss possible by imposing confidence in the trustee.
Appeal from Circuit Court, Mercer County.
Suit by the Bluefield National Bank and others against Louvica C Bernard, Sarah A. Scott, and others. From the decree defendant last named appeals.
Reversed and remanded.
McClaugherty & Lewis, of Bluefield, for appellant.
French Easley & Easley, of Bluefield, for appellees.
George Richardson, Jr., and Arthur F. Kingdon, both of Bluefield amici curiæ.
LIVELY, P.
This controversy is between the bank and Mrs. Helvey, each a holder in due course of a bond of Louvica C. Bernard and husband secured by a deed of trust on real estate, on the one side, and Mrs. Scott, appellant, who purchased the real estate from the Bernards, the deed of trust lien having been released by the trustee therein. The validity of the release made by the trustee is involved, and is the controlling question presented. The decree complained of found the release to be fraudulent and of no effect, and reinstated the trust lien. Mrs. Scott appeals.
On June 3, 1927, the Bernards conveyed the property involved to Ross and Baker, trustees, to secure the payment of the bonds payable to bearer, at three years from date, with interest at 6 per cent. payable semiannually, on December 3d and June 3d in each year, evidenced by coupons attached to the bonds. These bonds were dated June 3, 1927, and signed by the Bernards. This trust deed provided for a release in these words: "If the debts hereby secured be fully paid, a good and sufficient release shall be executed by the beneficiaries hereunder, or by W. E. Ross, one of the trustees, who is hereby authorized and empowered to execute such release upon satisfactory evidence being produced to him that the said obligations have been fully paid, which release shall be at the costs and charges of the parties of the first part." These bonds were turned over to Ross, the understanding between him and Bernard being that Ross would advance money to Bernard as he was able to dispose of the bonds. (Neither plaintiffs nor defendant Scott knew of the understanding between Bernard and Ross.) Ross took a $1,000 bond and pledged it to the bank, as collateral security for payment of a large debt owing by him to it, a short time after the trust began, and pledged a $2,000 bond to plaintiff Helvey as collateral to secure a note executed to her by him a short time after the trust began. On May 22, 1928, a sale of the real estate from Bernards to defendant Sarah A. Scott was agreed upon, and a deed was tendered to her dated and acknowledged that date, which she declined to receive until her counsel reported on the title. She paid down on that date $500, and later, on June 6th, following, she paid in cash the remainder of the purchase price of $7,000, took the deed, and recorded it on that day. In the meantime, between the 22d and 25th of May, her attorneys reported to her that the deed of trust was on the property. Before she paid the balance of purchase money and accepted the deed on June 5th, her attorneys reported to her that the trust deed had been released. It appears that Bernard and Ross went together to the county clerk's office on May 25th, where Ross signed and acknowledged the release, and it was recorded on that day. The release reads: "I, W. E. Ross, do hereby release that certain deed of trust made by Louvica C. Bernard and A. B. Bernard (giving date and where recorded) the obligation thereby secured having been fully satisfied." The bill by the holders of the two bonds charged that the bonds held by them were not paid; that Ross had undertaken to release the trust deed well knowing that neither of the bonds had been paid; that the release had been given without their knowledge, consent, or approval and was in fraud of their rights. They prayed for a cancellation of the release, validification of the trust deed, a sale of the property in satisfaction of the bonds, and for general relief. Appellant Scott demurred to the bill, and answered averring that she was an innocent bona fide purchaser, and had paid valuable consideration for the land, relying upon the release executed by Ross, trustee; and that she took title with general warranty and free from incumbrances, exhibiting her deed. The parties went to proof, and upon submission of the cause, the court decreed as above set out.
The evidence demonstrates that Ross and Bernard well knew that the bonds were held by plaintiffs and no part, not even the interest thereon, had been paid at the time the release was executed and recorded. The evidence further shows that plaintiffs were holders of the bonds in due course and knew nothing of the execution and recordation of the release. The evidence also shows that Mrs. Scott knew nothing of the fraud and purchased in good faith, relying on the recorded lease. Ross has committed a fraud on plaintiffs which will deprive them of their security, unless his fraudulent act be set aside. On the other hand, Mrs. Scott, who relied upon the release given by Ross in pursuance of the power and authority vested in him by the trust deed, will suffer to the same extent as plaintiffs if the release be set aside, and the lien reinstated. The fraudulent scheme and act of Ross, not participated in by either the purchaser or the trust deed lienors, and in no way sanctioned or confirmed by either, will cause one or the other of the parties to suffer loss. Which shall suffer? That is the concrete and controlling question presented. Counsel on each side have favored us with exhaustive briefs, and able oral argument.
Appellees argue that because Ross, trustee, fraudulently executed and recorded the release of the trust, the lien of the trust deed continued in force, and Mrs. Scott took the property subject to that lien, relying upon Thompson v. Bennett, 105 W.Va. 191, 141 S.E. 784; Citizens' Nat. Bank v. Coal & Coke Co., 89 W.Va. 659, 109 S.E. 892; Taylor v Godfrey, 62 W.Va. 677, 59 S.E. 631; Fidelity Ins. Co. v. Shenandoah Valley Ry. Co., 32 W.Va. 244, 9 S.E. 180; and Demuth v. Old Town Bank, 85 Md. 315, 37 A. 266, 60 Am.St.Rep. 322. The first two cases cited were instances where releases had been executed by the beneficiaries named in the trust deeds, the notes secured having passed from the hands of the beneficiaries to others in due course. The trust deeds on their faces put the subsequent purchaser or lienor on notice that the obligations secured might be in the hands of an assignee in due course and that the beneficiary could not therefore execute a valid release. The subsequent purchasers or lienors were not innocent, for the record warned them to ascertain if the obligations secured had in fact been paid. The releases, in those cases, under the recitals of the trust deeds, warned the subsequent purchasers and lienors that the persons who released did not have the right; that the notes might have been purchased from the payee by another in due course, thus carrying with them the liens which secured them. The instant case is different, for in this trust deed, power to release is conferred on the trustee upon satisfactory evidence to him that the obligations have been fully paid. Fidelity Ins. Co. v. Shenandoah, supra, is more nearly in point. In that case the property had been incumbered by first mortgage bonds owned by Central Improvement Company. The mortgage provided that upon payment of the bonds it secured by the grantor according to the provisions in the bonds, they should become void and of no effect, "and satisfaction shall be forthwith duly entered by the said trustee or trustees, for the time being, upon the record of this indenture or mortgage." By a subsequent agreement, the improvement company was to surrender its bonds and take in lieu thereof certain bonds later to be issued. The bonds were delivered to the trustee amounting to $531,000 and destroyed by him, but no bonds of the subsequent issue were issued to the improvement company. Upon destruction of the bonds, the trustee executed a release reciting therein that the bonds had been "surrendered." The validity of this release was attacked by a stockholder of the improvement company, and the court held that the mortgage gave right to the trustee to release only upon payment of the bonds, and therefore the release reciting "surrender" and not payment or satisfaction, therefore a subsequent purchaser for value was put on notice and inquiry and was chargeable with knowledge...
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