Pope v. Beauchamp

• Decision Date: 03 March 1920
• Docket Number: (No. 2647.)
• Citation: 219 S.W. 447
• Parties: POPE v. BEAUCHAMP et al.
• Court: Texas Supreme Court

Page 447

219 S.W. 447

POPE v. BEAUCHAMP et al.

(No. 2647.)

Supreme Court of Texas.

March 3, 1920.

Error to Court of Civil Appeals of Seventh Supreme Judicial District.

On motion for rehearing. Original judgment set aside, and judgment of the trial court and of the Court of Civil Appeals (159 S. W. 867) reversed, and cause remanded for a new trial.

For original opinion, see 206 S. W. 928.

V. K. Wedgworth, of Ft. Worth, for plaintiff in error.

R. T. Wilkinson, of Mt. Vernon, and Owsley & Owsley, of Denton, for defendants in error.

GREENWOOD, J.

We have concluded, on a careful re-examination of this record, that there was error in our order affirming the judgment of the district court.

The recommendation of the Commission of Appeals on which our judgment was entered was based on the following conclusions: First, that the transferees of Beauchamp's negotiable note, under Wright, were in substance mortgagees of the land; and, second, that Rutherford's compliance with section 1, c. 128, Act of 1905, p. 316, now article 6837 of the Revised Statutes, prevented such transferees from acquiring any better right than that of Wright with respect to the enforcement of a vendor's lien against the land originally owned by Rutherford, though one or more of such transferees acquired the note, before maturity, for value, and without actual notice of any infirmity in the note or lien. 206 S. W. 928.

There is no doubt that the conclusion is correct that the transferee of a vendor's lien note becomes a mortgagee or incumbrancer of the land, but we do not think it follows that one who takes a transfer of a vendor's lien note, in good faith, for value, and before the note's maturity, may be charged with constructive notice of a vice in the vendor's lien by means of section 1 of the act of 1905.

Prior to the enactment of the act, it was plainly the law in Texas that the doctrine, whereby a purchaser pendente lite was bound by a judgment against the party under whom he claimed, had no application to negotiable paper.

An emphatic announcement of the law is contained in that portion of the opinion in Board v. T. & P. Ry. Co., 46 Tex. 328, which reads:

"And there is not even one solitary exception to the universally recognized rule that negotiable instruments are not within the rule of lis pendens."

Again in Gannon v. Bank, 83 Tex. 276, 18 S. W. 574, it is said:

"The only fact under the evidence that appellants rely upon as creating and charging appellee with notice of such prior incumbrance is the pendency of the Butler suit. The note is negotiable in form. It is a recognized rule of law that negotiable instruments are not within the rule of lis pendens. The pendency of the Butler suit did not charge appellee with notice of any defense to the note."

In 2 Pomeroy's Equity Jurisprudence, § 36, the following statement is made:

"It is well settled that the doctrine of constructive notice from lis pendens does not embrace suits concerning negotiable instruments or moneys, so as to affect the title of a transferee for value and in good faith during the pendency of the action, even when the transfer was made in direct violation of an injunction, so that the indorser or assignor would be punishable for the contempt."

So, it is held that the way to effectively prevent the circulation of negotiable instruments pendente lite is for the court to require same to be actually delivered into the custody of the court. Kieffer v. Ehler, 18 Pa. 391.

The Supreme Court of Ohio tersely expressed the fundamental reason for refusing to apply the doctrine of lis pendens to negotiable paper, in saying:

"The doctrine of lis pendens is founded on no principle of natural equity, but has its foundation solely in considerations of public policy; and the policy which excepts negotiable paper from its operation is, at least, as wise, as important, and as well established as is that on which the rule itself has its foundation." Stone v. Elliott, 11 Ohio St. 260.

We are further of the opinion that the protection which the law gives the bona fide holder of negotiable paper extends to a lien which is a mere incident of the debt evidenced by the paper, in the absence of actual or constructive notice of some defect in the lien. The bona fide purchaser has the same right to rely on an incidental and inseparable lien as on any other feature of a negotiable note. Hamblen v. Folts, 70 Tex. 135, 7 S. W. 834. We therefore regard as thoroughly sound the declaration of the Supreme Court of Missouri, in Mayes v. Robinson, 93 Mo. 114, 5 S. W. 611, that —

"If the defendant took the note discharged of any equities to which it was subject in the hands of the payee, the deed of trust passed to him discharged of such equities to the same extent. Logan v. Smith, 62 Mo. 455. The deed of trust, being incident to the note, partook of the negotiability of its principal Hagerman v. Sutton, 91 Mo. 519, 4 S. W. 73, and authorities cited. If the defendant was a bona fide holder of the note, for value, before maturity, without notice, he was in equal measure such bona fide holder of the deed of trust."

In rejecting the contention that defenses should be available against a mortgage lien which were not available against the debt secured by such lien, the Supreme Court of the United States declared that the following conclusions were sustained by reason, principle, and the greatest weight of authority:

"The assignment of a note underdue raises the presumption of the want of notice, and this presumption stands until it is overcome by sufficient proof. The case is a different one from what it would be if the mortgage stood alone, or the note was nonnegotiable, or had been assigned after maturity. The question presented for our determination is whether an assignee, under the circumstances of this case, takes the mortgage as he takes the note, free from the objections to which it was liable in the hands of the mortgagee. We hold the affirmative. The contract as regards the note was that the maker should pay it at maturity to any bona fide indorsee, without reference to any defenses to which it might have been liable in the hands of the payee. The mortgage was conditioned to secure the fulfillment of that contract. To let in such a defense against such a holder would be clear departure from the agreement of the mortgagor and mortgagee, to which the assignee subsequently, in good faith, became a party. If the mortgagor desired to reserve such an advantage, he should have given a nonnegotiable instrument. If one of two innocent persons must suffer by a deceit, it is more consonant to reason that he who `puts trust and confidence in the deceiver should be a loser rather than a stranger.'

"The mortgaged premises are pledged as security for the debt. In proportion as a remedy is denied the contract is violated, and the rights of the assignee are set at naught. In other words, the mortgage ceases to be security for a part or the whole of the debt, its express provisions to the contrary notwithstanding.

"The note and mortgage are inseparable; the former as essential, the latter as an incident. * * * An assignment of the latter is alone a nullity. * * *

"All the authorities agree that the debt is the principal thing and the mortgage an accessory. Equity puts the principal and accessory upon a footing of equality, and gives to the assignee of the evidence of the debt the same rights in regard to both. There is no departure from any principle of law or equity in reaching this conclusion. There is no analogy between this case and one where a chose in action standing alone is sought to be enforced. The fallacy which lies in overlooking this distinction has misled many able minds, and is the source of all the confusion that exists. The mortgage can have...