Farmers' Loan & Trust Co. v. Denver, L. & G.R. Co.

• Decision Date: 23 November 1903
• Docket Number: 1,810,1,815.
• Citation: 126 F. 46
• Parties: FARMERS' LOAN & TRUST CO. v. DENVER, L. & G.R. CO. et al. HUTCHISON v. FARMERS' LOAN & TRUST CO.
• Court: U.S. Court of Appeals — Eighth Circuit

126 F. 46

FARMERS' LOAN & TRUST CO. v. DENVER, L. & G.R. CO. et al.

HUTCHISON v. FARMERS' LOAN & TRUST CO.

Nos. 1,810, 1,815.

United States Court of Appeals, Eighth Circuit.

November 23, 1903

Syllabus by the Court

The mortgagee under the after-acquired property clause in a prior mortgage of an equitable title to land, which is subject to the condition that the mortgagor shall pay that portion of the unpaid purchase price which the purchaser of the legal title owes, before divesting him thereof, may not enforce a conveyance of the legal title, or subject to his mortgage a subsequent mortgage of that title to another for the purpose of securing the payment of a loan, a portion of the proceeds of which was applied to the payment of the unpaid part of the purchase price of the land, except upon condition that there shall be repaid to the subsequent mortgagee, out of the proceeds of the sale of the property or otherwise, the moneys which were taken from the proceeds of his loan and applied to the payment of the debt for the purchase price.

The decree for the first mortgagee must also be conditioned with the repayment to the second mortgagee of the taxes upon the property which the latter has paid during the existence of his claim.

A mortgage of future-acquired property attaches to the interest obtained by the mortgagor only, and is inferior to junior liens, incumbrances, and equities under which the property comes to the mortgagor.

The general rule is that no affirmative relief can be granted to a defendant in equity in the absence of a cross-bill which prays for it.

4. ¶ See Equity, vol. 19, Cent. Dig. § 450.

There is no exception to the rule.

It is that no cross-bill is necessary to enable a court of equity to grant any relief to a defendant, affirmative or otherwise which the principle that he who asks equity must do equity requires the court to impose upon the complainant as a condition of granting to him all or a part of the relief which he seeks at its hands.

A court of chancery may, in a case in which the rules and principles of equity demand it, condition its grant of relief sought by a complainant with the enforcement of a claim or equity held by a defendant, which, by reason of the statute of limitations or otherwise, the latter could not enforce in any other way.

One who has the legal title, or a parmount lien upon it, is not guilty of laches which will prevent him from asserting his equities therein in defense of a suit in chancery to deprive him of his title or lien, but the fact that he did not Institute any suit or take any affirmative action to foreclose or avoid the equities of the complainant. It is time enough for him to present his equities when his legal title is assailed in a court of chancery.

These are appeals from a decree of foreclosure of a trust deed which will hereafter be called a 'mortgage,' made by the Denver, Lakewood & Golden Railroad Company on November 1, 1890. to the Farmers' Loan & Trust Company, as trustee, to secure the payment of bonds to the amount of $627,000. The subject of the controversy is seven acres of land in the city of Denver which was not owned by the railroad company when the mortgage was given, but which the trust company prayed the court to subject to the lien of its mortgage under the usual subsequently acquired property clause which was contained in that instrument. The defendant James R. Hutchison, who claimed under a trust deed upon these seven acres, dated February 1, 1894, hereafter termed the 'Hutchison Mortgage,' made to secure a note for $50,000 signed by the railroad company and the Jefferson Investment Company payable to him, answered that his equity was superior to that of the trustee of the first mortgage; and the court conditioned the decree of the complainant with a sale of the seven acres separate from the other property of the railroad company covered by the first mortgage, and the payment out of the proceeds of that sale of $21,049 and interest from February 1, 1894, to the defendant Hutchison. The trust company appealed from this decree because it was conditioned with the payment of anything to Hutchison out of the proceeds of the sale of the land, and Hutchison appealed because it was not conditioned with the payment of $6,279.62 more.

