H.B. Claflin Co. v. Middlesex Banking Co.

• Decision Date: 19 February 1902
• Docket Number: 1,354.
• Citation: 113 F. 958
• Parties: H. B. CLAFLIN CO. v. MIDDLESEX BANKING CO. et al.
• Court: U.S. District Court — Eastern District of Arkansas

113 F. 958

H. B. CLAFLIN CO. v. MIDDLESEX BANKING CO. et al.

No. 1,354.

United States Circuit Court, E.D. Arkansas, Western Division.

February 19, 1902

P. C Dooley, for complainant.

R. E Craig, for defendant Walter Davies.

H. R Boyd, for other defendants.

The material allegations of the bill are that on July 28, 1890 Joe Davies and wife conveyed the lands in controversy to Harold Smith as trustee to secure the payment of a large sum of money loaned to them on that date by the defendant the Middlesex Banking Company. This trust deed was in the nature of a mortgage, with the usual powers of sale to the trustee in case of a default in the payment of the debt, and also with power to the cestui que trust to substitute a trustee in place of Harold Smith if he declined or is unable to act that on August 7, 1894, the defendant Lee J. Lockwood was duly substituted as such trustee, and on November 21, 1894, he made a sale of the mortgaged premises, under the powers of the trust deed, and the defendant banking company became the purchaser at said sale, and received a deed for the lands from the trustee on November 27, 1894, and took immediate possession of the premises under said deed. This sale is attacked as being void for matters de hors the deed, for the reason, as charged in the bill, that the trustee had failed to give notice of the sale as required by the terms of the deed, and also a failure to have the property appraised before the sale, as required by the laws of Arkansas, although the deed from the trustee to the banking company is good on its face, and shows a strict compliance with all the requirements of the mortgage and the laws of the state. It is further charged that on January 10, 1896, the banking company sold and conveyed these lands by proper deed of conveyance to its codefendant the Southern Planting Company, and on July 13, 1897, the planting company sold and conveyed them to Walter Davies, who is now in possession, all of whom had full notice of the defects of the sale. The bill was filed and process issued on December 6, 1901. The complainant brings this suit as a creditor of the Sterling & Smith Company, for himself and all other creditors of that corporation who are willing to join in the action for the purpose of having the deeds to the banking company and its grantees set aside, and to redeem from them as second mortgagee, claiming the right to do so by reason of the following facts: That on February 14, 1891, Joe Davies executed a mortgage to the Sterling & Smith Company to secure the payment of a debt due from him, subject to the above-described mortgage to the banking company; that at the April term, 1894, in an action instituted by the Sterling & Smith Company for the purpose of foreclosing its mortgage, the chancery court of Chicot county, state of Arkansas, rendered a decree of foreclosure, and ordered the lands to be sold, but neither the banking company nor the trustee in its mortgage were made parties to that suit. On March 18, 1895, the commissioner of the chancery court sold the lands under the decree of the court, and the Sterling & Smith Company became the purchaser of them, subject to the banking company's mortgage; the commissioner made a deed of conveyance to the Sterling & Smith Company, which is filed as an exhibit to the bill, and made a part thereof, which deed was duly approved and confirmed by the court which had, by its decree, authorized him to make the sale; that on August 14, 1899, the Sterling & Smith Company, being insolvent, conveyed these lands by deed to Perry Nugent, 'In trust, however, for the benefit of the creditors of the Sterling & Smith Company, with power to lease, mortgage, and sell and to devote the net proceeds to the payment of the debts of the Sterling & Smith Company. ' Nugent, the trustee, filed the deed for record, but never qualified as assignee in insolvency, as required by the laws of the state of Arkansas. It is further charged that Nugent, as such trustee or assignee, in April, 1900, filed a bill in the chancery court of Chicot county against these same defendants, asking that the sales be set aside for the same reason alleged in this bill, and he be permitted to redeem; that this cause was, upon proper proceedings, removed to this court; that Nugent has since died, and that said suit abated, not having been revived. The prayer of the bill is that an account be taken of what, if anything, is due to defendants for principal and interest under the first mortgage, and also an account of the rents and profits received by the defendants, and, if anything appears to be still due on the mortgage, that the complainant is ready and willing to pay it, and that the conveyances under which defendants claim be canceled and set aside. To this bill defendants demurred, upon two grounds-- First, that there is no equity in the bill; and, second, that complainant has been guilty of such laches that a court of equity should grant no relief.

TRIEBER, District Judge (after stating the facts).

The failure of Nugent to qualify as assignee, as prescribed by the laws of the state of Arkansas, prevents him from maintaining an action at law for the possession of the assigned estate. Bartlett v. Teah (C.C.) 1 Fed. 768; Teah v. Roth, 39 Ark. 66; State v. Dupuy, 52 Ark. 48, 11 S.W. 964. Yet a trust having been established by the conveyance to him, a court of equity will not let it fail, and will either appoint a new trustee, or permit the beneficiaries, the creditors of the assignor, the Sterling & Smith Company (one of whom the complainant is), to maintain a bill to execute the trust. Pom.Eq.Jur.Sec. 1007; Story, Eq.Jur.Secs. 1060, 1061; Batesville Inst. v. Kaufman, 18 Wall. 151, 21 L.Ed. 775; Adams v. Adams, 21 Wall. 185, 192, 25 L.Ed. 504; King v. Donnelly, 5 Paige, Ch. 46; Clayton v. Johnson, 36 Ark. 406, 38 Am.Rep. 40; Ewing v. Walker, 60 Ark. 503, 31 S.W. 45; Memphis Sav. Bank v. Houchens (C.C.A.) 115 F. 96. In Clayton v. Johnson, 36 Ark. 406, 38 Am.Rep. 40, the court say: 'If he (the assignee) fail to comply with the requirements of the statute, the remedy by application to chancery on the part of the creditors is simple.' 36 Ark. 422, 38 Am.Rep. 40.

Nor can the contention of counsel for defendants that the original mortgagor, Joe Davies, is the only person who can maintain an action to redeem, be sustained. The right to redeem in this action is not claimed under a statute, but is purely an equitable action to redeem from one who it is claimed is in possession as a mortgagee. Such a right to redeem may be exercised by assignees or grantees of the mortgagor as fully as by the mortgagor, and upon the same terms and conditions, neither greater nor less. Moore v. Anders, 14 Ark. 635, 60 Am.Dec. 551; Jones v. Matkin, 118 Ala. 341, 24 So. 242; Nesbit v. Hanway, 87 Ind. 400; Moody v. Funk, 82 Iowa, 1, 47 N.W. 1008, 31 Am.St.Rep. 455; Brown v. Bank, 148 Mass. 300, 19 N.E. 382; Schouler v. Bonander, 80 Mich. 531, 45 N.W. 487; Brewer v. Hyndman, 18 N.H. 9. The first ground of demurrer is therefore overruled.

The second ground of demurrer pleads laches. Learned counsel for the complainant, in his elaborate and able brief, concedes that a delay of seven years, which is the period of limitation in the state of Arkansas for the recovery of real estate, bars this action, but he ingeniously argues that as according to the allegations in the bill, which the demurrer admits to be true, the deed of the trustee to the banking company is void, its possession under the deed is that of a mortgagee, and not adverse to the mortgagor and those under whom complainant claims. The possession of the banking company, and afterwards its vendees, was under a deed valid on its face, and clearly adverse to the original mortgagor and all parties claiming under him or by any other title. Even if it should, on final hearing, be held that the trustee's deed is void, and that the...