Samuel Newhouse was one of the largest bondholders and stockholders of the railroad company. After that company had given and recorded its first mortgage, and about March 30, 1891, he purchased the seven acres in controversy, which will hereafter be termed the 'Shop Tract,' from Nathan Baker, the owner, for $52,250, paid him $5,000 in cash and gave his notes for $47,250, which he secured by a trust deed of the land to one Wood for the benefit of Baker. Newhouse bought this land for a yard for the railroad company under an agreement with it that the title to the property should be held by him, or by a company organized to hold it and empowered to give mortgages upon it, until the railroad company paid all the moneys expended or promised to be expended for the property, and that then the railroad company should be entitled to the title. For the purpose of holding the title to the property, the Jefferson Investment Company a corporation, was formed in June, 1891; and Newhouse conveyed the shop tract to that company, subject to the deed of trust to Wood, and that company assumed the debt secured by that deed. In the summer of 1891 the railroad company took possession of the land, erected a roundhouse and laid some tracks upon it, and continued in the occupation of the premises until a receiver was appointed in this suit, on July 31, 1896. In December, 1893, the railroad company had paid back to Newhouse the amount he had expended for the purchase of the property, and had made some payments upon his indebtedness to Baker; but there still remained due to Baker $25,849, and the company had no means to pay this or any of its other indebtedness. Baker gave notice that he would foreclose his mortgage unless the indebtedness of Newhouse to him was paid. Thereupon the railroad company and the investment company employed Newhouse to go to London to procure for them a loan of $50,000, and authorized him to offer as security for the repayment of the money a trust deed of the shop tract made by the investment company, which held the title, and certain bonds and stock as collateral security, which were of so little value that they are of no importance in this case, and will not be farther noticed. He proceeded to London, and applied to the defendant Hutchison for this loan. He informed Hutchison that he represented the railroad company and the investment company; that they were in great need of money, and would lose the title to this tract of land by the foreclosure of the Baker mortgage unless he could procure the loan; and, to secure the repayment of the loan, he agreed with Hutchison, as their agent, that he should have a first mortgage on the shop tract, and should be put in the place of Baker, who then held the superior security. Hutchison accepted this offer and agreement, and loaned the money on condition that Newhouse would see that he obtained the security. Newhouse returned to Denver; the railroad company and the investment company made a note for $50,000, payable to the order of Hutchison; the investment company made a trust deed to Newhouse of the shop tract to secure the note; the Baker mortgage was released; and Hutchison paid over the $50,000. This payment was made on February 2, 1894. On that day there was due upon the mortgage to Baker $25,849. $25,849 of the money received from Hutchison was on that day paid to the First National Bank in part payment of the notes held by Baker, and $4,800 of his money was paid to six directors of the railroad company for certain bonds which Baker had agreed to accept, and did accept on that day, in payment of the balance owing upon the mortgage to him. The indebtedness secured by the Hutchison mortgage was not paid. Hutchison caused it to be foreclosed, and on October 19, 1897, at the trustee's sale, he bid it in for $40,000, and received a trustee's deed of the premises in question under it. The various mortgages and instruments affecting title to which reference has been made were recorded at about the times they were respectively made.

On July 29, 1896, the Farmers' Loan & Trust Company exhibited its bill in the court below to foreclose the mortgage of November 1, 1890; but it made no one party defendant but the railroad company, and did not ask for any special relief in reference to the tract of land here in question. On November 30, 1898 it filed an amendment and addition to its bill, in which it recited the transactions relative to this tract of land; prayed that the Jefferson Company, Newhouse, the trustee, and Hutchison be made parties defendant, and that its mortgage of November 1, 1890, be declared to constitute a lien upon the shop tract superior to any right, title, or lien of these proposed defendants therein or thereon. The Jefferson Company and Newhouse appeared as defendants, but made no serious contest, and decrees pro confesso were taken against them. After Hutchison had demurred to the amended bill, and after his demurrer had been overruled, he answered on February 15, 1901, and by an amendment filed July 22, 1901, that he made the loan of the $50,000 to take up and pay the purchase-money notes of Newhouse to Baker, and to prevent the impending foreclosure of the mortgage to the latter under an agreement with the Jefferson Company and the railroad company that he should have a first mortgage upon the shop tract, that $25,849 of the money which the railroad company obtained from him by this loan was used to pay the notes to Baker, and that the...